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Weekly National News

Nov. 17, 2017

Advisers Still Wary of Bitcoin as Interest Grows

(Investment News) November 9, 2017 – Investment advisers still warn their clients about the dangers of bitcoin – but they are getting more inquiries about the cryptocurrency. Bitcoin began the year at $899.65, according to WorldCoinIndex.com, and was trading Wednesday at $7,229.39 – a 704% increase. Shares of Bitcoin Investment Trust have soared 659.09%, according to Morningstar. Returns like that tend to turn investors' heads.
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Are Banks Really in Trouble from Blockchain and Cryptocurrencies?

(The Business Journals) November 9, 2017 – It seems like every day we read of bankers deriding cryptocurrencies. They see blockchain as a possible help but admit they need to know more. (Don’t we all?) No smart banker today denies that major changes are underway in banking and the financial sector. Banks will have to change.
readmore

 

GASB Proposes Clarifications to Guidance on Majority Equity Interests

(GASB) November 9, 2017 – The Governmental Accounting Standards Board has proposed guidance that would clarify the accounting and financial reporting for a state or local government’s majority equity interest in an organization that remains legally separate after acquisition. A public hospital acquiring a rehabilitation center that remains legally separate from the hospital after acquisition is an example of the kind of situation the proposed guidance addresses.
readmore

 

Health Care Price Growth Plummets to Lowest Rate in Almost Two Years

(Altarum) October 11, 2017 – Fueled by health policy uncertainty and structural health sector changes, health care price growth in August rose by only 1.2% compared to a year earlier. This is the lowest health price growth rate recorded in almost 2 years, and just slightly above the all-time low, according to Altarum’s latest Health Sector Economic Indicators Briefs. Contributing to overall slow price growth is a historically low Medical Consumer Price Index growth rate, a possible signal of relief for health care consumers with substantial out-of-pocket expenditures.
readmore

 

Lesson from The Tax Court: The Power of Fact-Finding

(Tax Prof) November 13, 2017 – In the old Dragnet series, Jack Webb’s character was famous for declaring that “all we want are the facts, ma’am.” As if “the facts” are pristine jigsaw pieces that, if you find enough, give you an objective truth. In Tax Court, most facts are usually stipulated by the parties. But sometimes the Tax Court judge is called upon to decide the “facts” from witness testimony. A pair of opinions issued last week illustrate the power of fact-finding. One came out well for the taxpayer. The other did not.
readmore

 

Undergrad Financial Planning Programs Expect to Grow: TD Ameritrade

(Think Advisor) November 13, 2017– Financial planning as an undergraduate degree is still fairly young at most colleges and universities. TD Ameritrade Institutional reached out to all of the 105 four-year colleges and universities in the U.S. with undergraduate financial planning programs, according to the CFP Board’s list of registered programs. Thirty-seven percent of schools participated in the survey, which was fielded via email and telephone in September. According to the survey, program directors report that the average age of these programs is 10 years. The average program has 66 students enrolled and six faculty members, which typically includes two women, one minority and two financial advisors.
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AICPA’s Audit Quality Report Highlights Peer Review, Control

(AccountingWEB) November 6, 2017 – A recently released audit quality report by the American Institute of CPAs focused on five key accomplishments in the past year: peer review, audit documentation, single audits, employee benefit plan audits and quality control. The 2017 Enhancing Audit Quality report is the most recent report card on audit quality since the AICPA first began tracking in 2014.
readmore

 

Home Prices Are Back at Bubble Levels

(Financial Planning) November 14, 2017 – Home prices have returned to the boom levels of 10 years ago, which originally signaled the bursting of the housing bubble and the onset of the Great Recession, but today's market is notably different, according to realtor.com. In 2017, home price appreciation shows no signs of boom-era flipping or over-construction, but rather is being driven by tight supply and high demand, at a time when lending standards are much tighter and economic fundamentals more solid.
readmore

 

 

 

 

 

 

Advisers Still Wary of Bitcoin as Interest Grows

(Investment News) November 9, 2017 –Investment advisers still warn their clients about the dangers of bitcoin – but they are getting more inquiries about the cryptocurrency.

