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Bramwell’s Lunch Beat: SEC Accounting Fraud Cases Surged Last Fiscal Year

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Jan 21st 2015
Staff Writer and Editor AccountingWEB
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CEOs at Davos less optimistic about global economy
Seventeen percent of corporate bosses believe global economic growth will decline or be subdued in 2015, up from 7 percent last year, according to PricewaterhouseCoopers’ (PwC) 18th Annual Global CEO Survey, which was unveiled during the opening of the World Economic Forum’s annual meeting in Davos, Switzerland, on Tuesday, wrote Kim Hjelmgaard of USA Today. The remaining CEOs expect economic conditions to improve (37 percent) or remain steady (44 percent). Perhaps more significantly, corporate executives polled in the report ranked the USA as their most important market for growth in the coming year. That places the USA ahead of China for the first time since PwC's survey was started five years ago.

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SEC gets busy with accounting investigations
As part of a push initiated by US Securities and Exchange Commission (SEC) Chairman Mary Jo White, the agency filed 99 accounting fraud enforcement actions in the fiscal year that ended Sept. 30, a 46 percent increase from its 68 actions the previous fiscal year, wrote Jean Eaglesham and Michael Rapoport of the Wall Street Journal. New investigations were up about 30 percent from the previous year, officials told the Wall Street Journal, with the agency opening more than 100 probes targeting accounting fraud in the latest fiscal year. The upturn – the SEC’s first year-over-year increase in such enforcement actions since 2007 – comes as the agency returns its focus to alleged financial reporting and disclosure problems that might have gone unpunished as crisis-era misconduct, such as selling of flawed mortgage securities, dominated its attention in recent years.

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Senate Finance chairman rips Obama’s tax plan
Senate Finance Committee Chairman Orrin Hatch (R-UT) accused President Obama of fostering “class warfare” with the tax policies the president lobbied for in his State of the Union address on Tuesday, wrote Bernie Becker of The Hill. Hatch, speaking at the US Chamber of Commerce earlier on Tuesday, suggested that Obama’s plan to raise new taxes on the wealthy to help pay for middle-class priorities would undercut bipartisan negotiations over revamping the tax code. “Sadly, it doesn’t appear that President Obama gets it,” Hatch said, insisting the White House was merely “using language typically associated with tax reform.” Hatch called tax reform his top priority as Senate Finance chairman, but said he didn’t believe the president was on board with key principles needed for an overhaul, including making the tax code simpler and ensuring that a rewrite didn’t raise more revenue for the government.

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Biden: Nobody thinks tax increases would damage the wealthy
Vice President Joe Biden said on Wednesday that Republican lawmakers will be motivated to work with Democrats on efforts to bolster middle-class families because the GOP wants to prove they can govern, wrote Colleen McCain Nelson of the Wall Street Journal. Biden echoed the president’s pitch to the middle class, calling for new spending on tax breaks aimed at working families, which would be funded through an increase on top capital-gains tax rates and new taxes on many inheritances. Biden said nobody thinks that such tax increases would damage the wealth or capabilities of “people who have that kind of money.” Senate Majority Leader Mitch McConnell (R-KY) has said the president’s plan to raise taxes on high-income Americans – $320 billion over 10 years – undercuts hopes for reaching agreement on an overhaul of the tax code.

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Obama proposal to cut 529 plan tax benefits meets opposition
The tax plan released by President Obama would scale back a significant break that Republicans generally want to preserve – taxpayers’ ability to use money earned in 529 college-savings plans on a tax-free basis, wrote John D. McKinnon and Kristina Peterson of the Wall Street Journal. The proposal is aimed at offsetting the cost of other changes, particularly an expansion of the American Opportunity Tax Credit, which provides a tax break for higher-education expenses of up to $2,500 per student. Currently, people can withdraw money from the 529 accounts without paying taxes on the earnings. Under the Obama plan, the gains earned on those investments would be subject to tax as they are withdrawn to pay for education expenses. Current 529 accounts would be grandfathered under the White House plan, so withdrawals of existing funds still would be tax-free. Some Republicans bristled at the proposal, saying it could force more students into lower-cost college options, such as community colleges.

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Obama pledges to veto measures weakening Dodd-Frank
During his State of the Union speech on Tuesday, President Obama pledged to veto any legislation that weakens new curbs on Wall Street as banks and the Republican-led Congress increasingly seek to roll back the Dodd-Frank financial-regulation law, wrote Clea Benson of Bloomberg. The House approved a measure last week that would loosen some restrictions in the 2010 law. “We can’t put the security of families at risk by taking away their health insurance, or unraveling the new rules on Wall Street, or re-fighting past battles on immigration when we’ve got a system to fix,” Obama said. “If a bill comes to my desk that tries to do any of these things, it will earn my veto.” A government-spending bill lawmakers approved at the end of last year included a provision that allows banks to continue trading almost all derivatives in divisions that have government backstops, like deposit insurance.

