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Bramwell’s Lunch Beat: SEC Chief Accountant Not Ruling Out US Switching to IFRS

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Nov 7th 2014
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Salex audit committee to review inventory as CFO resigns
Caroline Chen of Bloombergwrote on Friday that Salex Pharmaceuticals Ltd.’s CFO has resigned, and the audit committee will review the way the company characterized wholesale inventory.

The company’s board has hired lawyers for the review, CEO Carolyn Logan told investors during a conference call on Thursday. Salix shares fell as much as 42 percent in extended trading. Logan also announced the departure of CFO Adam Derbyshire. The company hired Korn Ferry International to conduct a search for a permanent replacement for Derbyshire, who had been at the drugmaker for 14 years.

Inventory held by wholesale distributors of two top Salix drugs, Xifaxan and Apriso, increased to about nine months’ worth as of Sept. 30, the company said. That’s “a level that’s extremely high for this industry,” said Shibani Malhotra, an analyst at Stern Agee Group Inc., according to the article. Salix said it will work to cut the inventory to three months by the end of 2016.

The audit committee review represents a potential setback for the drugmaker just as its merger prospects appeared to suffer a blow, Chen wrote. Salix’s potential to be taken over by pharmaceutical companies Actavis PLC and Allergan Inc. has diminished now that those two companies entered active talks on a deal of their own, people with knowledge of the matter said on Thursday. Actavis and Allergan have put talks with Salix on hold, said the people, who asked not to be identified because the information is private, according to the article.

New SEC chief accountant weighing switch to global accounting rules
Michael Rapoport of the Wall Street Journalreported that the US Securities and Exchange Commission’s (SEC) new chief accountant said on Thursday he hopes to make a recommendation in the next few months on whether the SEC should move toward switching US companies to using global accounting rules.

In his first public comments since taking over as chief accountant a month ago, James Schnurr didn’t tip his hand over whether he favors a US move toward International Financial Reporting Standards (IFRS).

“I would hope that within the next few months there would be movement on this,” Schnurr said on a panel at a Practising Law Institute securities regulation conference in New York on Thursday, according to the article.

Schnurr said he was “in the process of getting up to speed” on the previous work the SEC has done on the issue, Rapoport wrote. When his review is done, he told reporters after the panel, he will talk to SEC Chairman Mary Jo White informally about what he thinks the SEC’s course of action should be. The commission ultimately “could do nothing,” he said.

Accounting industry leaders have long pressed for the United States to switch to using IFRS from US Generally Accepted Accounting Principles (GAAP). IFRS is used in more than 100 countries, and its advocates say companies and investors would benefit from having a single set of accounting rules in use worldwide. But momentum toward a full-blown US changeover to the global system has stalled amid concerns about cost, implementation, and the burden on smaller companies, according to the article.

ICAEW: US would be significant boost to ‘IFRS family’
In response to Schnurr’s comments yesterday, Nigel Sleigh-Johnson, PhD, head of the financial reporting faculty for the Institute of Chartered Accountants in England and Wales (ICAEW), said on Friday that efforts to establish a truly global financial reporting language would be “boosted significantly if the United States joins the IFRS family.”

“US investors are already used to IFRS reports, so we hope that the United States will at least move toward allowing greater use of IFRS by US companies or incorporating IFRS into US GAAP,” he added.

Healthcare sector sees silver lining in US tax inversion rules
Bankers and small-cap investors are seeing a silver lining to the recent US Treasury Department’s rules on tax inversions: Instead of quashing mergers and acquisitions (M&A) altogether, the Treasury's rules may pull dealmaking onshore, Jessica Toonkel of Reuterswrote on Thursday.

Companies, particularly in health care, that were looking to do big cross-border transactions now are refocusing on small and mid-cap US-based deals, bankers say.

Small, bolt-on acquisitions have traditionally been a staple of the healthcare industry as biotechnology and pharmaceutical companies try to add the most promising new drugs in development to their pipelines, Toonkel wrote. But in 2010, the tax advantages Canada-based Valeant Pharmaceuticals International Inc. and Palo Alto, California's Jazz Pharmaceuticals obtained through inversion deals set off an arms race for similar benefits.