Bitcoin began the year at $899.65, according to WorldCoinIndex.com, and was trading Wednesday at $7,229.39 – a 704% increase. Shares of Bitcoin Investment Trust (GBTC) have soared 659.09%, according to Morningstar.

Returns like that tend to turn investors' heads. "I have clients who invest in bitcoin, and just last week had two clients call me to find out how," said Erika Safran of Safran Wealth Advisors. "I don't use cryptocurrency as part of client portfolio allocation but will explain the difference between buying bitcoin direct versus the bitcoin ETF and am happy to guide them through the process."

Investing directly in bitcoin means having to create a digital wallet, which clients can do via several websites, such as coinbase.com. The wallet links to your bank account and allows you to buy or sell bitcoins. The other alternative, Bitcoin Investment Trust, is easily traded through a brokerage account. The drawback: "GBTC has its own price volatility based on its own trading volume liquidity," Ms. Safran said. "It can trade at a huge premium or discount to the market value of bitcoin. It's been up when bitcoin was down and vice versa."

DIGITAL VAPOR

Planners stress that any bitcoin gains can vaporize quickly. "I am hearing from clients about investing in bitcoin," said Ashley Foster, partner at Gross & Foster Financial Services. "But I warn them that this is a purely speculative play," he said. "The amount of volatility in this asset class is more than most can stomach with hundreds of dollars' worth of swings on a daily basis."

Nevertheless, inquiries seem to be increasing. "Just last week I had two clients call me to find out how to invest in bitcoin," Mr. Foster said.

Most advisers, along with many economists, remain skeptical about bitcoin's worth as an investment. "With cryptocurrencies, there is nothing behind the curtain. The only thing propping up the prices and driving them higher is that people see the prices increasing astronomically, and think that they want to get in on this "gold rush,' " said George Gagliardi, founder of Coromandel Wealth Management.

VALUE OF BELIEF

The "value" of the various cryptocurrencies is dependent upon the belief that someone will purchase it at a higher price than was paid for it, meaning "guaranteed" profits, according to Gagliardi. "That was the case with dot-com IPOs and speculation, and we all know how that ended. I see a similar end for the current cryptocurrencies."

As it was during the dot-com boom, it's hard to talk down an investment that has made so much money so rapidly. "I remain baffled at the upward trajectory of the bitcoin and anticipate a major correction at some point in the near future," said Austin Frye, president of Frye Financial Center. "Trees don't grow to the sky."

Mr. Frye's own son is one of the recipients of that advice. "A couple of years ago, when my son was working and interning in my office, I bought eight coins, and he invested a couple of his paychecks in purchasing three coins," he said. "We paid $400 per bitcoin. His $1200 investment is worth over $21,000 now, and I have been explaining to him that he needs some kind of sell strategy. He, who is now a medical school student, hasn't listened to his dad."

 

 

 

 

Are Banks Really in Trouble from Blockchain and Cryptocurrencies?

(The Business Journals) By Terry Brock, November 9, 2017 – It seems like every day we read of bankers deriding cryptocurrencies. They see blockchain as a possible help but admit they need to know more. (Don’t we all?)

No smart banker today denies that major changes are underway in banking and the financial sector. Banks will have to change.

What is happening today reminds me of calls I would get to speak to office equipment sellers in the late '80s. They sold manual and electric typewriters (remember those?) and other office equipment.

They laughed at me when I would tell them that these new-fangled microcomputers equipped with word processing software like WordStar, WordPerfect and Microsoft Word would eventually take away the need for a typewriter. Later, laughter turned to anger, and they said I should not talk about word processing software but, rather, I should just tell the dealers how to sell more typewriters.

They didn’t recognize the changes in technology.

I saw the same thing when I would write my column for The Business Journals years ago about video rental stores like Blockbuster and the threats they were facing with video downloading. I predicted the demise of the VHS tape and later the DVD. I remember email messages I would get from people in the video rental business. They derided my “negativity.” They told me I needed to instruct them how to get people back into the video rental stores, checking out videos and to stay away from downloads.

