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C o n t e n t s

Visit NewAccountantUSA.com for our new enhanced version of this issue.

Since 1985

FEATURES

GLOBAL OUTLOOK

4 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

CAREER OUTLOOK

6 Beware of The Self-Employment TaxThis SummerBy Steven Colburn, Associate Professor of Accounting, Maine Business

School, University of Maine and Michael Rankin, Accounting Major,

Maine Business School, University of Maine

COVER STORY PEER REVIEWED

9 How Fast Can $100,000 Disappear?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.

STUDENT OUTLOOK PEER REVIEWED

14 Facing Debt Collection Of A Student LoanBy By Theresa J. Holt, JD, Associate Professor, Department of

Accounting, Cleveland State University

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4 NEWACCOUNTANT

Editor & Publisher

Steven N. Polydoris

Associate Publisher

Marie Centenail

Graphic DesignMichael Skuras

Contributing Editor

Cathy Demetropoulos

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Issue #754

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by Real Estate News Corp.

All rights reserved.

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Chicago, Illinois 60659Phone (773) 866-9900

Fax (773) 866-9881

This paper provides an overview o

International Financial Reporting

Standards or Small and Medium-

sized Entities (IFRS or SMEs) and

discusses the advantages and disadvantag-

es o using IFRS or SMEs. Students are

encouraged to learn more about IFRS or

SMEs. The results o a questionnaire survey

conducted by the American Bankers Asso-

ciation in 2011 are used to determine why

IFRS or SMEs is not more broadly used in

the United States.

On May 23, 2012, the Financial Ac-

counting Foundation (FAF) Board o

Trustees established yet another new body

to improve the process o setting account-

ing standards or private companies. Thisissue has been around or thirty years.

Based on history, it seems unlikely that an

entirely separate set o GAAP or private

enterprise will be issued in the near uture,

despite the signicant cost savings benet

that could be recognized.

In contrast, the International Account-

ing Standards Board (IASB) issued the

International Financial Reporting Stan-

dards or Small and Medium-sized Enti-

ties (IFRS or SMEs, hereinater reerred toas the Standard) in 2009. The Standard

is sel-contained and has 35 topic sections.

The whole standard is only 230 pages and

is much less complex than ull IFRS and

U.S. GAAP. IFRS or SMEs is globally rec-

ognized. Over 80 jurisdictions, including

the United States, have adopted or plan to

adopt IFRS or SMEs. With over 27 mil-

lion private companies in the United States

eligible to use IFRS or SMEs (Interna-

tional Accounting Standards Board, 2012),

it is puzzling why the standard is so slow to

be widely adopted. This paper attempts to

nd answers as to why this is the case. The

paper is also designed to help each student

understand the importance o becoming

more amiliar with IFRS or SMEs.

Overview of IFRS for SMEs

The Standard is a simplication o

International Financial Reporting Stan-dards (Full IFRS). The Standard, only 230

pages long, ocuses on the needs o those

primarily concerned with cash fows, bal-

ance sheet strength, and liquidity o small

and medium-sized non-public companies.

Only topics relevant to SMEs are included

in the Standard. A list o the 35 topics and

the number o pages or each topic is on

pages 4-5 o the Standard and can be ac-

Continued on Page 18

Global Outlook

An Introduction

to IFRS for SMEsBy Jacob Kamm, Assistant Professor of Accounting, Division of BusinessAdministration, Baldwin Wallace University and Jayne Fuglister, ProfessorEmerita, Department of Accounting, Cleveland State University


5/20

www.newaccountantUSA.com 5

Student Outlook

NewAccountantUSA.com 5

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.

Beore you were born, yourparents werent as boring as

they are now. They got that wayrom paying your bills, cleaning

your clothes, and listening to youtalk about how cool you are. Sobeore you save the rainorest

rom the parasites o your parentsgeneration, try delousing the

closet in your own room.

Flipping burgers is notbeneath your dignity. Your

grandparents had a dierentword or burger fipping;they called it opportunity.

