Bramwell’s Lunch Beat: Audit Flaws Are a Global Problem

Tax writers seek Section 179 extension
Two tax writers – representatives Pat Tiberi (R-OH) and Ron Kind (D-WI) – are seeking to extend long-term a tax break that allows small businesses to immediately deduct the cost of investments, Bernie Becker of The Hill reported yesterday.

The so-called Section 179 expensing levels dropped to $25,000 this year. The expanded levels were among the more than 50 temporary tax provisions, commonly known as extenders, that expired at the end of 2013. The two lawmakers’ proposal would allow businesses to expense up to $500,000 a year, the expanded levels in place until the end of last year, the article stated.

The Senate Finance Committee’s recent tax extenders package would revive the $500,000 expensing level through 2015. In the House, Ways and Means Committee Chairman Dave Camp (R-MI) included revising the $500,000 expensing level in his tax reform draft that he released in February. Lobbyists believe that Section 179 would be among the first expired tax breaks that Camp would want to extend, Becker wrote.

Audits around the world are riddled with problems – survey
A survey released yesterday by the International Forum of Independent Audit Regulators found that public company and bank audits conducted around the globe by units affiliated with the world’s six largest accounting firms are persistently riddled with flaws, Sarah N. Lynch of Reuters reported.

The findings of the survey, which was conducted in 2013, raises major policy questions about whether enough has been done by global regulators to improve audit quality since the 2007-09 financial crisis.

“The high rate and severity of inspection deficiencies in critical aspects of the audit, and at some of the world's largest and systemically important financial institutions, is a wake-up call,” said Lewis Ferguson of the Public Company Accounting Oversight Board (PCAOB), according to the article. “More must be done to improve the reliability of audit work performed globally on behalf of investors.”

The survey results were culled from inspections conducted at firms affiliated with the six largest accounting firms, which include the Big Four – PwC, KPMG, Deloitte, and EY – as well as BDO and Grant Thornton.

Regulators found problems related to auditing fair value measurements, internal control testing, and procedures used to assess how financial statements are presented. The regulators also said that audits of systemically important financial firms often had deficiencies stemming from allowances for loan losses and loan impairments and the auditing of investment valuation, Lynch wrote.

As for audit firms, the regulators said they routinely encountered problems with independence and ethics, among other things.

[For two additional Wall Street Journal articles on the survey’s findings, click here and here. Click here for an article by the Journal of Accountancy.]

After contempt votes, what’s next for Lois Lerner?
Don’t expect quick action to resolve the thorny legal issues at the heart of the dispute surrounding ex-IRS official Lois Lerner. Instead, the wrangling is likely to go on and on – which could be appealing to Republicans, who believe the matter is a political winner for them, John D. McKinnon of the Wall Street Journal wrote yesterday.

The full House is expected to vote soon to hold Lerner in contempt, following Thursday’s party-line vote by the House Oversight and Government Reform Committee. But McKinnon noted the law on what happens after that is ambiguous, and it’s even possible that no further action against Lerner would occur. The former head of the IRS’s Exempt Organizations division is at the center of a long-running controversy over the agency’s targeting of conservative groups.

Lerner contends that she is entitled to refuse to answer the committee’s questions, based on her Fifth Amendment privilege against self-incrimination. Republicans assert that she waived that right by making an opening statement asserting her innocence at a hearing last year. Democrats argue that GOP lawmakers botched their procedural handling of the matter and have little legal backing for their position that Lerner can be compelled to testify.

“The Justice Department in recent years has declined to take contempt cases to a grand jury where executive branch officials asserted executive privilege,” McKinnon wrote. “But this case involves the Fifth Amendment privilege, not executive privilege, leaving open the question of exactly what the department will do.”

IRS hearings are another Republican circus
Washington Post opinion writer Dana Milbank believes all House Ways and Means Committee Chairman Dave Camp had to do was make a simple phone call to the US attorney general to hand over files that included evidence the panel had against Lerner. Instead, Milbank wrote, Camp put on a show.

