Regulators struggle with conflicts in credit ratings and audits
The Public Company Accounting Oversight Board (PCAOB), which was created by the Sarbanes-Oxley Act in 2002, released its third annual report on audits of brokerage firms. So far it has reviewed 173 such audits performed by 101 auditing firms. It found that only 23 – 13 percent – had been done correctly.
In his August 21 High & Low Finance column for the New York Times, Floyd Norris asked why so few?
“One answer is that until passage of the Dodd-Frank financial overhaul law in 2010, the board had authority to review only audits of public companies,” he wrote. “Brokerage firms were required to be audited, but no one could review that work.”
Of the 790 firms that audited brokers, nearly half audited just one brokerage firm, and most of the rest audited only a handful of them, Norris noted.
“You would probably not hire a plumber to fix a problem in your bathroom if you knew that plumber had never done bathroom work before,” he wrote. “But when audits are done solely to satisfy a legal requirement, low cost may outweigh proven competence in deciding who should do the job.
“The good news is that there are some indications that the situation is improving,” Norris continued. “The bad news is that there are still many audits that the board is not permitted to review, including those of companies that do not issue public securities and of nonprofit institutions. Unless and until the board is authorized to review those audits, we may never know if they are similarly sloppy.”
Inversions push falls to Treasury’s tax man
The Obama administration’s point man in the effort to deter US companies from restructuring overseas to avoid taxes is a career government economist known for his loosened neckties, Pez dispensers, and sweeping grasp of the US tax code, Damian Paletta of the Wall Street Journalwrote on Thursday.
Mark J. Mazur, the Treasury's assistant secretary for tax policy, is helping assemble a menu of administrative options for Treasury Secretary Jacob Lew that would aim to upend the economic benefits of the so-called inversions that occur when a cross-border acquisition allows a US firm to avoid paying US taxes.
Given Mazur's power – a number of multibillion-dollar mergers this year could hinge on his recommendations – little is known about him outside the halls of Congress and the White House. But a review of his record and interviews with colleagues reveal him to be a careful economist with a focus on what he perceives as “fairness” in the tax code, Paletta wrote.
Colleagues described Mazur as even-keeled, with an endless understanding of the tax code. “He really knows the data, so nobody can pull a fast one on Mark in terms of fact-based assertions,” said Stephen Shay, a professor at Harvard Law School who worked with Mazur at the Treasury until 2011, according to the article. “He’s got as broad an economic knowledge of tax and related areas as anyone.”
Mazur's seat at the table was on full display on Tuesday, when the White House released a list of economic advisers who briefed President Obama and Vice President Joe Biden. Mazur's name was on the list, which many in Washington, Wall Street, and even in Europe read as a signal that a decision on how to tackle inversions was near, Paletta wrote.
Lew says business-tax revamp best for limiting inversions
Treasury Secretary Jacob Lew said the best way to deal with corporate inversions is through a comprehensive revamp of business taxation, according to a statement from the department, Kasia Klimasinska and Richard Rubin of Bloombergreported on Thursday.
Lew’s comments came in a meeting with policy specialists on Thursday in Washington, including Alice Rivlin of the Brookings Institution, Maya MacGuineas of the New America Foundation, and Jared Bernstein of the Center on Budget and Policy Priorities, the Treasury said.
During the meeting, Lew “expressed the same view he’s expressed publicly about the problem of inversions,” Bernstein said in an interview after the meeting, according to the article.
Treasury is developing a plan on inversions and hasn’t made any decisions yet, said another person participating in the meeting, Klimasinska and Rubin wrote. If Congress doesn’t revamp business-tax law, the department wants to find another approach, said the person, who asked not to be named since the meeting was closed.
In a recognition that such initiatives probably won’t become law soon, the administration is advocating legislation to prevent US companies, such as Medtronic Inc. and AbbVie Inc., from changing their tax address by purchasing a smaller foreign company.
Justice settlement forces BofA to set aside borrower tax relief
Bloomberg also reported that Bank of America Corp. must set aside $490 million of Thursday’s $16.7 billion settlement to cover taxes that borrowers face on forgiven mortgage debt – a step taken by the US Justice Department to give homeowners relief that Congress has failed to provide.
The bank’s accord with US and state authorities to settle claims over flawed bond sales is the first major settlement to include funds to be used in case lawmakers failed to extend forgiveness on home-loan debt reductions, wrote Clea Benson of Bloomberg. The tax credit expired on December 31.
The relief is designed to avert foreclosures, particularly in areas where home values are depressed, by letting borrowers shrink mortgages or to sell homes for less than the amount they owe without having to pay taxes on the difference, according to the article. It’s one of many provisions that have been stalled amid disagreements between Democrats and Republicans, and the Bank of America settlement is sparking renewed calls for lawmakers to act on it.
The funds set aside in the settlement would only cover part of borrowers’ tax bills. And those getting loan reductions under earlier settlements with JPMorgan Chase & Co. and Citigroup Inc. could be required to treat that aid as income unless the law is changed.
Congress may take up the bipartisan Mortgage Forgiveness Tax Relief Act, which would retroactively eliminate the taxes for 2014 and extend the break through 2015, in the short session that takes place between the November elections and the end of the year, Benson noted.
Here’s what an accountant does all day
Look familiar … or is your daily routine completely different? Libby Kane of Business Insidertalked to Sarah Knight, managing director of taxation at the Denver office of CBIZ MHM LLC, about her typical day.
“I've got the best job on the planet,” she says, according to the article. “The world of public accounting is so diverse. I think people tend to think of CPAs as busy during tax season, but it's demanding year round. I'm rarely behind a desk crunching numbers, sitting there with a calculator.”
Click here to read Sarah’s typical day, which starts when the alarm goes off at 4 a.m.
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About Jason Bramwell
Jason Bramwell is a staff writer and editor for AccountingWEB. He has nearly 20 years of experience in print and online media as a journalist and editor.