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Since 1985

Contents
FEATURES

4 An Introduction to IFRS for SMEs By Jacob Kamm, Assistant Professor of Accounting, Division of

GLOBAL OUTLOOK

Business Administration, Baldwin Wallace University and Jayne Fuglister, Professor Emerita, Department of Accounting, Cleveland State University

Page 4

6 Beware of The Self-Employment Tax

CAREER OUTLOOK

This Summer

By Steven Colburn, Associate Professor of Accounting, Maine Business School, University of Maine and Michael Rankin, Accounting Major, Maine Business School, University of Maine

9 How Fast Can $100,000 Disappear?

COVER STORY PEER REVIEWED

By Russell Calk, Ph.D., CPA, Associate Professor of Accounting, New Mexico State University, Mary Jo Billiot, DBA, CPA , Associate Professor of Accounting, New Mexico State University, Pamela S. Carr, Ph.D., CPA, Associate Professor of Accounting, Arkansas Tech University, and Cindy Seipel, Ph.D., CPA CFE, Professor of Accounting, New Mexico State University.

Page 6

14 Facing Debt Collection Of A Student Loan

By By Theresa J. Holt, JD, Associate Professor, Department of Accounting, Cleveland State University

STUDENT OUTLOOK PEER REVIEWED

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Page 9

Global Outlook

An Introduction to IFRS for SMEs

By Jacob Kamm, Assistant Professor of Accounting, Division of Business Administration, Baldwin Wallace University and Jayne Fuglister, Professor Emerita, Department of Accounting, Cleveland State University

Editor & Publisher Steven N. Polydoris Associate Publisher Marie Centenail Graphic Design Michael Skuras Contributing Editor Cathy Demetropoulos

his paper provides an overview of International Financial Reporting Standards for Small and Mediumsized Entities (IFRS for SMEs) and discusses the advantages and disadvantages of using IFRS for SMEs. Students are encouraged to learn more about IFRS for SMEs. The results of a questionnaire survey conducted by the American Bankers Association in 2011 are used to determine why IFRS for SMEs is not more broadly used in the United States. On May 23, 2012, the Financial Accounting Foundation (FAF) Board of Trustees established yet another new body to improve the process of setting accounting standards for private companies. This issue has been around for thirty years. Based on history, it seems unlikely that an entirely separate set of GAAP for private enterprise will be issued in the near future, despite the significant cost savings benefit that could be recognized. In contrast, the International Accounting Standards Board (IASB) issued the International Financial Reporting Standards for Small and Medium-sized Entities (IFRS for SMEs, hereinafter referred to as the Standard) in 2009. The Standard is self-contained and has 35 topic sections. The whole standard is only 230 pages and is much less complex than full IFRS and U.S. GAAP . IFRS for SMEs is globally recognized. Over 80 jurisdictions, including the United States, have adopted or plan to adopt IFRS for SMEs. With over 27 million private companies in the United States eligible to use IFRS for SMEs (Interna-

Contact Us
Advertising Advertising@NewAccountantUSA.com 773-866-9900 ext. 11 Editorial Editor@NewAccountantUSA.com Subscriptions Subscriptions@NewAccountantUSA.com Editorial Advisors William Aiken Douglas K. Barney - Chairman Peer Review Process William A. Broadus, Jr. Barry C. Broden John F. Chironna D. Larry Crumbley Roger H. Hermanson Nitham Hindi Robert L. Israeloff Roland L. Madison Frank M. Messina - Chmn. Henry Montero Marshall Romney Doyle Williams Editorial, Advertising, and Circulation Offices: 3500 W. Peterson Ave. Chicago, IL 60659 Phone: 773.866.9900 Fax: 773.866.9907 www.NewAccountantUSA.com Issue #754 Copyright 2013 by Real Estate News Corp. All rights reserved. 3500 W. Peterson Avenue Chicago, Illinois 60659 Phone (773) 866-9900 Fax (773) 866-9881

tional Accounting Standards Board, 2012), it is puzzling why the standard is so slow to be widely adopted. This paper attempts to find answers as to why this is the case. The paper is also designed to help each student understand the importance of becoming more familiar with IFRS for SMEs. Overview of IFRS for SMEs The Standard is a simplification of International Financial Reporting Standards (Full IFRS). The Standard, only 230 pages long, focuses on the needs of those primarily concerned with cash flows, balance sheet strength, and liquidity of small and medium-sized non-public companies. Only topics relevant to SMEs are included in the Standard. A list of the 35 topics and the number of pages for each topic is on pages 4-5 of the Standard and can be acContinued on Page 18

4 NEW ACCOUNTANT

Student Outlook

New Accountants 11 Rules For Living...

Here is a list of 11 things that many high school and college graduates did not learn in school.

Rule #1

Life is not fair; get used to it.

Rule #5

Rule #2

The world wont care about your self-esteem. The world will expect you to accomplish something BEFORE you feel good about yourself.

Flipping burgers is not beneath your dignity. Your grandparents had a different word for burger flipping; they called it opportunity.

Rule #8

Your school may have done away with winners and losers, but life has not. In some schools they have abolished failing grades; theyll give you as many times as you want to get the right answer. This doesnt bear the slightest resemblance to ANYTHING in real life.

Rule #6

Rule #3

You will NOT make 40 thousand dollars a year right out of high school. You wont be a vice president with a cell phone, until you earn both.