Life is not fair;get used to it.

I you mess up, its notyour parents ault, sodont whine about your

mistakes, learn rom them.

Your school may have done away withwinners and losers, but lie has not.In some schools they have abolished

ailing grades; theyll give you as manytimes as you want to get the right

answer. This doesnt bear the slightestresemblance to ANYTHING in real lie.

I you think yourteacher is tough, wait

until you get a boss. Hedoesnt have tenure. Be nice to nerds.

Chances are youll endup working or one.

Lie is not divided into semesters. Youdont get summers o and very ew

employers are interested in helping youfnd yoursel. Do that on your own time.

Television is NOT real lie. In real

lie, people actually have to leavethe coee shop and go to jobs.

Rule #1

The world wont careabout your sel-esteem.

The world will expect youto accomplish something

BEFORE you eel goodabout yoursel.

Rule #2

You will NOT make 40thousand dollars a yearright out o high school.

You wont be a vicepresident with a cellphone, until you earn

both.

Rule #3

Rule #4

Rule #5

Rule #6

Rule #7

Rule #8

Rule #9

Rule #10

Rule #11

Excerpted from Dumbing Down Our Kids: Why American Children Feel Good

About Themselves But Cant Read, Write or Addby Charles J. Sykes.


6/20

6 NEWACCOUNTANT

Career Outlook

Many college studentswork

during the summer months

to help pay or their college

expenses. Some o these stu-

dents could be in or a big shock whenthey go to fle their income tax returns

the ollowing spring. They may discover

that, instead o getting the big income tax

reund they were expecting, they have to

pay hundreds (or even thousands) o dollars

in additional sel-employment (i.e., FICA)

taxes to Uncle Sam because their summer

employers treated them, or tax purposes, as

independent contractors (i.e., as being sel-

employed), rather than as employees. Some

employers purposely misclassiy temporaryemployees as independent contractors so

they (the employer) wont have to pay their

share o the employees FICA tax.

This article reviews the basic provisions

o: 1) the FICA and sel-employment tax

laws, and 2) provides guidance to help stu-

dents and others avoid being misclassifed by

their employers as independent contractors

and having to pay the sel-employment tax

when they le 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 volun-

tary. In general, the sel-employment tax

applies to all individuals. However, the

sel-employment tax does not apply to

nonresident aliens, unless an international

social security agreement is in place thatprovides coverage under the U.S. Social

Security system.

The two components o this tax are the

Social Security tax (statutory rate o 6.2%

o wages, limited to wages o $110,100 or

2012) and the Medicare tax (1.45% o wages

with no limit). The Social Security tax

helps the retired and disabled by providing

a regular source o income based on their

pre-retirement earnings, similar to a pen-

sion. The Medicare tax is intended to help

qualiying individuals, mostly retirees, withmedical payments.

Employers must withhold the tax rom

employees wages and periodically remit this

amount with an equal amount paid by the

employer to the government. The 2010 Tax

Relie Act reduced the sel-employment

tax by 2% or sel-employment income

earned in 2011. The Temporary Payroll Tax

Cut Continuation Act o 2011 extended

this 2% reduction through 2012, so the

Beware of The Self-EmploymentTax This Summer

Many college students work during the summer months to help pay for their college expenses. Someof these students could be in for a big shock when they go to file their income tax returns the follow-

ing 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


7/20


rates or 2011 remain in eect or 2012. For 2012, the employees

social security tax rate has been temporarily reduced, to 4.2% (to

help working people during these dicult economic times), but

the employers matching percent is still 6.2 percent. So, or 2012

employees pay a maximum FICA rate o 5.65 percent times their

wages and employers pay a maximum FICA rate o 7.65 percent

or a combined rate o 13.3 percent.

Example 1: Employee FICA Taxes Payable

Jane, a ull-time student, got a summer job at Beach-Body Gym

(BBG) to help pay or her college tuition. She earned $10,000 in

wages working as an aerobics instructor and during the summer

commuting rom home to work and back.

How much FICA tax should BBG withhold rom Janes paychecks?

