After six years and four rounds of public comment the Public Company Accounting Oversight Board (PCAOB) last Tuesday unanimously adopted hotly contested new rules requiring audit firms to disclose the names of each audit engagement partner as well as the names of other audit firms that participated in each audit. Subject to final approval by the Securities and Exchange Commission (SEC), and beginning with audits performed in 2017, auditors will be required to file PCAOB Form AP for each audit disclosing:
* The name of the engagement partner;
* The names, locations, and extent of participation of other accounting firms that took part in the audit, if their work constituted 5 percent or more of the total audit hours; and
* The number and aggregate extent of participation of all other accounting firms that took part in the audit whose individual participation was less than 5 percent of the total audit hours.
Eventually, investors will be able to check an audit partner’s track record by looking at whether there have been any problems at the companies a partner has audited in the past.
“This is consistent with a sustained effort by the PCAOB and SEC to step up the scrutiny of auditors in order to raise the quality of audits,” said Corey Fischer, Weinberg’s Firm Managing Partner. “A record of the quality of work done by auditors is certainly important for investors,” he continued, “but it is equally important that companies conduct their own due diligence and review the record prior to selecting or continuing to engage their auditors.”
New year, same story
In his speech to attendees at the AICPA National Tax Conference in Washington last month, IRS Commissioner John Koskinen repeated many of the same concerns he shared with the group a year ago.
He told the gathering of CPAs that the 2016 tax filing season will again be challenging, which he blamed on budget cuts. Koskinen said that his agency’s level of service to taxpayers and practitioners sank to “totally unacceptable” levels. Taxpayers trying to call the IRS during the last filing season got through to a live person less than 40% of the time “on bad days,” he said, often after waiting on hold for over 30 minutes. Service was no better on the IRS’s Practitioner Priority Line, making that name “an oxymoron,” he continued.
Budget cuts have also degraded the IRS’s compliance function, according to Koskinen, reducing the number of audits performed and the amount of revenue collected. From 2005 to 2010, such revenue averaged $14.7 billion annually, but over the next five years averaged only $10.5 billion a year, leaving an estimated $20 billion uncollected.
“In cutting the IRS budget, the government is forgoing billions of dollars in revenue to receive savings of a few hundred million dollars,” he said, since, by some estimates, every dollar of funding for the IRS produces at least $4 in revenue.
Degraded compliance function?
While the IRS Commissioner was telling AICPA members that budget cuts have degraded the IRS’s compliance function, his agency announced that it has collected more than $8 billion from its Offshore Voluntary Disclosure Programs (OVDP) as more than 54,000 taxpayers have come forward to reveal previously hidden foreign assets.
M&A’s record breaking year
2015 is expected to go down as the biggest year ever for mergers and acquisitions, according to Dealogic, beating the former all-time record set in 2007. The total transaction value is expected to reach $4.7 trillion. The Healthcare and Technology industries were most responsible for the record numbers. The largest healthcare deal was Pfizer’s $160 billion merger with Allergan. Dell’s $67 billion deal for EMC was the largest technology deal in history, and the biggest beverage deal was Anheuser-Busch InBev’ $108 billion acquisition of SABMiller.In a marked difference from 2007, this time Private Equity is playing a small part, while corporate buyers are dominating the deals. Investment banks are also big winners, earning about $21 billion in advisory fees, with Goldman Sachs Group leading ($1.6 trillion of deals) followed by J.P. Morgan Chase ($1.5 trillion) and Morgan Stanley ($1.4 trillion), according to Dealogic.
Lots of cash on the books
U.S. companies are holding a record $1.4 trillion in cash, according to an S&P Capital IQ analysis that found 11 nonfinancial S&P 500 companies had more than double the amount of cash and short-term investments on their balance sheets as they had in annual sales.
There are many reasons for companies to hold lots of cash, including when a company sells a large asset, or where companies hold profits offshore and cannot repatriate the funds without incurring a major tax hit. But it could also be a worrying sign that “companies aren’t investing,” said Brian Barnier, an analyst at investment-research firm ValueBridge Advisors. Such companies can draw the ire of activist investors.