If you mess up, its not your parents fault, so dont whine about your mistakes, learn from them.

Rule #9

Life is not divided into semesters. You dont get summers off and very few employers are interested in helping you find yourself. Do that on your own time.

Rule #7

Rule #4

If you think your teacher is tough, wait until you get a boss. He doesnt have tenure.

Before you were born, your parents werent as boring as they are now. They got that way from paying your bills, cleaning your clothes, and listening to you talk about how cool you are. So before you save the rainforest from the parasites of your parents generation, try delousing the closet in your own room.

Rule #10

Television is NOT real life. In real life, people actually have to leave the coffee shop and go to jobs.

Rule #11

Excerpted from Dumbing Down Our Kids: Why American Children Feel Good About Themselves But Cant Read, Write or Add by Charles J. Sykes.

Be nice to nerds. Chances are youll end up working for one.

www.newaccountantUSA.com NewAccountantUSA.com 5 5

Career Outlook

Beware of The Self-Employment Tax This Summer

Many college students work during the summer months to help pay for their college expenses. Some of these students could be in for a big shock when they go to file their income tax returns the following spring. By Steven Colburn, Associate Professor of Accounting, Maine Business School, University of Maine and Michael Rankin, Accounting Major, Maine Business School, University of Maine

any college students work during the summer months to help pay for their college expenses. Some of these students could be in for a big shock when they go to file their income tax returns the following spring. They may discover that, instead of getting the big income tax refund they were expecting, they have to pay hundreds (or even thousands) of dollars in additional self-employment (i.e., FICA) taxes to Uncle Sam because their summer employers treated them, for tax purposes, as independent contractors (i.e., as being selfemployed), rather than as employees. Some employers purposely misclassify temporary employees as independent contractors so they (the employer) wont have to pay their share of the employees FICA tax. This article reviews the basic provisions of: 1) the FICA and self-employment tax laws, and 2) provides guidance to help students and others avoid being misclassified by their employers as independent contractors and having to pay the self-employment tax when they file their tax returns. Federal Insurance Contributions Act (FICA) Taxes Levied on Employees and Employers In addition to income taxes, employees must pay employment taxes, known as FICA taxes, on their wages. This tax is constitutional and mandatory, not voluntary. In general, the self-employment tax applies to all individuals. However, the self-employment tax does not apply to
6 NEW ACCOUNTANT

nonresident aliens, unless an international social security agreement is in place that provides coverage under the U.S. Social Security system. The two components of this tax are the Social Security tax (statutory rate of 6.2% of wages, limited to wages of $110,100 for 2012) and the Medicare tax (1.45% of wages with no limit). The Social Security tax helps the retired and disabled by providing a regular source of income based on their pre-retirement earnings, similar to a pen-

sion. The Medicare tax is intended to help qualifying individuals, mostly retirees, with medical payments. Employers must withhold the tax from employees wages and periodically remit this amount with an equal amount paid by the employer to the government. The 2010 T ax Relief Act reduced the self-employment tax by 2% for self-employment income earned in 2011. The T emporary Payroll T ax Cut Continuation Act of 2011 extended this 2% reduction through 2012, so the

with an equal amount paid by the employer to the government. The 2010 Tax Relief Act reduced the self-employment tax by 2% for self-employment income earned in 2011. The Temporary Payroll Tax Cut Continuation Act of 2011 extended this 2% reduction through 2012, so the rates for 2011 remain in