They didn’t recognize the changes in technology.

We could cite many other examples of businesses seeing a change coming and, rather than adapt and change their business models, they chose to complain, fight and cry (sometimes literally).

They could have recognized the changes in technology.

Embracing the change

This is where the banking industry is today. The coming storm that is beginning to engulf the financial sector can’t be stopped. Regulation won’t stop it, as it is international.

What’s the solution? As with all changes throughout history, banks and other financial institutions have to 1) get up to speed with knowledge on what is happening, 2) assess where they have strengths, weaknesses, threats and opportunities (the old WOTS analysis), 3) change their business models to be ready for a new financial world.

I see good news for those banks and financial institutions that can adapt. Much of what is available today in cryptocurrencies is obtuse and very difficult to use. The market is looking for people who can explain and instruct in this new cryptocurrencies world. 

Becoming the trusted resource

I’ve experienced the frustrations of trying to use cryptocurrencies myself using services like Coinbase, BitPay and others. It has been difficult, and I’m a particularly tech-savvy guy.

I know Harvard MBAs who have had enormous frustration trying to get registered or use cryptocurrencies. I’ve personally seen licensed financial professionals having trouble with cryptocurrencies.

Frustration with new technology is normal as they get off the ground. If I’m having this much trouble, what do you think a tech-averse person is going to experience?

People need a trusted person to help them. Gee, I’m thinking that bankers, who have earned the trust of their customers over the years, would be ideal for helping people get into new technologies. They could help customers to purchase bitcoin and alt-coins and begin using all the benefits that can spring from blockchain technology.

Getting comfortable with bitcoin

I love the fact that I can deposit checks with my smartphone and not have to go to the bank. But I would welcome the chance to interact with a knowledgeable, caring professional who can walk me through the steps to safely purchase cryptocurrencies, move them around without large fees and get comfortable in that environment.

Most people would be willing to pay a small fee to ensure that their transactions are correct and they save money. All the frustration creates opportunities for smart business leaders to provide a service and create wealth.

Bankers will have to learn new skills. Yes, it will initially be tough, but they will make it. Already they know enormous amounts of arcane rules and regulations that they adroitly explain to their customers with aplomb.

Are banks really in trouble from blockchain and cryptocurrencies? Not if they adapt and change. There are great opportunities in helping customers, increasing security, reducing unnecessary transfer and processing fees, and increasing customer loyalty.

These are some of the benefits awaiting bankers who adapt and change. For those who insist on holding on to what banks have done for about a hundred years, I hope they enjoy their typewriters and VHS tapes!

 

 

 

 

 

GASB Proposes Clarifications to Guidance on Majority Equity Interests

(GASB) November 9, 2017 – The Governmental Accounting Standards Board (GASB) has proposed guidance that would clarify the accounting and financial reporting for a state or local government’s majority equity interest in an organization that remains legally separate after acquisition.

A public hospital acquiring a rehabilitation center that remains legally separate from the hospital after acquisition is an example of the kind of situation the proposed guidance addresses.

Under guidance proposed in the Exposure Draft, Accounting and Financial Reporting for Majority Equity Interests, a government’s majority equity interest in a legally separate organization would be reported as an investment if that equity interest meets the GASB’s definition of an investment. Except in certain specific circumstances, a majority equity interest that meets the definition of an investment would be measured using the equity method.

For all other majority equity interests in a legally separate entity - those that do not meet the definition of an investment - a government would report the legally separate entity as a component unit.

The document also proposes guidance for remeasuring assets and liabilities of an acquired entity that remains legally separate to be consistent with existing standards that apply to acquisitions that do not remain legally separate.

The Exposure Draft is available on the GASB website, www.gasb.org. Stakeholders are encouraged to review the proposal and provide comments by January 12, 2018.

 

 

 

 

 

Health Care Price Growth Plummets to Lowest Rate in Almost Two Years

(Altarum) October 11, 2017 – Fueled by health policy uncertainty and structural health sector changes, health care price growth in August rose by only 1.2% compared to a year earlier. This is the lowest health price growth rate recorded in almost 2 years, and just slightly above the all-time low, according to Altarum’s latest Health Sector Economic Indicators Briefs. Contributing to overall slow price growth is a historically low Medical Consumer Price Index growth rate, a possible signal of relief for health care consumers with substantial out-of-pocket expenditures.