Answer: $565, computed as ollows:

Description Amount Calculation

Janeswages $10,000 SocialSecuritytax 420 $10,000x.042

Medicaretax 145 $10,000x.0145

JanesFICAtaxeswithheld $565 $420+145

Example 2: Employer FICA Taxes Payable

Using the inormation or Jane provided above, what is the

amount o BBGs FICA match based on Janes earnings?

Answer: $765, computed as ollows:


JanesWages $10,000

SocialSecuritytax $620 $10,000x.062

Medicaretax $145 $10,000x.0145

BBGsFICAMatch $765 $620+145

What total amount o FICA taxes BeachBody Gym should pay to

Uncle Sam based on Janes wages?

Answer: $1,330, as ollows:

FICATaxWithheldfromJaneswages $565

FICATaxMatchedbyJanesEmployer 765

TotalFICATaxPaid $1,330

Jane and her employer combined to pay $1,330 ($565 withheld

rom Jane, and $765 matched by BBG) in FICA taxes equaling

13.3% o Janes wages ($1,330/$10,000).

Self-employment Taxes Levied on Independent Contractors

Sel-employed taxpayers (oten reerred to as independent

contractors) are required to calculate and pay the entire FICA tax

burden themselves based on their sel-employment earnings. Any

individual who has net sel-employment earnings o $400 or more

is required to pay sel-employment taxes on their income. Net

proft or loss rom sel-employment is reported on Schedule C o

Form 1040. It is then 1) transerred to Form 1040 to be taxed along

with other income, and 2) transerred to Schedule SE to calculate

the sel-employment tax. Once calculated, the sel-employment

tax is added to the Other Taxes section o Form 1040, and the

taxpayer gets a deduction or AGI or one-hal o the tax (possiblymore or 2012).

To calculate sel-employment taxes, net earnings rom sel-

employment must frst be computed. This is the gross income

derived rom any trade or business, less the deductions permitted

by the Code or that trade o business, plus any distributive share

o income or loss rom partnerships in which the taxpayer is a

general partner. Net earnings rom sel-employment is then mul-

tiplied by the net sel-employment earnings percentage, 92.35%

(which includes a built-in deduction o 7.65%). The result is then

multiplied by the sel-employment tax rate, 13.3% or tax year

2012, to get the sel-employment tax. I the sel-employmenttax is $14,204 or less, 57.51% o the amount can be deducted or

AGI or 2012. I the tax exceeds $14,204, 50% o the amount, plus

$1,067 can be deducted.

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8 NEWACCOUNTANT

Example 3: Self-employment Taxes Payable.

Assume that Jane (rom Example 1) was not an employee o

BBG, but was hired as an independent contractor to teach aerobics

classes. How does this change in worker status aect the amount

o FICA tax paid by 1) Jane and by 2) BBG?

Answer: Because Jane is sel-employed (and not an employee o

BBG), she must pay all o the FICA tax hersel, and BBG pays noFICA tax on Janes behal.

Janes Self-Employment (FICA) Tax Obligation


JanesSelf-EmploymentIncome11 $10,000

Netearningsfromself-employment

percentage

92.35%

Netearningsfromself-employment $9,235 $10,000x.9235

Self-employmenttaxrate 13.3%

JanesSelf-employmenttaxdue $1,228* $9,235x.133

*Roundedtowholedollars.

As this fgure shows, as an independent contractor, Jane would

have to pay $1,228 in sel-employment (FICA) tax. This is $663

more ($1,228-565) than she would have to pay as an employee. A

urther complication or Jane and other workers who are surprised

to nd they owe this tax at ling time is that they may not have

the money to pay the tax. Lets assume that when Jane began

preparing her income tax return she was expecting a tax reund o

about $100. Instead, she learns that she has to pay in $1,228 o SE

tax. All o a sudden, Jane has an unexpected cash fow problem.

