Audit & Accounting Update: July 2019

At Insero, we make it our business to stay abreast of the latest trends and technical updates in accounting, tax, and audit and we understand how important timely updates are to our clients. As a member of the RSM US Alliance, we also have the benefit of access to the resources and subject matter experts of RSM US LLP (formerly known as McGladrey LLP). This includes regular updates on the latest financial reporting insights. We hope that you find these informative and useful, and invite you to reach out to us if you have any questions.

Accounting

Updated guide to revenue recognition
We have issued an updated version of our guide to revenue recognition to further assist middle-market companies in applying the new revenue recognition model in Topic 606 with recent activities of the FASB, AICPA and SEC. The guide has been updated for recent developments, including activities of the:

  • FASB, such as the issuance of new Accounting Standards Updates and non-authoritative guidance related to the implementation of ASC 606
  • AICPA, such as the issuance of its revenue recognition guide
  • SEC, such as speeches by SEC staff during the 2018 AICPA Conference on Current SEC and PCAOB Developments, which articulated their views on certain aspects of ASC 606

Updates to our hedging guide for ASU 2019-04
We recently updated our hedging guide for the clarifications made by FASB Accounting Standards Update 2019-04, including those related to having multiple separately designated partial-term fair value hedging relationships of a single financial instrument outstanding at the same time. This summary includes discussion of the effective date and transition provisions of ASU 2019-04 for situations in which ASU 2017-12 has already been adopted and situations in which ASU 2017-12 has not yet been adopted.

business man reading updated guide to revenue recognition

Source: RSM US LLP
Used with permission as a member of the RSM US Alliance
http://rsmus.com/our-insights/newsletters/financial-reporting-insights.html

As always, we hope you enjoy this edition of our newsletter and we look forward to receiving your feedback. Should you have any questions regarding the information contained in the attached materials or our service offerings, please contact us directly.

Key Tax Reform Changes for Nonprofits

What the 2017 Tax Reform Means for Nonprofits

Individual filers have already seen how the recently passed tax reform law—the Tax Cuts and Jobs Act of 2017—affected their taxes, including the good, the bad, and the unexpected. Now, it’s nonprofits’ turn.

 

The 2017 law features a number of changes that will affect nonprofits, including these three provisions that experts expect to be especially impactful.

 

Higher Unrelated Business Tax Income

The change likely to affect the most nonprofits is the addition of Section 512(a)(7), which eliminates deductions nonprofits used to be able to take for certain fringe benefits, effectively increasing unrelated business taxable income (UBTI).

 

Under this new tax requirement, you must include the cost of employer-provided fringe benefits for which there is no deduction under federal law (such as transit benefits and employee parking) in your UBTI. Nonprofits will have to pay taxes at the corporate rate of 21% on the qualifying benefits provided.

 

Building related to Key Tax Reform Changes for Nonprofits

 

Activities that Trigger For-Profit-Like Taxes

The tax law has a new section, Section 512(a)(6), that requires nonprofits to separately compute unrelated business taxable income for each trade or business. Previously, if you had multiple trades or businesses, you could offset gains in one activity with losses in another. The new section eliminates that option. You can carry your losses forward for a particular trade or business, but you can no longer offset them.

 

New Excise Tax on Executive Compensation

Nonprofits with high executive compensation need to be aware of Section 4960 of the Internal Revenue Code, which imposes a 21% excise tax on certain nonprofits that employ “covered employees” who receive either “excess compensation” (total annual compensation in excess of $1 million) or an “excess parachute payment” (severance in excess of three times a base amount defined as part of Sec. 4960).

 

Another new tax to be aware of is the Section 4968 excise tax that will affect some private colleges and universities by imposing an excise tax equal to 1.4% of qualifying institutions’ net investment income for the taxable year. This new tax will only apply to about 30 to 50 institutions in the country—just make sure you know if yours is one of them.

 

Get Help from Tax Experts

Those are just a few of the changes to the tax law that nonprofits need to know about. To make sure you’re aware of, and complying with, all the new requirements, talk with the tax professionals at Insero & Co. We can help you navigate all the latest changes and free your internal team to focus on more mission-focused work.