rates for 2011 remain in effect for 2012. For 2012, the employees is required to pay self-employment taxes on their income. Net effect for 2012.5 For 2012, the employees social security tax rate has been temporarily reduced, to 4.2% social security tax rate has been temporarily reduced, to 4.2% (to profit or loss from self-employment is reported on Schedule C of (to h elp working people during these difficult difficult economic times), but the employers matching percent is help working people during these economic times), but Form 1040. It is then 1) transferred to Form 1040 to be taxed along the employers matching percent is still 6.2 percent. So, for 2012 with other income, and 2) transferred to Schedule SE to calculate still 6.2 percent. So, for 2012 employees pay a maximum FICA rate of 5.65 percent times their wages and employees pay a maximum FICA rate of 5.65 percent times their the self-employment tax. Once calculated, the self-employment wages and employers pay F aICA maximum FICA ratefor ofa7 percent tax is p added to the Other T axes section of Form 1040, and the employers pay a maximum rate of 7.65 percent .65 combined rate o f 13.3 ercent. for a combined rate of 13.3 percent. taxpayer gets a deduction for AGI for one-half of the tax (possibly Example 1: Employee FICA Taxes Payable more for 2012). Example 1: Employee FICA Taxes Payable t T ohcalculate self-employment taxes, net earnings from self Jane, a full-time student, got a summer job at Beach-Body Gym (BBG) o elp pay for her college Jane, a full-time student, got a summer job at Beach-Body Gym employment must first be computed. This is the gross income tuition. She earned $10,000 in wages working as an aerobics instructor during from the summer (BBG) to help pay for her college tuition. She earned $10,000 in and derived any trade or business, less the deductions permitted wages working as an aerobics instructor and during the summer by the Code for that trade of business, plus any distributive share commuting from home to work and back. commuting from home to work and back. of income or loss from partnerships in which the taxpayer is a How much FICA tax should BBG withhold from Janes paychecks? general partner. Net earnings from self-employment is then mulHow much FICA tax should BBG withhold from Janes paychecks? 3 tiplied by the net self-employment earnings percentage, 92.35% Answer: $565, computed computed aas s follows: Answer: $565, follows: (which includes a built-in deduction of 7 .65%). The result is then Description Amount Calculation multiplied by the self-employment tax rate, 13.3% for tax year Example 2: Employer FICA Taxes Payable Janes wages $10,000 2012, to get the self-employment tax. If the self-employment Social Security tax 420 $10,000 x .042 is $14,204 less, .51% of the amount can be deducted for Using the information for Jane provided above, what is the tax amount of Bor BGs F57 ICA match 3 145 $10,000 x .0145 Medicare tax AGI for 2012. If the tax exceeds $14,204, 50% of the amount, plus Janes FICA taxes withheld $565 $420 + 145 $1,067 can be deducted. based on Janes 2 e Example : arnings? Employer F ICA Taxes Payable
Using the information fTaxes or provided above, what is the amount of BBGs FICA match Example 2: Employer Answer: $ omputed as FICA follows: 765, c Jane Payable The only online CPA EXAM REVIEW that based Using the information for Jane provided above, what is the on Janes earnings? utilizes Adaptive-Learning Technology to amount of BBGs FICA match based on Janes earnings? Description Amount Calculation optimize your study timeand your results. Answer: $765, computed a s ffollows: ollows: Answer: $765, computed as Janes W ages $10,000 Social Security tax $ 620 $10,000 x .062 Description Amount Calculation Because each student has their Janes W ages $ 10,000 Medicare tax $145 $10,000 x .0145 own unique learning needs Social Security tax $ 620 $10,000 x .062 BBGs FICA Match $765 $620 + 145 Medicare tax $145 $10,000 x .0145 BBGs FICA Match $765 $620 + 145

What total amount of FICA taxes BeachBody Gym should ay to to Uncle Sam based on Janes wages? What total amount of FICA taxes BeachBody Gym shouldp pay
Uncle Sam based on Janes wages? Answer: $ 1,330, a s follows: Answer: $1,330, as Answer: $ 1,330, a s ffollows: ollows:
What total amount of FICA taxes BeachBody Gym should pay to Uncle Sam based on Janes wages?

FICA ax Withheld from Janes w wages FICA Tax WTithheld from Janes ages FICA Tax Matched by Janes Employer FICA Tax Matched by Janes Employer Total FICA Tax Paid Total FICA Tax Paid

$565 $565 765 765 $1,330

$1,330

13.3% of Janes wages ($1,330/$10,000). Taxes 1 Levied n Independent Contractors BBG) in FSelf-employment ICA taxes equaling 3.3%o o f Janes wages ($1,330/$10,000). Self-employment Taxes Levied on r Independent Contractors Self-employed taxpayers (often eferred to as independent contractors) are required to calculate Self-employment Taxes L evied on Independent Contractors Self-employed taxpayers (often referred to as independent and pay the e ntire FICA tax burden themselves based on their self-employment earnings. Any individual contractors) are required to calculate and pay the entire FICA tax www.ExamMatrix.com Self-employed t axpayers ( often r eferred t o a s i ndependent c ontractors ) are required to calculate burden themselves based on their self-employment earnings. Any Limit one section per o student. Half off $229 retail price. Offer expires who has net self-employment earnings of $400 or more is required to pay self-employment taxes n 9/30/13. See website for full details individual who has net self-employment earnings of $400 or more 6ICA tax burden themselves based on their self-employment earnings. Any individual and pay ttheir he eincome. ntire F Net profit or loss from self-employment is reported on Schedule C of Form 1040. It is
then 1elf-employment ) transferred to Form 1 040 to be taxed along w ith other and 2) p transferred to Schedule SE taxes on who has n et s e arnings o f $400 or m ore is irncome, equired to ay self-employment NewAccountantUSA.com 7

Jane and her employer combined to pay $1,330 ($565 withheld from Jane, and $765 matched by Jane and her employer combined to pay $1,330 ($565 withheld Introductory Offer Jane a nd h er e mployer c ombined to p ay $ 1,330 w from Jane, and $765 matched by BBG) in FICA taxes($565 equaling BBG) in FICA taxes equaling 1 3.3% of Janes w ages ($1,330/$10,000). ithheld from Jane, and $765 matched by

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their income.6 Net profit or loss from self-employment is reported on Schedule C of Form 1040. It is

to calculate the self-employment tax. Once calculated, the self-employment tax is added to the Other

employment earnings percentage, 92.35% (which includes a built-in deduction of 7.65%).8 The result is

Career Outlook tax is $14,204 or less, 57.51% of the amount can be deducted for AGI for tax. If the self-employment

then multiplied by the self-employment tax rate, 13.3% for tax year 2012,9 to get the self-employment