Employee or Independent Contractor?An independent contractor is someone who has the right to

control what work will be done and how it will be done. Examples

include sel-employed persons such as doctors, dentists, accountants,

among others. Additionally, independent contractors can usually

control their own hours. For example, an independent contractor

hired by a ence company to install a ence has one job: put the

ence in according to the specifcations. They are called whenever the

ence company has work. They do not work a designated amount

o hours on specic days each week. They are also typically paid

on a per job basis and are not paid a salary or an hourly wage.

Under common-law rules, an employee is anyone who perormsservices or their boss under the conditions that the boss can con-

trol what will be done and how it will be done. The important

inormation here is that the boss has the right to control the details

o when and how the services are perormed. For example, an

employee o the ence company discussed above is someone who

is hired to work a specied number o hours on certain days each

week. An employee would arrive at work each day and daily tasks

would be assigned by their boss.

Should Jane be treated as an employee or as an independent

contractor? As we see in the discussion regarding the ence installer,

the answer depends upon the amount o control the gym owner

has over how Jane teaches her aerobics classes. I the gym has a

prescribed aerobics program that it has Jane implement, Jane may

be an employee. I the gym leaves it up to Jane to develop the

program and implement it as she sees t, Jane may be an inde-

pendent contractor. Figure 1 lists some o the twenty actors the

IRS considers in determining whether a worker is an employee oran independent contractor.

Figure1:EmploymentFactorsSugge stingEmployeeorIndepe ndentContractorStatu s

Employment

Factor

Indicates

Employee

Indicates

Independent

Contractor

Workermustfollowpayers

instructionsclosely.

Yes

No

Workeristrainedbypayer. Yes No

Workercansetownhours. No Yes

Workerisnotsupervised. No Yes

Workerprovidesowntools. No Yes

Payerpaysworkersbusinessortravelingexpenses.

Yes

No.

Summary

Being improperly classied by your employer as an indepen-

dent contractor instead o as an employee can be an unpleasant

and expensive surprise when it comes time to le your tax return.

Many students nd employment to help save money or the next

school year, but arent aware o how their compensation is treated

by the employer. It is important to make sure that FICA taxes

are being deducted rom your paycheck and are being matched

by your employer. I you are not asked to fll out a Form W-4

(Employees Withholding Allowance Certifcate) beore beginning

employment, then your new employer is likely planning to treat

you as an independent contractor rather than as an employee.

When fnding a job, it is imperative that one is aware o how their

employer is classiying them. I you work or a company on a daily

basis and are being assigned tasks consistent with those o a typical

employee, make sure you are classifed as such. As evidenced above, an

independent contrac-

tor is subject to high-

er total taxes when

their FICA taxes arenot being matched

by their employer.

Dont fnd yoursel

with a large tax bill

because you assume

your employer classi-

fed you correctly. Be

assertive, and make

sure you are being

treated airly. NA

Steven ColburnAssociate Professor of Accounting,

Maine Business School,

University of Maine

Michael Rankin

Accounting Major,

Maine Business School,

University of Maine

Article By

Career Outlook


9/20


Cover Story Peer Reviewed

How Fast Can $100,000

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

New graduates of accounting

programs are excited to enter the

workorce, both or the chance touse the skills rom their degree

and or the promise o opportunities result-

ing rom a healthy paycheck.

They anticipate the opportunity to save

or a house, take an exotic vacation, and

begin to lay the groundwork or their u-

ture. While making such plans they can

neglect to budget, and the costs o everyday

lie as a busy proessional oten add up leav-

ing them still living rom paycheck to pay-

check as they did in college. The ensuing

scenario ollows John and Amanda as they

graduate rom college and begin their pro-

essional lives. Although we altered certain

o the specic details to protect John and

Amandas identities, the ollowing closely

tracks the true story o two ormer 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

riends, provide volunteer services or com-

munity and proessional organizations, and

make trips home to visit amily. They both

worked part-time and supplemented their

income with scholarships and help rom

their parents. Nevertheless, both had ound

it necessary to add supplemental support

or school and living expenses with student

loans. They generally lived rom 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 o once they accepted

ull-time proessional positions ater gradu-

ation. John and Amanda each chose to pur-

sue a masters degree to meet the 150-hour

requirement and to be better prepared or

the CPA Exam.

