Category: Accounting

FBAR Filing Deadline Extended (For Some)

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The deadline for Foreign Bank Account Reporting was June 30. The Report of Foreign Bank and Financial Account is IRS TD F 90-22.1 (.pdf). Any United States person who has a financial interest in or signature authority, or other authority over any financial account in a foreign country, if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year must file the report. An FBAR must be filed whether or not the foreign account generates any income.

Although FBAR requirement has been around for a few years, the IRS recently revised the filing requirements. It seems to have caught many people by surprise.The IRS had extended the FBAR Filing deadline to September 23 for taxpayers who reported and paid tax on all their 2008 taxable income, but only recently learned of their FBAR filing obligation and have insufficient time to gather the necessary information to complete the FBAR.

There are a few instances that the filing requirement seems unclear and really unexpected, so the IRS further extended the filing deadline in two instances:

  1. Persons with no financial interest in a foreign financial account but with signature or other authority over the foreign financial account.
  2. Persons with a financial interest in, or signature authority over, a foreign financial account in which the assets are held in a commingled fund.

If that is you, then then you have until June 30, 2010 to file FBARs for the 2008, 2009 and earlier calendar years.

In the first instance, company officers and employees were caught off guard that they need to personally file an FBAR for company accounts. As part of IRS Notice 2009-62 (.pdf), the Department of the Treasury is requesting comments regarding when a person with signature authority over, but no financial interest in, a foreign financial account should be relieved of filing an FBAR for the account. Especially, when the person with a financial interest in the account has filed an FBAR.

The second instance was triggered by statements made by the IRS in June indicating their view that the term “foreign commingled fund” includes private investment funds organized outside the United States. As part of IRS Notice 2009-62 (.pdf), the Treasury Department is asking for comments on this approach.

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Is the Public Company Accounting Oversight Board Unconstitutional?

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That question is on the docket for the Supreme Court in October. The Court agreed to rule on the constitutionality of the Public Company Accounting Oversight Board in Free Enterprise Fund v. PCAOB (08-861). The Sarbanes-Oxley Act passed in 2002 created PCAOB as a new government agency to regulate firms that audit the books of publicly traded companies. The key question in the case is whether the Act violated the separation-of-powers doctrine.

This amici brief from a group of law professors says: No, its unconstitutional.

As law professors who have studied and written about the massive accounting and corporate governance scandals that prompted the passage of the Act, we applauded Congress’s decision to establish a new independent regulator to oversee the conduct of the auditors of public companies. We have been concerned, however, that the particular design chosen by Congress accorded the PCAOB substantial discretion and autonomy without imposing constitutionally sufficient accountability. The current economic crisis in the financial markets has raised for us another concern: that Congress may use the design of the PCAOB in creating additional independent financial regulators. Ultimately, we hope that a decision by this Court will prompt Congress to restructure the PCAOB as a regulator that is more accountable and transparent.

The professors in the brief are: Stephen Bainbridge, Robert Bartlett, William Birdthistle, Timothy Canova, Lawrence Cunningham, James Fanto, Theresa Gabaldon, Lyman Johnson, Roberta Karmel, Donna Nagy, Lydie Pierre-Louis, Adam Pritchard, Margaret Sachs, Gordon Smith, and Kellye Testy.

The Cato Institute and law professors Larry Ribstein and Henry Butler came to the same conclusion.

Historically, the power to remove an official “for cause” was seen as “an impediment to, not an effective grant of, Presidential control.” Morrison v. Olson, 487 U.S. 654, 706 (1988) (Scalia, J., dissenting). But at least traditional independent agencies are subject to this control. That much is settled. Here, the Board is protected from Presidential control by two layers of “for cause” removal statutes—rendering removal effectively impossible.

Also lining up against PCAOB are The Washington Legal Foundation, Mountain States Legal Foundation and American Civil Rights Union.

Reference:

FBAR Deadline

The deadline for Foreign Bank Account Reporting is June 30. The  Report of Foreign Bank and Financial Account is IRS TD F 90-22.1 (.pdf).

Any United States person who has a financial interest in or signature authority, or other authority over any financial account in a foreign country, if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year must file the report. An FBAR must be filed whether or not the foreign account generates any income.

The IRS has engaged in a large-scale initiative to seek out taxpayers with undisclosed accounts overseas. While in the past the prosecution of those failing to comply with the Foreign Bank Account Reports reporting requirements have been rare, following enactment of the Patriot Act of 2001, the IRS appears ready, willing and able to crack down on the non-compliant.