2012. If the tax exceeds $14,204, 50% of the amount, plus $1,067 can be deducted.10

the answer depends upon the amount of control the gym owner Example 3: Self-employment Taxes Payable. Example 3: Self-employment Taxes Payable. Assume that Jane (from Example 1) was not an employee of has over how Jane teaches her aerobics classes. If the gym has a Assume that Jane (from Example 1) was not an employee of Baerobics BG, but was hired as an prescribed aerobics program that it has Jane implement, Jane may BBG, but was hired as an independent contractor to teach be an employee. If the gym leaves it up to Jane to develop the classes. How does this change in worker status affect the amount independent contractor to t each aerobics classes. How does this change in worker status affect the program and implement it as she sees fit, Jane may be an indeof FICA tax paid by 1) Jane and by 2) BBG? amount of FICA tax paid by 1) Jane and by 2) BBG? Answer: Because Jane is self-employed (and not an employee of pendent contractor. Figure 1 lists some of the twenty factors the Answer: Because ane is self-employed (and not an employee f BBG), she m ust pay all of the FICA tax IRS considers in determining whether a worker is an employee or BBG), she mustJpay all of the FICA tax herself, and o BBG pays no an independent contractor. FICA tax on Jane sn behalf. herself, and BBG pays o FICA tax on Janes behalf.
Janes Self-Employment FICA) Tax Obligation Janes Self-Employment (FICA) (Tax Obligation Description Janes Self-Employment Income11 Net earnings from self-employment percentage Net earnings from self-employment Self-employment tax rate Janes Self-employment tax due *Rounded to whole dollars. Amount $10,000 92.35% $9,235 13.3% $1,228* Calculation

Figure 1: Employment Factors Suggesting Employee or Independent Contractor Status15 Employment F actor Factor Indicates Indicates Employee Employee Independent Contractor Worker must follow payers Worker m ust follow payers instructions closely. Yes No instructions c losely. Yes Worker is trained by payer. Yes No Worker trained by payer. Yes Yes Worker can i ss et own hours. No Worker is not supervised. No Worker can set own hours. No Yes Worker provides own tools. No Worker is not supervised. No Yes Payer pays workers business Worker p rovides o wn t ools. No No. or traveling expenses. Yes Payer pays workers business

Figure 1: Employment Factors Suggesting Employee or Independent Contracto Indicates Indicates Independent Contractor No No Yes Yes Yes No.

Employment

$10,000 x .9235 $9,235 x .133

As this figure shows, as an independent contractor, Jane would have to pay $1,228 in self- As this figure shows, as an independent contractor, Jane would or traveling expenses. Yes Summary an employee. A have to pay ($1,228 in (FICA)than tax. This is h$663 employment FICA) tax. Tself-employment his is $663 more ($1,228-565) she would ave to pay as Being improperly classified by your employer as an independent contractor instead of as an more ($1,228-565) than she would have to pay as an employee. A Summary further complication for Jane and other workers who are surprised to find they owe this tax at filing time Summary Being improperly classified by your employer as an indepenfurther complication for Jane and other workers who are surprised employee can be an unpleasant and expensive surprise when it comes time to file your tax return. Man is t hat t hey m ay n ot h ave t he m oney t o p ay t he t ax. L ets a ssume t hat w hen J ane b egan p reparing h er dent contractor instead of as an employee can be an unpleasant to find they owe this tax at filing time is that they may not have students Being improperly classified by your employer as a n independent contrac find employment to help save money for the next school year, but arent aware of how their the money to pay the tax. Lets assume that when Jane began and expensive surprise when it comes time to file your tax return. compensation s treated y u the employer. I t nd is important to m sure that FICA taxes are bt eing employee ic an be ab n npleasant a expensive sake urprise when it comes ime to fil preparing her income tax return she was expecting a tax refund of Many students find employment to help save money for the next year, aware how their compensation deducted from ybut our parent aycheck and are of being matched by your employer. If yis ou treated are not asked to fill out about $100. Instead, she learns that she has to pay in $1,228 of SE school students find employment to help save money for the next school year, but aren by the employer. It is important to make sure that FICA taxes tax. All of a sudden, Jane has an unexpected cash flow problem. Form W-4 (Employees Withholding Allowance Certificate) before beginning employment, then your compensation i s t reated b y t he e mployer. I t i s i mportant t o m ake sure that FICA are being deducted from your paycheck and are being matched new employer is likely planning to treat you as an independent contractor rather than as an employee. by your employer. If you are not asked to fill out a Form W-4 Employee or Independent Contractor? deducted from your paycheck and are being matched by your employer. If you a When finding a job, it is imperative that one is aware of how their employer is classifying them. An independent contractor is someone who has the right to (Employees Withholding Allowance Certificate) before beginning then your new employer likely planning to treat If Form you are working f or a company o n a daily basis and is are being assigned tasks consistent with those of W -4 (Employees W ithholding Allowance Certificate) before beginning emp control what work will be done and how it will be done. Examples employment, as an independent contractor rather than as an employee. include self-employed persons such as doctors, dentists, accountants, you typical employee, make sure you are classified as such. As evidenced above, an independent contractor new employer is la ikely lanning to treat you as ais n aware independent ontractor rather When finding job,p it is imperative that one of how c their among others. Additionally, independent contractors can usually is subject to much higher total taxes when their FICA taxes are not being matched by their employer. is classifying If work for a company on o a f daily control their own hours. For example, an independent contractor employer When finding athem. job, it is you imperative that one is aware how their emplo Dont find yourself with a assigned large tax bill because you assume your e mployer classified you correctly. Be basis and are being tasks consistent with those of a typical hired by a fence company to install a fence has one job: put the If y ou a re w orking f or a c ompany o n a d aily b asis a nd a re b eing a ssigned make you are classified as such. As evidenced above, an tasks co assertive, and make ssure ure you are being treated fairly. fence in according to the specifications. They are called whenever the employee, contracfence company has work. They do not work a designated amount independent typical employee, make sure you are classified as such. As evidenced above, an in tor is subject to high of hours on specific days each week. They are also typically paid Article is s ubject t o m uch higher total taxes when their FBy ICA taxes are not being matche er total taxes when on a per job basis and are not paid a salary or an hourly wage. FICA taxes are Steven Colburn Under common-law rules, an employee is anyone who performs their Dont find yourself with a large tax bill because you assume your employer classi Associate Professor of Accounting, not being matched services for their boss under the conditions that the boss can conMaine Business School, by their employer. assertive, and make sure you are being treated fairly. trol what will be done and how it will be done. The important University of Maine information here is that the boss has the right to control the details Dont find yourself of when and how the services are performed. For example, an with a large tax bill Michael Rankin employee of the fence company discussed above is someone who because you assume Accounting Major, your employer classiis hired to work a specified number of hours on certain days each Maine Business School, fied you correctly. Be week. An employee would arrive at work each day and daily tasks University of Maine assertive, and make would be assigned by their boss. Should Jane be treated as an employee or as an independent sure you are being contractor? As we see in the discussion regarding the fence installer, treated fairly. NA

