Law Abiding Companies

#26
#26
droski said:
ASC 740-10-35-4: "Deferred tax liabilities and assets shall be adjusted for the effect of a change in tax laws or rates. A change in tax laws or rates may also require a reevaluation of a valuation allowance for deferred tax assets."

ASC 740-10-45-15: "When deferred tax accounts are adjusted 740-10-35-4 for the effect of a change in tax laws or rates, the effect shall be included in income from continuing operations for the period that includes the enactment date."

FT Alphaville The healthcare party is over – now comes the (accounting) hangover
Click to expand...

but deferred taxes liabilities and assets are entirely different animals and are result of an accounting choice. I understand recognizing those to truly show earning capacity so people understand that in a given period a company has inflated earnings because it lawfully deferred a tax bill to a future date.

In this instance, the clarity isn't doing that in the least. The investor isn't being helped by more clarity on the financial situation at ATT.
 
#27
#27
BigPapaVol said:
but deferred taxes liabilities and assets are entirely different animals and are result of an accounting choice. I understand recognizing those to truly show earning capacity so people understand that in a given period a company has inflated earnings because it lawfully deferred a tax bill to a future date.

In this instance, the clarity isn't doing that in the least. The investor isn't being helped by more clarity on the financial situation at ATT.
Click to expand...

but it's clearly an increase in deferred tax liabilities. particurally when it comes to future defined benefit plan expenses rather than current employees. and those expenses are fairly easily predictable.
 
#28
#28
droski said:
but it's clearly an increase in deferred tax liabilities. particurally when it comes to future defined benefit plan expenses rather than current employees. and those expenses are fairly easily predictable.
Click to expand...

It's semantics, but it isn't deferred because it hasn't yet been incurred. Future defined benefits is a contingent liability and I'm all for that being reported. Deferred taxes are a bill incurred but paid later. This is only deferred to the extent that it's already incurred.
Posted via VolNation Mobile
 
#30
#30
BigPapaVol said:
I'm with him in principal, but this seems to me to be political shenanigans, as I can't imagine the bill being retroactive to change the tax code for the 1Q10.
Click to expand...

If you ever agree with Henry Waxman about anything then you and I will never have part or pacel with one another.

BigPapaVol said:
I get that, but this isn't the intention of that law. It's goofy to me.
Click to expand...

It has been said that by the time a man reaches fifty then he has the face he deserves.

Henry_Waxman.jpg


Every time I see Henry Waxman's face I can't help but think of fly fishing in West Virginia and the lure, the Rat Faced McDougal.

25118322.JPG
 
#31
#31
The ObamaCare Writedowns—II - WSJ.com


This article seems to answer the question. The issue is the impending tax on retiree drug benefits that will be borne by the companies. Those are recognized currently as pending liabilities and had to be grossed up to cover this particular liability.

I know most won't read the article, but toward the end it raises a very interesting point about the true cost of the gov't getting this tax money.
 
#32
#32
BigPapaVol said:
Then why don't they recognize future COGS the same way?

I understand the tax liabilities point, but that's from a historic change. They don't have to recognize future tax liabilities to operating income.
Click to expand...

These companies such as AK steel, Caterpillar, and AT&T aren't recording losses from tax changes against COGS, they are reducing the value of deferred tax assets (such as NOLs). A deferred tax asset is recognized on the books of companies as an asset. Thus, changes in current tax law that affect the value of these deferred tax assets must be reflected by reducing the value of the asset (i.e., a noncash expense). See e.g., FASB: Financial Accounting Standards Board.

A more important question in my mind, is why does the government not see the problem with taxing a government benefit (i.e., these law provides that Medicare subsidies that were previously tax exempt will be taxed as income). The deadweight loss from taxing subsidies - which were made available by tax - has always baffled me.

EDIT: Scooped by BPV.
 
Last edited:
#33
#33
the "blunders" have only begun to surface....there will be many more hidden penalties for business and individuals that actually pay their own way in this country
 
#34
#34
paul1454 said:
These companies such as AK steel, Caterpillar, and AT&T aren't recording losses from tax changes against COGS, they are reducing the value of deferred tax assets (such as NOLs). A deferred tax asset is recognized on the books of companies as an asset. Thus, changes in current tax law that affect the value of these deferred tax assets must be reflected by reducing the value of the asset (i.e., a noncash expense). See e.g., FASB: Financial Accounting Standards Board.
Click to expand...

I understand how deferred taxes work, but not remotely how you're connecting the two. The article I referenced above explains how it is a contingent liability rather than deferred tax.
 
#35
#35
BigPapaVol said:
I understand how deferred taxes work, but not remotely how you're connecting the two. The article I referenced above explains how it is a contingent liability rather than deferred tax.
Click to expand...

IRS rules generally don’t allow a plan sponsor to deduct retiree drug plan costs until claims are actually paid, while FAS 106 requires retiree drug plan expenses to be recognized earlier – often before claims are paid – on the balance sheet. The cumulative difference between the company’s actual tax payments and its recorded tax expense is a deferred tax item on the balance sheet. FAS 109 requires employers to create a deferred tax asset that is effectively based on future tax deductions for retiree drug claims paid minus the future – and smaller – FAS 106 expense. Because retiree drug subsidy amounts are not taxable, they are ignored when determining the deferred tax asset.

