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Bramwell’s Lunch Beat: Politicians in Europe Bash IFRS Foundation

Mar 17th 2014
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Why America has two debt ceilings
When Congress and President Obama agreed on February 15 to suspend the federal government’s debt limit through March 2015, the suspension applied to the $17.2 trillion in debt that is measured by currently outstanding US Treasury bills. But it didn’t take into consideration America’s other “debt ceiling” – the one that is approaching $78 trillion and that, unfortunately, has no statutory limit, Joe DioGuardi, a former New York congressman and president of Truth in Government, wrote in an opinion piece today for Roll Call.

“The $61 trillion difference between these two numbers is the result of the US government’s use of two contrasting accounting systems,” he noted. “The statutory debt limit that was passed through March 2015 uses a cash basis accounting system. This means that the Treasury Department records financial transactions when income is received and expenses are paid.

“But this is not the case with the $78 trillion number, which is measured by what the highly respected accounting profession calls generally accepted accounting principles,” DioGuardi continued. “GAAP is based on the ‘accrual’ method of accounting used in the private sector and enforced by the Securities and Exchange Commission to protect investors in publicly traded companies. Under GAAP, expenses are recorded when government is obligated to pay, either when billed or contractually liable, even before payment is made. So, for example, under GAAP, the unfunded obligations that the US government has incurred for programs such as Social Security, Medicare, and federal pensions must be treated as expenses from the day those promises are made. They must also be shown as a liability on the books of the US government and in its financial reports. Cash basis accounting does not recognize these expenses until they are paid – hence the $61 trillion discrepancy between the two debt figures. It is well-known that accrual/GAAP accounting is considered a better way to measure a large and complex entity’s financial condition and the results of its operation, not only in financial terms but in an economic sense.”

IFRS could be stripped of accountancy watchdog role
Louise Armitstead, chief business correspondent for the Telegraph, wrote over the weekend that the International Financial Reporting Standards (IFRS) Foundation’s role in governing global accounting rules is under threat after European politicians said they were questioning whether the authority was “best suited” to the position.

The IFRS Foundation, which is responsible for setting standards in 100 countries, has been severely criticized by members of the European Parliament (MEPs) for poor governance structures, a lack of transparency, and its “close links to the accounting industry,” the article stated. The European Parliament last week approved a new £50m five-year funding program for the IFRS’s standard-setting arm, the International Accounting Standards Board (IASB).

However, MEPs attached a series of conditions to the deal and warned if they are not met, the funding could be stopped in a year’s time.

Dave Camp’s most valuable contribution to tax reform
In a March 14 post for TaxVox, the Tax Policy Center blog, Bill Gale and Howard Gleckman wrote this: “By proposing a specific, transparent, and fully-realized reform plan, [House Ways and Means Committee Chairman Dave Camp (R-MI)] has made it far tougher for others to credibly promise trillions of dollars in tax cuts without either describing how they’d pay for them or acknowledging that they’d be willing to increase the deficit by those same trillions.”

The hipsterfication of taxes
The “Hipster Tax Crisis,” a spoof campaign launched earlier this month by H&R Block, is ramping up as the April 15 tax deadline approaches, Jonnelle Marte of MarketWatchreported today.

The initiative features a series of video skits starring ESPN host Kenny Mayne, who is tasked with educating fake hipsters about the complications of the tax code. People can go on a website dedicated to the spoof to “hipsterize” photos of themselves by digitally adding mustaches and knitted caps and to vote for who they think should be the “Hipster of the Year,” according to the article.

They can also flip through hipster tax facts, such as “The IRS  e-file system is currently incompatible with all vintage typewriters even if your coffee shop has free Wi-Fi.” And they can read about the key components of a hipster as shown in a cartoon illustration, including the horn-rimmed nonprescription glasses, a vintage hat, and the crusty, canvas high-top shoes.

Five unbelievable financial advisor regulations
Forbes contributor David John Marotta wrote yesterday about five of the more interesting US Securities and Exchange Commission (SEC) regulations for financial advisors.

For example, financial advisors may not use client testimonials in advertising, according to Marotta.

“Advertising is one of the primary targets of SEC visits,” he wrote. “This ban is so all-encompassing that advisors have pushed social media sites to allow them to turn off Facebook ‘likes’ and LinkedIn endorsements, sometimes considered testimonials. Every statement of a client’s experience with an advisor used in an advertisement constitutes a fraudulent, deceptive, or manipulative act, according to section 206(4) of the Investment Advisers Act of 1940.”

Risks mount for retirees in limited energy partnerships
Issac Arnsdorf and Alex Nussbaum of Bloombergreported today that master limited partnerships (MLPs) are more popular than ever. They’re tax-exempt, publicly traded companies that own pipelines, storage tanks, and other cash-generating energy infrastructure and give practically all their income to investors.

In 2013, there were a record 21 initial public offerings valued at $8.8 billion and an all-time high of more than $11.9 billion flowed into funds investing in MLPs, according to Morningstar Inc.

Today, critics are raising warnings about the growing dangers of MLPs. Almost unanimously bullish commentaries, such as reports found online, have attracted droves of individuals to a trade even some professionals have said they don’t understand, the article stated. MLP values have risen with the unprecedented US energy boom, a pace that will be difficult to sustain as production from shale drilling slows.

Growth attained by issuing debt and equity becomes a problem if the companies lose investors’ confidence, said Douglas Johnston, managing partner at Quantalysis LLC, an investment research firm in Huntington, New York.

“It’s a bit of a gimmick,” Johnston said, according to the article. “Retail investors bid the product up. MLPs can then issue more equity to fund the distribution and growth. It works until it doesn’t work.”

Quick Links

  • Are you ready to be audited? (Wall Street Journal)
  • Dealing with a 1099-K for tax-free residential income (Don’t Mess With Taxes)
  • Writing off business use of your cell phone on your taxes (Don’t Mess With Taxes)
  • The real IRS targeting scandal (WND)
  • Tax reform déjà vu (Roll Call)
  • Tax break just for lawyers (Forbes)
  • Are Obamacare’s tax credits harmless? The little understood dark side of the subsidies (Forbes)
  • Why tax season is the best time for a financial spring cleaning (Lifehacker)
  • Tax guide 2014: The best online services for tackling your 1040 (PCWorld)

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