Regarding your editor’s letter “Money to Burn” (March), we have been speaking with many corporate treasurers regarding the potential impact of the loss of unlimited FDIC insurance on bank deposits. As you are aware, the bulk of corporate balances is held in bank deposit accounts, where balances receive full FDIC insurance and corporate treasurers are compensated via earned credits. Money-fund balances have decreased by nearly $1 trillion since their high point, and not surprisingly, there is now more than $1.2 trillion in bank deposits that would lose FDIC protection upon expiration of the Transaction Account Guarantee, a move that is called for under the Dodd-Frank Act and that would need an act of Congress to be extended.
Although that possibility is several months away, treasurers are now beginning to question where these short-term balances will be placed. The obvious answer may be back to money funds, but with changes to money-fund regulations imminent, this is not a sure bet. Corporate treasurers face a $1.2 trillion question, with no easy answer.
StoneCastle Cash Management LLC
I do not know what the Internal Revenue Service was hoping to accomplish with this regulation (“IRS Kills Tax Reg,” Topline, March). There are two lines on the tax form to report the gross income — one for receipts from credit-card processing and one for other income not processed by debit or credit card. The vast majority of merchants will simply put the amount from Form 1099-K on the proper line and then subtract it from the gross receipts on their books to arrive at the number for the second line. Unless they are then audited, there is no way to determine if all the income is reported. And why should they be audited? The reported amount on the tax return matches the 1099-K.
The State of New York taxes taxpayers on gross receipts. Since the IRS requires the taxpayer to report receipts to “match” 1099-Ks, then this number (which includes sales tax, tips, and so on) will flow to the state, and the taxpayer will be penalized for the higher receipts and will have to pay additional tax at the state and city level (if they are doing business in New York City).
East Meadow, New York
Whom to Complain To?
“Many of our clients are Express Scripts clients, and I haven’t been hearing a lot of noise about this,” Sean Brandle of consulting firm The Segal Co. is quoted as saying in your article “Companies May Win This Drug War” (March). This is because people don’t know whom to complain to. They complain to Express Scripts, but Express Scripts doesn’t care about your complaints.
The correct people to complain to are the benefits administrators at your own company. They are the people that pick the pharmacy benefit manager, and they can just as easily change to a new PBM that does all the same things, but also has Walgreen in network. If you are a TRICARE military member, your benefits administrator is Congress, so good luck with that.
Battling over IFRS
The companies that are active in the global audit oligarchy have been active across international borders for well over half a century (“Could IFRS Delay Strip the SEC of Power?” March). In all that time, they have effectively thwarted any momentum in regard to transparency and comparability of financial performance on a global basis. At the same time, that oligarchy propped up such tax-avoidance schemes as LIFO (last in, first out) accounting and myriad other concoctions to obfuscate results shareholders can readily review.
International financial reporting standards are long overdue, as is the need for a global business-information delivery and accessibility standard. The same parochial impediments have been cemented in place with respect to development of a technology standard: country-level XBRL domains and the guiding hand of the audit oligarchy have that technology mired in the swamp of international accounting fragmentation.
And it is not just the audit firms driving the fragmentation and stall tactics — the Financial Accounting Standards Board, the Public Company Accounting Oversight Board, and other entities that are made up of audit-firm career bureaucrats have had a hand in the lack of progress.
The Securities and Exchange Commission is certainly not to be held out as a progressive organization, but in this case, at least it is making some progress. Let’s hope that the entire mess is straightened out in our lifetimes. To that end, we will most likely need more than career auditors at the helm.
[Regarding your recent coverage of IFRS], we study the history of accounting, we observe that stricter regulation has evolved mainly based on the need to compensate for the inherent fallibility of human judgment. More specifically, there is a stream of constantly changing needs that the accounting practitioner encounters during the performance of his or her work. In addition, we find that, the further that the center of regulatory influence is removed from the theater of impact, the less efficacious it becomes. Recall that Enron, Tyco, WorldCom, and so on did not happen because there were no rules in place. It was because the rules were not followed properly.
The costly misconduct of Bernie Madoff and numerous other Wall Street players was a similar case. These perpetrators were shielded by their ability to avoid the close scrutiny of the regulatory system, and not because a well-laid-out system was not in place.
The U.S. accounting and business communities have struggled successfully over the past hundred years or so to formulate a very impressive accounting standards code that was just implemented on July 1, 2009. Another very impressive and well-planned regulatory system already in place is the Public Company Accounting Oversight Board (PCAOB), which was established in 2002 to govern the internal control and the financial reporting of U.S. public corporations. The record of performance of the PCAOB along with the enforcement arm of the SEC since 2002 is exemplary.
I believe that foreign regulators have rightly turned to copying the U.S. methodology applied by these regulatory institutions. We, in turn, continue to learn from them as well, and that is the way it should be. Convergence . . . would dampen this duly recognized impetus, and would also nullify the sharpness and originality of the application of the efforts that currently arise from sources with closer proximity to the actual problems. Although international standards are quite useful and desirable, the move toward achieving a wholesale convergence of the disparate systems would be a serious mistake.
Greville G. Liburd
Editor’s Note: The web version of this story touched off an intense reader discussion. See “SEC Seen Mulling Weaker Role for FASB.”
Something Real to Measure
Your story about adoption trends in social media (“Who’s Out There?” January/February) got me thinking. There’s a whole other element to social media that is not often discussed, but which organizations need to consider: how to bring the immediacy and interactive communications of social media to the world of finance. CFOs and other finance professionals could benefit substantially if they leveraged social media to collaborate in real time with their trading partners. Imagine the increase in accuracy and efficiency that they could achieve and how their relationships could be strengthened. Now, that would deliver an ROI that could be measured.