Summary: Speaking at a Global Accounting Alliance roundtable discussion hosted by the AICPA, Wayne Carnall, chief accountant of the SEC’s Division of Corporation Finance, said he could not predict when the SEC would finalize the IFRS roadmap. However, he did say he was disappointed with the number of responses to the proposals.

When asked recently to give a prediction for when the SEC would finalize the IFRS roadmap, Wayne Carnall, chief accountant of the SEC’s Division of Corporation Finance, quoted Danish physicist Niels Bohr’s famous line that “prediction is very difficult, especially about the future.”

Eight months have passed since the SEC issued Release No. 33-8982, Roadmap for the Potential Use of Financial Statements Prepared in Accordance with International Financial Reporting Standards by U.S. Issuers, which provides a timeline for U.S. companies to adopt IFRS in a phased-in approach from 2010 through 2017, provided several conditions are met each stage along the away.

Comments on the proposal were originally due by February 19, but many companies said the complexity of a switch as significant as adopting IFRS to replace U.S. GAAP and the numerous details in the proposal demanded far more time. In SEC Release No. 33-9005, Roadmap for the Potential Use of Financial Statements Prepared in Accordance with International Financial Reporting Standards by U.S. Issuers, the SEC extended the comment period until April 20.

Since then, agency officials have had little to say about when the proposal might be approved. Although former SEC Chairman Christopher Cox considered the IFRS roadmap a priority, Chairman Mary Schapiro made comments during her confirmation hearing that she would proceed with caution in regards to IFRS because it was not yet a mature enough body of accounting standards to sufficiently ensure the protection of U.S. investors.

“I can’t tell you what we are going to do,” Carnall said on July 17, 2009, during a Global Accounting Alliance roundtable discussion hosted by the AICPA. For now, the SEC is reviewing the 240 comment letters it received about the proposed IFRS roadmap. The total represents 1% of companies that would be impacted by the proposals. “I thought that was a surprisingly low number,” Carnall said, adding that FASB Staff Positions issued in November received many more responses. “We extended the deadline, so it’s a little disappointing.”

However, later in the discussion, Carnall agreed with panelists, including FASB Chairman Bob Herz, who said they had to postpone decisions on many financial reporting issues due to the financial crisis. After the discovery of Bernie Madoff’s $65 billion Ponzi scheme, the SEC has devoted more time to issues that it considered key to protecting investors. “There are always fires, but the fires now are burning quite strongly,” Carnall said. “Hopefully, they die down.”

Source: WG&L Accounting & Compliance Alert Checkpoint 7/20/09

A bipartisan group of Senate Finance Committee members have introduced legislation to streamline and make permanent the signature tax credit for companies’ research expenses that is set to expire December 31.

The bill would merge two existing options, sunsetting the traditional research and development credit after 2010 and permanently boosting the “alternative simplified credit” from 14 percent to 20 percent. The aim is to provide a more robust and flexible credit for newer and start-up firms, particularly in the technology sector. At the same time, it would end the stop-start nature of the existing credit — which has been extended 13 times — providing certainty for companies while letting older, established firms gradually adjust to the alternative credit.

The traditional credit applies to qualified research expenses above a certain amount. The amount depends on whether the company is considered established — with gross receipts and research expenses in three or more tax years from 1984 to 1988 — or a start-up firm, which had fewer than three tax years in that period. But the base amount must exceed 50 percent of a firm’s qualified research expenses in a tax year.

The alternative credit was added to the tax code in 2006, allowing firms to claim a credit for 12 percent of qualified research expenses above 50 percent of its average over the previous three tax years. The credit was boosted to 14 percent for 2009 as part of the financial industry rescue package in the fall. Hatch touted the simplified credit as a “more direct incentive to innovation-oriented companies” in the high-tech sector, such as biotech and software.

A similar bill was introduced earlier this year in the House, with more than half of the House tax-writing panel’s members co-sponsoring the bill.

Earlier this year, a coalition of firms, including Microsoft, Boeing, Dow Chemical and CA wrote in support for the bill. Some companies prefer the traditional credit, however, more and more have migrated to the alternate credit and those that have not made the switch will have time to adjust and benefit from the boost to 20 percent.

Currently companies can choose between the two methods and some firms that benefited from the traditional structure may lose out under the plan. The Senate proposal would allow companies to use the traditional credit for 2009 and 2010. Afterward, it would expire.

