Weinberg & Company

              Certified Public Accountants

SIMPLY STATED

OCTOBER 2016

ACCOUNTING NEWS 

Getting the non-GAAP message         

It didn’t take long. It started with a rather casual comment of concern by SEC Chair Mary Jo White and was quickly followed by the issuance of new SEC guidelines last May. The result: Public companies are rapidly changing their financial reporting – moving away from non-GAAP performance measures.

“We feel like we have seen improvements, just in the second quarter earnings releases,” with regard to public companies not giving prominence to non-GAAP measures in financial reporting, the commission’s Jenifer Minke-Girard told the main advisory council of the Financial Accounting Standards Board last month, according to Bloomberg BNA.

Before the SEC staff issued the guidance in May, about one-half of Fortune 500 companies had “prominence issues,” according to Minke-Girard, an assistant deputy chief accountant in the SEC’s Office of Chief Accountant. After the guidance was released, she cited recent findings that suggested that those non-GAAP problems had dropped to about 20 percent.

Although companies are allowed to use non-GAAP metrics along with GAAP metrics, they must give equal prominence to each and explain how they are reconciled. The SEC has signaled that they are being especially vigilant about public companies’ use of non-standardized, tailor-made measures that often are showcased in quarterly earnings reports.

Many companies like using non-GAAP measures, contending that it gives a more accurate picture of company financials. “Non-GAAP gets a bad rap,” Marie Gallagher, senior vice president and controller at PepsiCo, Inc. told Bloomberg.  “But if done well, consistently, transparently, using good governance, it’s really the best way to tell the company’s story to the investors and analysts and the users of financial statements.”

Utilizing non-GAAP measures may be even more important for smaller microcap companies, according to Weinberg Managing Partner Corey Fischer. “Microcap companies live and struggle in a very different world. Their investors are accustomed to seeing non-GAAP measures to highlight noncash charges that may dramatically affect earnings,” he said.

“It’s important that companies comply with the new guidelines and it is equally important that companies clearly explain any changes they are making to their reporting measures,” he added.

Ready for new Revenue Recognition Standard?

It took 10 years for the Financial Accounting Standards Board (FASB) and its international counterpart, the International Accounting Standards Board (IASB), to jointly write the new Revenue Recognition Standard that will significantly impact such commercial sectors as telecommunications, computer software, media and entertainment, and biotechnology and life sciences.

In his comments at a September joint FASB/IASB webcast, FASB Vice Chairman James Kroeker expressed surprise by the high percentage of companies that have not begun to adopt the new standard that has a 2018 effective date.

It took them ten years to develop, and he’s surprised that companies haven’t instantly snapped to attention? Perhaps companies are just a little busy now struggling to comply with new reporting rules on asset management, CEO pay ratios, conflict minerals, and other government imposed inconveniences, not to mention the new lease accounting standard.

When the webcast audience was surveyed about how much progress they had made in implementing the new Revenue Recognition Standard, 24% said that they haven’t yet started the process, and only about 25% said that they had just recently started implementation, according to polling results provided to Bloomberg BNA by FASB.

Although top-line revenue might not change much for some industries, there may be many other industries affected by some of the nuances of the new standard, especially if licenses or long term contracts are involved. As such, many companies may have to retool their information technology divisions to meet the requirements of the new standard.

Investor Survey

The just released 10th Annual Main Street Investor Survey, conducted by the Center for Audit Quality (CAQ), has some positive news:

*    79% of investors express confidence in U.S. capital markets.

*    81% of investors have confidence in investing in U.S. publicly traded companies, an all-time survey high.

*    Three-quarters of investors say they are confident in audited financial information released by publicly held companies.

*    Investors appreciate the key players in the financial system, showing high degrees of confidence in external auditors, independent audit committees, and stock exchanges.

Each year, the Main Street Investor Survey measures retail investor confidence in U.S. capital markets, global capital markets, and audited financial information, as well as confidence in investing in publicly traded companies.