7 Common Small Business Accounting Mistakes

7 Common Small Business Accounting Mistakes

Keeping your company books in order can be tough. It’s hard to find the time to give it the proper attention. When you finally do, understanding the complicated, ever-changing accounting rules can be a challenge. Consider these common accounting mistakes to ensure they do not happen to your business:

  1. Mixing in personal expenses. Having non-business costs included in your financials will harm your business in three ways. First, your financial statements will not accurately portray your business performance. Second, personal expenses are a drag on your available cash. Third, the IRS is quick to deny legitimate business expenses as tax deductions if it perceives that personal expenses are comingled. Common sources of non-business expenses to watch for are credit card charges and expense reimbursements.
  2. Not keeping your books current. Think bookkeeping is frustrating? Try waiting a month or two to enter your transactions. Falling behind has a compounding effect on the time needed to get back on track. Complex entries get even more complicated as your ability to quickly recall transaction details diminishes over time. All the while, your business continues to run and set you back even more. Set a goal to have all transactions entered by the end of every week.
  3. Entering capital assets as expenses. Because capital assets provide long-term value, they are entered on the balance sheet and depreciated over multiple years. Mis­classifying a capital asset as an expense will torpedo your net income for that period. To avoid this, review large purchases and comb expense accounts likely to be hiding capital assets during your month-end review. Remember, while you depreciate these capital assets over many years on your books, special tax treatment allows certain capital assets to be fully deducted on your taxes.
  4. Not performing monthly bank reconciliations. When you receive your monthly bank statements, ensure they are reconciled to your books within a week or two. Bank reconciliations almost always identify errors. Delaying bank reconciliations will add unneeded complexity and decrease your chances of correcting an error.
  5. Mishandling of sales tax. Many businesses book sales tax they receive as revenue. This is not the proper treatment. Sales tax you receive should be entered as a liability until you remit it to the proper tax authority, ultimately avoiding your income statement altogether. Conversely, sales tax you pay on purchases should be booked as an expense.
  6. Lacking proper documentation. Most business owners know that you need to save invoices and receipts for sales and purchases, but what about documentation for adjustments and journal entries? Proving these are just as important. Contracts, time sheets and shipping documents are some examples of substantiation required to support your entries.
  7. Devoting too much of your time. Most entrepreneurs start their business for reasons other than spending hours working on the books. Don’t get bogged down worrying about the inner-workings of accounting rules and tax laws. Partnering with an expert to handle your bookkeeping needs can free you up to use your expertise where it’s needed the most — running and growing your business.

Contact us today to discuss your business bookkeeping needs or to schedule an appointment.

calculator to keep company books in order

As always, we hope you find our tips and news for businesses valuable, and look forward to receiving your feedback. Companies focused on growth have sought the help of Insero & Co. for more than 40 years. During that time they have consistently experienced the peace of mind that comes from knowing their CPA firm takes the concept of integrity seriously. Should you have any questions, please contact us directly.

Weekly Cash Flow Forecasts

Why Weekly Cash Flow Forecasts Are Worth Your Time

Do you really need to create weekly cash flow forecasts when you already create monthly profit and loss statements (P&Ls)? Actually, yes!

P&Ls are not a true indicator of an organization’s inflow and outflow of cash. For instance, they don’t show the cash used to make payments on loans—only the interest you’ve paid on the loan. Also, they don’t tell you whether you’ve received cash for the revenue billed or whether checks have been written for the expenses recorded. 

analytical charts


Benefits of Weekly Cash Flow Forecasts

The many benefits of weekly cash flow forecasts include that they:

  • Provide an early warning of both positive and negative cash situations
  • Offer insight into when funds are expected to come in and be paid out
  • Can be used to plan cash movements to maximize investments and ward off cash shortfalls
  • Are useful for evaluating liquidity
  • Help predict line of credit needs
  • Can help you maximize purchase discounts and avoid late fees
  • Can assist with the timing of inventory purchases
  • Help gauge the impact of grant funding and billing delays

A Real-world Example

Imagine that your organization experiences a four-week delay billing due to an employee being out on medical leave, resulting in a shortage of cash and a need to draw on a line of credit. The P&L would show the total revenue billed but not when it was billed or when funds were expected. 

With a weekly cash flow forecast, you would not only see the impact on cash but also be able to time the line of credit draw. 

Challenges of Creating Weekly Forecasts

If they’re so helpful, why do some organizations choose not to create weekly cash flow statements? Mainly because it can be difficult to pull together timely, accurate forecasts on a weekly basis. The statements need to be simple enough to be read quickly and, as forecasts, they’ll undoubtedly include constantly changing data. 