8 NEW ACCOUNTANT

Cover Story Peer Reviewed

How Fast Can $100,000 Disappear?

The Need for Personal Financial Planning for New Accounting Graduates
By Russell Calk, Ph.D., CPA, Associate Professor of Accounting, New Mexico State University, Mary Jo Billiot, DBA, CPA , Associate Professor of Accounting, New Mexico State University, Pamela S. Carr, Ph.D., CPA, Associate Professor of Accounting, Arkansas Tech University, and Cindy Seipel, Ph.D., CPA CFE, Professor of Accounting, New Mexico State University.

ew graduates of accounting programs are excited to enter the workforce, both for the chance to use the skills from their degree and for the promise of opportunities resulting from a healthy paycheck. They anticipate the opportunity to save for a house, take an exotic vacation, and begin to lay the groundwork for their future. While making such plans they can neglect to budget, and the costs of everyday life as a busy professional often add up leaving them still living from paycheck to paycheck as they did in college. The ensuing scenario follows John and Amanda as they graduate from college and begin their professional lives. Although we altered certain of the specific details to protect John and Amandas identities, the following closely tracks the true story of two former students who shared their experiences with us. Preparing for a Career: The College Years From the beginning, John and Amanda had worked hard to maintain good grades, but they also made time to go out with friends, provide volunteer services for community and professional organizations, and make trips home to visit family. They both worked part-time and supplemented their income with scholarships and help from their parents. Nevertheless, both had found it necessary to add supplemental support for school and living expenses with student loans. They generally lived from paycheck

to paycheck. Occasional expenses were handled by using credit cards. They both believed that the credit card and student loan debt that they incurred during college would be easily paid off once they accepted full-time professional positions after graduation. John and Amanda each chose to pur-

sue a masters degree to meet the 150-hour requirement and to be better prepared for the CPA Exam. The couple graduated with some student loan and credit card debt. John and Amanda incurred Federal Stafford student loans of $11,000 and
Continued on Page 12

NewAccountantUSA.com 9

Cover Story Peer Review

Continued from Page 9

$12,000, respectively. Payment of their student loans was deferred until six months after graduation. The federal government paid the interest on the loans while the couple was in college and during the six-month grace period. After that, they became responsible for repaying the principal and interest over a maximum of ten years. Interest on the Stafford loans was 6.8%. Additionally, John and Amanda both had VISA cards and department store credit cards. Much of the credit card debt was taken out during the latter part of their studies and prior to employment. First there was the need for appropriate interview attire. Then later, despite accepting job offers while in college, John and Amanda had a month lag between graduation and the beginning of their jobs. By the time they started work, Johns credit card debt totaled $3,800, while Amanda had credit card debt of $2,200. In the last semester of the masters program, John and Amanda got engaged. As college students, they were happy to take advantage of Johns grandmothers offer of her engagement and wedding rings and Amandas parents offer to take care of the major wedding expenses. Life after College: Living in the Real World John and Amanda were excited about their new professional lives. Both passed the CPA Exam within one year of graduation. For the past two years Amanda had been working in the tax department in the Dallas, T exas office of a large international public accounting firm. John worked in the audit practice of a regional firm located in Plano, T exas. Their salaries seemed like a fortune compared to their meager student existence. Each had started out at $50,000 gross, but now John earned $52,000, and Amanda had just received a $3,000 increase. As a result of their respective raises, they had $8,750 gross pay per month on which to base their budget. Johns firm paid 100% of his medical and dental insurance. Amandas firm paid 100% of her medical insurance cost, but she was required to pay $70 per month for dental insurance. They both contributed 3% of gross income to their firms respective 401Ks. Amanda figured they both should claim married-with-one for withholding for federal income taxes, but last year they had to drain their savings to pay the remainder of their tax at filing time. This year they added another $120 per
12 NEW ACCOUNTANT