Bank on the run
In another sign that we’re all going mobile, Juniper Research Ltd. reports that by year end one billion people will be accessing their bank accounts through mobile devices such as smartphones. The report says that banks are already directing their marketing to the next phase in mobile, wearable devices such as smartwatches. Juniper researchers predict that 100 million banking sessions will be done on wearables by the year 2020.
Banks hoping to gain customers under the age of 30 must expand into wearable devices, as well as develop a substantive social media strategy, notes Nitin Bhas, head of research. These consumers don’t want to bank at websites because they “organize most of their lives on their mobile devices.”
What are Politicians Worth?
THEY’RE NOT WORTH A DIME! What? Oh, you meant their “net worth.” Sorry for blurting.
This Forbes story offers a list of the major presidential candidates and their personal net worth. We learned that The Donald is not as wealthy as he claimed (he’s not richer than God), and we learned that Hillary was not as broke as she claimed ($45 million net worth). We also learned that even a proud socialist like Bernie Sanders can amass several hundreds of thousands of dollars. We were, however, a bit surprised to find several on the list with relatively low net worth. Then we realized that this is a list of politicians. They really don’t need a lot of money, they’re spending ours. [See the full list at FORBES]
My Kind of Town, Chicago is?
And the prize for highest big city sales tax in the U.S. goes to… Chicago. According to a Tax Foundation report, the city rate will hit 10.25% beginning this January, thanks to an additional penny-on-the-dollar sales tax increase just approved by the Cook County Board. Chicago now takes lead over Montgomery, Alabama (10%) and Seattle (9.5%).
“Chicago stands out because it’s a high sales tax amidst a sea of high taxes, even with the partial sunsets of the 2011 Illinois (income) tax hikes,” says Tax Foundation policy analyst Jared Walczak.
Feeding the Beast
Everybody pays more taxes. What could be fairer?
The Internal Revenue Service has recently released new data on individual income taxes for calendar year 2013 showing the number of taxpayers, adjusted gross income and income tax shares by income percentiles. Key findings from a Tax Foundation analysis of the data found:
* In 2013, 138.3 million taxpayers reported earning $9.03 trillion in adjusted gross income and paid $1.23 trillion in income taxes.
* Every income group besides the top 1 percent of taxpayers reported higher income in 2013 than the previous year. All income groups paid higher taxes in 2013 than the previous year.
* The share of income earned by the top 1 percent of taxpayers fell to 19.0 percent in 2013. Their share of federal income taxes fell slightly to 37.8 percent.
* In 2012, the top 50 percent of all taxpayers (69.2 million filers) paid 97.2 percent of all income taxes while the bottom 50 percent paid the remaining 2.8 percent.
* The top 1 percent (1.3 million filers) paid a greater share of income taxes (37.8 percent) than the bottom 90 percent (124.5 million filers) combined (30.2 percent).
* The top 1 percent of taxpayers paid a higher effective income tax rate than any other group, at 27.1 percent, which is over 8 times higher than taxpayers in the bottom 50 percent (3.3 percent).
“If you beat your sword into a plowshare, you will probably end up plowing for someone who kept their sword.”
Samuel F.B. Morse, Inventor
“Next to being shot at and missed, nothing is really quite as satisfying as an income tax refund.”
F. J. Raymond, humorist (as posted on the IRS website)
Simply the right choice
Weinberg & Company is a leading, international, full service, multi-office CPA firm serving clients throughout the United States and the Pacific Rim. Founded over two decades ago, the practice groups include: Assurance and Audit, Tax and Accounting, and Advisory Services. Weinberg has a depth of knowledge and experience to meet the needs of both public and privately held companies, high net worth individuals, entrepreneurs, family offices, and can provide customized business management services. www.weinbergla.com
1925 Century Park East, Suite 1120
Los Angeles, CA 90067
6100 Glades Road, Suite 205
Boca Raton, FL 33434
Room 2109, 21/F, Shui On Centre
6-8 Harbour Road, Wanchai, Hong Kong P.R.C.
Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
Firm Managing Partner
Jeffrey B. Engler
Director of Tax,
Assurance & Audit
Tax & Accounting
Leisure Time Industries
Media & Entertainment