Weinberg & Company

              Certified Public Accountants

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SEPTEMBER  2015

ACCOUNTING NEWS

New lease accounting rules challenged 

Fights never break out at meetings of the Financial Accounting Standards Board (FASB). So, let’s just say there was behind-the-scenes debate and a dispute marked by bluntly-worded exchanges amid mostly diplomatic language. The FASB hopes to issue new lease accounting rules by the end of this year that will move lease-related liabilities and assets to company balance sheets for the first time. Bloomberg BNA reports that U.S. Rep. Brad Sherman (D-Calif.) wrote a letter (July 15) to the FASB chairman to complain that he hasn’t received “any assurances” that empirical studies on the potential costs of the lease accounting standards have been carried out.

The letter cited concerns that he and “over 60 other members of Congress” have regarding implementation and compliance costs of the planned lease rules. He suggested the changes “will have negative impacts not only at the entity level, but cumulatively for our economy.” Additionally, Sherman wrote positively of the 2012 Chamber of Commerce-funded study by Chang & Adams Consulting that asserts that the proposed lease accounting would increase the liabilities of U.S. public companies by $1.5 trillion and “destroy” between 190,000 and 3.3 million jobs. In an Aug. 5 response letter to Sherman, FASB Chairman Russell Golden said that the board has invited Chang to discuss his concerns. The dispute continues… read more: [FASB Lease Rules]

Unintended consequences

Public Company Accounting Oversight Board (PCAOB) Chairman James Doty announced last week that board member Jeanette Franzel will meet with representatives of the U. S. Chamber of Commerce and eight companies to discuss concerns about the “unintended consequences” of the PCAOB inspection process and changes to internal controls reviews. MarketWatch reported that the Chamber said in a letter to the PCAOB that its members believe the PCAOB is imposing new “burdens” on business by using the inspections process to pressure auditors to ask more of companies.

“The problem is if the inspection process is being used to impose additional regulatory requirements on public companies without going through the standard setting process,” said Tom Quaadman, who leads the Chamber’s Center for Capital Markets Competitiveness and signed the letter. The Chamber’s letter says companies’ biggest beefs are with auditors’ demands for extensive documentation to verify management review controls, the proliferation of a “checklist” or “one-size-fits-all” approach to audits, and arbitrary decisions about materiality when deciding scope of the audit, including how big an error has to be to come under scrutiny and perhaps be reported. In addition, inspections show that the vast majority of companies restating prior year financial statements because of material misstatements or errors received a “clean” audit opinion in the year in which the restatement was announced.

Intended consequences?

SEC Chairman Mary Jo White announced that the agency is “identifying interested and qualified candidates” to chair the PCAOB other than current Chairman James Doty, even though Doty has indicated he wants to be reappointed to another term. The Wall Street Journal reports: “A change at the top could signify a change in priorities for the PCAOB. As Chairman, Mr. Doty has emphasized efforts to require auditors to disclose more information to investors, but he has faced pushback from the accounting industry and, sometimes, questioning from SEC officials about the audit panel’s approach.”

Bloomberg News reports that current Board member Lewis Ferguson and William Duhnke, the top Republican staff member on the Senate Banking Committee, are being considered for the top spot. White said the five-member SEC commission will make the hiring decision, noting that her agency is following a protocol which includes looking at outside candidates. No time frame was provided.

The mother’s milk of politics

More than 40 Democratic senators signed a letter last month urging SEC Chair Mary Jo White to require that public companies disclose their spending on political campaigns, it was reported by Bloomberg News. The U.S. Supreme Court ruled in 2010 that companies and unions could spend unlimited money on election ads. Corporations aren’t required to report contributions they make to outside groups that fund ads.

White, a political independent appointed by President Barack Obama, annoyed Democrats two years ago when she withdrew consideration of a political-spending rule from the agency’s regulatory blueprint. White appeared to pour cold water on the proposal then, saying disclosure rules foisted on the SEC by outside groups “seem more directed at exerting societal pressure on companies to change behavior, rather than to disclose financial information that primarily informs investment decisions.”

