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William Byrnes (Texas A&M) tax & compliance articles

Posts Tagged ‘Finance’

Please Vote for the International Financial Law Professor Blog

Posted by William Byrnes on July 31, 2015

— Vote for My Blog Please for 100 Best Annual Law Blogs —

The American Bar Association (ABA) is creating its annual list of the 100 best legal blogs, and wants your vote on which blogs it should include.

Go to > ABA Voting for Best Law Blogs < to tell the ABA about the International Financial Law Professor blog please [lawprofessors.typepad.com/intfinlaw]

The ABA may include some of the best comments in its Blawg 100 coverage. But keep the remarks short — a 500-character remarks limit.

Deadline 11:59 p.m. CT on Friday, Aug. 16, 2015: American Bar Association voting link

Much obliged for your continued support and readership – Prof. William Byrnes (Texas A&M Law)

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Accounting for Corporations and Limited Liability Companies and How it Relates to Insurance

Posted by William Byrnes on August 7, 2013

Why is this Topic Important to Financial Professionals? Accounting is like a road map of the company’s financial operations.  It is essential to understand the accounting basics and how they relate to small businesses and insurance. 

Accrual or Cash Accounting Methods

Now that the business has been incorporated and is operating, what is required to keep the business accounted for?  The first determination a company must make is determining if the business will account using an accrual or cash system.  An accrual accounting method recognizes revenues and expenses in the period in which they occur whereas a cash accounting method recognizes transactions as they occur.

For example, an accrual taxpayer that performs services will account for income earned when the service is actually provided and not when the actual cash or payment is received.  A cash method of accounting is concerned only when cash is paid out and when paid in.  Expenses follow the same logic.  For example, if a service company that uses the accrual method incurs 500 dollars of phone expenses in December 2010 and the payment is not due until January 2011, the company will still account for the phone expense on its books in 2010 for December’s usage.

Accounting System

Once the business has determined its accounting method, it is ready to keep track of the transactions.  Every accounting system should provide a basic financial statement, income statement, cash flow statement, balance sheet, and statement of owner equity.  Each statement provides a view through a different window into the financial operation of the business.

The income statement is easy to understand.  The top item is revenues and beneath that line expense are deducted to determine the net income.

The cash flow statement is essentially a variation of the income statement.  However the cash flow statement will show the ability of the business to operate on a periodic basis given the ins and outs of cash payments.

The balance sheet will tell the financial planner what the business is comprised of.  Most accountants refer to the balance sheet as a snapshot of the business at any particular moment of time.  From it we can see what assets the business holds and how much money it owes others.

Lastly, the statement of owner’s equity shows how the business is owned and financed.

Financial Statements and Insurance

Properly kept financial statement can help ensure easier access to capital as well as give a truer understanding of the business’ financial position.  The financial statements are commonly used in the risk management processes including when insurance is purchased on a key man.  Small businesses are especially sensitive to this risk and keeping accurate books can help insurance agents and underwriters determine among other factors the insurance needs of the operation.

Key man insurance and buy-sell agreements are generally based on some total dollar amount that represents the value of the business.  This figure is usually based on some number that is related to the financial statements and accounting of the business.  Whether it’s the total assets, a factor of revenue or income, or some other determination, the need for a basic knowledge of financial accounting for small business is essential.

For a detailed analysis on business valuation and how it relates to buy sell agreements see AUS Main Libraries, Section 11 F—Insurance Needs Revealed In Financial Statements.

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Life Settlements—Savior of Municipal Finance?

Posted by William Byrnes on September 5, 2011

Life settlements provide a unique source of revenue because their returns are not contingent on the market’s success.

But are they still lucrative in comparison to other municipal finance? Rancho Mirage California City Councilman Scott Hines thinks so.

Under Hines’ plan, the city would issue bonds, with most of the issue proceeds being used to finance city projects. The remaining funds would be invested in life settlements with an aggregate face value equal to the face value of the bond issue. Payouts on the life settlements would then be used to pay back bond principal.

Instead of the typical municipal bond financing arrangement, where tax dollars utilized to pay back both principal and interest on an issue, Hines’ plan would leave taxpayers with only a bill for interest payments.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of life settlements in Advisor’s Journal, see Life Settlement Provider Accused of Falsifying Life Span Reports (CC 11-23).

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The Financial Crisis Inquiry Report

Posted by William Byrnes on April 5, 2011

Why is this Topic Important to Wealth Managers? This topic discusses the evaluation report of the financial crisis issued by a Congressionally appointed body. The report presents discussion of events and causes leading up to the ordeal, as well as indications and factors which presented its forthcoming. The discussion is aimed to allow wealth managers to intelligently discuss some causes of the financial crisis with clients and colleagues.

There was a new report issued earlier this year by the Financial Crisis Inquiry Commission, which was created to “examine the causes of the current financial and economic crisis in the United States.” [1] In this report, the Commission presents to the President, the Congress, and the general public the results of its examination and its conclusions as to the causes of the crisis.