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Democratic lawmakers push bill to stop corporate offshore tax moves
Democrats on Tuesday pushed legislation to stop US companies from reincorporating overseas to reduce their tax bills, saying a wave of so-called inversions last year has nearly doubled the revenue the federal government will lose from those moves over the next decade, wrote Jim Puzzanghera of the Los Angeles Times. The bill would make it tougher for US firms to buy a smaller foreign competitor in a lower-tax nation and shift the merged company's headquarters there for tax purposes. The legislation – which was reintroduced by Sen. Richard Durbin (D-IL), Sen. Jack Reed (D-RI), Rep. Sander Levin (D-MI), and Rep. Lloyd Doggett (D-TX) – would change tax rules to make inversions more difficult, such as requiring a company to have at least 50 percent foreign ownership instead of the current 20 percent in order to be considered foreign for US tax purposes.

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Wal-Mart to offer service to give US tax refunds in cash
Wal-Mart Stores Inc. will give Americans their tax refunds in cash for little or no fee, the latest financial service offered by the world’s largest retailer aimed at getting shoppers to spend more at its stores, wrote Paul Ziobro of the Wall Street Journal. The offering, called Direct2Cash, allows tax filers to bypass checks and direct deposit options and converts tax refunds into cash. The service is available through tax preparation providers at more than 25,000 locations, including 3,000 Wal-Mart stores, which may charge a fee up to $7. The money is then picked up at Wal-Mart stores after customers’ identities are verified. The retailer has been on a push to provide financial services to its core low-income shoppers, many of whom are outside of the traditional banking system. Last year, Wal-Mart started a US money-transfer service. It also offers check-cashing and bill-paying services, among others.

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Proposed rules would govern Sec. 41 credit for software
The IRS issued long-awaited proposed rules on what type of internal-use software qualifies for the Sec. 41 research credit, wrote Sally P. Schreiber of the Journal of Accountancy. Although the new rules are proposed, not final, the IRS says it will not challenge taxpayers’ return positions that apply these rules currently. Final regulations on the internal-use software and the research credit were released in 2001, but caused considerable controversy among practitioners. Under the proposed rules, software developed for internal use can qualify for the credit if it meets a high-threshold-of-innovation test. In addition, the rules will provide a safe harbor that applies to dual-function software, if a third-party subset cannot be identified, or to the remaining subset of dual-function computer software after the third-party subset has been identified (dual-function subset).

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Grant Thornton taps Billy Moore as next CFO
Billy Moore will become the next CFO of national audit, tax, and advisory firm Grant Thornton in August, when Russ Wieman retires from that post, wrote Jen Wilson of Charlotte Business Journal. Moore is currently the professional standards partner for the firm's Carolinas practice, which includes North Carolina offices in Charlotte and Raleigh, and an office in Columbia, South Carolina. “Billy brings to this role more than 30 years of industry experience coupled with proven leadership and extensive operational and financial insight,” said Mike McGuire, who took over as CEO of the firm this month. “He will be instrumental to the growth of the firm and will build on the momentum that Russ established during his tenure, during which Grant Thornton achieved the strongest financial condition in its history.”

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Accounting licenses hold steady in NY
The number of New Yorkers obtaining their CPA license from the state remained relatively flat in 2014, according to statistics compiled by the New York State Education Department, wrote Jeffrey Platsky of the Press & Sun-Bulletin. In 2014, 2,594 people received their license, up slightly from the 2,549 accountants certified in 2013. The number for the past two years represents a significant drop from the 2010 total of 4,099. The first major decline came in 2011, when 3,000 accountants were certified by the state. The number of accountants dropped even further in 2012 to 2,727, which represents a 42 percent decline from the 2010 figure.

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Pathways implementation taking next steps
A transition is taking place as implementation of the recommendations of the Pathways Commission on Accounting Higher Education continues, the American Institute of CPAs (AICPA) and the American Accounting Association (AAA) announced on Jan. 15, wrote Ken Tysiac of the Journal of Accountancy. The commission was formed in 2010 to study possible future higher-education paths for those seeking entry into the accounting profession. Recommendations were published in a 2012 report. At that time, the AICPA and the AAA agreed to continue their support for the commission for another three years as the commission worked to implement the recommendations. As the end of that three-year period approaches, the AICPA and the AAA are transitioning ongoing projects into their respective organizations during the coming year. The transition will be complete by Aug. 1.

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Earnings uncertainty lingers: Report
According to a new survey from the Association for Financial Professionals and consulting firm Oliver Wyman, just 14 percent of finance professionals say their companies are vulnerable to less earnings uncertainty than they were three years ago, wrote John Kester of the Wall Street Journal’s CFO Journal. Some 86 percent of finance professionals saw the same or greater earnings uncertainty, up two percentage points from the survey released in 2014. Those who saw more earnings uncertainty dipped two percentage points to 43 percent, but respondents who saw the same risk levels rose four points to 43 percent. Some 44 percent of respondents cited political and regulatory uncertainty as a risk to their earnings over the next three years, more than any other risk factor.

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