New lease accounting standard arrives
The International Accounting Standards Board (IASB) just issued a new accounting Standard, called IFRS 16 Leases. It replaces accounting requirements introduced more than 30 years ago and is a major revision to the way companies account for leases.
The IASB has worked in close collaboration with the U.S. Financial Accounting Standards Board (FASB) on the development of the new Standard. Originally begun in 2005 as a convergence project to harmonize U.S. GAAP with International Financial Reporting Standards, the respective standards-making boards are aligned on the central issue of bringing leases onto balance sheets, and on the definition of a lease and how lease liabilities should be measured. There were several key issues, however, where the two boards could not agree and will result in the U.S. FASB Standard being similar, but not identical when it is released.
The FASB board just voted (6-1) for the staff to prepare a draft for its final written ballot approval, expected shortly. The new FASB standard will take effect in fiscal years beginning after December 15, 2018 for public companies and December 15, 2019 for private companies.
“This is one of the most significant changes in accounting in recent history,” wrote Weinberg Firm Managing Partner, Corey Fischer in a bylined article for MicroCap Review. He notes that it is not too early for management to start the process of addressing the issues that the impending new accounting requirement will bring. “Most importantly, management should determine if it has the processes in place, and the human resources within its current accounting department to handle the increased reporting requirements. As often happens when implementing new accounting rules, preparers often encounter hidden complexities that may require the help of outside consultants,” he said. [Read more: Are You Ready for Lease Accounting?]
Going Concern… going, going, gone
Audit Analytics research found that the number of going concern opinions declined in 2014, but mainly because many of the companies identified as being in trouble by their auditors in previous years actually did go out of business, Accounting Today reports.
According to Audit Analytics’ Donald Whalen, “An initial review of the data seemed to provide positive news, but a deeper analysis reveals a mixed bag of indicators. The initial results appear positive because they show a drop in both the number and percentage of going concerns. Further analysis, however, reveals that most of the decrease is due to company attrition from the prior year’s going concern population (companies that disclosed a going concern for fiscal year 2013 that chose to subsequently file a termination with the SEC) rather than improvement in the population.”
For fiscal year-end 2014, the report estimated 2,233 going concerns, a decrease of 170 from the prior year. But the decrease was only 10 companies more than the 160 companies that ended up filing terminations with the SEC after disclosing a going concern in 2013. The firm estimated that 15.8 percent of auditor opinions filed for fiscal year end 2014 will contain a qualification regarding the company’s ability to continue as a going concern. In 2008, the figure was 21.1 percent. SOURCE: Center for Audit Quality
Another record year for SEC penalties
The numbers are in. The Securities and Exchange Commission (SEC) filed 807 enforcement actions and obtained orders totaling about $4.2 billion in disgorgement and penalties in the 2015 fiscal year ending September 30. According to SEC records, 507 of the 807 were actions for federal securities law violations, an increase of 23% over 2014. For historical perspective: there were 676 enforcement actions in 2013 and 755 in fiscal 2014. The amount of disgorgement and penalties has grown from $3.1 billion in fiscal 2012 to $4.2 billion for the 2015 fiscal year.
Charity backlash: IRS backs down
After receiving 38,000 opposing comments, including a letter signed by 215 charitable groups, the Internal Revenue Service (IRS) has determined not to proceed with a controversial rule that would have pressured nonprofits to collect the Social Security numbers of their donors.
Currently, nonprofits send donors a written acknowledgement verifying contributions of $250 or more, which they use when filing their tax returns. The IRS was encouraging these charitable organizations to collect the Social Security numbers of their donors and provide it directly to the agency thus providing an additional means of verifying their contributions.
We need a law for this?
A group of Republican senators on Tuesday introduced a bill that would bar the Internal Revenue Service commissioner from rehiring employees fired for misconduct, reports The Hill.The legislation comes after the Treasury Inspector General for Tax Administration found in late 2014 that the IRS had rehired hundreds of former employees with conduct or performance issues.
“IRS employees who were fired for serious offenses and gross misconduct like fraud, falsification of documents, and unauthorized access to taxpayer information shouldn’t be allowed back in the agency at all,” said Senator Richard Burr (N.C.), one of the bill’s sponsors.
Great job if you can get it
While shareholder activists focus on outsized CEO pay, the directors on board-compensation committees — the very people who determine those CEO salaries, bonuses, and stock grants — are paying themselves and other directors extremely well, reports Bloomberg News.
How well? While the median director compensation for all S&P 500 companies is $256,565, more than a dozen companies compensate directors between $500,000 and $1 million. The directors are required to attend about eight meetings a year.