The traditional credit is generally based on the increase in research spending at a company in relation to a base period of 1984 through 1988. The alternative simplified credit rewards companies for increasing research spending above a base level determined by spending in the previous taxable years. The new proposal would increase the rate on the alternative credit from 14 percent to 20 percent.

The Obama administration has proposed making the credit permanent, but in its current form rather than merging the components, at an estimated $74.5 billion cost. The White House would pay for the extension through a series of tax changes targeting multinational firms’ overseas profits, which the business community has launched a massive lobbying effort to kill.

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The National Electrical Manufacturers Association (NEMA) has revealed the results of new market research that provides a clear picture of America’s need for information about energy and cost saving through modern lighting systems. The research, conducted in conjunction with Today’s Facility Manager magazine, focused on the owners and operators of commercial, industrial, institutional, and healthcare buildings.

Findings indicate that 41 percent of building owners plan to upgrade lighting products and systems within the next year, primarily to save money and energy (78 percent) and lower maintenance costs (40 percent).

According to Ron Runkles, lighting industry director for NEMA, the association is working with its members to build awareness of the value of modern lighting through its enLIGHTen America campaign.

“The results of the research showed that 82 percent of building owners did not know the commercial building tax deduction was extended by Congress to 2013,” Runkles said. “We’re providing a service by letting people know there is a quick payback by investing in lighting renovation. For example, 38 percent want a three-year return on investment. And it’s green; the 30 percent building energy savings is almost a bonus.”

The research also revealed that 74 percent of those surveyed plan to apply for utility rebates; 61 percent did not currently utilize lighting controls; and 27 percent were pursuing LEED certification. Also, 96 percent of building owners consider sustainability either “important” or “somewhat important.”

“It’s little wonder Secretary Chu has endorsed NEMA’s campaign. We’re making a difference.” Runkles said.

NEMA is the association of electrical and medical imaging equipment manufacturers. Founded in 1926 and headquartered near Washington, D.C., its approximately 450 member companies manufacture products used in the generation, transmission and distribution, control, and end use of electricity. These products are used in utility, industrial, commercial, institutional, and residential applications. The association’s Medical Imaging & Technology Alliance (MITA) Division represents manufacturers of cutting-edge medical diagnostic imaging equipment including MRI, CT, x-ray, and ultrasound products. Worldwide sales of NEMA-scope products exceed $120 billion. In addition to its headquarters in Rosslyn, Virginia, NEMA also has offices in Beijing and Mexico City.

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SourceCorp specializes in the Commercial Building “Green” Tax Deduction,  LIFO Accounting, R&D Tax Credit and Cost Segregation Studies. With a team of nearly 70 professionals and with offices located throughout the country, clients realize unparalleled experience, services, and trust. SourceCorp serves many of the nation’s most prominent CPA firms, Associations, and Fortune 1000 companies. For more information, please call 817.732.5494 or visit www.SourceCorpTax.com.

NEMA: www.nema.org

NEMA companies are the energy solution leaders for Smart Grid and Energy Storage technologies. Learn more at: http://www.nema.org/gov/energy/smartgrid/

Summary: It’s becoming increasingly likely that the U.S. may back away from an SEC proposal to make a wholesale adoption of IFRS. Instead, the pendulum seems to be switching to focusing on the continued convergence of U.S. GAAP with the international rules.

The U.S. may not be keeping pace with the rest of the world’s migration to a single set of accounting standards. But judging from the statements of several speakers at the AICPA’s April 30, 2009, International Business, Accounting Auditing and Tax Conference, in Washington, that may not be such a bad thing.

Colleen Cunningham, a global managing director with Resources Global Professionals, said SEC Chairman Mary Schapiro has made it clear that she is reluctant to move ahead on adopting IFRS. With the chief accountant’s post remaining vacant more than three months after Schapiro took over the agency’s helm, it’s still unclear where the SEC may ultimately go with regard to the international rulebook. “Who is named as the SEC chief accountant will set the tone, and I think we’ll have at least an understanding of where Mary’s head is as far as moving us forward or not,” Cunningham said.

