Task
Many Americans face some challenges when it comes to tax time. At this time is when the Internal Revenue Service (IRS) requires them to file their tax returns. The article looks at the challenges that Americans face during this time and how it affects their financial plans. Also, the article gives recommendations to taxpayers on some of the things they can do so they are not faced with these challenges soon.
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Issues presented in the article.
Some of the critical issues presented in this article are as follows.
One of the issues that the writer talks about is that most American citizens do not go over their financial plans. Many citizens are unable to achieve their goals and strategies that they set at the beginning of the year because they do not have a plan and if they do, they do not refer to it from time to time. Tax time is a very appropriate time for them to go over their financial plans but they pay their taxes and leave it at that (Hoogervorst & Prada, 2015).
Another issue that the writer talks about is that many American citizens tend to forget their login information. Filing of tax returns is carried out once every year, and thus most Americans file it and forget everything about it until the following year. Therefore when they want to file their returns, they have to start finding their login information. They are advised to note it down somewhere so that it does not happen again.
Also, many Americans are prone to making financial plans and not going over them from time to time. One is supposed to always look at their sources of income, investments, and deductibles to ensure that they are at purr with their goals. However, most Americans set their plans at the beginning of the year and leave it at that. Therefore, they are not able to know if they are on track or not.
Another issue in the article is that many taxpayers during tax time tend to pay too much and others tend to pay too little of their taxes. By overpaying the IRS is the one that benefits because they get a considerable interest and the taxpayer is left with little to no money on their paycheck. Others pay little taxes which cause them to have overdue payments which at times they are not able to pay. They do this because they want to be left with a significant amount of money in their bank accounts, but they do not realize it will cost them in future.
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In this case, they are always encouraged to pay the right amount of taxes during tax times. Overpaying and paying too little has no advantage to the taxpayer but only causes consequences in the future like the taxpayer may be in debt for paying little taxes (Borenstein & Davis, 2016).
- Theories that relate to the issues in the article
- The theories that can be applied to the issues presented in the article above are the normative accounting theory, the positive accounting theory, and the agency theory.
- Positive accounting theory
This theory is based on predictions and offering explanations to the predictions. It states that in a given situation, a person will try and make a prediction that is reasonable and then explain the predictions. These predictions are then applied to accounting practices. In the above article, we see that the taxpayer is required to look over their financial plans to determine whether they are on the right track. This theory can be applied to this situation in that the taxpayer can decide to make predictions of what they want to achieve next year (Scott, 2015).
With these predictions, the taxpayer can now make new financial plans or even make adjustments to the plans that they already have. The taxpayer also gives a reasonable explanation as to why they have come to those predictions.
This theory can also be applied in the case where the taxpayer decides to overpay or underpay their taxes. This is because the taxpayer makes a prediction that if they pay fewer taxes, then they will be left with enough money for making investments. This is their explanation of the prediction. Also by overpaying, they predict that this will benefit them not to have any debt which is not the case.
Agency theory
This theory is based on the relationship between two parties in any given business situation. The theory focuses on two-party relationships which usually are made up of the agent and the principal. The theory further evaluates the conflict between the two relationships and also offers a solution for it. The conflict usually may be due to differing thoughts and ideas and also differing objectives and strategies. In this article, the agent is the Internal Revenue Service (IRS) while the principal is the taxpayer or the citizen.
The theory, therefore, applies to this article by focusing on the relationship between the IRS and the taxpayer. The IRS requires every citizen to pay their taxes each year depending on their income and also to do this on time. If the taxpayer delays in payment of their taxes, this may cause tension between the two parties creating conflict.
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Also in the article, we see that most taxpayers tend to pay little taxes. This may cause them to be on bad books with the IRS. The IRS will charge them penalties for not clearing their taxes and this only causes more problems for the taxpayer. The IRS, therefore, has to keep track of the taxpayer so that they can pay their penalties.
Normative accounting theory
This theory is based on accounting systems in an accounting practice and which accounting system is best suited for a specific accounting practice. The theory is based on what should be done in accounting practice, and an individual picks an accounting system that is best suited for them to achieve their goals. This theory applies to the issue in the article when the citizen decides to go over their financial plans. In this process, the taxpayer will have to come up with an accounting system that ensures they meet their goals when adjusting the plans. The accounting system chosen will ensure that they achieve their goals and strategies.