MONEY TALKS  

Answering to a higher authority?
The ongoing scandal involving the opening of 2 million accounts by retail banking employees without customers’ knowledge has put Wells Fargo CEO John Stumpf in the hot seat. But we’re not just talking about facing bank regulators. We’re talking about a “higher authority”. 

“At our meeting with Wells representatives last December, we pressed for disclosure and we were denied the truth,” Sister Nora Nash of the Sisters of St. Francis of Philadelphia said in a release from the Interfaith Center on Corporate Responsibility (ICCR), and reported by Business Insider. “Now we are confronted with painful accounts of fraud including some 80,000 customers in Pennsylvania alone. As shareholders and customers ourselves we feel betrayed and have no choice but to call for a full review of business standards through this resolution which we hope other shareholders will support.” 

The ICCR is a group of asset managers and religious leaders that advocate responsible investing and corporate governance. 

It’s not easy to talk your way out of bad behavior when confronted by a group of resolute nuns. But, we suspect that Mr. Stumpf may not have felt the real wrath of God until he walked into the U.S. Senate chambers. Hell hath no fury like Elizabeth Warren scorned. 

** UPDATE: Last Wednesday (10/12/16), John Stumpf announced he was retiring, effective immediately. His successor, Tim Sloan, is chief operating officer. The bank also appointed Stephen Sanger as nonexecutive chair, splitting the roles of CEO and chairman – a suggestion made by the ICCR.  

Bad year for hedge fund investors, not so bad for managers 

After a long money-making run by hedge funds, 2015 wasn’t so good for most hedge fund investors. It was downright ugly for others. How bad? Billionaire manager Daniel S. Loeb described the year as a “hedge fund killing field,” as several funds flamed-out, shut down, and some big names losing billions in investor money.

It turns out, however, that it wasn’t such a bad year for hedge fund managers — in some cases irrespective of performance. The top 25 hedge fund managers earned just short of $13 billion, according to an annual ranking by Institutional Investor’s Alpha Magazine that recently published a complete breakdown of the leading funds. [See:The Alpha Rich List - CNBC/NYT Deal Book.]

Cannabis offering suspended by not so mellow SEC

The Securities and Exchange Commission has “temporarily suspended” the Regulation A+ offering by entrepreneurial cannabis startup Med-X listed on StartEngine. The company was seeking $15 million in equity. Crowdfund Insider reports “…that the SEC order said the Med-X’s Tier 2 Reg A+ offering, which was qualified by the SEC in November of 2015, had not filed an annual report for the fiscal year the offering statement had been qualified.” Annual reports on Form 1-K must be filed within 120 calendar days after the end of the fiscal year covered by the report as mandated by law.

Promoted as an easier path for startups to raise capital, the SEC appears just as intent to vigorously enforce any lapses in mandated reports and filings required under Reg A+.

QUOTABLE

Political Campaigns

Every two years the American politics industry fills the airwaves with the most virulent, scurrilous, wall-to-wall character assassination of nearly every political practitioner in the country – and then declares itself puzzled that America has lost trust in its politicians.
Charles Krauthammer 

I’m not an old, experienced hand at politics. But I am now seasoned enough to have learned that the hardest thing about any political campaign is how to win without proving that you are unworthy of winning.
Adlai E. Stevenson

I am neither bitter nor cynical but I do wish there was less immaturity in political thinking. 
Franklin D. Roosevelt

I always cheer up immensely if an attack is particularly wounding because I think, well, if they attack one personally, it means they have not a single political argument left.
Margaret Thatcher

There is no act of treachery or meanness of which a political party is not capable; for in politics there is no honour.
Benjamin Disraeli

WEINBERG & COMPANY

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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DISCLAIMER:
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.
Quick Links

Corey Fischer
Firm Managing Partner

310-601-2200

CoreyF@weinbergla.com

Jeffrey B. Engler
Director of Tax,
Los Angeles 

310-601-2200
JeffreyE@weinbergla.com

Bruce Weinberg
Florida Managing Partner

561-487-5765

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