Despite an upward revision to recent estimates, health spending growth in August 2017 was only a modest 4.3% higher than a year earlier. Per Charles Roehrig, founding director of Altarum’s Center for Sustainable Health Spending, this moderation in spending growth is in response to a leveling-off in insurance coverage.

Health care job growth also remained modest, with 22,500 new jobs added in September 2017, slightly less than the 2017 average of 25,000. “Slower growth in health care utilization is reflected in slower growth in health jobs, particularly in the hospital sector,” said Roehrig. “This relatively good news should be tempered by a serious look at whether even this moderate growth is sustainable in the longer term.”

Health Care Spending

In August, the health share of gross domestic project (GDP) fell to 18.0%, but spending at an annual rate was 4.3% higher than August 2016, exceeding $3.5 trillion. Spending growth in August 2017 increased in all major categories, led by home health care at 6.5%. Hospital spending continues to grow slowly, at a 2.3% rate.

Health Care Employment

Hospitals added 4,500 jobs and ambulatory care settings added an above-average 24,700 jobs in August, but these gains were offset by the loss of 6,700 jobs in nursing and residential care. Slow hospital job growth in 2017 is a primary force behind the health sector growing at about three-quarters the pace of 2015 and 2016.

Health Care Prices

The 12-month moving average of the Health Care Price Index (HCPI) fell to 1.8% growth after being at 1.9% for 6 straight months, dousing any expectations of a return to a 2.0% growth rate range in the near term. Year-over-year hospital price growth fell to from 1.5% to 1.3%, and physician and clinical services price growth fell one-tenth to 0.5%. Annual drug price growth fell to a 2.7% rate, its lowest reading since growing by 2.4% in December 2015.

 

 

 

 

 

Lesson from The Tax Court: The Power of Fact-Finding

(Tax Prof) By Bryan Camp, November 13, 2017 – In the old Dragnet series, Jack Webb’s character was famous for declaring that “all we want are the facts, ma’am.” As if “the facts” are pristine jigsaw pieces that, if you find enough, give you an objective truth.  Lawyers know better.  Every “fact” comes from a point of view.  Even police body cams are viewpoint-dependent, as seen this this nifty experiment.  The lawyer’s job is to assemble together facts which, if believed, tell the story from the point of view most favorable to the client’s interest.  They promote “a” truth.  The fact-finder has to decide on “the” truth.

Most courses in law school are not structured to teach this lesson.  We tend to focus our students on appellate opinions where the facts are a given, not a mystery.  Still, in both my Civil Procedure course and my Tax course I take what opportunities I can find to show how the finders of fact have huge power in deciding how a case resolves.

In Tax Court, most facts are usually stipulated by the parties.  But sometimes the Tax Court judge is called upon to decide the “facts” from witness testimony.  A pair of opinions issued last week illustrate the power of fact-finding.  One came out well for the taxpayer.  The other did not.  More below the fold.

The case of Bullock v. Commissioner, T.C. Memo 2017-219 (Nov. 6, 2017), is simple and worked out well for the taxpayer.  Ms. Bullock had signed as a co-obligor on a loan from her credit union.  The loan was for her son to buy a truck to use in his business.  The vehicle was stolen and the insurance paid off part of the loan.  The credit union forgave the outstanding balance of the loan and send Ms. Bullock a 1099-C (Cancellation of Debt) for $8,164.  Ms. Bullock did not report that on her return, the Service’s computers picked up the discrepancy, and she received an Notice of Deficiency for the unreported COD income.  She petitioned the Tax Court and drew Judge Vasquez.

In order for a taxpayer to have COD income there must be a debt in the first place.  That is a question of fact.  In Ms. Bullock’s case it was her signature on a loan document that supported the fact of a debt.  Against that, she testified she was not supposed to be a co-debtor.  She testified that she was supposed to have been the guarantor of the loan.  She explained that she had unwittingly signed the wrong document and so her signature was an error.

