Weinberg & Company

Simply Stated Newsletter – December 2019

By December 17, 2019 No Comments

ACCOUNTING:

Exxon wins New York Climate Accounting Case-

Exxon has won the climate accounting case brought against it by New York’s Attorney General. It was a case closely watched not only by oil companies, but by an ever widening group of public companies that could be challenged about what assumptions they have made.

The Attorney General had accused the oil giant of securities fraud based on its internal accounting for the financial risks of climate change, specifically for its use of a “proxy cost” for carbon to account for future climate-change regulations. It alleged that Exxon deceived investors of the impact of climate change by “creating the illusion that it had fully considered the risks of future climate change regulation”.

In the ramp-up to the trial, the oil industry has said that it is difficult to estimate the future costs of climate change regulation, which is uncertain politically and varies across national boundaries. Exxon denied wrongdoing and accused the attorneys general involved of being motivated by politics in bringing the case.

In a strong rebuke of the state’s attorney general Letitia James, New York Supreme Court Justice Barry Ostrager in Manhattan said in his 55-page ruling that: “The office of the Attorney General failed to prove, by a preponderance of the evidence, that ExxonMobil made any material misstatements or omissions about its practices and procedures that misled any reasonable investor.” The AG “produced no testimony either from any investor who claimed to have been misled by any disclosure.”

In a sign of what was to come, on the last day of trial the state dropped two of its four claims against Exxon without explanation.

The state had claimed that former Exxon CEO Rex Tillerson had spearheaded the scheme to dupe investors and that the plan was readily adopted by his underlings, a claim denied by Tillerson under oath. Exxon’s lawyer said New York had dragged the names of the company’s executives and engineers “through the mud” by advancing such a claim and then dropping it at the last minute.

 

New Accounting Standards Blamed for Rising Audit Costs

A new survey by FloQast, a provider of close management software for accountants, and Dimension Research asked controllers and senior accounting professionals at small, midsize and large companies about their audit costs in the wake of the new revenue recognition and leases standards.

The survey results, reported by Accounting Today, found that nearly 90% of companies report that audit costs increased over the two years after implementation of the revenue recognition standard. It also found that 50% of the businesses surveyed said it took up to three months to conduct the year-end audit.

Additionally, the survey found 95% of respondents said they face challenges with their audits, including conflicts with other work (82 percent), the complexity of accounting rules (58 percent), and dealing with the stressful time that has a personal impact on their staff (50 percent).

Sixty-six percent of respondents said that CFOs and controllers live in fear they may have missed something in their financials that will come under the scrutiny of the auditors.

“It makes sense that audit fees would go up when there is a review of the new adoption of a standard,” FloQast CEO Mike Whitmire told Accounting Today. “It’s a learning curve for the auditor. I would have expected a bump for this year and a drop-off for the next year. I was expecting the fees to drop, but that’s not how it’s going at all,” he said. Ninety percent of respondents said they expect their audit costs to further increase in the next two years.

 

PCAOB’s 2020 Inspection Focus

In a presentation last week at the AICPA Conference, George Botic, PCAOB Director of Registration and Inspections, provided insight into topical issues of focus as well as changes to the inspection report forthcoming next year.

In 2020, inspectors will focus on areas that have been challenging for firms in recent years, reports the Journal of Accountancy:

  • Auditor independence.
  • Implementation of new standards.
  • How firms address recurring audit deficiencies.
  • Other areas such as digital assets, cybersecurity, and consideration of omitted procedures.

Noting that an appropriately designed and effectively operating system of quality control is fundamental to audit quality, Botic said “It is important for a system of quality control to assist the firm in self-identifying, assessing, and responding to risks in order to prevent instead of only detecting audit deficiencies.”

In the first quarter of 2020, the PCAOB will debut a new inspection report format which is “designed to deliver the results of our inspections in a clear, easier-to-read format that goes directly to our findings and provides comparative information,” Botic told AICPA members.

Citing Audit Analytics data that indicates a lower level of restatements in recent years, Botic concluded that audit quality overall is improving, but noted that the PCAOB has found common deficiencies in both U.S. and non-U.S. inspections. Firms need to improve their root-cause analysis when deficiencies occur.

 

[Source: AICPA/Journal of Accountancy]

 

2020 Presidential Tax Tracker

Tax policy has become one of the major issues of the 2020 presidential campaign, so the Tax Foundation has developed a new interactive tool to keep track of every tax plan proposed by each of the presidential candidates.

And since we all know the limited shelf-life of a politician’s promise, the tracker will continue to be updated to provide changes as well as more detailed tax plans over the coming months.

So hold on to your wallet with one hand and click HERE with the other.

MONEY TALKS

One in eight owner-occupied homes in the U.S., or roughly nine million residences, are set to hit the market through 2027 as the baby boomers start to die in larger numbers, according to an analysis by Issi Romem conducted while he was a senior director of housing and urban economics at Zillow. That is up from roughly 7 million homes in the prior decade.

By 2037, one quarter of the U.S. for-sale housing stock, or roughly 21 million homes will be vacated by seniors. That is more than twice the number of new properties built during a 10-year period that spanned the last housing bubble.

 

[Source: Fox News/Wall Street Journal]

Simply Stated Thoughts…

Boosting GDP with Sex, Drugs and Crime

How much better would we be if our economy was growing at 3% annually instead of its current growth rate of around 2%?

Perhaps it already is.

Currently the U.S. Gross Domestic Product (GDP) is calculated using only legal activities. But add in the productivity of pimps, drug dealers, bookies, and other illegal pursuits and GDP gets a nice bump. As much as 1% or more by some estimates.

Countries all over the world measure the size of their economies based on international standards published by the United Nations. It is known as the System of National Accounts, or SNA. One of the metrics in the SNA is GDP, which represents the total monetary or market value of all the finished goods and services produced within a country’s borders over a period of time, usually annually. Items such as clothing, food, and housing are typical inclusions.

Should illegal goods and services be counted too? That is the subject of an interesting story appearing recently in the Wall Street Journal.

The answer is yes, argues the SNA. It has long recommended including illegal activities because omitting it distorts a nation’s GDP, undermines its monetary policies and upsets the uniformity of the accounts.

And what a difference it would make.

“If France does not include illegal activities, and Germany does, the German economy will be bigger,” James Tebrake, assistant director of the statistics department of the International Monetary Fund, told the WSJ.

If Canada includes just the illicit sales of cannabis, it could boost its GDP by 0.4%. Likewise for the U.K, which would realize a 0.4% boost if it counts prostitution and illegal drugs.

As for the U.S., the WSJ points to a study by Rachel Soloveichik, a research economist with the Bureau of Economic Analysis. Her study focused on the effect of adding just four illegal activities — drugs, prostitution, gambling and theft from businesses — to the 2017 GDP numbers. She estimates that it would have added more than 1% to the GDP. She presented her analysis last month at the IMF Statistical Forum.

Although there are no imminent plans to revamp the way GDP is calculated, it is an interesting metric to consider. Beyond GDP comparisons between nations, it may provide insight into the growth or decline of a country’s underground economy.

An Audited Legacy of Quality

It’s become a lot easier to choose the best audit firm. That’s because the Public Accounting Oversight Board (PCAOB) conducts periodic inspections of all audit firms and publishes its reports online. For all to see.

Yes, we get audited too.

Weinberg & Company is consistently at the very top when it comes to the quality of our work– just check our legacy of stellar inspection reports.

We thought we were building a leading, international accounting firm by providing Big 4 expertise, delivered with personal service.

Turns out we were also building “An Audited Legacy of Quality.”

DISCLAIMER:
Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.

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