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LB&I campaign targets section 965 transition tax.
The IRS’s Large Business and International (LB&I) Division has announced that it will target compliance with the Internal Revenue Code (IRC) section 965 transition tax in one of its new audit campaigns. IRC section 965 requires U.S. shareholders to pay a transition tax on the untaxed foreign earnings of certain specified foreign corporations as if those earnings had been repatriated to the United States. The requirement applies to the last tax year of a specified foreign corporation that began before January 1, 2018, and the amount included in income under IRC section 965 is included in the U.S. shareholder’s income in the tax year in which or with which such foreign corporation’s tax year ends.
FASB begins deliberations on gifts in kind.
FASB began discussions on November 6 to develop presentation and disclosure rules for gifts in kind, a type of nonmonetary charitable donation that was recently the subject of a California bill vetoed by Governor Gavin Newsom over alleged valuation abuse of the prices of donated pharmaceuticals. Nonprofit organizations are required to follow the same fair value measurement guidance as other entities, but the fair value guidance in Accounting Standards Codification Topic 820, “Fair Value Measurement,” does not specifically address restrictions on geographic distribution and how they affect the determination of the principal or most advantageous market, according to a FASB summary. Some regulators are concerned that inflating the fair value measurement of donated pharmaceuticals increases a nonprofit’s revenue and program expenses, which would make the organization appear larger and more efficient in its use of resources than a smaller nonprofit or a nonprofit with lower values for its gifts in kind received. FASB added a project to its agenda in August to provide accounting guidelines that would eliminate such confusion.
Legislative push against credit loss rules reignites concerns about independent standards setting.
Recent efforts by U.S. legislators to push FASB to stop studying the economic impacts of new credit loss accounting rules interfere with the independence of standards setting critical to the success of U.S. capital markets, Jeffrey Mahoney, general counsel of the Council of Institutional Investors (CII), told Thomson Reuters on October 30. “The purpose of accounting is, in part, to report economic activities and events of companies in a high-quality manner that meets the needs of the markets and the investing public. And most investors, other market participants, and policymakers agree that it’s best to have independent experts in the private sector promulgate accounting standards free from undue influence,” Mahoney said. “It’s generally on behalf of a lobbyist for a large bank or corporation who is trying to override the independent standard setter’s technical decisions or judgments to obtain a short-term benefit for the bank or corporation that may be detrimental to the efficiency of the markets and in conflict the needs of the investing public.” Mahoney’s comments highlight a longstanding hot-button issue in accounting circles: whether politicians should be allowed to weigh in when warranted on the accounting standards-setting process.
PCAOB hires former EPA chief’s advisor as CFO.
The PCAOB has hired Holly Greaves, former CFO of the Environmental Protection Agency (EPA) and advisor to former EPA chief Scott Pruitt, as the board’s CFO, a move that could intensify criticism that the audit regulator and the SEC, which oversees the board, are partisan and politically motivated. In mid-October, the Wall Street Journal reported that the board has allegedly been plagued with internal strife and slowed inspection and enforcement of audit firms, among other problems. Former and current PCAOB staff members reportedly filed a whistleblower complaint in May that was sent to the SEC in August. The PCAOB normally issues press releases of senior staff appointments, but it did not publicly announce that it had hired Greaves; however, Greaves’s LinkedIn page says that she started in September. According to that same page, Greaves went to work for then-EPA Administrator Scott Pruitt in January 2017. Pruitt resigned amid ethics probes in July 2018.
PCAOB member wants renewed conversation about auditor’s role in information outside financial statements.
As public companies increasingly provide useful information outside the financial statements, PCAOB member Jay Brown said that it is time again to have a serious discussion about the auditor’s role in providing assurance on that information. Brown wants to know whether investors want auditors to play a bigger role on non-GAAP metrics and other information outside the standardized financial statements. He also wants input about what level of assurance should be provided, among other things. “The PCAOB has played this moderator role before with respect to [audit] relevance,” Brown explained. “Concerns over the relevance of the audit report caused the PCAOB to convene the key constituencies, collect the relevant comments and feedback, and ultimately devise a set of revisions. The process wasn’t easy and took six years from concept release to final rule to complete, but produced a revised standard approved by the SEC that resulted in disclosure of critical audit matters, or CAMs, and firm tenure, among other things.”