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Bramwell’s Lunch Beat: Risk from Digital Marketing Has Internal Auditors’ Attention

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Jan 23rd 2015
Staff Writer and Editor AccountingWEB
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IFAC survey identifies key challenges facing accounting SMPs globally
A new survey from the International Federation of Accountants (IFAC) found that attracting new clients (58 percent) and keeping up with regulations and standards (57 percent) were the two greatest challenges facing small- and medium-sized accounting practices (SMPs) worldwide. Pressure to lower fees (51 percent), rising costs (50 percent), and differentiating from the competition (50 percent) were the next biggest challenges, according to the 2014 IFAC Global SMP Survey. SMPs show promising economic growth, with 72 percent of firms maintaining or growing the previous year’s practice fee revenues. Advisory/consulting services (50 percent) and tax (48 percent) were projected to be the two biggest sources of revenue growth for the year ahead.

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Assessing your digital marketing risk
The Corporate Executive Board (CEB) has listed digital marketing as a “hot spot” in internal audit planning that deserves greater corporate attention in 2015, wrote Tammy Whitehouse of Compliance Week. The CEB said the use of digital channels, such as social media and email, gives companies the ability to target their sales and marketing activities to specific customers. But it also produces greater reputational and data privacy risks. “This is something many internal auditors are not familiar with,” says Ruth Shaikh, associate director at CEB. Interest in more education and information on digital marketing risks is growing in internal audit circles, said Bill Michalisin, chief marketing officer for the Institute of Internal Auditors. “There is a need for peers to share ideas and strategies they can start to put into place to address this. There is demand for that,” he added.

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FASB wants comment on financial instruments
Whitehouse also reported for Compliance Week that the Financial Accounting Standards Board (FASB) is planning to ask for public comment on one final aspect of its standard for financial instrument classification and measurement focused on how entities should disclose hybrid financial instruments containing embedded derivatives that are separately recognized. The FASB is inclined to require companies to disclose the carrying amount, measurement attribute, and line item within the financial statements where such derivatives and related host contracts are presented, but the board wants to seek feedback on that idea before baking it into a final standard. The FASB plans to get a proposal out as soon as possible so the comment period can be wrapped up by April 20.

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Egg donor loses case against IRS, must pay taxes on earnings
The US Tax Court rejected a California woman’s attempt to avoid taxes on the $20,000 she received when she donated her eggs for use by infertile couples, wrote Richard Rubin of Bloomberg. The money Nichelle Perez received was compensation, not damages, Judge Mark Holmes ruled in an opinion released on Thursday in Washington. The court said it was the first ruling on taxation of egg donations. In 2009, Perez twice donated eggs through the Donor Source International LLC, each time receiving $10,000 after a months-long process that included injections and medical exams. But she didn’t report that income on her tax return. The IRS acted after receiving an informational return from the Donor Source saying that Perez had been paid. She contended the payment was more like a settlement from a personal-injury lawsuit than business earnings.

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Furman defends Obama’s repeal of college-savings tax break
Rubin and Mike Dorning of Bloomberg wrote that the reason the Obama administration is seeking to dismantle a popular college-savings tax break is because the incentive favors wealthy households and does little to encourage lower-income students to go to college, according to a White House official. The proposal would mean that withdrawals from so-called 529 college savings plans for tuition would no longer be tax-exempt. Republicans say that would be a middle-class tax increase. “Overwhelmingly, this plan provides much more of a tax incentive, much more assistance through the tax code to go to college than anything that we have in our system now,” said Jason Furman, chairman of the White House Council of Economic Advisers, told Bloomberg on Friday. The proposal, which stands little chance of advancing in Congress, would apply only to new contributions. That means any money in accounts before it takes effect would still qualify for the tax break.

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TurboTax users get an apology and $25 each
Responding to a barrage of customer complaints, Intuit is apologizing to customers who used its TurboTax Deluxe software on their desktop computers last year and may face higher charges to prepare their 2014 returns, wrote Laura Saunders of the Wall Street Journal. Beginning on Friday, Intuit will communicate directly via email with prior-year TurboTax Deluxe customers. The company is offering a $25 rebate to customers who must upgrade to Turbotax Premier or TurboTax Home & Business in order to file their 2014 returns. Customers seeking the payment can request it after they have filed their returns. The webpage was live as of Friday morning, and it indicates that affected customers must apply no later than April 20.