Also, the theory applies to when the American citizen decides to overpay their tax returns. The citizen may think this is a good idea, but it is not because he or she is left with little money to carry on other ventures. Therefore, he or she needs to come up with an accounting system that ensures they pay the right amount of taxes. The accounting system can also be used to ensure that the citizen does not pay little taxes that might leave them in debt.
Significance of the issues
The taxpayer should always file their tax returns in time so that they can avoid any penalty charges from the IRS. This will also help to develop trust between the taxpayer and the IRS and maintain a good relationship.
Also, the taxpayer needs to always go over their financial plans. This is very crucial because it will help one keep track of their finances and also ensure that they are on their way to achieving their goals. Without a financial plan, one has no goal and might end up using the money earned uselessly.
It is therefore vital that American citizens go over their financial plans and pay their taxes on time.
Assumptions of the theories
One of the assumptions of the positive accounting theory is that the predictions can be relied on and that they are conclusive. The theory assumes that the predictions are accurate and will come to be in any given circumstance this is not the case however because a lot of factors can cause the predictions not to happen. For instance, if the taxpayer makes the speculation that they want to save a certain amount in the coming year, it may not come to be. This is because the taxpayer may lose his or her job causing them not to have any source of income, therefore, cannot save any money.
Challenges during tax time
One assumption of the agency theory is that it does not take into account the risks that might occur in any given relationship between the agent and the principal. In the article above, if the taxpayer pays little taxes, then they are likely to face a penalty from the IRS. In this case, we see that the risk only applies to the principal. Most times the agent faces little to no risk.
Another assumption of the agency theory is that it only applies to relationships that involve two parties. The theory assumes any business relationship that has more than two parties. It applies to the relationship in the article because it includes two parties that of the taxpayer and the IRS (Godfrey, Hodgson, Tarca, Hamilton & Holmes, 2010).
Lastly, one assumption of the normative theory is that one accounting system can be superior to another. However, this is not the case because each accounting system has its unique features and therefore can be used to attain different goals. What one accounting system can achieve may not be what another can accomplish.
2.
This exposure draft was issued for online commenting as a revision of the previous standards update. The exposure draft was issued to address the changes that institutions wanted to be made on the previous proposed amendments. The proposed amendments aim to help entities know the how to account for the costs of upfront activities and who is responsible for the costs. The proposed amendments also guide the entities in a contract on when an arrangement includes a software license and that which does not.
The amendment outlines that the customer is responsible for the accounting of the upfront activities costs if the arrangement includes a software license. On the other hand, if the arrangement does not include a software license, then the organization is responsible for the fees associated with the upfront activities (Deegan, 2014). The amendments also outline when a software license is categorized as an intangible asset and that it is liable for the duration of the contract (Cortese, 2013).
In the exposure draft, FASB outlines the guidelines on how to account for the implementation costs. The amendments state that these costs are to be accounted for by the customer in a hosting arrangement that is a service of the contract. Also in the proposed amendments, there are guidelines on how to capitalize the costs for implementation. It also provides instructions on how to develop and obtain internal-use software.
Issues discussed in the article
One of the changes that were made from the previous update was the costs needed for upfront activities and which ones could be categorized as an intangible asset. The amendments provide guidelines for this. The changes also state that the costs of capitalizing the upfront activities will be accounted for by the customer for the term of the contract.
Lastly, the proposed standards update requires for entities in a hosting arrangement to provide disclosures for the upfront activities in a contract. The FASB believes that the disclosures will help all entities in an agreement by providing the necessary information and also it will create transparency between the industries and the customers.
The draft is introduced to the interest of the public. This is because all the proposed amendments in the draft ensure that the interest and needs of the public have been fulfilled. This is seen in some instances such as the draft requires for disclosures to be provided in any arrangement. This is of benefit to the public since they will have all the information they need. The draft also requires a customer to account for the capitalization of the upfront activities and also account for the implementation costs. This is of benefit to the public since they are responsible for the contract and can make decisions on their own.