Weekly forecasts are nonetheless worth creating for organizations that are willing to devote themselves to three key areas:

  • Critical thinking: Some data will be subjective and hard to find, so you need to be able to dig into difficult questions, make judgments, and have conversations with the right people to get answers.
  • Data collection: To get meaningful data, you need reliable financial systems and people who can provide up-to-date reports and information.
  • Smart models: You’ll need to decide whether to rely on a canned model for your statement or build your own model in Excel.

Need a Helping Hand?

Developing a helpful weekly cash flow forecast requires human interaction, good data, a hint of intuition, and experience. Insero & Co. can help you weigh the benefits of forecasts and, if it’s the right step for your organization, help you get started.

Benefits of Going Paperless

Why and How to Go Paperless

Some people still use flip phones, and some businesses and nonprofits still use paper. If you’re among the holdouts still hanging on to the old-school comfort of printed handouts and boxes full of documents, it’s time to take a deep breath and embrace a paperless world—a world that will be better for your organization.

Time to go paperless: a man is surrounded by paper in a glass office

Why Go Paperless?

There is an overwhelming list of benefits to going paperless—it really is a smart move for just about every type of organization imaginable. The benefits include:

  • Cost savings: Imagine not having to buy paper, copier ink and toner, envelopes, and file storage solutions!
  • Time savings: No more manually filing and searching through reams of paper documents—a few mouse clicks is all it takes for employees to find whatever they want.
  • Space savings: Paperless offices have less clutter on desks and fewer storage needs. Now your organization can grow without requiring more space.
  • Environmental benefits: One office does make a difference, given that it takes one small tree to produce about 10,000 pieces of paper. By going paperless, you can do your part to leave more trees in the ground, where they benefit people and the environment.
  • Better access: Need to read a document while on the road or at home? If it’s stored digitally, you can always access what you need.
  • Stronger security: More than a decade ago, it made sense to question the security of cloud storage, but now the cloud is far more secure than your office, where theft and natural disasters are a continuing threat.

 

How to Go Paperless

Probably you already recognize the benefits of going paperless, but how do you get unstuck and actually make the change? Start by making a plan that covers these and other concerns:

  • How will you convert physical files to digital files? It’s going to take some time, but it’s a one-time process. Decide what you need to scan, who will scan it, and when and how they’ll dispose of the paper documents once they’re done.
  • How will you convince employees to change their behavior? Employees might resist a top-down announcement, so you might want to involve them in the process, including listening to their ideas for making the transition successfully.
  • What will your new processes be? Decide how current paper-based processes will change. You might need new business software to help.
  • Where should we start? You might want to start going paperless by tackling “low-hanging fruit.” Can you shift to electronic billing statements, for instance? Achieve success in one area, and use that to build momentum leading to other changes.

 

Need a Helping Hand?

Insero & Co. provides audit, tax, outsourced accounting, and business advisory services to help you through every business transition. Contact us to talk about how we might be able to help you improve efficiency through the use of cloud-based software and other solutions.

Line of credit: what you should know

Line of credit: what you should know

A bank line of credit is similar in function to a credit card. It provides a reliable source of cash for potential short-term business needs. If you’re considering a bank line of credit, here’s what you should know:

How it works

With a line of credit, you make draws against your credit line from time to time as you need cash. You pay interest only on the amount of the outstanding loan balance. You are expected to make payments and occasionally bring your outstanding balance to zero.

Example: Assume you have a $100,000 line of credit. You are not obligated to draw any of it at any given time, and you will pay no interest until you actually make a draw (much like a credit card).

Now assume that you must build up your inventory for the holiday shopping season and need $30,000 to do so. After your inventory purchase, you still have $70,000 of your credit line available; you are only paying interest on the $30,000 you used. You may have several occasions during the year to borrow on your line of credit. Since your line of credit is intended for short-term cash needs, your banker expects your balance to be paid down as your cash flow improves.

business chart for line of credit

Use your credit wisely

Do not use a line of credit for capital purchases. If you need to expand your building or buy new equipment, arrange a term loan for that specific acquisition. This allows your creditor to use the new equipment to secure the loan and it keeps your line of credit free for short-term needs.

While a line of credit may have a low interest rate, most don’t have a fixed rate. The rate can change depending on the market at the time that you borrow, plus how much you borrow. You may end up paying a much higher interest rate if you already used your line of credit and need to borrow more money to cover another shortage.