“The Michigan Republican invited the press and the public to the committee’s storied hearing room Wednesday, only to call an immediate vote to kick them out. This way, the panel could meet in a closed session to debate Lerner’s fate – a dramatic but meaningless gesture because the sole purpose of the secret meeting was to authorize releasing the committee’s files on Lerner to the public,” Milbank wrote.

“The lawmaker, who is retiring at the end of this term, has built a solid reputation over the years, and he recently won plaudits for releasing a thoughtful proposal to overhaul the tax code,” he continued. “Camp was on course to retire with dignity – at least until he allowed his committee room to be turned into a circus tent Wednesday. It was a folly wrapped in a charade and shrouded by farce.”

Snowed in in Punxsutawney: FASB and going concern
Steve Burkholder of Bloomberg BNA wrote yesterday that the Financial Accounting Standards Board (FASB) project on going concern has had its Groundhog Day moments.

“This is a project that the FASB started in 2008, at about the same time that big banks, giant insurer AIG, and the Big Three US automakers were reeling in the crisis, and just before TARP became a household word,” he wrote. “An unfortunate repetition of events seems to be a feature of FASB's effort aimed at improving reporting – including footnote disclosures – surrounding the presumption that reporting entities will still be around as going concerns. That presumption is a linchpin notion in accounting.”

Burkholder noted that the FASB’s March 26 meeting marked the end of the so-called “early warning disclosures” that were part of the board’s proposal for improving reporting on going concern.

In his article, Burkholder recapped Bloomberg BNA’s reporting on the going concern effort and the “twists and turns” the proposal has taken.

AP-GfK poll: Tax filing not tough for most
With the tax-filing deadline looming next week, a majority of Americans say completing a federal tax return is easy, according to a new Associated Press-GfK poll, Stephen Ohlemacher and Jennifer Agiesta of the AP reported on Wednesday.

The National Taxpayer Advocate says filers spend a total of 6.1 billion hours a year preparing tax returns, at a cost of $168 billion. According to the IRS, 90 percent of filers either pay a tax preparer or use computer software to help them fill out their returns.

But 58 percent in the AP-GfK poll say completing a federal tax return is easy. Thirty-eight percent call it hard, they wrote. Eighty-six percent who have completed their tax forms say they are extremely confident or very confident that they filled them out correctly.

However, only 7 percent of those surveyed say they would be willing to pay more in federal taxes if the process of filling out a tax return were easier. Some 90 percent say “no, thanks.”

Not surprisingly, higher-income taxpayers are more likely to say that filling out tax forms is difficult, according to the article. Wealthy people tend to have more complicated taxes because they often have multiple sources of income and they are more likely to itemize their deductions, making them eligible for more tax breaks.

Forty-five percent of those with incomes above $100,000 said it is hard, compared with 33 percent among those making less than $50,000.

Quick Links:

  • Tax revenue rockets up, helping lessen the deficit, Treasury Department says (New York Times)
  • Sacrificing sense for speed in markets (New York Times)
  • Will you meet your financial commitment? Be sure by midyear (CFO)
  • Taxing issues (CFO)
  • $4 billion: Bogus tax refunds a growing problem (USA Today)
  • The real reason taxpayers procrastinate (in one chart) (MarketWatch)
  • Finally: Tax Form 1040 explained (MarketWatch)
  • Tax-relief ‘rescues’ are really a ruse (Washington Post)
  • Why taxing corporate America is hard to do (CNNMoney/Fortune)
  • Camp’s departure creates opening for tax reform (Forbes)
  • Don’t reform the tax code on the backs of over-taxed energy producers (The Hill)
  • Does anyone care about a simple tax code? (TaxVox)
  • Online tax preparation companies respond to Heartbleed bug (Don’t Mess With Taxes)
  • What are ordinary & necessary business expenses? It depends (Don’t Mess With Taxes)
  • DFID approves £4.935M funding for IFAC PAO development activities (IFAC)
  • IMA opens two new offices in Shanghai and Cairo (IMA)

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