Judge Vasquez believed her.  He held that there was no bona fide debt:  “When petitioner when to the car dealership she did not intend to be the primary obligor on the loan.  In fact, she did not realize until trial that she had signed paperwork stating otherwise.”  He believed her further testimony that “she received neither phone calls or correspondence from the credit union attempting to collect the outstanding balance.”

Happy taxpayer!  To be believed as a truth-teller is one of the greatest joys in life.  It’s especially sweet when it saves you from paying tax on income you never even received.

The case of Smith v. Commissioner, T.C. Memo 2017-218 (Nov. 6, 2017), is more complex and worked out poorly for the taxpayers.  This married couple’s financial situation in 2009 seemed like a golden start to their golden years.  Mr. Smith had worked for National Coupling, Inc., for 36 years when, in the middle of 2009, the company was sold.  He retired, took a $600,000 bonus, cashed out his company stock for about $250,000, surrendered his two company-owned life insurance policies for about $180,000.  And that was in addition to $64,000 in regular salary for part of that year and then about $38,000 in consulting compensation for the time after he retired.  Total income was north of $1 million.  Not too shabby.

Wanting to minimize their tax hit, the Smiths consulted with one Richard Shanks, a Houston tax attorney and CPA.  He sold them on a tax shelter scheme that, according to the Tax Court, “he had implemented for 10 to 15 other clients between 1999 and 2009.”  The scheme was for the Smiths to create a family limited partnership to hold all their new wealth (cash and securities).  But they would not just transfer their wealth into the partnership.  Nope.  They would first transfer the wealth into a newly created Subchapter S corporation.  The S Corporation would then immediately put all that wealth into the partnership in exchange for shares in the partnership.  Then the S Corporation would, like a butterfly, die.  In dying it would distribute its partnership interest to...the Smiths!  The Tax Court opinion explains that this distribution would result in a large tax loss because Mr. Shanks (wearing his CPA hat I guess) would determine a really low fair market value for the distributed partnership interest “using large discounts for lack of marketability and lack of control.”

So the Smiths transferred about $1.8 million in cash and securities to the S corporation, the S corporation transferred all that into the family limited partnership for partnership shares and then, upon dying, distributed the shares to the Smiths.  From this journey the Smiths claimed a loss of just under $750,000 for 2009.  But fear not for the Smiths!  All of that $1.8 million made it safely into the family limited partnership for them to use.  Well, all of it except for the $23,200 they paid Mr. Shanks to implement this scheme.

Are you taking notes?  Mr. Smith did.  His handwritten notes include references to the S corporation as a “vehicle to minimize tax event this year.”  I hope you are paying attention because I confess I don’t understand how this works even as I am writing it! It seems. So. Crazy.

But tax law permits taxpayers to have crazy structures to minimize the tax hit on their income.  There is no shame in trying to shelter income from tax.  But sometimes there is a sham in trying to do so, when the crazy schemes have no business or economic purpose other than generating a tax loss.  The line between permissible and impermissible structuring is policed by the economic substance doctrine.  The economic substance doctrine allows a court to disregard a transaction for Federal income tax purposes if it has no effect other than generating an income tax loss.  And that is true even if state law would otherwise recognize the transaction and even if the transaction complies with all the formal requirements in the relevant tax statutes.

Deciding whether the Smiths could actually take a $750k loss depended on whether their Rube Goldberg scheme had any economic substance beyond generating the loss.  And that, dear readers, is a factual determination.  The Tax Court must decide whether, as a matter of fact, there was anything more to this scheme than generating a tax loss.  Since the 2009 tax year was before the effective date of §7701(o), see Notices 2010-62 and 2014-58, the Tax Court used the common law rule, as set out by the Fifth Circuit in Klamath Strategic Inv. Fund v. United States, 568 F.3d 537 (5th Cir. 2009).