The couple graduated with some stu-

dent loan and credit card debt. John

and Amanda incurred Federal Sta-

ord student loans o $11,000 and

The Need for Personal Financial Planning

for New Accounting Graduates

Continued on Page 12


10/20


11/20


12/20

12 NEWACCOUNTANT

$12,000, respectively. Payment o their student

loans was deerred until six months ater gradua-

tion. The ederal government paid the interest on

the loans while the couple was in college and dur-

ing the six-month grace period. Ater that, they

became responsible or repaying the principal andinterest over a maximum o ten years. Interest on

the Staord loans was 6.8%. Additionally, John

and Amanda both had VISA cards and department

store credit cards. Much o the credit card debt

was taken out during the latter part o their stud-

ies and prior to employment. First there was the

need or appropriate interview attire. Then later,

despite accepting job oers while in college, John

and Amanda had a month lag between graduation

and the beginning o their jobs. By the time they

started work, Johns credit card debt totaled $3,800,while Amanda had credit card debt o $2,200.

In the last semester o the masters program,

John and Amanda got engaged. As college stu-

dents, they were happy to take advantage o Johns

grandmothers oer o her engagement and wed-

ding rings and Amandas parents oer to take care

o the major wedding expenses.

Life after College: Living in the

Real World

John and Amanda were excited about their new

proessional lives. Both passed the CPA Exam with-

in one year o graduation. For the past two years

Amanda had been working in the tax department

in the Dallas, Texas ofce o a large international

public accounting frm. John worked in the audit

practice o a regional frm located in Plano, Texas.

Their salaries seemed like a ortune 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 o their respective raises, they had $8,750

gross pay per month on which to base their budget.Johns rm paid 100% o his medical and den-

tal insurance. Amandas rm paid 100% o her

medical insurance cost, but she was required to pay

$70 per month or dental insurance. They both

contributed 3% o gross income to their rms re-

spective 401Ks. Amanda gured they both should

claim married-with-one or withholding or ed-

eral income taxes, but last year they had to drain

their savings to pay the remainder o their tax at

ling time. This year they added another $120 per

12 NEWACCOUNTANT

Cover Story Peer Review

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 100.00Credit 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 o $50,000 each with raises o $2,000 and $3,000 ater frst year.

2 Social Security and Medicare withholding rate o 7.65%

3 2011 withholding rates

4 Advertised rent or 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

John and Amandas Budget

Continued from Page 9


13/20


month to their combined withholding.

Amanda worked downtown and had

to pay or parking. She ound a conve-

nient parking garage next to her ofce

building or $140 a month. She could

have opted or a cheaper lot arther away,

but why walk as she had done in college?Besides, she was oten at the ofce late at

night and on weekends and elt saety was

an overriding issue.

New clothes and shoes or both were

a necessity to start their careers. Thank-

ully 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

o their work clothes had to be dry-cleaned,

and their monthly bill averaged $120.Because o their demanding schedules,

eating out was a welcome end to many o

their busy days. They ate out our or more

nights per week, oten joining up with their

newly employed proessional riends in the

area or just reconnecting with one another

ater a stressul day. Their dinner expenses

averaged $500 a month, approximately $10-

$15 each per meal. John was usually away

rom the ofce on an audit engagement at

lunch and went out to eat with the members

o his audit team. Amanda also usually went

out to lunch with coworkers. Eating out at

lunch added $440 o monthly expense.

The couple had enjoyed shopping or

their two-bedroom townhouse in the Pla-

no area. It had a two-car garage, was light

and spacious and allowed or Smokey, the

Persian cat that John had given Amanda

as a birthday present. While the rent was

$1,200, they enjoyed the beautiul and

peaceul atmosphere. Housework was a

chore or which neither one had the timeor desire. Ultimately they hired someone

to clean or $90 every two weeks so they

could have their weekends ree.

