“Test-the-Waters” Proposed for All Issuers-
The Securities and Exchange Commission will propose an expansion of a popular modernization reform that would permit investor views about potential offerings to be taken into account at an earlier stage in the process. The new rule would expand the “test-the-waters” accommodation — currently available to emerging growth companies or “EGCs”– to all issuers, including investment company issuers.
This proposal would allow all prospective issuers to gauge market interest in a possible initial public offering or other proposed registered securities offering by permitting discussions with certain investors prior to the filing of a registration statement. The proposed reform builds on a popular similar provision of the Jumpstart Our Business Startups Act (JOBS Act) that has been limited to EGCs.
Generally, companies with more than $1 billion in annual revenues do not qualify as EGCs and, therefore, have not benefitted from JOBS Act provisions intended to foster capital formation in the public markets. The proposed rule follows action taken by the Division of Corporation Finance in 2017 to extend another EGC reform to all issuers: the ability to initially submit certain filings in draft, non-public form. As a result of that policy change, all issuers, not just EGCs, have been able to make non-public filings with the SEC as they begin the process of becoming a public company.
The proposed test-the-waters rule and related amendments are intended to provide increased flexibility to issuers with respect to their communications with institutional investors about contemplated registered securities offerings, as well as a cost-effective means for evaluating market interest before incurring the costs associated with such an offering.
The proposal will have a 60-day public comment period following its publication in the Federal Register.
Buffet Blames GAAP for Big Loss
Investment firm Berkshire Hathaway posted a $25 billion loss in the fourth quarter, mainly due to a write-down from its stake in Kraft Heinz, and Chairman Warren Buffet cited a change in accounting standards for the loss, reports Accounting Today.
Kraft Heinz disclosed a $15.4 billion non-cash impairment charge related to a write-down on the value of trademarks and other assets on their popular brands. The charges resulted in a net loss attributable to common shareholders of $12.6 billion and diluted loss per share of $10.34.
Berkshire helped arrange the 2015 merger of Kraft Foods and H.J. Heinz Co. owning 325 million shares in a massive bet on the continued appeal of the two food giants’ brands, writes Accounting Today.
Buffett discussed the loss in his annual letter to shareholders, blaming a new GAAP rule that “requires us to include… loss from a reduction in the amount of unrealized capital gains that existed in our investment holdings. Neither vice chairman, Charlie Munger, nor I believe that rule to be sensible. Rather, both of us have consistently thought that at Berkshire this mark-to-market change would produce what I described as wild and capricious swings in our bottom line.”
Buffett predicts the earnings volatility would keep happening thanks to mark-to-market accounting. “Wide swings in our quarterly GAAP earnings will inevitably continue,” he wrote, “because our huge equity portfolio — valued at nearly $173 billion at the end of 2018 — will often experience one-day price fluctuations of $2 billion or more, all of which the new rule says must be dropped immediately to our bottom line.”
New regulations can sometimes carry unintended consequences, commented Weinberg Firm Managing Manager, Corey Fischer. “Unlike historical cost accounting where values do not change until sale, mark-to-market can instantly and wildly change balance sheet values and trigger a host of ratio related consequences. When market prices are volatile, it can be difficult to value accurately and objectively, and that can lead to unreliable and less useful information for investors.”
Company Hacks Go Unreported
Despite SEC efforts to bolster disclosures, about 90% of known cyber incidents at public companies went undisclosed in regulatory filings in 2018, reports the Wall Street Journal.
SEC Commissioner Robert Jackson believes that hacks into public companies should be treated as material events requiring disclosure and is advocating for more specific “hard and fast” rules that would mandate specific disclosures.
Last year when the SEC set initial guidelines, SEC Chair Jay Clayton said that the agency would “continue to evaluate developments in this area and consider feedback about whether any further guidance or rules are needed.”