The Smiths drew Tax Court Judge Goeke.  They had a great attorney representing them, George Connelly from Chamberlain Hrdlicka.  George’s job was to marshal the facts in a way that would convince the Tax Court that the Smith’s had some legit purpose to this scheme.  He was unable to do so, largely because Judge Goeke simply did not believe Mr. Smith’s testimony.  Judge Goeke repeats no less than seven times that he finds one or another aspect of the taxpayers' claims or testimony not credible.

Oh, unhappy taxpayer!  To not be believed when you are testifying under oath really hurts.  It’s especially hurtful when it means you now face a tax deficiency of $623,795.  Gosh, I sure hope the taxpayers at least made a tax deposit with the Service to stop the running of interest pending the litigation outcome.

But wait, it gets worse.  The Service also sought to impose a $125k accuracy-related penalty.  Once again, the Tax Court’s power of fact-finding worked against the Smiths.  Judge Goeke summarized his factual findings this way (with the most hurtful part bolded):

Petitioners knew that the purpose of the RACR structure was to minimize their 2009 income tax. Their handwritten notes from their first meeting with Mr. Shanks referred to an S corporation as the vehicle to minimize the tax event in 2009. Mrs. Smith emailed the Shanks Firm in August 2009 and sought to confirm that Ventures would dissolve by the end of 2009. Petitioners knew from the time they implemented the RACR structure that Ventures’ sole purpose was to avoid income tax on Mr. Smith’s bonus from the National Coupling sale. They knew that Ventures would never manufacture the sprinkler device. Even if Mr. Smith owned the patent rights as he claims, petitioners had no intent to keep Ventures in existence until the patent was issued but dissolved it after only four months. Yet they continued to perpetuate their tax-avoidance scheme through their testimony at trial that we have found not to be credible or reliable. Nor do we find credible petitioners’ attempts to explain away multiple inconsistencies in the record. Petitioners did not act with reasonable reliance on a professional or act in good faith. Accordingly, we find that petitioners are liable for the section 6662(a) penalty.

Folks, while you might believe - with Mulder and Scully - that “the truth” is out there, you must accept that, for the resolution of tax disputes, the “truth” is what the Tax Court Judge finds.  That’s the power of fact-finding.  In both of these cases there was evidence supporting “a” truth different from what the Tax Court found and in both cases it was the credibility (or lack thereof) of the taxpayer acting as witness that made the difference.     

Post-script:  When I told the Smiths' story to my wife, she felt sorry for them and asked why the lawyer who sold them on this scheme, Mr. Shanks, did not have to pay any penalty.  That’s a great question and when the Tax Court next issues a case dealing with § 6694 or § 6700, that may become another Lesson from the Tax Court.  In the meantime, I hope Mr. Shanks at least gave the Smiths back the fees they paid him.

 

 

 

 

 

Undergrad Financial Planning Programs Expect to Grow: TD Ameritrade

(Think Advisor) November 13, 2017– Financial planning as an undergraduate degree is still fairly young at most colleges and universities. TD Ameritrade Institutional reached out to all of the 105 four-year colleges and universities in the U.S. with undergraduate financial planning programs, according to the CFP Board’s list of registered programs. Thirty-seven percent of schools participated in the survey, which was fielded via email and telephone in September.

According to the survey, program directors report that the average age of these programs is 10 years. The average program has 66 students enrolled and six faculty members, which typically includes two women, one minority and two financial advisors.

According to the survey, 90% of schools surveyed that have financial planning programs expect enrollment in these programs to grow over the next five years.

Though minorities and women are currently underrepresented in these programs, program directors believe their ranks will also increase. Currently, 36% of financial planning students are women, and even fewer – 31% – are minorities.

“The war for talent starts at the undergraduate level. To win, RIAs need to get out in front of the next generation on campus and make themselves seen,” Kate Healy, managing director of Generation Next at TD Ameritrade Institutional, said in a statement. “If RIAs aren't having conversations about the benefits of their chosen career path, the competition most certainly will.”

The survey also finds that 80% of financial planning programs surveyed are housed in the business school.