John and Amandas Budget

Gross monthly income1 John $4,333.00 Amanda 4,417.00 $8,750.00 Withholding Social Security & Medicare2 John $331.00 Amanda 338.00 (669.00) Fed Income Tax3 John (Married, 1 + $60) $494.00 Amanda (Married, 1 + $60) 507.00 (1,001.00) 401K (3%) John $130.00 Amanda 133.00 (263.00) Amandas Insurance (70.00) Net Pay $6,747.00 Monthly expenses: Rent4 $1,200.00 Amandas parking 140.00 Cleaning 180.00 Student loan payments5 260.00 Car payments 800.00 Car insurance 150.00 Gasoline 350.00 Furniture payment 400.00 Gym membership 100.00 Credit cards 400.00 Dry cleaning 120.00 Meals at restaurants 940.00 Clothing 200.00 Electricity 150.00 Water & sewer 50.00 TV & Internet 100.00 Cell phones 150.00 Groceries 440.00 Cat food & vet visits 20.00 Movies, cocktails etc. 185.00 Misc. necessities 200.00 (6,595.00) Net Cash $202.00

1 Based on starting salaries of $50,000 each with raises of $2,000 and $3,000 after first year. 2 Social Security and Medicare withholding rate of 7.65% 3 2011 withholding rates 4 Advertised rent for apartment located in Plano, Texas 5 Student loans based on 2008-2009 average student debt as reported by CollegeBoards 2009 Trends in Student Aid; 6.28% interest rate

month to their combined withholding. Amanda worked downtown and had to pay for parking. She found a convenient parking garage next to her office building for $140 a month. She could have opted for a cheaper lot farther away, but why walk as she had done in college? Besides, she was often at the office late at night and on weekends and felt safety was an overriding issue. New clothes and shoes for both were a necessity to start their careers. Thankfully their credit cards had sizable limits. Graduation money had helped some, but the monthly minimum payments on their credit cards had increased to $200. Most of their work clothes had to be dry-cleaned, and their monthly bill averaged $120. Because of their demanding schedules, eating out was a welcome end to many of their busy days. They ate out four or more nights per week, often joining up with their newly employed professional friends in the area or just reconnecting with one another after a stressful day. Their dinner expenses averaged $500 a month, approximately $10$15 each per meal. John was usually away from the office on an audit engagement at lunch and went out to eat with the members of his audit team. Amanda also usually went out to lunch with coworkers. Eating out at lunch added $440 of monthly expense. The couple had enjoyed shopping for their two-bedroom townhouse in the Plano area. It had a two-car garage, was light and spacious and allowed for Smokey, the Persian cat that John had given Amanda as a birthday present. While the rent was $1,200, they enjoyed the beautiful and peaceful atmosphere. Housework was a chore for which neither one had the time or desire. Ultimately they hired someone to clean for $90 every two weeks so they could have their weekends free. Their furniture was all new and looked great in the townhouse. Amanda had loved decorating and made everything look homey and inviting. In addition to the furniture, the townhouse came without all of the appliances. They found it necessary to buy a refrigerator and a washer/dryer com-

bination. Both the furniture and appliance stores offered great financing. Their monthly payments were only $400 a month for the two combined. Car shopping was fun too. They had tried to be thrifty and considered both style and gas mileage for their new cars. John had chosen a Nissan Altima with leather seats and a moon roof and Amanda a standard T oyota Camry. They had been able to make only small down payments on each given that their college cars were practically worthless. By financing the cars for five years, their combined monthly payment came to $875. Full coverage insurance on both cars added another $150 to their monthly auto expenses. John and Amanda seemed to always spend more than expected on gasoline. They were able to average about 25 miles per gallon, but gas prices were $3.50 per gallon in Dallas. They had driven 30,000 miles last year driving to work every day, running errands and visiting their parents in Lubbock and Austin several times. Amanda had always been very health conscious and exercised at least four times a week. She was able to convince John that they both would be healthier and more able to handle the stress of work if they had a membership at the gym. The one in their neighborhood was a little pricy, but $100 a month for the couple had proven to be worth it. John and Amanda eagerly looked forward to buying their first home in a family friendly neighborhood where they could eventually raise children. Disappointment arose every time they looked at their bank balance. The amount was just not accumulating the way they expected for a couple earning the salaries they did. In order to figure out where the money was going, they prepared the following table showing their monthly income and the breakdown of monthly expenses. The result of the analysis was shocking. Without making large cuts in their spending, it would be necessary to wait until their cars were paid off to save any significant amount. Not only that, but the advice of their ethics professor came to mind never

put oneself in the position of needing that next paycheck to survive, it makes it much more difficult to walk away from unethical situations. While no ethical dilemmas had arisen to date, John and Amanda recalled their post lecture discussion. Both had expressed amazement at the thought that a professional making a good living would put themselves in that financial position. And yet, that was now their reality. With these sobering thoughts in mind, they sat down with a calculator and began to crunch some numbers. The first step was to break out their expenses between those set by contract and those which could be changed quickly. Any short term reductions had to start with non-contractual expenses. Amanda turned to John, Would you rather cook or clean the house? she asked only somewhat jokingly. Neither laughed. What if something happened at either of their jobs? Could they even cover their minimum contractual obligations? The realization was frightening. They could both feel an intense pressure to make some changes quickly. NA

Article By
Russell Calk, Ph.D., CPA Associate Professor of Accounting, New Mexico State University

