Bramwell’s Lunch Beat: CFOs Give Their Take on New Revenue Rule

Bill sought to tie corporate tax rate to CEO pay
By a 19-17 vote, the California Senate on Wednesday rejected a bill that sought to tie California's corporate tax rate to executive compensation in an effort to address the growing wealth gap, Judy Lin of the Associated Press reported.

The bill would have replaced a publicly traded corporation's current tax rate starting January 1 with one based on a ratio between its top paid employee and the median workers' salary, Lin wrote. Currently, corporations pay 8.84 percent of net income to the state, with banks paying 2 percent more.

The proposed legislation would have reduced the corporate tax rate for any company in which the CEO's pay is less than 100 times that of the median worker. The lowest tax rate would have been 7 percent for any company whose chief executive is paid less than 25 times the median.

The state’s tax rate for companies in which CEO pay is 100 times more than the median worker's pay would have gone up on a sliding scale, up to 13 percent for companies that pay their top executive more than 400 times the median, according to the article.

Finance chiefs react to new revenue recognition rules
Public companies have until 2017 to prepare for a new global standard for recording revenue, which was released on Wednesday by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB), giving CFOs ample time to let Wall Street know how the new accounting rules will speed up or draw out their recognition of sales, Maxwell Murphy, senior editor of the Wall Street Journal’s CFO Journal, wrote yesterday.

Some companies, like software makers and wireless providers, could record revenue more quickly than under current rules, while auto and appliance makers may need to spread the sales over a longer period than they traditionally have.

“We’ve been waiting for it for a long time,” said Ken Goldman, CFO of Burlington, Massachusetts-based Black Duck Software Inc., a closely held provider of open-source software and consulting services, according to the article. “This levels the playing field and takes a lot of the ambiguity out of what are overly restrictive rules.”

Sean Aggarwal, CFO of Trulia Inc., a website for homes for sale, said the new guidance should be easier to implement, but he’s concerned about the “additional disclosures” that will be required.

“I’m curious at what point we stop adding new disclosures and instead focus on simplifying redundant portions of the current disclosures,” he said, according to the article.

New accounting rule a boost for investors
Investors will find it easier to compare the performance of companies around the world now that the FASB and the IASB released its joint revenue recognition standard, Harriet Agnew and Kate Burgess of the Financial Times wrote yesterday.

Eliminating the differences in reporting makes it easier for investors to compare companies in different countries and also removes the risk that some companies are exploiting the varied rules to flatter their bottom lines.

Christoph Hütten, chief accounting officer at German computer software company SAP, called the initiative a “crown jewel of the effort of global standards,” according to the article.

Nigel Sleigh-Johnson, PhD, head of the financial reporting faculty at the Institute of Chartered Accountants in England and Wales (ICAEW), said implementing the new standard could be a challenge.

“This will involve assessing the impact of the standard on all the company’s revenue streams and determining what customers pay for each element of goods and services sold as packages,” he said, according to the article. “This can be a complicated task.”

[Also, check out a Journal of Accountancy article that highlights six key aspects of the new revenue guidance.]

DC Council backs first big tax cut in years; city aims to be more competitive with Md., Va.
The DC Council approved the city’s largest income tax cut in 15 years on Wednesday, reflecting a growing urgency among lawmakers to help those who are struggling as low-rent apartments give way to million-dollar condos in the increasingly prosperous District, Aaron C. Davis of the Washington Post reported.

Davis noted that the cuts lessen the tax burden for low- and middle-income residents beginning in January. Over the following four years, tax relief would reach every business, residents earning up to $1 million annually, and even those who inherit multi­million-dollar estates. The cuts would be funded mostly by slowing spending on a master plan for citywide streetcar service.

The plan emerged from a commission led by former mayor Anthony A. Williams, which had worked on it for about 18 months, according to the article. The group’s goal was to make the tax code in the District, which is benefiting from a period of rapid economic growth, more progressive and competitive with neighboring Maryland and Virginia.

To make the city’s tax code more progressive, the council’s plan covers about $67 million of the almost $225 million in cuts with new revenue, mostly sales taxes on services, Davis wrote. The city’s 5.75 percent sales tax will for the first time apply to health club memberships, bottled water delivery, carpet cleaning, car washes, billiards, bowling, and storage locker rentals.

Has the UK become a tax haven?
US companies are increasingly viewing the United Kingdom as a place to relocate to pare their tax bills. Why? Relatively low rates and a business-friendly environment, Alanna Petroff of CNN Money wrote today.

British corporate tax rates are near 20 percent. In the United States, rates are closer to 40 percent – among the highest in the developed world, Petroff noted. The United States also levies high taxes on income that’s earned abroad and brought back – or repatriated – to the States.

Rules in the United Kingdom are not as strict, allowing money to flow home without so many tax hassles, said Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics.

“The basic point is that the US corporate tax system is the most onerous amongst the advanced countries,” he said, according to the article. About $1.6 trillion in foreign earnings have been left overseas to avoid US taxes, he added.

How Rod Drury built Xero from a ‘small set of rocks in the South Pacific’ into a global player
Forbes contributor Hal Gregersen wrote an article yesterday on Rod Drury, the co-founder and CEO of accounting software company Xero, which was ranked No. 1 on Forbes2014 Innovative Growth Companies list.

Drury spoke to Gregersen about what led him and Hamish Edwards to found Xero in 2006.

“Like all great innovators, Drury and Edwards asked themselves some provocative questions: What if we could get banking transactions from the bank? What if we could connect to the bank on behalf of the business owners and get their accounting data sitting and ready for them first thing in the morning, already pre-loaded into the accounting software?” Gregersen wrote.

“It was these questions that led to Xero’s ‘beautiful accounting software.’ And the software changed everything. Drury saw that once these bank transactions automatically loaded into the accounting cloud, it completely transformed how a small business owner works.”

Quick Links:

  • Rogue accounting firm inclusionist suggests you should forget fitting in and just be you (Going Concern)
  • DC health inspectors found rats at the Connecticut Avenue IRS office (Going Concern)
  • Grant Thornton was into Sarbanes-Oxley before it was cool (Going Concern)
  • The PCAOB asks the auditors an unanswerable question: Do company controls “work”? (Re:Balance)
  • Mandatory audit firm rotation rules published in EU (Journal of Accountancy)
  • Sen. Ron Wyden pitches R&D tax credit to help startups, small businesses (The Oregonian)
  • Dave Camp’s good tax policy is good politics, too (Bloomberg View)
  • Bush-era tax write-off would continue in Republican plan (Bloomberg)
  • Japan retail sales fall at record pace after tax increase (Bloomberg)
  • Illinois back in crisis as tax impasse risks rating: Muni credit (Bloomberg)
  • Norquist: Don’t tax the Net (The Hill)
  • Three options for better climate policy (TaxVox)
  • How your tax dollars are making America fat (Fiscal Times)
  • Actual auto expenses or standard mileage rate? Which business deduction method will cut your taxes more? (Don’t Mess With Taxes)

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