AFP Blogs

Employers who hire unemployed workers this year (after Feb. 3, 2010 and before Jan. 1, 2011) may qualify for a 6.2-percent payroll tax incentive, in effect exempting them from their share of Social Security taxes on wages paid to these workers after the date of enactment.*   In addition, for each worker retained for at least a year, businesses may claim an additional general business tax credit, up to $1,000 per worker, when they file their 2011 income tax returns.

The new law requires that the employer get a statement from each eligible new hire certifying that he or she was unemployed during the 60 days before beginning work or, alternatively, worked fewer than a total of 40 hours for someone else during the 60-day period. 

* This reduced tax withholding will have no effect on the employee’s future Social Security benefits, and employers would still need to withhold the employee’s 6.2-percent share of Social Security taxes, as well as income taxes. The employer and employee’s shares of Medicare taxes would also still apply to these wages.

At the meeting held last week FASB reaffirmed its postion to move toward a “bifurcation by risk” model to evaluate hedge effectiveness.  Key features of the possible hedge accounting model to be included in the forthcoming Exposure Draft are as follows:

1. The shortcut method and critical terms match method would be eliminated. An entity would no longer have the ability to assume a hedging relationship is reasonably effective and recognize no ineffectiveness in net income during the term of the hedge. 
2. Entities would be able to designate particular risks as the risks being hedged in a hedging relationship. Only the effects of the risks hedged would be reflected net income.
3. Entities would be required to perform a qualitative (rather than quantitative) test at inception to demonstrate that an economic relationship exists between the hedging instrument and the hedged item or forecasted transaction. However, in certain situations a quantitative test may be necessary at inception. 
4. As part of the hedge effectiveness assessment, entities would be required to demonstrate that changes in fair value of the hedging instrument would be reasonably effective in offsetting the changes in the hedged item’s fair value or the variability in the hedged cash flows for the risk or risks hedged by the entity in that hedging relationship. 
5. After inception of the hedging relationship, an entity would need to qualitatively (or quantitatively, if necessary) reassess effectiveness only if circumstances suggest that the hedging relationship may no longer be reasonably effective.
6. An entity would not be permitted to discontinue hedge accounting by simply removing the designation of a hedging relationship. Hedge accounting can be discontinued only if the criteria for hedge accounting are no longer met or the hedging instrument expires, is sold, terminated, or exercised.

AFP staff in conjunction with AFP’s Finanical Accounting and Investor Relations (FAIR) Task Force is currently evaluating the proposed guidance to determine the impact the proposed rules may have on Treasury Professionals.  The complete discussion summary can be viewed at FASB’s website.  Your views on this issue is also welcome.  If you have any comments on the proposal please feel free to contact Salome J. Tinker, AFP’s Director of Accounting at sjtinker@afponline.org or simply leave a reply below.   

The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) published for public comment a joint Exposure Draft (ED), Conceptual Framework for Financial Reporting: The Reporting Entity. The goal is to develop a common and improved conceptual framework that provides a sound foundation for developing future accounting standards. The ED discusses what constitutes a reporting entity, which in different situations could be a group of entities, a single entity, or only a portion of an entity. Comments will be accepted through July 16, 2010.

The FASB clarified the type of embedded credit derivative that is exempt from embedded derivative bifurcation requirements with Accounting Standards Update 2010-11.　Only one form of embedded credit derivative qualifies for the exemption and that is one related only to the subordination of one financial instrument to another. As a result, entities that have contracts containing an embedded credit derivative feature in a form other than such subordination may need to separately account for the embedded credit derivative feature. An entity must apply the amended guidance as of the beginning of its first fiscal quarter beginning after June 15, 2010.

Fair Value  — The two Boards are planning to create educational materials for measuring fair value of difficult-to-value assets and liabilities will be developed to address concerns raised by entities in emerging and transition economies about applying such principles in their jurisdictions. The material will include case studies and examples to help constituents not used to applying concepts of the guidance think through problematic issues.