Now many bankers and investors expect companies that canceled their inversion deals, such as AbbVie Inc. and Shire PLC, to go back to basics. Likely targets, investors and bankers said, are companies with one or two promising new products, such as Avanir Pharmaceuticals Inc., which has an Alzheimer's drug under patent, and Puma Biotechnology Inc., which is developing a breast cancer drug, according to the article.

[Some additional reading: Reuters also reported that AstraZeneca’s CFO thinks the new US tax rules on inversions will weaken Pfizer’s case for a new AstraZeneca bid.]

Luxembourg defends tax system
Tom Fairless of the Wall Street Journalwrote that Luxembourg sought to fend off criticism of its tax system on Thursday after the release of confidential documents showing the role the tiny country has played in helping hundreds of international companies cut their tax bills.

At a news conference, Luxembourg’s finance minister, Pierre Gramegna, said the problem of tax avoidance by international companies couldn’t be solved by his country alone. He stressed that all advanced tax deals approved by Luxembourg’s authorities were “totally legal,” and that other countries made similar agreements with corporations.

“This is a problem that goes far beyond Luxembourg,” Gramegna said, according to the article. “It needs to be solved by all countries [acting] in cooperation.”

The tax documents, disclosed earlier Thursday by the Washington-based International Consortium of Investigative Journalists, shed fresh light on how hundreds of the world’s biggest companies, from PepsiCo Inc. to FedEx Corp., have funneled profits through subsidiaries in Luxembourg, avoiding billions in taxes in other jurisdictions, Fairless wrote.

Gramegna criticized the publication of the documents as “illegal,” and he refused to be drawn on the role of Europe’s top official, European Commission President Jean-Claude Juncker, a former Luxembourg finance minister and prime minister, in approving the tax deals, according to the article.

Former AICPA Chair Olivia Kirtley elected IFAC president
The International Federation of Accountants (IFAC) on Friday elected Olivia Kirtley, CPA, CGMA, of the United States to a two-year term as its new president. Kirtley is the first female president of the IFAC, as well as the first from business and industry rather than public accounting.

The IFAC Council also elected Rachel Grimes of Australia as deputy president, a position Kirtley previously held.

“This is an exciting time for IFAC with challenges and opportunities for the profession at every level,” Kirtley said in a written statement. “As president, I look forward to engaging with member bodies and our many stakeholders as we seek ways to advance the impact and value of our profession, and in serving the public interest.”

Kirtley is a nonexecutive director of US Bancorp, Papa John’s International, and ResCare Inc. She began her career with an international accounting firm, followed by 20 years of executive management positions with a publicly traded global manufacturer and subsequent joint venture of Emerson Electric Co. and Robert Bosch GmbH. She is a former chair of the American Institute of CPAs (AICPA) Board of Directors and the AICPA Board of Examiners.

“Olivia has brought to IFAC the same qualities that made her tenure as AICPA chair so successful,” Barry Melancon, CPA, CGMA, president and CEO of the AICPA, said in a written statement. “Her experience in corporate finance and management accounting, extensive public board leadership, and earlier work in public practice combine for proven leadership in today’s complex global business environment. I applaud her election.”

Kirtley is a recognized advocate for strong corporate governance and was named by the National Association of Corporate Directors’ Directorship 100 as one of the top corporate directors and governance professionals in the United States.

First elected to the IFAC board in 2007, Kirtley became deputy president in November 2012. She has chaired the Planning and Finance Committee, Constitution Review Working Group, and a task force for enhancing service to professional accountants in business, in addition to being a member of the Nominating Committee, Regulatory Liaison Group, and the independent Task Force on Rebuilding Public Confidence in Financial Reporting.

“As I hand over the presidency to Olivia, I know that I will be leaving IFAC in the most capable of hands,” outgoing IFAC President Warren Allen said. “She has been a great source of support for me during my term, and was a leader on key initiatives that have enhanced and will sustain the accountancy profession, and help to transform IFAC into a more responsive and sustainable organization.”

IFAC survey investigates key issues facing SMPs in the global accounting profession
In other IFAC news, the global accounting organization has launched a survey to investigate current opportunities and challenges faced by small- and medium-sized practices (SMPs) in the accounting profession worldwide. Available in 21 languages, the survey is open through Dec. 15 and takes less than 10 minutes to complete.

