This week’s GAAP Flash includes articles about bitcoin, a market that some believe is a bubble, U.S. household debt reaching record highs (another bubble), and bumbles made by companies and politicians, and how these issues impact CPAs.
All You Need to Know About Bitcoin’s Rise, From $0.01 to $11,000 (December 1, 2017) – Bloomberg Business (@business)
The initial price of bitcoin, set in 2010, was less than one cent. On November 29, 2017, it reached an all-time high of $11,000. Do the math! If you invested $1,000 in Bitcoin back in 2010, that investment would be worth more than $1.1 billion! If you’re asking, “What the heck is bitcoin and how do I get in on this action?” this article is for you!
How It’s Relevant: This article is very well written, explaining bitcoin in a way that is easy to understand. After reading it, I tend to agree with Jamie Dimon, the Chairman of JPMorganChase, and others who believe bitcoin is a “fraud” and the currency of drug dealers. However, its appeal is real, so much so that JPMorganChase is considering how to offer clients access to bitcoin through its brokerage unit. Many companies, like Microsoft and Dish Network now accept payments in bitcoin. Heck, even the stodgy Big 4 is entering the fray as it was announced that PwC has accepted its first digital-currency payment! However, be careful! Shortly after reaching an all-time high of $11,000, the price of bitcoin plunged 20% in a matter of hours!
Wondering how to account for bitcoin transactions? Check out this recent post by PwC.
U.S. Household Debt Reaches New Record as Some Delinquency Rates Rise (November 14, 2017) – The Wall Street Journal (@wsj)
The articles states that the Federal Reserve Bank of New York reported that household debt totaled nearly $13 trillion, a new record and its thirteenth straight quarterly increase. However, as a share of U.S. economic output, household debt is around 66% compared to a high of over 87% in early 2009, the height of an economic crisis. Mortgages account for more than two-thirds of the overall household debt, even though auto loans and student loans represent a growing share of the total.
How It’s Relevant: It should come as no surprise that Americans are up to their eyeballs in debt. The overall delinquency rate on all this debt was 4.9%, a slight increase from the previous quarter. However, what should worry auditors is the sharp rise in delinquencies related to auto loans made by auto-finance companies to subprime borrowers, a topic we’ve highlighted in previous editions of the GAAP Flash. Could a rise in delinquencies related to student loan debt be next?
Trump’s Tax Promises Undercut by CEO Plans to Help Investors (November 29, 2017) – Bloomberg Business (@business)
According to Bloomberg, major companies say they’ll turn over most of the gains related to the GOP’s proposed tax reform to their shareholders, undercutting President Trump’s promise that his plan will create jobs and boost wages for the middle class. Share buybacks and dividends aren’t exactly a way to stimulate the economy. According to Quinnipiac University, U.S. voters disapprove of the Republican tax legislation by a two-to-one margin.
How It’s Relevant: Count me as a “Nay” for the proposal as it stands. I am on the record back in 2015 as thinking the U.S. corporate tax rate needed to be lowered, but this should be coupled with reductions in the amount of deductions they are allowed to take. Also, the proposed legislation sets out a flat-tax on the trillions of dollars being held overseas. I would require companies to repatriate the money and invest in America before giving them a lower rate on their overseas earnings. Finally, I would look for ways to reduce the tax burden of small business owners, not hedge fund investors, the real generators of jobs in our economy. Of course, it would “benefit” me personally, but I wouldn’t be spending it on wine and women. I’d do what most small business owners would do – I would hire additional people to expand my business (and expand the tax base).
Wells Fargo Is Dubbed a Repeat Offender and Faces New Wrath From Its Regulator (November 29, 2017) – The Wall Street Journal (@wsj)
The Office of the Comptroller of the Currency (OCC) has advised Wells Fargo’s board of directors that it is weighing formal enforcement action against the bank over improprieties in its auto-insurance and mortgage operations. The letter from the OCC alleges that the bank “willingly harmed its customers in those two business lines.”
How It’s Relevant: The hits just keep on coming! The allegations include requiring customers to pay for auto collision coverage they didn’t need and charging customers improper fees to extend interest-rate commitments. Of course, this comes on the heels of scandals at Wells Fargo last year. It should be noted that, although the dollar amounts related to these improprieties total in the millions, they are probably immaterial, as defined by GAAP and the SEC, to the financial statements as a whole. That being said, the cost to their reputation is immeasurable and it starts with the “tone at the top!”
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