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By international Business machines
The following are the views expressed in this comment letter
Our organization fully supports the proposed standards update. We believe that the instructions provided for how to account for the upfront activities are efficient and will help our company greatly. We also agree with the amendments that the upfront activities should be capitalized and this should be accounted for by the customer.
Our organization also agrees with the amendments that arrangements need to include a software license for the term of the contract. We do not concur with the proposed changes in providing disclosures from upfront activities during a contract. We believe that the information in the disclosures is crucial to our company and also it will not help the customer in any way.
This letter is against the regulation. This is seen when the organization does not want to provide disclosures to their customers and therefore believe that the draft should change this before they implement it.
2.
By Apple
Our organization supports the changes made in the proposed standards update. We believe that by the draft providing guidelines on how to account for upfront activities we will be able to follow them to benefit our company.
Theories that apply to the article
We also support the Boards decisions for categorizing the licenses in an arrangement as an intangible asset and that the customer is the license holder thus he or she accounts for all the costs that will be met concerning the accounting.
We believe that the guidelines provided by the draft for capitalization of the upfront activities are essential to our company and will ensure that we capitalize our implementation costs.
We are ready to implement the regulations in the standards, but we do not agree with the disclosures. Provisions of the disclosures for upfront activities will not be of any help to our customers and us as well.
This letter is against the regulation because they want FASB to make changes on the disclosures before they decide to implement the draft. They believe that the disclosures will not provide any useful information.
3.
By Western Digital Corporation
Our organization is undergoing a system upgrade, and the nature of this system is the same as that addressed in the proposed standards update. We believe that the guidance provided will help us with our system upgrade because it is complicated but with advice it is easy. Also, we support the draft in allowing the customer to account for the implementation costs.
Our organization also wants to upgrade and implement our internal-use software, and the amendments in the update will help in minimizing the complexities that may arise by providing guidance.
The letter is for the regulation in that they agree with the proposed standards updates in allowing the customers to pay for the necessary costs required for implementation.
4.
By CalCPA
Our organization supports the FASB in the proposed amendments. We believe that the proposed changes will be of help to our organizations by ensuring accounting is consistent. We also think that the guidance provided on how to account for the implementation costs will highly benefit our organization.
Also, the guidance provided in Subtopic 350-40 will be of benefit to our company in determining the project stage of an arrangement.
The letter is for the regulation. The company fully supports the amendments and is eager to implement them in their company. They believe that all the guidance provided in the exposure draft will help them in hosting arrangements and also arrangements that are similar (Draft, 2015).
Public theory
The public interest theory is a theory that strives to ensure that in any given circumstance the interest of the public or the customers is met. Therefore, every organization will always act in a manner that benefits its customers. The regulations in this theory are set in favor of the public. The third and fourth comment letters have applied this theory by fully supporting the disclosures. It is the most useful theory used to explain the letters.
Private theory
In the private interest theory the set regulations are in favor of the organization. The organization will ensure that its interest is the priority as opposed to that of its customers. The first and second comment letters utilize this theory.
Capture theory
In this theory, the set regulations at first are in favor of the public but with time act in support of the organization. The agency that sets the regulations becomes captured by the organization. It is the least effective in explaining the comment letters.
References
Cortese, C. L. (2013). Politicisation of the international accounting standard setting process: evidence from the extractive industries.
Deegan, C. (2014). Financial accounting theory. McGraw-Hill Education Australia.
Draft, I. E. (2015). Conceptual Framework for Financial Reporting. 2015-05-01)[2015-07-20]. https://kjs. mof. gov. cn/zhengwuxinxi/gongzuotongzhi/201506 P.
Godfrey, J., Hodgson, A., Tarca, A., Hamilton, J., & Holmes, S. (2010). Measurement theory. In Accounting theory (7th ed.)(pp. 133-160). Milton, Qld. : John Wiley.
Hines, R. D. (1989). Financial accounting knowledge, conceptual framework projects and the social construction of the accounting profession. Accounting, Auditing & Accountability Journal, 2(2).
Hoogervorst, H. A. N. S., & Prada, M. I. C. H. E. L. (2015). Working in the public interest: The IFRS foundation and the IASB.
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