The granting, by IRS, of an extension to file Federal income tax returns does not extend the due date for filing an FBAR.   There is no extension available for filing the FBAR.

There are a few exceptions to the filing requirement.

An officer or employee of a bank which is currently examined by Federal bank supervisory agencies for soundness and safety need not report that he has signature or other authority over a foreign bank, securities or other financial account maintained by the bank, if the officer or employee has NO personal financial interest in the account.

An officer or employee of a domestic corporation whose equity securities are listed upon any United States national securities exchange or which has assets exceeding $10 million and has 500 or more shareholders of record need not file such a report concerning signature or other authority over a foreign financial account of the corporation, if he has NO personal financial interest in the account and he has been advised in writing by the chief financial officer or similar responsible officer of the corporation that the corporation has filed a current report, which includes that account.

An officer or employee of a domestic subsidiary of such a domestic corporation need not file this report concerning signature or other authority over the foreign financial account if the domestic parent meets the above requirements, he has no personal financial interest in the account, and he has been advised in writing by the responsible officer of the parent that the subsidiary has filed a current report which includes that account.

An officer or employee of a foreign subsidiary more than 50% owned by such a domestic corporation need not file this report concerning signature or other authority over the foreign financial account if the employee or officer has no personal financial interest in the account, and he has been advised in writing by the responsible officer of the parent that the parent has filed a current report which includes that account.

Accounts in U.S. military banking facilities, operated by a United States financial institution to serve U.S. Government installations abroad, are not considered as accounts in a foreign country.

The willful failure to disclose foreign accounts, or to report all of the information required on an FBAR, can result in severe civil and criminal penalties. The civil penalty amount is limited to the greater of $25,000 or the balance in the account at the time of violation, up to a maximum of $100,000 per violation. Criminal violations of the FBAR rules can result in a fine of not more than $ 250,000 or 5 years in prison or both.

Section 5314 of the Bank Secrecy Act of 1970 authorizes the Secretary of the Treasury to require residents or citizens of the United States to keep records and/or file reports concerning transactions with any foreign agency. (31 U.S.C. §5314) The provisions resulted from concern that foreign financial institutions located in jurisdictions having laws of secrecy with respect to bank activity were being extensively used to violate or evade domestic criminal tax and regulatory requirements.

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The SEC’s Radical Disclosure Overhaul

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My notes, live, from Dr. William Lutz on The SEC’s Radical Disclosure Overhaul. (Disclaimer: The presentation represents the views of Dr. Lutz and not necessarily the views of the SEC.)

He started off with a definition of “Information”: That which reduces uncertainty. (From Shannon and Weaver’s  Mathematical Theory of Communication) If it’s not information, it’s noise. You only want the information that you want.

He says the 10-Q is noise. Lots and lots of noise. Plus there is all the trouble of searching in EDGAR to find the filing. He likes the Hittites tablets that last hundreds of years. There is no difference between the Library of Alexandria and EDGAR. Both have data that are locked down and inaccessible, full of noise. In looking at a 10K for a company in 1996 it was 263 pages. In 2009, it was 1,376 pages.

How do you give investors access to high quality information?

Each year, the SEC collects the address of the filing company 14 times. And not always in the same format.

He advocates having a “company file” with a central repository of information: static company information, periodic information and transaction information. The information needs to be structured and accessible. He then said the magic word: XBLR.

He pointed out that Israel has already deployed this system with true electronic filing. Not just a paper filing turned into text, but the tagging of data to the system. It allows a mash-up of different information from different companies to allow for easier manipulations of the data. he cited an example of finding an insider trading scandal using this data tagging.

This creates more transparency. With this information, everyone can be an accountant and understand the finances of a company. And easily compare that information with other companies.

How do we give investors access to the data they need? In a way that they can use the data?

There is a need to move from a print society to an information society.

More information:

(These notes are taken live, so I apologize if I left out anything or misquoted someone. Please forgive any typos or grammatical errors.)

Supreme Court to Rule on Sarbanes-Oxley

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On Monday, the Supreme Court agreed to rule on the constitutionality of the Public Company Accounting Oversight Board. The Sarbanes-Oxley Act passed in 2002 created PCAOB as a new government agency to regulate firms that audit the books of publicly traded companies. The key question in the case is whether the Act violated the separation-of-powers doctrine. The case is Free Enterprise Fund v. PCAOB (08-861).