Qualifying for a line of credit

If your business has at least two years of making a profit, you may qualify for a line of credit. Start by checking with your current bank. Your banker would like to keep your business, and if your financial statements support it, you will most likely be offered the line of credit. Depending on the size of the line of credit, be prepared to put up your business and personal assets as collateral. The bank may even request a co-signer on the note.

Most banks are willing to make loans to businesses that have uneven income cycles, but you may want to shop around for the best loan terms. Some banks may already have several customers in your industry and do not want more (a potential bank examiner’s concern). Accordingly, their terms may be less favorable than some other bank or credit union.

Contact us today if you would like assistance in preparing a request for a line of credit.

As always, we hope you find our tips and news for businesses valuable, and look forward to receiving your feedback. Companies focused on growth have sought the help of Insero & Co. for more than 40 years. During that time they have consistently experienced the peace of mind that comes from knowing their CPA firm takes the concept of integrity seriously. Should you have any questions, please contact us directly.

 

Audit & Accounting Update: June 2019

At Insero, we make it our business to stay abreast of the latest trends and technical updates in accounting, tax, and audit and we understand how important timely updates are to our clients. As a member of the RSM US Alliance, we also have the benefit of access to the resources and subject matter experts of RSM US LLP (formerly known as McGladrey LLP). This includes regular updates on the latest financial reporting insights. We hope that you find these informative and useful, and invite you to reach out to us if you have any questions.

FASB provides targeted transition relief for CECL
ASU 2019-05 provides the ability to elect the fair value option for certain financial assets upon transition to ASU 2016-13. ASU 2016-13 also modified the accounting for available-for-sale debt securities, which must be individually assessed, and expected credit losses recognized, when fair value is less than the amortized cost basis.

FASB proposes to simplify the accounting for income taxes
The The Financial Accounting Standards Board (FASB) has proposed amendments intended to simplify the accounting for income taxes in accordance with ASC Topic 740. If finalized, the proposed ASU would remove the following exceptions to the general principles in Topic 740.

FASB responds to SEC disclosure update and simplification
The the Financial Accounting Standards Board (FASB) has proposed Codification amendments in response to the SEC’s Disclosure Update and Simplification Initiative. After considering these referred disclosures, the FASB recently issued a proposed Accounting Standards Update (ASU), Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative.

women on computer with note pad and pen next to her reading about FASB proposes to simplify the accounting for income taxes

Source: RSM US LLP
Used with permission as a member of the RSM US Alliance
http://rsmus.com/our-insights/newsletters/financial-reporting-insights.html

As always, we hope you enjoy this edition of our newsletter and we look forward to receiving your feedback. Should you have any questions regarding the information contained in the attached materials or our service offerings, please contact us directly.

Is It Time to Automate Your Accounts Payable?

Is It Time to Automate Your Accounts Payable?

Doing the work is only step one. Step two is getting paid and paying others—the vendors, contractors, and others your organization depends upon. And it’s step two, the accounts payable process, that presents both challenges and opportunities for businesses and nonprofits.

 

You probably experience the challenges every month. Bills stack up. Invoices are in various stages of the approval process. Checks are … Where are the checks again? Being printed, waiting to be signed, in the mail? These details and many more need to be recorded, without a single error, over and over again.

 

And therein lies the opportunity. If you can find a faster, more accurate way to handle accounts payable, you can devote more staff time to more valuable projects. Plus, you can build your organization’s reputation and keep vendors and contractors happy. That’s the opportunity available when you switch to an automated accounts payable solution.

Automate Your Accounts Payable

Is Automation for You?

Small businesses might not need to switch to an automated accounts payable solution—at least not yet. But if your business is growing, or you expect it to soon, automation is likely to be a smart investment, so you can stay ahead of increased workloads.

 

Other signs to look for that will indicate you should seriously consider an automated solution include:

  • Missing payment deadlines
  • Making data entry errors
  • Struggling to get payment approvals
  • Losing track of bills or constantly swimming under a stack of them
  • Hiring new accountants who prefer or are accustomed to automated solutions

 

The Advantages of Automation

A variety of automated solutions are available, the best known of which is probably Bill.com. With these automated systems, you no longer have to manually perform every step of the accounts payable process, from processing and routing bills to getting approval and recording transactions.