Conducted annually, the Global SMP survey is designed to generate a snapshot of the key issues facing accounting professionals from SMPs across the globe, tracking prominent trends and developments, and generating an overview of the financial health of SMPs in the industry. This year, survey questions were designed with the assistance of several academics and lead researchers at the University of Dayton in Ohio.

Results from the survey will help the IFAC to better understand the country-specific and industry-wide needs and challenges of SMPs, and shape future programs and initiatives accordingly. Results of the survey will be published by the IFAC in early 2015.

Lame-duck Congress likely to pass tax extenders
A panel of congressional staffers was unanimously optimistic on Thursday morning that the lame-duck Congress would pass a package of “extenders,” including ones that would preserve tax breaks for research and development investments and purchases of equipment, wrote David M. Katz of CFO.

Summing up the potential for enactment of the extension of many of the 62 federal tax provisions, including ones benefiting businesses and individuals, that expired on Dec. 31, 2013, George Callas, the staff director of the House Ways and Means Subcommittee on Select Revenue Measures, said the lame-duck congressional session, which ends on Jan. 3, 2015, has “the space to get a deal, the opportunity to get a deal” and the time to “do some really good tax policy on a bipartisan basis.”

Like Callas, a Republican, three other congressional staffers expressed a great deal of optimism about such actions at a conference sponsored by KPMG and Bloomberg BNA on the federal tax implications of Tuesday’s elections, Katz wrote. For example, Cathy Koch, the chief adviser to Senate Majority Leader Harry Reid (D-NV), said it was “very likely” that a legislative package of extenders would be enacted in this session.

Three of the most mentioned expirations of business tax provisions are the “research and experimentation” tax credit, bonus depreciation, and the so-called Section 179 election enabling small businesses to deduct certain property expenses from their taxes. But a major sticking point to an enactment of a package of extenders appears to be whether it would make the provisions permanent, the panelists seemed to suggest, according to the article.

Groups press new GOP majority to reject wind tax credits
Laura Barron-Lopez of The Hillreported that conservative energy group American Energy Alliance led 66 organizations on Thursday in pressing the new GOP majority to reject any attempts to pass legislation that would extend a wind tax credit.

Senate Majority Leader Harry Reid has said he plans to bring a tax extenders package to the Senate floor – specifically one extending credits for renewable energy sources – when Congress returns next week.

In a letter to House Speaker John Boehner (R-OH) and Senate Minority Leader Mitch McConnell (R-KY) on Thursday, the 66 groups wrote that an attempt to revive the production tax credit (PTC) during the lame-duck session should be “rejected.”

“The PTC is a key part of President Obama and Majority Leader Reid’s attack on affordable energy from natural gas, coal, and nuclear,” the letter signed by Heritage Action for America and the Competitive Enterprise Institute states, according to the article.

The groups argue Republicans should not give away any leverage they may have when it comes to tax reform once they take the majority next year, Barron-Lopez wrote. The letter, also signed by Americans for Prosperity, a group backed by conservative donors Charles and David Koch, states the wind tax credit “restricts access to affordable energy” and “hides the true cost of wind power,” according to the article.

Quick Links:

  • Would your clients like a side of DIY legal forms with that tax return? (Going Concern)
  • This cartoon video explaining the Luxembourg tax schemes is perfect(Going Concern)
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  • PCAOB announces fraud-focused agenda for Nov. 20-21 Standing Advisory Group meeting (PCAOB)
  • Dutch say multinationals’ tax regime similar to neighbors (Bloomberg)
  • Muni investors worried about tax impact from US midterms (Reuters)
  • As power shifts in Washington, some see chance for tax and fiscal deals (New York Times)
  • GOP-led Congress raises odds of a business tax overhaul (Wall Street Journal)
  • Republicans control Congress. Why that matters for the nation’s small businesses (Washington Post)
  • How Michael Bloomberg helped pass Berkeley’s soda tax (Washington Post)
  • Head of European Commission under pressure over Luxembourg tax revelations (New York Times)
  • Ireland gets lucky with Luxembourg tax scandal (Bloomberg View)
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