In this challenge, Free Enterprise Fund and Beckstead and Watts, LLP, LLP contend that Title I of the Sarbanes-Oxley Act of 2002 , 15 U.S.C. §§ 7211-19, violates the Appointments Clause of the Constitution and separation of powers because it does not permit adequate Presidential control of the Public Company Accounting Oversight Board. Congress made the Board’s exercise of its duties subject to the control of the Securities and Exchange Commission. The SEC sets the rules and may remove members. In turn, the President appoints members of the SEC, with the advice and consent of the Senate, and may remove them for cause. In appellants’ view this  scheme vests Board members “with far reaching executive power while completely stripping the President of the authority to appoint or remove those members or otherwise supervise or control their exercise of that power.”

Effectively, they object that the members of PCAOB, an independent agency, are appointed by the SEC, another independent agency, instead of the President. Neither the President of the United States nor a Presidential alter ego possesses any power to remove PCAOB members for cause or otherwise.

The D.C. Circuit did not accept this challenge and ruled in favor of PCAOB and the United States.

References:

IRS Notice 2009-38 on Section 382 For Acquisition of Instruments Issued by Recipients of TARP Funds

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The Internal Revenue Service issued Notice 2009-38 (.pdf) to provide guidance when instruments are acquired by the Treasury Department under the Capital Purchase Program of the Emergency Economic Stabilization Act (“EESA”) and the Troubled Asset Relief Program (“TARP”). The issue arose because of the massive amount of securities being acquired by the Treasury. If those acquisitions are be deemed an ownership change that could limit the ability to deduct net operating loss carryovers and recognized built-in losses

In general, Section 382 of the Tax Code limits deductions for net operating loss carryovers and recognized built-in losses subsequent to an ownership change. An ownership change, as defined in Section 382(g) of the Tax Code, is generally a change of 50% or more of the ownership of a corporation within a three-year period. Prior to this Notice and similar earlier guidance, the Treasury Department’s acquisition of certain stock of a corporation could have resulted in an ownership change, thereby limiting the corporation’s ability to utilize prior losses to reduce its taxable income.

Auditing Standard No. 5 for Smaller Companies

pcaob_logoPCAOB released Staff Views for applying the provisions of PCAOB Standard No. 5 for audits of smaller, less complex public companies (.pdf) on January 23, 2009. Standard No. 5 is focused on assessing the effectiveness of internal controls over financial reporting. This Staff View of PCAOB Standard No. 5 discusses how to scale an audit to fit with smaller companies.

Deloitte’s Year End Reporting Issues: An Update on Current Issues and Items on the Horizon

Deloitte, as part of their Financial Reporting Series presented a webinar on year end reporting issues. The panel consisted of:

  • Bob Uhl
  • Beth Ann Reese
  • Glen Donovan
  • Stuart Moss

Valuations will be a hot topic for year end reporting. The problem is the current “market impairment” existing for many securities.

Auction Rate Securities settlements offer some particular accounting issues. Credit derivatives will require enhanced disclosures (both qualitative and quantitative) about why you are using derivatives under Statement 161.

The SEC staff is expecting an increase in the number of goodwill impairments compared to prior years. They are also expecting greater disclosure about the impairments.

The SEC’s Division of Corporation Financial has several initiatives to address the current market conditions. They are focusing on improvements in communications with issues.

Liquidity and capital resource disclosure are likely to be a concern. Companies will need to disclose if the there are uncertianties in their ability to access financing.

ACFE Report to the Nation Occupational Fraud and Abuse

According to research conducted by the Association of Certified Fraud Examiners (ACFE), U.S. organizations lose an estimated 7 percent of annual revenues to fraud. Based on the projected U.S. Gross Domestic Product for 2008, this percentage indicates a staggering estimate of losses around $994 billion among organizations, despite increased emphasis on anti-fraud controls and recent legislation to combat fraud.

The ACFE’s Report to the Nation on Occupational Fraud & Abuse details the survey results of 959 Certified Fraud Examiners (CFEs) throughout the US who were asked to provide specific information on one fraud case he or she had personally investigated that met the following criteria:

  • The case involved occupational fraud;
  • The fraud occurred within the last two years;
  • The investigation of the fraud was complete; and
  • The CFE was reasonably sure that the perpetrator had been identified.

The end result is a comprehensive report that sheds light on occupational fraud and abuse while offering stark lessons and valuable insights about its prevention and detection.

GE To Stop Offering Quarerly Earnings Forecasts

GE had originally begun making quarterly earnings forecast to display its consistent earnings to Wall Street. According to the Wall Street Journal, some GE observers think the earnings forecast prompted executives to sell assets or make other moves to hit their estimates.

From a compliance perspective, you would be worried that the pressure to hit the numbers could lead to fudging of numbers.

Good for GE for stepping away from their old practice.