Mary Jo Billiot, DBA, CPA Associate Professor of Accounting, New Mexico State University

Pamela S. Carr, Ph.D., CPA Associate Professor of Accounting, Arkansas Tech University

Cindy Seipel, Ph.D., CPA CFE Professor of Accounting, New Mexico State University

NewAccountantUSA.com 13

Student Outlook Peer Reviewed

14 NEW ACCOUNTANT

Facing Debt Collection Of A Student Loan

By Theresa J. Holt, JD, Associate Professor, Department of Accounting, Cleveland State University

A
W

stonishingly, outstanding student loan debt now exceeds $1 trillion, according to the Consumer Financial Protection Bureau. This amount is more than either credit card or auto loan debt and is approximately 6.6 percent of the Gross Domestic Product (GDP). By the end of college, the average debt for an individual student is greater than $25,000 with some students owing $100,000 or more. The

Department of Education reports that the default rate for federal student loans rose to 9.1 percent in 2012, up from 8.8 percent in 2011. The tremendous debt load carried by students is likely to impede their ability to pursue various life events (e.g. buying a house, investing for the future, etc). Adding a sluggish economy to the mix, students may find themselves unable to repay these large sums of money and the debt goes into default. The problem is real.

When the debt collector calls, then what?

hen the debt collector calls, dont panic. Be informed. A consumer debt, which includes a student loan, is an obligation of an individual to pay money arising out of a transaction involving money, property, insurance or services primarily for personal, family or household purposes. Does it matter that a student loan is a consumer debt? Yes, it does and in a good way. As a financial obligation incurred to obtain educational services for a personal purpose, a student loan falls under the coverage of an important law designed to provide a degree of protection for those persons facing the debt collection process. This law is called the Fair Debt Collection Practices Act (FDCPA). To be clear, the FDCPA does not excuse a student or any consumer from the responsibility of paying a valid debt. However, one of its purposes is to prevent abusive collection practices.

NewAccountantUSA.com 15

Student Outlook Peer Reviewed

Note the Differences

Ask for Validation of the Debt

he FDCPA applies to consumer debt but not to commercial debt. Other laws govern business transactions. Also, the FDCPA applies to third party debt collectors. Creditors and in-house collectors are not bound (with limited exception) by the restrictions of the FDCPA. For clarity, a creditor is any person who offers or extends credit, thereby creating a debt, or any person to whom a debt is owed. By contrast, a debt collector is any person who is in a business for the principal purpose of collecting debts or who regularly collects or attempts to collect debts owed to another person.

debt collector may be mistaken about someones identity or may not be aware that the debt has been paid. In either case, asking for validation serves the useful purpose of eliminating the problems associated with these scenarios.

Right to Dispute

he collector is required to provide written notice to the debtor of the debtors right to dispute the debt. Within thirty days of receiving the notice, the debtor has the right to dispute the debt in writing. Be aware that disputing a debt with a collector does not stop the collector from going forward with a lawsuit.

Prevalence of Abusive Tactics

Properly Handle Communications

ccurrences of some debt collectors (not all) using harassment, repeated phone calls to the debtors workplace or home, false threats, and abusive language have been reported. Over 180,000 debt collection complaints were received in 2011 by the Federal Trade Commission (FTC), the agency charged with working on behalf of consumers to prevent fraudulent, deceptive and unfair business practices. (At the time of this writing, the FTC report for 2012 has not been released.) In addition, numerous lawsuits are filed each year against debt collectors. It is very important for students to know their rights in order to protect themselves from abusive tactics that contribute to job loss, marital disharmony, and lack of privacy.

n general. A debt collector is not permitted to communicate with a debtor at an unusual or inconvenient time or place, unless the debtor consents or a court orders. A convenient time is considered to be after 8a.m. and before 9p.m. local time for the debtor. If the debt collector knows that an attorney represents the debtor, the collector should not communicate directly with the debtor unless the attorney fails to respond or grants consent. Further, a collector is prohibited from communicating at the debtors place of employment if it is forbidden. Third parties. With regard to informing third parties about the debt and the collection process, the collector is allowed to communicate with the debtors spouse, parents (if debtor is a minor), guardian, executor, administrator, creditor, attorneys for the debtor, creditor and debt collector, and a consumer reporting agency. The collector is permitted to contact (usually once) additional third parties for the purpose of acquiring location information (i.e. the debtors residence, phone number and place of employment). It should not be revealed that the individual owes a debt. The collector is prohibited from communicating by post card with either third parties or the debtor and from using envelopes with symbols or language (address okay) indicating the debt collection business. Limiting communication with third parties preserves the privacy of the debtor. Cessation. The ability to stop communication with a debt collector is a powerful tool in the debtors arsenal. It does not discharge the debt, but it can provide a quiet peacefulness, at least for awhile. It forces the collector to go forward, perhaps with legal action, or to discontinue the pursuit. In any event, it is a type of put up or shut up strategy. To exercise the right to cease communication, the debtor must notify the collector in writing. At which time, the collector is allowed to inform the debtor that collection efforts are being terminated, that specified remedies may be invoked, or that the collector intends to invoke a specific remedy.