For example, PCAOB member Charles Niemeier has been mentioned as a possible candidate. (See Chief Accountant Pick May Set Tone For Schapiro’s Agenda in the March 11, 2009, edition of Accounting & Compliance Alert.) Cunningham said that if Schapiro appoints Niemeier, a clear message would be sent, and she called him “one of the most outspoken” proponents of moving ahead with convergence as opposed to conversion. She added that Paul Volcker’s name is also floating around as a possibility. Volcker is a former chairman of the Federal Reserve and is currently chairman of President Barack Obama’s Economic Recovery Advisory Board. The 81-year-old Volcker served as chairman of the International Accounting Standards Committee Foundation, the oversight body of the IASB, earlier this decade, but most Washington analysts consider him an unlikely candidate for a position that would require a full-time commitment.

Speakers mostly agreed that IFRS will be adopted, even if a does not happen via a wholesale switch like the one proposed by the SEC in Release No. 33-8982 Roadmap for the Potential Use of Financial Statements Prepared in Accordance with International Financial Reporting Standards by U.S. Issuers. Renee Bomchill, a director at Deloitte & Touche LLP in New York, said her firm had clients that were ready to make the switch and thought they would be in full conversion mode by now. However, since the likelihood of a change in the next few years has decreased, some of those companies are now waiting before they devote too many resources to changing accounting practices. While Bomchill said she still believes the international standards will be adopted, Mary Kane, the director of financial compliance and procedures at Johnson & Johnson, is not so sure. Senior officials at the consumer products supplier believe there is a real possibility the SEC may not go through with adopting the standards.

Many attendees at the conference also said the FASB and IASB need to work harder on convergence. Recently, there has been some confusion as to whether deadlines in the FASB and IASB’s Memorandum of Understanding, which was updated in September 2008, can still be met. IASB member James Leisenring, who was member of the FASB before joining the international board, said the FASB and IASB can not be expected to create two sets of standards that are identical. Instead, both boards will continue to form a consensus on individual projects, and ultimately convergence will occur.

Source:  WG&L Accounting & Compliance Alert Checkpoint 5/1/09

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Switching U.S. companies from GAAP to IFRS was supposed to be Christopher Cox’s legacy to the SEC. So perhaps it’s all for the best that by time the comments rolled in on his landmark proposal in Release No. 33-8982, Roadmap for the Potential Use of Financial Statements Prepared in Accordance with International Financial Reporting Standards by U.S. Issuers, Cox was gone from the agency. Many companies that were supposed to be among the chief beneficiaries of the biggest change in accounting rules in decades would rather see things change much more slowly than the SEC has in mind.

The objections went beyond the cost of the switch and the lack of support for it to some of the specific differences between the two accounting regimes. In the view of some companies, making the switch until the more significant differences are resolved could wipe out any benefits that would supposedly be produced by the switch.

For instance, Chevron and Alcoa Inc. cited the difference between U.S. GAAP, which permits LIFO for inventory accounting, and IFRS, which bars it. “We believe some of the companies that may be eligible for early-adoption would not even consider such an option if they use the LIFO inventory method and would incur a significant income-tax penalty upon conversion to another inventory methodology for IFRS reporting,” wrote Chevron’s vice president and comptroller Mark Humphrey. “If fewer companies early-adopt than the commission expected, would this mean that a particular milestone had not been achieved and the commission, therefore, would not mandate IFRS? We strongly believe the LIFO-inventory issue must be resolved in favor of no tax penalty being incurred upon adoption of IFRS by U.S. registrants. Otherwise, U.S. companies could be at a competitive disadvantage to foreign issuers that have adopted IFRS and can still use LIFO for U.S. income-tax reporting.”

The concerns about the SEC’s plans for IFRS have been around for almost as long as the SEC has made it clear that it wanted U.S. companies to make a one-time switch rather than continue on the convergence project that has been underway between the FASB and IASB since 2002. Yet in recent months, particularly since Cox was replaced as SEC chairman by Mary Schapiro, the concerns have been spoken more often and more publicly. During the Senate’s consideration of Schapiro’s confirmation, lawmakers who harbored their own doubts about the SEC’s plan, including Sens. Jack Reed (D-RI) and Carl Levin (D-MI), questioned the then-nominee about her stance on IFRS. In short, Schapiro said she did not believe that IFRS was yet a mature enough body of accounting standards to sufficiently ensure the protection of U.S. investors.

By the time Schapiro had taken command of the regulatory agency, it was clear that the concerns about the switch were harbored by a wide range of groups. In fact, it was the concerns expressed by several public companies regarding the short time they had to comment on Release No. 33-8982, that prompted the SEC to extend the comment deadline to April 20. Companies complained that the original February 19 deadline overlapped with their end-of-year financial reporting periods and didn’t afford them enough time reply to the proposal with sufficient detail. (See Comment Period for IFRS Roadmap Extended to April 20 in the February 5, 2009, edition of Accounting & Compliance Alert.)