Topping the list: Regeneron Pharmaceuticals Inc.’s eight nonexecutive directors received average annual compensation of $1.9 million in stock and cash last year, making them the highest-paid board members among businesses in the Standard & Poor’s 500 Index, according to data compiled by Bloomberg from company filings. They met seven times.
Directors typically decide their own compensation with little shareholder review, according to Gary Hewitt, director of governance research at Amsterdam-based Sustainalytics, which provides research to investors. Unlike executive compensation, there’s no regular vote to gauge shareholder approval, and votes to amend the terms of board compensation plans typically occur only every five to 10 years, according to Hewitt.
Some companies with highly paid boards have tiered share structures that give much of the voting power to insiders, insulating directors from potential investor action. More than 50 percent of the votes at Google Inc. parent, Alphabet Inc., are controlled by founders Sergey Brin and Larry Page. Google directors received average compensation of $500,498 last year.
At Comcast Corp., which paid outside directors an average of $496,785, CEO Brian Roberts controls 100 percent of a share class that gives him 33.3 percent of the company’s votes.
At the other end of the list is Berkshire Hathaway where directors received average compensation of just $3,991 last year. Bloomberg reported that Berkshire directors received $900 for each board meeting they attended in person or $300 for calling in. None received shares for their time.
Losing a comma
Only 44% of global billionaires in 1995 held their status through 2014. Said another way: 56% of billionaires in 1995 lost a comma and were no longer billionaires in 2014. According to a new study — the UBS/PwC Billionaire Report — there were 289 billionaires in the world in 1995, but 1,347 in 2014, indicating that most of today’s billionaires have made their fortunes fairly recently. Those who did keep their fortunes have seen their combined wealth grow significantly — from $365 billion to $1.38 trillion.
The report notes just how volatile and fleeting today’s wealth has become, as big fortunes are more closely tied to stock markets, changing technologies and vagaries of the global economy.
The report also pointed to three personality traits common to self-made billionaire entrepreneurs: Smart risk taking, obsessive business focus, and dogged determination. Among the inherited wealthy who seek to preserve their wealth and family business, the report said that “managerial competence must override family ties.”
Looking forward, the report said that maintaining billionaire wealth may become even harder in the years to come, given the political backlash worldwide against the rich. “Anti-wealth sentiment in politics, growing taxes and increasingly stringent global regulations pose the biggest threats to billionaires’ wealth,” the report said.
Playboy Mansion for sale
The famed 22,000-square-foot, Gothic Tudor Playboy Mansion in Holmby Hills, California is up for sale — part of an overhaul plan by Playboy Enterprises to shift its business model from racy magazine publisher to a global licensing company.
The Playboy Mansion, bought by Hugh Hefner in 1971 for $1.05 million is now listed at $200 million. The mansion has 29 rooms, including a catering kitchen, wine cellar, home theater, separate game house, gym, tennis court, and a swimming pool with cave-like grotto. It also includes a four bedroom guest house on the 5-acre grounds that have aviaries and exotic animals.
Bunnies are not included, but Mr. Hefner is. The sale will be structured as a life estate, allowing 89-year old Hef and his 29-year old wife, former Playmate of the Month Crystal Harris (God bless him) to continue renting the house till his death.
Make mine a MochaChina
China is the second largest market for Starbucks. It is also the fastest growing. So fast, in fact, that Starbucks’ president and CEO Howard Schultz said, “it’s conceivable that China could become our largest market.” The coffee chain has over 23,000 stores in 68 countries. The U.S. leads with 12,531 retail locations. China has around 2,000 Starbucks locations in nearly 100 cities, but the company plans to open 500 new stores in 2016 toward a goal of 3,400 China locations by 2019, reports USA Today.
2015 QUICK TAX GUIDE
We are once again passing along a link to the Journal of Accountancy’s 2015 Filing Season Quick Guide. It’s packed with lots of handy tax information for tax year 2015.
We know you’ll be impressed with all the many ways there are to contribute.
2016 PRESIDENTIAL TAX REFORM PROPOSALS
A Where they stand
Our friends at the Tax Foundation have put together a nifty tool to compare and contrast where each of the presidential candidates stand on tax reform. It’s interactive so you can pick and click your way through each candidate’s proposals.
But don’t get your hopes up. This is more campaign promise than realistic proposal. Any comprehensive tax reform will certainly have to pass through Congress – and that process is a lot like watching sausage being made. [Tax Foundation: Presidential Tax Reform]
A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be.
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
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