 

 

 

 

 

AICPA’s Audit Quality Report Highlights Peer Review, Control

(AccountingWEB) November 6, 2017 –A recently released audit quality report by the American Institute of CPAs (AICPA) focused on five key accomplishments in the past year: peer review, audit documentation, single audits, employee benefit plan audits and quality control.

The 2017 Enhancing Audit Quality (EAQ) report is the most recent report card on audit quality since the AICPA first began tracking in 2014. It’s worth noting that a disclaimer at the beginning of the report notes that the contents do not necessarily reflect the AICPA’s position or opinion.

“Through this initiative, the AICPA uses a data-driven approach to identify trends in audit quality and address those trends through targeted action,” said Susan Coffey, AICPA executive vice president for public practice, in a prepared statement.

AICPA said that financial statement audits and assurance services play a broader role in society than most people realize and, as business and regulatory issues grow more complicated, the commitment of accountants to quality audits is even more important. In turn, that would be a boon to small business owners, investors and the public.

In its conclusion, AICPA said that with the EAQ, it remains committed in its long-term initiative to promote quality services. AICPA wrote that looking to the future, EAQ will continue to: implement reforms to make the Peer Review Program more effective; promote the value of audit and assurance in the marketplace; and conduct research to uncover more meaningful information about audit quality trends.

Here are what the report states:

  • Peer Review. Various changes in 2016 and 2017 now require reviewers to meet more qualifications. The changes also hasten remediation and aid in removing reviewers and firms who are unwilling or unable to perform.
  • Audit Documentation. Inadequate or the lack of audit documentation has proved to be a key problem. The AICPA developed an awareness campaign that includes a documentation toolkit. The toolkit, in fact, has received more than 10,000 page views and more than 4,500 downloads of the documentation resources in its first six months.
  • Single Audits. In a random sample of single audits, three factors are strongly linked to quality: the number of single audits a firm performed annually, qualifications of a firm’s engagement partner, and membership in the Governmental Audit Quality Center.
  • Employee Benefit Plan Audits. The Financial Accounting Standards Board’s has been informed of the need for simplified employee benefit plan reporting. Thus, the board released a new accounting standard to simplify benefit plan reporting.
  • Quality Control. The AICPA is working with the International Auditing and Assurance Standards Board on quality control. That may result in revised quality control standards.

A new credential and updated CPA exam also were produced.

The exam, released April 1, targets a candidate’s “higher-order” skills, such as applying professional skepticism and judgment.

The AICPA also launched the new Certified in Entity and Intangible Valuations credential and Mandatory Performance Framework to help increase competence and improve transparency and consistency in fair value measurements.

Credential holders will follow the performance framework, which describes the work required to provide auditable fair value measurements.

 

 

 

 

 

Home Prices Are Back at Bubble Levels

(Financial Planning) By Elina Tarkazikis, November 14, 2017 – Home prices have returned to the boom levels of 10 years ago, which originally signaled the bursting of the housing bubble and the onset of the Great Recession, but today's market is notably different, according to realtor.com.

In 2017, home price appreciation shows no signs of boom-era flipping or over-construction, but rather is being driven by tight supply and high demand, at a time when lending standards are much tighter and economic fundamentals more solid.

"As we compare today's market dynamics to those of a decade ago, it's important to remember rising prices didn't cause the housing crash," said Danielle Hale, chief economist for realtor.com. "It was rising prices stoked by subprime and low-documentation mortgages, as well as people looking for short-term gains, versus today's truer market vitality, that created the environment for the crash."

With lending standards at their tightest in nearly 20 years, a significant difference today is marked by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires loan originators to show verified documentation that a borrower has the ability to repay.

"Lending standards are critical to the health of the market," added Hale. "Unlike today, the boom's underregulated lending environment allowed borrowing beyond repayable amounts and atypical mortgage products, which pushed up home prices without the backing of income and equity."

Prior to the crisis, amateur house flippers took on multiple loans, with the share of flipped homes exceeding 20% in some cities, like Washington and Chicago. Overbuilding further signaled an unhealthy housing market, as there were 1.4 single-family housing starts for every household formed in 2006. Today, tighter lending has kept both flipping and overbuilding in check.