MONEY TALKS 

FOOD FIGHTS:

Subway stop

The fast track that transported Subway to become the world’s largest fast-food chain (over 42,000 stores worldwide) appears to be in need of some fixing. After running on the same track for 50 years, the chain has hit several difficult curves and has lost momentum. Rising competition from other fast-food sandwich makers like Chick-fil-A, Chipotle and Panera have cut into Subway’s sales and growth. According to Technomic’s 2015 Top 500 Chain Report, Subway sales declined last year to $11.9 billion from $12.3 billion in 2013 causing the company to slip to No.3 behind Starbucks and McDonald’s. Subway opened 313 new restaurants in 2014, down from 638 in 2013 and 805 in 2012. Analysts say Subway did not act fast enough to meet diners’ changing ideas of what constitutes fresh and healthy food. Subway announced that it will overhaul its menu (remove all artificial flavors, colors and preservatives) and it plans to redesign stores rather than open new ones. It says boosting sales at existing restaurants is now its biggest priority.

Ba da ba ba baa… I’m lovin’ it?

Long the fast-food breakfast leader, McDonald’s is expected to offer all-day breakfasts to beef up slumping U.S. sales. Breakfasts represent about 25% of McDonald’s sales and about 40% of U.S. profit. Forty-one percent of those who eat breakfast twice a day consider McDonald’s for their next meal, according to a survey conducted by YouGov BrandIndex. Subway was second with 34%, followed by IHOP at 32%, Burger King with 27% and Starbucks at 26%. Denny’s and Dunkin’ Donuts tied with 25% each. Wendy’s got 23%, KFC and Chick-fil-A got 22% each. According to research firm NPD Group, breakfast is the only U.S. restaurant meal time seeing an uptick in customer visits – up 4% for the year ended May 2015.

The Queen of Beer

Budweiser has long been known as the “King of Beers,” so when female-owned She Beverage Co. of Lancaster, California applied last December to register “The Queen of Beer” phrase with the U.S. Patent and Trademark Office, Anheuser-Busch immediately filed a notice of opposition, arguing that “Queen of Beer” is too similar to “King of Beers” and consumers might wrongly believe She Beverage beers are made by Anheuser-Busch. {We wonder how much beer you’d have to drink not to taste the difference.}

“We noticed there weren’t a lot of beers targeted to women,” said She Beverage co-owner, Lupe Rose, describing her beers as higher in alcohol than many drinks targeted to women. Rose said her IPA beer is smoother than many available, another quality that she said women prefer. Its products include Dirty Blonde, Cali Citrus Amber and Brunette German Dopple Bock.

START UPS:

Zip it up

What has a built-in neck pillow, gloves, eye mask, not to mention pockets for your passport, iPad (with charger), and a zipper that doubles as a pen that extends up to 4 inches? It’s the BauBax jacket, also known at the “Swiss Army Knife” of jackets. The 15-feature garment has set a Kickstarter record, raising over $7.25 million from 36,000 people so far; enough to make any start-up feel warm and fuzzy. Jacket maker, Chicago-based BauBax LLC, originally set a goal to raise $20,000. Business Insider reports that the jacket comes in several styles and colors and backers should receive theirs this November. Read more: [BauBax - Business Insider]

Slam dunk

When Cleveland Cavaliers star LeBron James tweets, people listen. That’s worth a lot when you have 23 million followers on Twitter. It’s worth about $140,000 per tweet or $1,000 per character according to digital/social media advertising firm Opendorse. It would cost five times more to reach that many people with a TV commercial according to Blake Lawrence, CEO at Opendorse, adding that James has the highest digital media value among athletes.

TAX CLIMATE CHANGE 

State business tax climate

Which states have the most competitive business tax systems? The Tax Foundation’s 2015 State Business Tax Climate Index provides a comprehensive gauge comparing all states. There’s even a Top 10 Best list as well as a list of the 10 lowest ranked, or worst states. Spoiler Alert: If you’re doing business in California, New York or New Jersey, then you’ll also want to see the list of the Top 10 moving companies. Read more: [2015 State Business Tax Climate Index]

QUOTABLE

There’s an enormous number of managers who have retired on the job.
Peter Drucker – 1909-2005 Management consultant, educator, author

Hell hath no fury like a bureaucrat scorned.
Milton Friedman – 1912-2006 Economist

Never invest in anything that eats or needs repairing.
Billy Rose – 1899-1966 Entertainer
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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