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February 3, 2023

Accounting News Roundup: Facebook vs. IRS and Non-GAAP Disclosure Committees | 07.29.16

IRS doesn't like Facebook's stalling 

Earlier this month, the Department of Justice sued Facebook over IRS summons related to its sale of rights to intellectual property to its Irish subsidiary. This week, Facebook released its earnings, announcing 2nd quarter profits of $2 billion, which is pretty good news for them. But they also had some bad news:

Facebook Inc. said it could be on the hook for $3 billion to $5 billion in additional taxes as a result of an Internal Revenue Service investigation into how the social network transferred assets overseas.

The company said in a quarterly filing Thursday that the IRS had issued a “statutory notice of deficiency” a day earlier saying Facebook owes more taxes for 2010. The July 27 notice came the same day that Facebook said second-quarter profit nearly tripled to $2.06 billion.

Again, there's good news for Facebook, which is that these sorts of things don't get settled quickly. They can battle it out in court for years and sock away billions for its rainy day if things don't look good. Also, other companies like Microsoft and Amazon are tangling with the IRS over these tax structures so they're not alone in the battle. 

The bad news, I think, is that Facebook seems a little aloof about the whole situation and the IRS probably doesn't like that. Oh, it goes through the motions with the "this could have a material adverse impact on our finances" language, but this kind of action says something different:

The IRS said it went to court because Facebook failed to hand over requested documents. In a court filing Monday, the IRS said Facebook failed to respond to a seventh summons from the IRS. Facebook also didn’t show up in court on June 29 and didn’t provide the information demanded by the IRS.

I'm not so sure Facebook's "let's ignore them and maybe they'll go away" strategy will work forever. But I like that they're trying!

Non-GAAP worries

For those companies worrying about how to best comply with the SEC's new rules on non-GAAP disclosure, never fear! Deloitte is here!

Deloitte is rolling out materials to help companies wade into the control issues surrounding non-GAAP measures, beginning with an examination of the extent to which disclosure controls and procedures and internal controls over financial reporting should guide or govern non-GAAP use. The firm says companies that use non-GAAP measures in earnings releases furnished on Form 8-K or that use them in 10-Qs or 10-Ks outside the financial statements should consider the disclosures controls and procedures they have in place.

In all seriousness, this is what Big 4 firms do — they advise companies on how best navigate this stuff. I just kind wish they weren't offering such predictable advice:

Deloitte is suggesting companies consider establishing disclosure committees to help the CEO, CFO, and audit committee prepare and oversee disclosures, including non-GAAP disclosures. “Disclosure committees can set parameters for and determine the appropriateness of disclosures related to non-GAAP measures,” Deloitte says in its recent alert. Such a committee could play a role in assuring accuracy, completeness, timeliness, and fairness of a company’s disclosures.

Since non-GAAP measures are so pervasive throughout corporate reporting these days, I'm not sure adding another layer of bureaucracy is the answer to this particular business problem. On the other hand, this "disclosure committee" sounds kinda like a "that's a bullshit metric committee" and I could get on board with that. It's all about how you market these things, Deloitte. 

Accountants behaving badly

You will not read a more succinct report on an accountant-related crime than this Associated Press brief today. Fernando Zacarias is accused of making "fraudulent money transfers from the Yuma Visitors Bureau's business account to his personal bank account." And if that's as simple as it gets, you (alleged!) accountant crooks need to start trying harder.

Previously, on Going Concern…

Megan Lewczyk wrote about FASB's failed simplification initiative. And in Open Items, someone's asking about a JD/MBA backdoor.

In other news:

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