The Commission was established as part of the Fraud Enforcement and Recovery Act passed by Congress and signed by the President in May 2009. [2] The independent panel was selected by Congress and composed of private citizens with experience in areas such as housing, economics, insurance, market regulation, banking, and consumer protection.

The report is intended to provide a historical accounting of what brought our financial system and economy to a precipice and to help policy makers and the public better understand how this calamity came to be.

Below are some of the findings issued in the report:  Read the analysis at AdvisorFYI


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Highlights of the GAO Financial Audit: Bureau of the Public Debt’s Fiscal Year 2010

Posted by William Byrnes on March 20, 2011

Why is this Topic Important to Wealth Managers? Presents discussion on the national debt and national future financial outlook. A client wants to know what YOU think about Treasury Notes versus other types of government debt, even foreign government debt.  An understanding of the annual federal national deficit, and its impact on the federal national debt, will provide you a helpful starting point to educate your client, without providing investment advice.

We thought an introduction to the current economic condition would therefore be appropriate.  As of September 30, 2010, the federal debt managed by Bureau of the Public Debt totaled about $13,551 billion primarily for borrowings to fund the federal government’s operations.  A Government Accountability Office (GAO) Study recently showed the Federal Debt balances consisted of approximately (1) $9,023 billion as of September 30, 2010, of debt held by the public and (2) $4,528 billion as of September 30, 2010 of intragovernmental debt holdings. [1]

Debt held by the public primarily represents the amount the federal government has borrowed to finance cumulative cash deficits.  To finance a cash deficit, the federal government borrows from the public.  When a cash surplus occurs, the annual excess funds can then be used to reduce debt held by the public.  In other words, annual cash deficits or surpluses generally approximate the annual net change in the amount of federal government borrowing from the public.

Intragovernmental debt holdings represent balances of Treasury securities held by federal government accounts, primarily federal trust funds, that typically have an obligation to invest their excess annual receipts (including interest earnings) over disbursements in federal securities.

The federal debt has been audited since fiscal year 1997. Over this period, total federal debt has increased by 151 percent.  During the last 4 fiscal years, managing the federal debt has been a challenge, as evidenced by the growth of total federal debt by $5,058 billion, or 60 percent, from $8,493 billion as of September 30, 2006, to $13,551 billion as of September 30, 2010.

The increase to the federal debt became particularly acute with the onset of the recession in December 2007. Reduced federal revenues and federal government actions in response to both the financial market crisis and the economic downturn added significantly to the federal government’s borrowing needs.  And, due to the persistent effects of the recession, experts believe federal financing needs remain high.  As a result, the increases to total federal debt over the past three fiscal years represent the largest dollar increases over a three year period in history.  The largest annual dollar increase occurred in fiscal year 2009 when total federal debt increased by $1,887 billion.

During fiscal year 2010, total federal debt increased by $1,653 billion.  Of the fiscal year 2010 increase, about $1,471 billion was from the increase in debt held by the public and about $182 billion was from the increase in intragovernmental debt holdings.

During fiscal years 2008, 2009, and 2010, legislation was enacted to raise the statutory debt limit on five different occasions.  During this period, the statutory debt limit went from $9,815 billion to its current level of $14,294 billion, an increase of about 46 percent.  Read the analysis at AdvisorFYI


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New Report Shows Room for Growth for Wealth Managers

Posted by William Byrnes on December 2, 2010

New York Stock Exchange on Wall Street in New ...

Image via Wikipedia

According to a recent report by Javelin Strategy and Research (California); “[a]lthough the recent ‘Great Recession’ has caused millions of Americans to tighten their belts financially, nearly one out of five consumers are financial sleepwalkers”—those who do not manage their personal finances. [1] That’s right; at least 20% of Americans are not currently using wealth managers to manage their personal finances. The report states that the rate is more than double that of 2009. [2] This presents a vast opportunity for wealth managers to expand their market share.

The United States Department of Labor project that personal financial advisors are estimated to grow by 30 percent over the 2008–18 period.  “Growing numbers of advisors will be needed to assist the millions of workers expected to retire in the next 10 years.” [3] Further, “[a]s more members of the large baby boom generation reach their peak years of retirement savings, personal investments are expected to increase and more people will seek the help of experts.” [4]

Moreover, there is a trend in corporate America to replace “traditional pension plans with retirement savings programs, so more individuals are managing their own retirements than in the past,” creating additional opportunity for wealth managers. [5] In addition, as medical technology continues to advance and people on average, live longer, the need for additional financial planning arises.

The average compensation for wealth managers is around $89,920 to $110,130 for those marketing insurance products and services as well as other financial investments. [6] New York has the most wealth managers in terms of total numbers. [7] In addition, New York wealth managers made on average $146,460, the most from any state. [8] Read the entire article at AdvisorFYI.

For previous blogticles covering the wealth management industry, see the series beginning The Future of Wealth Management

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