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Tax reform dead? Don’t tell the lobbyists
Lobbying on tax issues hit a high last year – narrowly outpacing even the massive force of the healthcare industry, wrote Kelsey Snell of Politico. Nearly 2,000 clients retained lobbyists in 2014, according to the Senate lobbying database, outpacing health care by a few dozen. The numbers have risen steadily since the mid-1990s, creating a trend that withstood lobbying ethics reform in 2007, a recession, and a failed attempt at tax reform. Taxes account for a huge portion of all federal spending, making the tax code a natural target for special interests – from corporations to cities. And tax experts, lobbyists, and staff attribute the recent boom to rampant fear among those interests that tax reform will happen whether they are ready or not.

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Gas tax push on fumes, House chairman says
Congress is unlikely to pass an increase in the federal gas tax this year, the chairman of the House Transportation Committee said on Thursday, wrote Keith Laing of The Hill. Rep. Bill Shuster (R-PA) said a deal to boost US infrastructure funding will likely have to find an alternative source of revenue, potentially as part of a broader tax reform package, because the tax hike won't pass muster with members of Congress. The 18.4 cents-per-gallon gas tax is the primary source of revenue for funding transportation projects, and infrastructure supporters have been pushing to increase it for the first time since 1993. “I know the popular thing that a lot of people are talking about is the gas tax. But I just don't believe the votes are there in the Congress at this point to do that,” Shuster said in a speech to the US Conference of Mayors in Washington.

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State polls show lack of support for gas tax hikes
Laing also reported for The Hill that a trio of state polls released this week show voters in Georgia, New Jersey, and Utah do not support an increase in their gas taxes to pay for new transportation projects. In Georgia, where drivers pay an additional 7.5 cents per gallon on top of the federal gas tax, 60 percent of voters said they are opposed to paying more at the pump. Similarly, 68 percent of New Jersey voters said they are opposed to a gas tax increase in that state, where drivers currently are paying an extra 10.5 cents per gallon to fill local transportation coffers. Finally, in Utah, where drivers pay an extra 24.5 cents per gallon at the pump, only 35 percent of voters said they supported a gas tax increase.

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South Carolina governor seeks major tax cut
South Carolina Gov. Nikki Haley said on Wednesday she wants to slash the state's income tax by nearly a third to bolster its economy, wrote Lisa Lambert of Reuters. “Let's cut our state income tax rate from 7 percent to 5 percent over the next decade. That's a nearly 30 percent reduction in state income taxes,” Haley, a Republican, said in her annual address. “It will be a massive draw for jobs and investment to come to our state.” Haley also suggested the state should increase its gas tax by 10 cents over the next three years, adding “because when coupled with the 30 percent income tax cut, it still represents one of the largest tax cuts in South Carolina history.” She added, though, that the extra gas tax revenue should be used only for infrastructure.

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Hertz hopes to complete financial review this year
Speaking to a crowd of former journalists, the spokesman for Hertz Global Holdings Inc. didn’t mince words when discussing his company’s financial issues, wrote Chris Umpierre of The News-Press. Hertz’s Richard Broome said the Fortune 300 rental company is working hard to restate its financial results for 2011 and review results from 2012 and 2013 because of accounting errors. Hertz announced the mistakes seven months ago and is conducting a financial review to rectify the issues and install controls so they don’t happen again, Broome said. “Our goal is to get this all behind us this year,” Broome told the Naples Press Club on Thursday in Naples, Florida. “We see 2015 as a year of transition. Then in 2016, we see it as a year where we are hitting full stride. Our job is to get better before we can become great.”

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The struggle to simplify accounting standards
In an opinion piece for CFO, former FASB member Edward W. Trott wrote that complexity in accounting is sometimes necessary when the transaction or economic event is complex. But he believes that much of the current complexity in accounting standards is unnecessary. This excess complexity, he wrote, is usually supported by CFOs and other preparers of financial statements because of a desire to avoid the effort to undergo major changes in accounting standards. “Corporate preparers don’t want to give up the flexibility to manage financial reporting that is provided by many current complex standards,” Trott noted. “They cause excess complexity by pushing for provisions aimed at smoothing the impact of economic changes over time, rather than recognizing them when they occur.”

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