Their urniture was all new and looked

great in the townhouse. Amanda had loved

decorating and made everything look

homey and inviting. In addition to the ur-

niture, the townhouse came without all o

the appliances. They ound it necessary to

buy a rerigerator and a washer/dryer com-

bination. Both the urniture and appliance

stores oered great nancing. Their month-

ly payments were only $400 a month or

the two combined.

Car shopping was un too. They had

tried to be thrity and considered both style

and gas mileage or their new cars. John hadchosen a Nissan Altima with leather seats

and a moon roo and Amanda a standard

Toyota Camry. They had been able to make

only small down payments on each given

that their college cars were practically worth-

less. By fnancing the cars or fve 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 wereable to average about 25 miles per gallon,

but gas prices were $3.50 per gallon in Dal-

las. 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 our times

a week. She was able to convince John that

they both would be healthier and more able

to handle the stress o work i they had a

membership at the gym. The one in their

neighborhood was a little pricy, but $100

a month or the couple had proven to be

worth it.

John and Amanda eagerly looked or-

ward to buying their rst home in a amily

riendly neighborhood where they could

eventually raise children. Disappointment

arose every time they looked at their bank

balance. The amount was just not accu-

mulating the way they expected or a cou-

ple earning the salaries they did. In orderto gure out where the money was going,

they prepared the ollowing table showing

their monthly income and the breakdown

o monthly expenses.

The result o the analysis was shocking.

Without making large cuts in their spend-

ing, it would be necessary to wait until their

cars were paid o to save any signifcant

amount. Not only that, but the advice o

their ethics proessor came to mind never

put onesel in the position o needing that

next paycheck to survive, it makes it much

more difcult to walk away rom unethical

situations. While no ethical dilemmas had

arisen to date, John and Amanda recalled

their post lecture discussion. Both had ex-

pressed amazement at the thought that aproessional making a good living would

put themselves in that fnancial 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 rst 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 expens-

es. Amanda turned to John, Would yourather cook or clean the house? she asked

only somewhat jokingly. Neither laughed.

What i something happened at either o

their jobs? Could they even cover their

minimum contractual obligations? The

realization was rightening. They could

both eel an intense pressure to make some

changes quickly. NA

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., CPAAssociate Professor of Accounting,

Arkansas Tech University

Cindy Seipel, Ph.D.,

CPA CFE

Professor of Accounting, New

Mexico State University

Article By


14/20

14 NEWACCOUNTANT

Student Outlook Peer Reviewed


15/20


Astonishingly, outstanding stu-

dent loan debt now exceeds$1 trillion, according to the

Consumer Financial Protec-

tion 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 indi-

vidual 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 roseto 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). Add-

ing 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.

Facing Debt CollectionOf A Student LoanBy Theresa J. Holt, JD, Associate Professor, Department of Accounting, Cleveland State University

When the debt

collector calls,

dont panic. Be

inormed. A consumer debt,

which includes a student loan,

is an obligation o an indi-

vidual to pay money arising

out o a transaction involving

money, property, insurance or

services primarily or personal,

amily or household purposes.

Does it matter that a student

loan is a consumer debt? Yes,

it does and in a good way. As a

inancial obligation incurred to

obtain educational services or

a personal purpose, a student

loan alls under the coverage o

an important law designed to

provide a degree o protection

or those persons acing the

debt collection process. This

law is called the Fair Debt Col-

lection Practices Act (FDCPA).

To be clear, the FDCPA does

not excuse a student or any

consumer rom the responsi-

bility o paying a valid debt.

However, one o its purposes

is to prevent abusive collection

practices.

When the debt collector calls, then what?


16/20

16 NEWACCOUNTANT

T

he FDCPA applies to consumer debt but not to com-

mercial debt. Other laws govern business transac-

tions. Also, the FDCPA applies to third party debtcollectors. Creditors and in-house collectors are not bound

(with limited exception) by the restrictions o the FDCPA.

