Smaller public companies deserve a break
Since 2013, the Financial Accounting Standards Board (FASB) has regularly given private companies extra time to adopt new accounting standards. Now the board may be ready to extend a similar break to small publicly listed companies.
“I personally am sensitive to the resource constraints of smaller public companies and think we need to give them adequate time to get it right the first time,” FASB Chairman Russell Golden said recently. “If that means a little additional time, I think that’s a reasonable thing to do.”
Golden was responding to a complaint that the distinction between private companies and small public businesses may not be as sharp as FASB believes. He made no promises as to if and when the board could act. The discussion indicated, however, that Golden and other FASB members were open to exploring whether small public companies should have similar scaled-back requirements as private companies have.
Source: Thompson Reuters Checkpoint / CPA Journal
Effective dates for new FASB standards… ready?
Public companies should apply the new revenue standard to annual reporting periods beginning after December 15, 2017; nonpublic companies beginning after December 15, 2018.
Public companies should apply the new revenue standard to interim reporting periods within annual reporting periods beginning after December 15, 2017 (that is, a public company is required to apply the new revenue standard beginning in the first interim period within the year of adoption).
Nonpublic companies should apply the new revenue standard to interim reporting periods beginning after December 15, 2019. It is not required to apply the new revenue standard in interim periods within the year of adoption.
Both public and nonpublic companies may adopt the new revenue standard early, but not before the original public company effective date (that is, annual periods beginning after December 15, 2016). A public company should apply the new revenue standard to all interim reporting periods within the year of adoption. A nonpublic company is not required to apply the new revenue standard in interim periods within the year of adoption.
For public companies, the Accounting Standard Update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Thus, for a calendar year company, it would be effective January 1, 2019.
For all other companies, the update is effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020.
Early application will be permitted for all.
India’s Taxman goes social
Who wants to be a millionaire?
Maybe everyone in India, but boasting images of your wealth, like a shiny new car on Instagram or the Facebook post about your chic holiday cottage, may bring India’s taxman to your door, reports Bloomberg.
At a cost of 10 billion rupees ($156 million) and 7 years in the making, the Indian government’s “Project Insight” has begun amassing information collected from social media sites, as it looks to match residents’ spending patterns with income declarations.
Many countries including Belgium, Canada and Australia are already using big data to unearth tax evasion that may have gone undetected without technology. India’s efforts resemble the U.K.’s “Connect,” which is estimated to have cost some 100 million pounds. Since its inception in 2010, it has prevented the loss of 4.1 billion pounds ($5.4 billion) in revenue and the number of criminal prosecutions has risen to 1,165 from 165 a year, the London-based Institute of Financial Accountants said in a recent report.
Please drink more sodas
Philadelphians are not drinking enough sodas!
Last year Simply Stated reported that the Philadelphia City Council adopted a city-wide excise tax on nonalcoholic sugar-sweetened and diet beverages. The 1.5 cent-per-once beverage tax (originally proposed at 3 cents per ounce.) took effect on January 1, 2017.
Unlike other cities that touted health benefits as justification for such a tax, Philadelphia’s Mayor Kenney declared that his tax was going to be used primarily for elementary education. In a PBS interview he said, “The ancillary benefit to this will be healthy choices, but it’s not the purpose. The purpose … is to allow people to get their kids educated and move them out of poverty into taxpaying citizens.”
So far tax revenue has come in well below city projections. City leaders were thirsting for $92 million annually — a fat $410 million over the next five years.
Affected beverage sales have declined by nearly 50%, primarily due to higher prices, with many consumers shopping for all their groceries outside the city. Buying beer is now less expensive than the now over-taxed beverages. Consumers are moving from Coke to Coors — beer sales have increased.
To top it off, local branches of Coca-Cola report a workforce downsizing of 40 positions and PepsiCo said it is laying off 80-100 workers as a result of decreased soda sales due to the tax. Disgruntled businesses and displaced workers have filed several lawsuits against the tax.
As for the promise that the tax would fund pre-kindergarten education, the Tax Foundation reports, “in practice Philadelphia awards just 49 percent of the soda tax revenues to local pre-K programs.” Another 20% of the soda tax revenues fund government employee benefits or city programs.
This old house
We’ve seen this story before.
A shortage of single-family homes pushes up prices, preventing existing home owners from trading up. Renovations of existing homes ensue.
Harvard University’s Joint Center for Housing Studies predicts that Americans will spend a record $316 billion on home remodeling this year. Good news for home improvement stores, one of the few bright spots in the beleaguered retail sector. It would be great news for building contractors too, except they are struggling to meet the demand due to a severe shortage of construction workers.
“There are about the same number of homes for sale today as there were in 1994,” according to Zillow Chief Economist Svenja Gudel, ” but there are 63 million more people.”
Out of sync
The relationship between private and public markets has never been so out of sync. Currently, nearly 170 private companies are valued by their owners at $1 billion or more, according to Dow Jones VentureSource. That is up from about 60 just three years ago. Thirteen private companies are now valued above $10 billion.
CLIMATE CHANGE DISCLOSURES
No matter what you as an individual think about climate change, you as a public company may want to run for shelter. The push is on to compel public companies to include the risks of climate change in financial filings.
The push for climate disclosure began last year when the Task Force on Climate-related Financial Disclosures issued a report saying greenhouse gas emissions pose a serious risk to the global economy and decided that “investors need better information to assess which firms are most vulnerable to shifting weather patterns.”
Who, we wondered, is this group with such a long hyphenated name? Turns out, the Task Force on Climate-related Financial Disclosures is a new group established in 2016 by the Switzerland-based Financial Stability Board, which is also a relatively new group formed in 2009 as a successor to the Financial Stability Forum, which is managed by a small secretariat housed at the Bank for International Settlements in Basel, Switzerland.
In its first announcement, the Financial Stability Board said that its task force will be headed by former New York City Mayor Michael Bloomberg. He’d be the one at the head of the table with the 32 ounce Big-Gulp sugary soda in front of him. (It’s OK, he wasn’t drinking it in New York — so no crime committed.)
So, this Task Force with the long name met in London and quickly decided that companies should publish an assessment of losses they could suffer under hypothetical climate change scenarios and make it a part of their routine financial statements. The Financial Stability Board immediately accepted the recommendation of its task force. It also recruited some big-name companies looking for green street-cred to join their group, such as J.P. Morgan Chase & Co., Unilever PLC, and miner BHP Billiton Ltd.
Last month the Financial Stability Board (described by the Wall Street Journal as a group of “global regulators”) announced that companies should disclose in financial filings how they are planning for risks and opportunities related to climate change and called for companies to develop specific metrics and targets to measure performance in that area. And here we thought the SEC was worried about reporting non-GAAP metrics.
In a modest sign that there may be some speed bumps on the road to quickly mandating this requirement in the U.S., Former Chairman of the SEC, Mary Schapiro, who is advising Mr. Bloomberg said, “This [task force’s report] was done by industry for industry and there are compelling reasons for companies to begin this journey.” However, she continued, “In the U.S. I have no expectation that there will be a regulatory framework around these recommendations.”
As auditors that prepare financial reports, we’ve never come across investors, or other financial report readers who were clamoring to get their hands on a company’s hypothetically-modeled climate risk data.
We’ll leave it to others to debate if more financial regulations and disclosures can help save the planet. Of one thing we are certain: compelling this expensive exercise would certainly drive up the costs of compliance, hitting smaller public companies the hardest. And that we can accurately predict will result in a more adverse business climate.