If the proposed tax change is enacted, only retiree drug claims exceeding the retiree drug subsidy reimbursements would be deductible. This decrease in future tax deductions would reduce the deferred tax asset on plan sponsors’ balance sheets, which could create an equal reduction in sponsors’ net income during the year of enactment. The effect of that change for future years would be recorded and reduce net income immediately.
 
Last edited:
#37
#37
paul1454 said:
IRS rules generally don’t allow a plan sponsor to deduct retiree drug plan costs until claims are actually paid, while FAS 106 requires retiree drug plan expenses to be recognized earlier – often before claims are paid – on the balance sheet. The cumulative difference between the company’s actual tax payments and its recorded tax expense is a deferred tax item on the balance sheet. FAS 109 requires employers to create a deferred tax asset that is effectively based on future tax deductions for retiree drug claims paid minus the future – and smaller – FAS 106 expense. Because retiree drug subsidy amounts are not taxable, they are ignored when determining the deferred tax asset.

If the proposed tax change is enacted, only retiree drug claims exceeding the retiree drug subsidy reimbursements would be deductible. This decrease in future tax deductions would reduce the deferred tax asset on plan sponsors’ balance sheets, which could create an equal reduction in sponsors’ net income during the year of enactment. The effect of that change for future years would be recorded and reduce net income immediately.
Click to expand...
which means that anything done for 1Q10 is crap.
 
#40
#40
BigPapaVol said:
they just took a quarterly charge to earnings, covering a period in which the law isn't enacted.
Click to expand...

Once noncontingent (I.e., enacted into law), the PPACA had an immediate impact on the value of the deferred tax asset created by differing treatment between FAS 106 and the IRC. Because these tax assets (the value of the deductions) on the books reflect pre-PPACA law, FAS 109 requires the effect of the law to be reported in the quarter of the change.
Posted via VolNation Mobile
 
#41
#41
paul1454 said:
Once noncontingent (I.e., enacted into law), the PPACA had an immediate impact on the value of the deferred tax asset created by differing treatment between FAS 106 and the IRC. Because these tax assets (the value of the deductions) on the books reflect pre-PPACA law, FAS 109 requires the effect of the law to be reported in the quarter of the change.
Posted via VolNation Mobile
Click to expand...

then hordes of companies are about to have FASB and the SEC all up in their asses.
 
#42
#42
BigPapaVol said:
then hordes of companies are about to have FASB and the SEC all up in their asses.
Click to expand...

This will affect a lot oflarge employers and we will likely see a growing number reporting the decrease in these assets.

PS. I feel I may not have been able to explain this well enough. For anyone reading this thinking I'm an idiot (I'm sure there are plenty :) ), this may better explain the rules: http://www.deloitte.com/view/en_US/us/Services/audit-enterprise-risk-services/Financial-Statement-Internal-Control-Audit/Accounting-Standards-Communications/b9500b1044c97210VgnVCM100000ba42f00aRCRD.htm
Posted via VolNation Mobile
 
#43
#43
paul1454 said:
This will affect a lot oflarge employers and we will likely see a growing number reporting the decrease in these assets.

PS. I feel I may not have been able to explain this well enough. For anyone reading this thinking I'm an idiot (I'm sure there are plenty :) ), this may better explain the rules: Deloitte | Financial Reporting Alert 10-3, Health Care Legislation Eliminates Tax Deduction Related to Medicare Part D Subsidy
Posted via VolNation Mobile
Click to expand...

It's explained just fine. I just don't agree with it conceptually in the least. Accounting rule board is about clarity in the reporting. This isn't.
 
#44
#44
BigPapaVol said:
It's explained just fine. I just don't agree with it conceptually in the least. Accounting rule board is about clarity in the reporting. This isn't.
Click to expand...

Oh, gotcha. Then I'm with you completely. I was Trying to convince you they had to report while you were trying to convince me the reason for reporting was stupid. I could have saved a lot of typing by just saying "I completely agree."
Posted via VolNation Mobile
 
#45
#45
paul1454 said:
Oh, gotcha. Then I'm with you completely. I was Trying to convince you they had to report while you were trying to convince me the reason for reporting was stupid. I could have saved a lot of typing by just saying "I completely agree."
Posted via VolNation Mobile
Click to expand...

I think, via convoluted logic, they have to report, but at this point it is absolutely premature. I believe that near term there might be some logic to manipulating deferred tax assets / liabilities to reflect a potential future expense, but at some point, this is simply going to be a part of the tax line item for companies and will have nothing to do with the purposes of the deferred taxes of a company.

IMO, it's politics at this point. It's nothing for a CEO to take a hollow charge for show that he can easily reverse tomorrow.
 
#46
#46
T-TownVol said:
Sen Waxman has called the companies, that "dare" abide by the law and disclosed the financial ramifications of the health care bill, to be grilled by congress. Once again, the share holders to which these companies owe this information, are the last ones that this administration thinks should have all the facts.
"America......what a country"!
Click to expand...

Some explained that testifying to Waxman the intricate details of how to boil water would be totally lost on him.

100326beelertoon_c20100326022216.jpg
 
#47
#47
Someone on Waxman's staff finally got to him. He has cancelled the hearings due to the fact that the companies were just following the dang LAW!
 
New posts
You must log in or register to reply here.

VN Store



Back
Top