Financial Presentation –The Boards also discussed their proposed guidance on financial statement presentation. The Boards tentatively favor requiring full retrospective application upon adoption. Under the proposed accounting guidance, financial statements will be required to be cohesive, contain disaggregated information, and make a company’s liquidity and financial flexibility more transparent to users. As part of transition requirements, their proposal will include requiring entities to apply the new presentation guidance to previously issued financial statements which would entail for each prior period the following: reclassifications, new groups, and disaggregation of comparative information presented and disclosed as if the new presentation provisions had always been applied.

SEC/IRS Enters MOU on Municipal Securities

The Internal Revenue Service (IRS) and the Securities and Exchange Commission (SEC) entered into a memorandum of understanding (MOU) stating their intention to work cooperatively to identify issues and industry trends within the tax exempt bonds/municipal securities industry and to develop strategies to enhance performance of their respective responsibilities. Tthe IRS and SEC have agreed to inform the other in advance, where feasible and otherwise as soon as practicable, of issues that may affect the interests of the other party as they pertain to tax exempt bonds/municipal securities. Such information may include, but is not limited to, market risks, practices, and events relating to tax exempt bonds/municipal securities that may be of interest to the other agency.

The Financial Accounting Foundation (FAF) and the Financial Accounting Standards Board (FASB) support the SEC’s view that a single set of high-quality globally accepted accounting standards will benefit U.S. investors.  The FAF and FASB support the SEC’s further consideration of the issues identified in the “work plan” in making its determination on whether and how to transition the current financial reporting system for U.S. issuers to a system incorporating International Financial Reporting Standards (IFRS). The FAF and the FASB stand ready to fully assist the SEC as it works toward a decision next year.

At the SEC’s open meeting held this week, the Commissioners gave its staff approval to begin a work plan to study whether the US should move toward adoption of a global accounting standard.  The Commission is looking for the staff to report back their findings in 2011 before making a decision on whether the US will formally adopt IFRS.  The work plan will consider factors necessary to determine whether, how and when a transition would occur.  Factors that the staff will consider include analyzing the regulatory, legal, educational, transitional and other pertinent issues that would be encountered should the US adopt.   

The Commission clarified that the staff’s workplan should not be viewed as a prescriptive resolution where all the items must be checked off  before the Commission can make a decision.  Rather, the workplan outlines the staff’s strategy for analyzing the various issues that can affect adoption.  The 2011 date discussed today in the open meeting is on course with the date set in the original roadmap previously issued.

The SEC will be hosting an open public seminar to help companies and preparers understand reporting using eXtensible Business Reporting Language (XBRL).  The seminar will be held on March 23rd at their Washington, DC headquarters starting at 1 p.m.   It will also be webcasted through the SEC’s site.  You can also submit questions and topics of interest on the subject ahead of time through their website.

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At this week’s meeting, FASB tentatively decided to delay the effective date of planned new rules on financial instruments for private banks and other private enterprises that have consolidated total assets of less than $1 billion. Such entitities could have up to a four year deferral period. However, they would be required to make certain disclosures regarding the fair values of loans at their exit prices. The FASB and IASB are still not yet converged in their proposed methodology but do plan to formally issue draft accounting standards on fiancial instruments by March 31 with the final rules issued by the end of the year.

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Treasurers and CFOs, take note: Jim Poad of Advantage IQ lists four utility budgeting myths to avoid:

Myth #1: Budgets can be easily set based on the A/P costs from the prior year.
Reality: In doing so you make assumptions about your general ledger that probably are inaccurate.

Myth #2: Energy can be accounted for like any other expense.
Reality: Unlike other operating expenses, there are many variables and much fluctuation in the world of energy and energy providers.

Myth #3: Variances can be reported and analyzed in terms of dollars only.
Reality: Cost provides little insight into what is driving the actual variance from month-to-month and year-to-year.

Myth #4: Variances are only useful for managing up in the organization.
Reality: While it is true that there certainly is a managing up side to variance analysis, it is also important to use for managing down.

Learn more from Poad in the upcoming issue of Risk.