In related news, Rep. Jim Himes (D-Conn.), who serves on the House Intelligence Committee, introduced a bill that would require public companies to disclose whether any members of their board of directors have cybersecurity expertise. The Cybersecurity Disclosure Act of 2019 is a companion bill introduced in the Senate and would require the SEC to issue new disclosure rules. The Senate companion bill has bipartisan support reports The Hill.
Seeking Clarity on Marijuana Banking Issues
Responding to questions during a Senate Finance Committee, Federal Reserve Chair Jerome Powell said, “Financial institutions and their regulators and supervisors are in a very difficult position with marijuana being illegal under federal law and legal under a growing number of state laws.” He added that providing insurance coverage for marijuana businesses is another area where banks and supervisors could use some clarity, reports cannabis publication Marijuana Moment.
Treasury Secretary Steven Mnuchin has also spoken out on this issue saying that addressing banking concerns in the marijuana industry was at the “top of the list” of his department’s concerns, so that cannabis businesses don’t have to operate on a cash-only basis, according to Marijuana Moment.
What’s in Your Refrigerator?
The cat-and-mouse game between state tax collectors and wealthy New Yorkers who claim to have moved to Florida has reached new levels, reports CNBC.
High state and city taxes, along with a new federal cap on State and Local Tax (SALT) deductions, have incentivized wealthy New Yorkers to claim Florida as their new residence — a state with no income or estate tax.
Not so fast.
New York State Department of Taxation and Finance has been conducting “non-residency” audits and reports they have found about half to be bogus.
Counting how many days one spends in the state used to be enough to prove residency, but New York auditors are now using a “domicile” test.
CNBC reports that auditors are now conducting invasive searches to discover such things as: which state houses your wedding albums, family photos, safe deposit box; and, in which state is your country club membership, your dentist, and your dog’s vet?
Cell phone records are scrutinized as well. Auditors have even secured search warrants to check on personal items at the New York address. And that includes looking inside the refrigerator.
According to Barry Horowitz a partner at the WithumSmith+Brown accounting firm whose clients have encountered such searches, “I had one audit where the agent opened the refrigerator and the stuff had been sitting there for a year and a half. We won the case.”
Gov. Andrew Cuomo last month blamed wealth flight for the state’s $2.3 billion revenue shortfall in December and January. “Tax the rich, tax the rich, tax the rich,” he said. “We did. Now, God forbid, the rich leave.”
A Cheerful Billionaire
The secret to a long and happy life is so simple says 95 year-old, Charlie Munger, the vice chair of Berkshire Hathaway, chair of the Daily Journal Corp., and Costco board member.
Last month CNBC‘s Becky Quick caught up with Munger in Los Angeles and asked him what was the secret. His answer was a “bite-size” list that included:
- You don’t have a lot of envy.
- You don’t have a lot of resentment.
- You don’t overspend your income.
- You stay cheerful in spite of your troubles.
- You deal with reliable people.
- And you do what you’re supposed to do.
Finally, he reemphasized “staying cheerful” is “a wise thing to do.”
Having a net worth of $1.7 Billion might make us cheerful too. We may be wrong about that, but we’re willing to try.
- Intaxication: Euphoria at getting a refund from the IRS, which lasts until you realize it was your money to start with. From a Washington Post word contest.
- Isn’t it appropriate that the month of the tax begins with April Fool’s Day and ends with cries of ‘May Day!’? Rob Knauerhase
- I am proud to be paying taxes in the United States. The only thing is I could be just as proud for half of the money. Arthur Godfrey
- There’s nothing wrong with the younger generation that becoming taxpayers won’t cure. Dan Bennet
An Audited Legacy of Quality
It’s become a lot easier to choose the best audit firm. That’s because the Public Accounting Oversight Board (PCAOB) conducts periodic inspections of all audit firms and publishes its reports online. For all to see.
Yes, we get audited too.
Weinberg & Company is consistently at the very top when it comes to the quality of our work– just check our legacy of stellar inspection reports.
We thought we were building a leading, international accounting firm by providing Big 4 expertise, delivered with personal service.
Turns out we were also building “An Audited Legacy of Quality.”