16 NEW ACCOUNTANT

Object to Harassment or Abuse

t is a violation of the law for a debt collector to engage in harassing, oppressive, or abusive behavior. A collector is prohibited from using or threatening to use violence. Obscene or profane language is forbidden. The collector is not allowed to publish a list of people, who have refused to pay their debts, except to a consumer reporting agency. A debt should not be advertised for sale in an effort to coerce payment. Either telephoning or engaging someone in telephone conversation repeatedly or continuously with the intent to annoy, abuse or harass that person is prohibited conduct. Failure to make a meaningful disclosure of the callers identity constitutes a violation.

Watch for False and Misleading Representations

debt collector is prohibited from using any false, deceptive, or misleading representation or methods to collect a debt. It is illegal for a collector to falsely represent the character, amount or legal status of a debt or to misrepresent services rendered or compensation received by the collector. Furthermore, the collector is not permitted to represent or imply that nonpayment of a debt will result in arrest or imprisonment or will result in the seizure, garnishment, attachment or sale of property or wages, unless the action is lawful and intended.

Be Alert for Unfair or Unconscionable Practices

Keep Records

nfair and unconscionable (i.e. immoral) practices are not permitted. The collection of interest, fees, or other charges is a violation unless authorized by contract or law. It is illegal for a collector to solicit a postdated check in order to threaten or institute criminal prosecution or to deposit or threaten to deposit prior to the date on the check. A collector is not permitted to cause charges (e.g. collect telephone calls and telegram fees) to be made to a person by concealing the true purpose of the communication. It is not allowed for a collector to take or threaten to take nonjudicial action to dispossess or disable property if no right or intention exists to do so or if the property is exempt. Any of these actions would be considered unfair and lacking of good moral conscience.

eep records of any communication with a debt collector. This information will be valuable for proving a violation. If the situation warrants, consult with an attorney who specializes in this area of law.

Conclusion

student loan, as a consumer debt, falls within the coverage of the FDCPA. The law does not discharge the loan but instead regulates the conduct of debt collectors by limiting communication and conduct. Harassment and abusive tactics are forbidden. Also, a collector is prohibited from making false and misleading representations or engaging in unfair and unconscionable practices. The FDCPA empowers a debtor. Having knowledge of the protection afforded by the law is a good start for any student.

NewAccountantUSA.com 17

Global Outlook

An Introduction to IFRS for SMEs Continued from Page 4

cessed by going to http://www.ifrs.org/ IFRS+for+SMEs/IFRS+for+SMEs+and+r elated+material.htm#sme_en. In addition, the IASB website provides free access to all the learning tools, although you have to first register on the iasb.org website. Since the Standard will be revised only once every three years, the content will not be subject to constant changes. This will make the Standard easier and less costly to implement. It is likely that the next revision to the Standard wont be issued until 2014. While the principles under the Standard are simplified, Full IFRS, and U.S. GAAP , are based on similar accounting concepts and principles. Overall, the Standard is clearer and contains 90% less financial disclosures. (International Accounting Standards Board, 2012). When the Standard is compared directly to U.S. GAAP , the significant accounting differences include: Disclosures are simplified in a number of areas including pensions, leases, and financial institutions LIFO is prohibited Goodwill and indefinite life intangible assets are amortized over a period not exceeding ten years Depreciation is based on a components approach A simplified temporary differences approach to income tax accounting Reversal of impairment charges, if certain criteria are met, is allowed Accounting for financial assets and liabilities makes greater use of cost Advantages/Disadvantages IFRS for SMEs vs. GAAP In addition to the lower reporting costs, reduced complexity, and convenience associated with the Standards brevity and simplified organization by topic, a private company in the United States may elect to use the Standard because: The private company is owned by a foreign parent The private company has a foreign investor The private company is a supplier to foreign companies The private company has a foreign venture partner There are two significant disadvantages to using the Standard in the United States. First, the Standard is not well known or extensively adopted and, as a result, U.S. lenders prefer U.S. GAAP . Secondly, as with any significant accounting change, there may be significant information technology and training costs related to adoption. ABA Questionnaire Survey Findings An American Bankers Association survey ( ABA , 2011) reported responses from 47 financial institutions related to the use of the Standard by private U.S. enterprise. Only 5% of respondents believed that the U.S. should adopt the Standard. Interestingly, 43% firmly believed that there should be some type of private company accounting standards. The ABA survey indicated that simplification of accounting standards, one of the obvious advantages of the Standard, was the most common response to making the standards more useful. Thus, a logical conclusion from the survey responses is that lenders do want U.S. GAAP for private companies but they do not want private company accounting standards promulgated by the IASB. Conclusion As more U.S. private companies conduct business outside the United States, they will be applying for more foreign financing. Since the Standard is globally recognized, foreign lenders will readily accept financial statements prepared using the Standard because they are familiar with them. As U.S. lenders become increasingly exposed to the Standard and stringent lending restrictions resulting from the financial crisis of 2008 are eased, they may also begin to broadly accept the Standard. Therefore, if you aspire to work for a global private company, encourage your accounting instructors to begin teaching the corresponding IFRS for SME section as you cover a particular subject in Intermediate and Advanced Accounting. Individually, seize the initiative and freely log on to the iasb.org web site to access the Standard and training modules. When more U.S. accounting and banking professionals become familiar with the Standard, the Standard will be used more due to its cost savings and its broad global adoption. NA

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18 NEW ACCOUNTANT

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