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Bramwell’s Lunch Beat: Company 10-Ks Are Getting Pretty Wordy

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Jun 2nd 2015
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Tech firms fret over looming revenue accounting changes
More technology companies are fretting over accounting rule changes that will affect how companies report their top-line sales numbers to investors, wrote Kimberly S. Johnson and Emily Chasan of the Wall Street Journal’s CFO Journal. The Financial Accounting Standards Board (FASB) handed down new rules on the way companies book revenue in May 2014. A BDO USA LLP survey of technology company CFOs earlier this year found that 50 percent hadn’t taken the steps necessary to implement the new revenue recognition standard. There’s uncertainty surrounding the rule’s final version and implementation date. “Companies that sell software and maintenance service, or that sell through distribution channels, are those we think will be largely impacted by the new rules,” said Aftab Jamil, leader of BDO’s technology and life sciences practice.

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The 109,894-word annual report
Companies are spending an increasing amount of time and energy beefing up their regulatory filings to meet disclosure requirements, wrote Vipal Monga and Emily Chasan of CFO Journal. The average 10K is getting longer – about 42,000 words in 2013, up from roughly 30,000 words in 2000. By comparison, the text of the Sarbanes-Oxley Act of 2002 has 32,000 words. Another example: General Electric Co.’s 2013 annual report was 246 pages. Packed with text on the company’s internal controls, auditor statements, and regulator-mandated boilerplate on “inflation, recession, and currency volatility,” GE’s annual report was 109,894 words long. “Not a retail investor on planet Earth could get through” it, let alone understand it, said GE finance chief Jeffrey Bornstein. The FASB and the US Securities and Exchange Commission (SEC) are working on projects to reduce the volume of useless information in company filings, while increasing transparency.

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Microsoft and the IRS are fighting again
Microsoft Corp. and the IRS are back in court, this time fighting about the US tax agency’s interest in hiring David Boies, the lawyer who beat Microsoft in an antitrust case in 2000, wrote Richard Rubin and Dina Bass of Bloomberg. The software company filed a federal lawsuit on May 29 in Seattle, marking the latest legal flurry over an ongoing IRS audit. At issue are “tens of billions of dollars” in corporate income, according to the IRS. Microsoft is asking a court to enforce its public-records request for documents on the government’s decision to enter into a contract with Boies Schiller & Flexner LLP in 2013. Besides the possible return of Boies as a Microsoft adversary, the case is notable because of its size and the amount of public legal wrangling even before the IRS completes its audit. Microsoft has questioned the IRS’s decision to use outside lawyers and amend its regulations to allow nongovernment employees to question witnesses under oath.

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Nevada Legislature approves state’s largest-ever tax hike
The Nevada Legislature approved the state's largest-ever tax hike that will raise up to $1.1 billion in new and extended taxes to initiate far-reaching reforms in Nevada's struggling K-12 education system, wrote Ray Hagar and Anjeanette Damon of the Reno Gazette-Journal. In a 30-10 vote on May 31, the Assembly approved all three major facets of Republican Gov. Brian Sandoval's tax plan, including his “Nevada Revenue Plan,” which is a hefty hike on cigarette taxes, and the continuation of a group of formerly temporary business taxes called the “sunsets.” On Monday, the Nevada Senate passed the tax increase 18-3, ensuring the bill would now go to Sandoval for signature. Sandoval linked his call for a tax increase to sweeping education reforms, including what has been described as the most robust parents' choice measure – which funnels money to families with children in private school – in the country.

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Pennsylvania House says no, 193-0, to Gov. Wolf’s tax plan
Pennsylvania House Republicans called up Democratic Gov. Tom Wolf's tax-shifting plan on Monday, and the House shot it down by a unanimous vote, wrote Brad Bumsted of the Pittsburgh Tribune-Review. The plan includes billions of dollars in tax shifting to reduce property taxes and increase state spending. Wolf proposes taxing the extraction of natural gas from the Marcellus shale, raising cigarette taxes, and taxing cigars and snuff. All told, GOP members said, it's a $4.7 billion tax increase. Republican Majority Leader David Reed said the vote gave the Wolf administration what it wanted: a vote on the entire tax package in his budget, rather than breaking it into pieces for individual votes. Wolf denounced the vote as “gamesmanship” and said it was an effort to “see if we can embarrass the administration.”

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Warren offers scathing criticism of SEC chief
Sen. Elizabeth Warren (D-MA) blasted SEC Chair Mary Jo White on Tuesday, accusing her of a host of failures and shortcomings, wrote Peter Schroeder of The Hill. In a lengthy 13-page letter, Warren called White’s two-year stint leading the Wall Street watchdog “extremely disappointing,” and accused her of breaking promises she made during the confirmation process, taking a soft approach toward regulating the financial sector, and even lying to Warren directly. Warren argued that White did not finalize rules implementing the Dodd-Frank financial reform law; that she continued to grant waivers to companies guilty of wrongdoing that went on to do regular business; and that she allowed financial firms to settle charges without admitting guilt. Warren also accused White of being effectively invisible as a regulator on some critical cases. In response to Warren’s claims, White said she is “very proud of the agency’s achievements under my leadership, including our record year in enforcement.”

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