Source:  WG&L Accounting & Compliance Alert Checkpoint 4/21/09.

April 3, 2009, Fort Worth, TX – SourceCorp today announced a fundamental commitment to protect the environment by becoming an ENERGY STAR partner. SourceCorp through its voluntary partnership with the U.S. Environmental Protection Agency’s ENERGY STAR Program, will work to improve energy efficiency and fight global warming. SourceCorp believes that a strategic, corporate energy management program will help us enhance our financial health and aid in preserving the environment for future generations.

“With growing concern over the economy, companies should pursue every avenue for increasing cash and the Commercial Building Tax Deduction is one method that can help achieve this goal,” said Matt Rader, director of SourceCorp’s Commercial Building Tax Deduction division. “If your company owns or leases commercial buildings – which includes most types of buildings, including residential buildings with four or more stories above grade – and you have installed or retrofitted the property to be more energy efficient, you may be eligible for a deduction for part or all of the costs associated with the installation or retrofit. This opportunity allows for the potential immediate expensing of costs that would otherwise be capitalized and recovered through depreciation over 27.5 or 39 years.”

“Environmental responsibility is everyone’s responsibility – and today I’m pleased SourceCorp is taking this motto to heart,” said EPA Administrator Stephen L. Johnson.  “By making smart energy choices, SourceCorp is helping improve our nation’s energy and environmental outlook.”

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Jewelers of America (JA), the national trade association for businesses serving the fine jewelry retail marketplace, has initiated a campaign to aggressively oppose a repeal of the last-in, first-out (LIFO) inventory accounting method, which President Barack Obama has proposed in his fiscal year 2010 budget. “This repeal would be a potentially fatal blow to companies in the jewelry industry that use LIFO,” said Matthew A. Runci, JA president and chief executive officer (CEO).

Jewelry businesses that use the LIFO inventory accounting method are able to record the sale of their most expensive inventory first, thereby decreasing profits and reducing taxes. By minimizing taxes, jewelers can also maximize after-tax cash flow. At a time when industry businesses are dealing with a liquidity crisis and credit has become difficult to obtain, cash flow is critical to the survival of many companies. LIFO is also a useful accounting method when the costs of inventory are rising, as theycurrently are in the jewelry industry. Runci noted that repealing LIFO now would negatively affect not only many retailers, but also jewelry manufacturers and diamond, gem and watch distributors.

JA has joined and will serve on the steering committee for the LIFO Coalition, a partnership of associations and businesses that oppose LIFO repeal, based in Washington, D.C. The association is also leading the opposition within the jewelry trade, providing information and materials to assist the American Gem Society (AGS), the Jewelers Board of Trade (JBT) and the Manufacturing Jewelers and Suppliers of America (MJSA) in fighting the repeal. “We plan to add the jewelry industry’s voices to others who are saying that now is not the moment to further harm companies struggling to recover from weak economic conditions,” Runci added.

With many legislators in their home districts during this period, the association is encouraging members of the trade to speak to their representatives directly, at town halls and other live, local meetings. Contact details for every member of the House of Representatives and the Senate can be easily found by going to www.usa.gov/Contact/Elected.shtml.

Financial Executives International wants any changes to corporate tax rates to be considered within a broad review of the tax code. The trade group is asking Congress to reject the proposed changes in President Obama’s budget. It fears that the changes will unfairly impose extra costs on U.S. businesses.

The March 27, 2009, letter signed by the FEI committee’s chairman Ron Dickel, asks the lawmakers to carefully review the president’s proposals, given the concerns about their long-term effect on the competitiveness of U.S. businesses in the global economy.

The FEI letter lists three areas of concern that it says, “would have a harsh impact on the overall economy and the competitiveness” of American firms. The following regarding LIFO:

Last-in, First-out (LIFO) inventory accounting method: The institute criticized Obama for proposing to repeal this accounting method in his fiscal year 2010 budget, saying LIFO “has been expressly permitted in the tax law for 70 years and has a solid foundation in financial accounting and economic theory.” The repeal of LIFO as a method of inventory accounting, the FEI said, would have an adverse effect on the finances of companies in many different industries, including general manufacturing, publishing, retail, and textiles.

Source:  WG&L Accounting & Compliance Alert Checkpoint 3/31/09