 

Instead, you simply create bills, enter them into the system—often a cloud-based payment platform—and move on to other tasks since the payments are sent automatically. If bills require approval, you enter approvers into your account, and they’re automatically notified when they need to review a payment, which they can do in seconds.

 

You’ll want to make sure that whichever automated accounts payable solution you choose, from QuickBooks to Sage Intacct, will sync with your accounting software. That way, you can ensure that your accounting books are always fully up to date.

 

Need Advice or Support?

Whether you want advice on switching to an automated accounts payable solution or are considering outsourcing some or all of your accounting functions, Insero & Co. can help. Our financial professionals have decades of experience working with nonprofits and businesses and are available to help you find smart, efficient solutions to your accounting challenges.

Make Meetings Worth Everyone’s Time

Make meetings worth everyone’s time

For most companies, business meetings are a fact of life. Although meetings are generally meant to be useful and necessary, too many of them simply waste time. Some may even harm morale. Luckily, you can change that.

 

Here are a few ideas for making business meetings truly worth the time:
  • Use other forms of communication whenever possible. Most meetings are held to disseminate information. The participants are informed or reminded about policies, given progress reports about ongoing activities, or told of upcoming events. However, unless you’re soliciting input or anticipating confusion about the subject matter, consider substituting emails or other memoranda to communicate routine information. That way, you’ll be providing written guidelines while saving everyone’s time.
  • Skip unneeded meetings. Don’t hold a meeting solely because it’s part of the usual schedule (e.g., the weekly staff meeting). Once again, if the topic of the week can be conveyed in a memo, or there’s nothing important to discuss, simply cancel. If you do hold a meeting but exhaust your topic early, adjourn rather than trying to fill the allotted time.
  • Prepare your meeting participants. If your meeting objective is to generate ideas or consensus, you can kickstart the creative process by distributing an agenda with guidelines a few days beforehand. Letting the participants mull over the topics in advance can maximize productivity and minimize orientation time. Encourage a diversity of opinions and positions, but be prepared to tactfully deflect digression or showboating.
  • Summarize the meeting results. At the end of any meeting, briefly sum up the proceedings, clarify actions to be taken, and identify who is responsible for assigned tasks. An important goal is to make your participants feel they are a vital part of company processes.

Once you begin integrating these ideas into your business’s meeting culture, you’ll likely find that meetings will become more efficient and effective — and employees will be thankful.

two women meeting, communicating with business work

As always, we hope you find our tips and news for businesses valuable, and look forward to receiving your feedback. Companies focused on growth have sought the help of Insero & Co. for more than 40 years. During that time they have consistently experienced the peace of mind that comes from knowing their CPA firm takes the concept of integrity seriously. Should you have any questions, please contact us directly.

Tax Update: June 2019

Trending in Tax

Are a dip in rates and an uptick in tax proposals a call to action?
Favorable estate planning rules in place to 2026 would be less so in 2021 under some Democrats’ proposals. The applicable federal rates used for intra-family loans, sales to defective trusts and other planning techniques also decreased a bit. Time to consider the what ifs?

Tax implications of hard forks and airdrops
Not all digital assets are received through an exchange; airdrops and hard forks create another layer of complexity for taxpayers. These new elements trigger a key question that every taxpayer who engages with the blockchain and digital asset marketplace should want answered.

10 mistakes business owners make when thinking about whether to exit
Alleviate the stress of your business sale or transition by addressing 10 key missteps many business owners make.

Health savings accounts: A tax-free way to pay for medical expenses
Health savings accounts are a valuable tool for saving money for medical expenses since they offer a triple tax benefit. These personal accounts also offer opportunities for individuals to accumulate funds for their retirement years.

 

Computer with phones and pens

Source: RSM US LLP
Used with permission as a member of the RSM US Alliance
http://rsmus.com/our-insights/newsletters/tax-digest.html

Disclaimer

At Insero, we make it our business to stay abreast of the latest trends and technical updates in accounting, tax, and audit; and we understand how important timely updates are to our clients. As a member of the RSM US Alliance, we also have the benefit of access to the resources and subject matter experts of RSM US LLP (formerly known as McGladrey LLP). This includes regular updates on the latest federal, state, and international tax news as well as updates pertaining to the Tax Cuts and Jobs Act. We hope that you find these informative and useful, and invite you to reach out to us if you have any questions.