For clarity, a creditor is any person who oers 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 or the principal

purpose o collecting debts

or who regularly collects or

attempts to collect debts owed

to another person.

A

debt collector may be mistaken about someones

identity or may not be aware that the debt has been

paid. In either case, asking or validation serves theuseul purpose o eliminating the problems associated with

these scenarios.

The collector is required to provide written notice to

the debtor o the debtors right to di spute the debt.

Within thirt y days o 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

rom going orward with a lawsuit.

Prevalence ofAbusive Tactics

Properly Handle Communications

Note the Differences Ask for Validation of the Debt

Right to Dispute

Occurrences o some

debt collectors (not

all) using harassment,

repeated phone calls to the debt-ors workplace or home, alse

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

behal o consumers to prevent

raudulent, deceptive and unair

business practices. (At the time

o this writing, the FTC report

or 2012 has not been released.)

In addition, numerous lawsuits

are iled each year against debt

collectors. It is very important or

students to know their rights in

order to protect themselves rom

abusive tactics that contribute to

job lo ss, mari tal disharmony, and

lack o privacy.

In 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 conve-

nient time is considered to be ater 8a.m. and beore 9p.m.

local time or the debtor. I the debt collector knows that an

attorney represents the debtor, the collector should not com-

municate directly with the debtor unless the attorney ails to

respond or grants consent. Further, a collector is prohibited

rom communicating at the debtors place o employment i

it is orbidden.

Third parties. With regard to inorming third parties about the

debt and the collection process, the collector is allowed to communicate with the debtors

spouse, parents (i debtor is a minor), guardian, executor, administrator, creditor, attorneys

or the debtor, creditor and debt collector, and a consumer reporting agency.

The collector is permitted to contact (usually once) additional third parties or the pur-

pose o acquiring location inormation (i.e. the debtors residence, phone number and place

o employment). It should not be revealed that the individual owes a debt. The collector

is prohibited rom communicating by post card with either third parties or the debtor androm using envelopes with symbols or language (address okay) indicating the debt collection

business. Limiting communication with third parties preserves the privacy o the debtor.

Cessation. The ability to stop communication with a debt collector is a powerul tool in the

debtors arsenal. It does not discharge the debt, but it can provide a quiet peaceulness, at least

or awhile. It orces the collector to go orward, perhaps with legal action, or to discontinue

the pursuit. In any event, it is a type o put up or shut up strategy. To exercise the right

to cease communication, the debtor must notiy the collector in writing. At which time, the

collector is allowed to inorm the debtor that collection eorts are being terminated, that

speciied remedies may be invoked, or that the collector intends to invoke a speciic remedy.

Student Outlook Peer Reviewed


17/20


I

t is a violation o the law or a debt collector to en-

gage in harassing , oppressive, or abusive behavior. A

collector is prohibited rom using or threatening touse violence. Obscene or proane langua ge is orbidden.

The collector is not allowed to publish a list o people,

who have reu sed to pay their debts, e xcept to a cons umer

reporting agenc y. A debt should not be advertised or sale

in an eort 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 meaningul

disclosure o the callers identity constitutes a violation.

Adebt collector is prohibited rom using any alse,deceptive, or misleading representation or methods

to collect a debt. It is illegal or a collector to

alsely represent the character, amount or legal status o a

debt or to misrepresent ser vices rendered or c ompensation

received by the collector. Furthermore, the collector is not

permitted to represent or imply that nonpayment o a debt

wi ll resu lt in arrest or impris onment or wi ll resu lt in the

seizure, garnishment, attachment or sale o property or

wages, unless the action is law u l and intende d.

Unair and unconscionable (i.e. immoral)

practices are not permitted. The collection

o interest, ees, or other charges is a viola-

tion unless authorized by contract or law. It is illegal

or 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 ees) to be

made to a person by concealing the true purpose o

the communication. It is not allowed or a collec-

tor to take or threaten to take nonjudicial action to

dispossess or disable property i no right or intention

exists to do so or i the property is exempt. Any o

these actions would be considered unair and lacking

o good moral conscience.

Astudent loan, as a consumer debt, alls within the coverage o the FDCPA. The law does not discharge the loan but in-

stead regulates the conduct o debt collectors by limiting communication and conduct. Harassment and abusive tactics

are orbidden. Also, a collector is prohibited rom making alse and misleading representations or engaging in unair

and unconscionable practices. The FDCPA empowers a debtor. Having knowledge o the protection aorded by the law is a

good start or any student.

Be Alert for Unfair orUnconscionable Practices

Keep Records

Conclusion

Object to Harassment or Abuse Watch for False andMisleading Representations

Keep records o

any communica-

tion with a debt

collector. This inormation

will be valuable or proving

a violation. I the situation

warrants, consult with an

attorney who specializes

in this area o law.


18/20

18 NEWACCOUNTANT

cessed by going to http://www.irs.org/

IFRS+or+SMEs/IFRS+or+SMEs+and+r

elated+material.htm#sme_en.

In addition, the IASB website pro-

vides ree access to all the learning tools,

although you have to rst 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 Stan-

dard wont be issued until 2014.

While the principles under the Stan-

dard are simplied, Full IFRS, and U.S.

GAAP, are based on similar accountingconcepts and principles. Overall, the

Standard is clearer and contains 90% less

nancial disclosures. (International Ac-

counting Standards Board, 2012).

When the Standard is compared di-

rectly to U.S. GAAP, the signicant ac-

counting dierences include:

Disclosures are simplied in a

number o areas including pensions,

leases, and nancial institutions

LIFO is prohibited

Goodwill and indenite lie intangible

assets are amortized over a period not

exceeding ten years

Depreciation is based on a

components approach

A simplied temporary dierences

approach to income tax accounting

Reversal o impairment charges, i

certain criteria are met, is allowed Accounting or nancial assets and

liabilities makes greater use o cost

Advantages/Disadvantages IFRS for

SMEs vs. GAAP

In addition to the lower reporting costs,

reduced complexity, and convenience as-

sociated with the Standards brevity and

simplifed organization by topic, a private

company in the United States may elect to

use the Standard because:

The private company is owned by a

oreign parent

The private company has a oreign

investor

The private company is a supplier to

oreign companies

The private company has a oreign

venture partner

There are two signifcant disadvantagesto using the Standard in the United States.

First, the Standard is not well known or ex-

tensively adopted and, as a result, U.S. lend-

ers preer U.S. GAAP. Secondly, as with

any signifcant accounting change, there

may be signifcant inormation technology

and training costs related to adoption.

ABA Questionnaire Survey Findings

An American Bankers Association sur-

vey ( ABA , 2011) reported responses rom

47 fnancial institutions related to the use

o the Standard by private U.S. enterprise.

Only 5% o respondents believed that the

U.S. should adopt the Standard. Interesting-

ly, 43% frmly believed that there should be

some type o private company accounting

standards. The ABA survey indicated that

simplifcation o accounting standards, one

o the obvious advantages o the Standard,

was the most common response to making

the standards more useul.

Thus, a logical conclusion rom the

survey responses is that lenders do wantU.S. GAAP or 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 or more oreign fnancing.

Since the Standard is globally recognized,

oreign lenders will readily accept fnancial

statements prepared using the Standard be-cause they are amiliar with them. As U.S.

lenders become increasingly exposed to the

Standard and stringent lending restrictions

resulting rom the fnancial crisis o 2008

are eased, they may also begin to broadly

accept the Standard.

Thereore, i you aspire to work or a

global private company, encourage your

accounting instructors to begin teaching

the corresponding IFRS or SME section

as you cover a particular subject in Inter-mediate and Advanced Accounting. Indi-

vidually, seize the initiative and reely log

on to the iasb.org web site to access the

Standard and training modules.

When more U.S. accounting and bank-

ing proessionals become amiliar with the

Standard, the Standard will be used more

due to its cost savings and its broad global

adoption. NA

An Introduction to IFRS for SMEs Continued from Page 4

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