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Reporting entities frequently are formed as limited liability entities, particularly limited liability companies and limited liability partnerships. LLCs have characteristics of both corporations and partnerships, but these types of entities also are dissimilar in many respects.
We've all heard the age-old expression: "Cash is king." No other place is this more true than in business. Cash is the key component that makes any business function.
The Financial Accounting Standards Board issued guidance in July 2012 that applies to all reporting entities - public, private and not-for-profit - for testing impairment of indefinite-lived intangible assets.
Preparers of financial statements - and practitioners who perform attest engagements on those statements - often ask questions about how deferred compensation arrangements should be properly reflected in reporting entities' financial statements. In most practice situations, the Financial Accounting Standards Board's Accounting Standards Codification (FASB ASC) Topic 710, Compensation - General, provides the relevant guidance for accounting for these types of arrangements.
It may seem like much ado about nothing, but the truth of the matter is that planning counts. Being well prepared for your external audit team is critical to ensuring an efficient audit. Beyond providing adequate workspace and access to information and personnel, there is advance groundwork to consider.
How can a retirement plan administrator know that a plan is subject to an audit? The general rule prescribed by the Department of Labor says a large plan needs to have an audit. It's imperative to understand the two most important concepts to classify a plan properly as "small" or "large."
Consolidation issues continue to pose challenges for preparers of financial statements and practitioners performing attest engagements on the financial statements. In the world of private company financial reporting, the guidance associated with whether reporting entities are considered to be primary beneficiaries of variable interest entities has proven to be particularly problematic in practice. To address one area of concern the staff of the American Institute of CPAs released new technical practice aid guidance in April 2012.
Small businesses usually have limited resources when it comes to implementing fraud prevention controls. A substantial number of them have a single owner and fewer than 25 employees. These businesses usually have been passed down from generation to generation and employ a couple of long-term, highly trusted employees - many times hired by an owner from the previous generation. How can a small business, with a single owner and a small number of trusted employees, put fraud prevention controls in place without spending thousands of dollars?
Failing to categorize or allocate expenses properly is a common accounting mistake some nonprofits make. All money coming in and going out of your organization must be assigned to the appropriate category. Proper assignment is particularly important if you accept donations that may be earmarked for certain projects or programs.
With the increasing complexity of addressing accounting and reporting matters to comply with accounting principles generally accepted in the United States (U.S. GAAP), many financial statement preparers often look for less complicated, less time-consuming and less costly alternatives for their financial reporting needs. When acceptable from the perspective of financial statement users, one widely used alternative is to prepare financial statements using an "other comprehensive basis of accounting" (OCBOA).
In any business, chief executives often focus on the product or service being offered and rely on others to manage the finances. Bank balances, receipts and payments are easily understood, but things like accrual basis accounting, ratios and working capital can be confusing to nonaccountants. Certain financial statement indicators can alert management to potential issues that need to be addressed.
The accounting and financial reporting guidance addressing treasury stock transactions isn't anything new. But preparers of financial statements raise questions when addressing measurement and disclosure requirements associated with these transactions. Questions arise about how the preparers should consider the authoritative accounting technical literature and various state laws and regulations so that financial statements are prepared properly.
Some reporting entities must be ready by Jan. 1, 2013, to comply with new disclosure requirements intended to clarify offsetting assets and liabilities for financial statement users. Under new guidance issued by the Financial Accounting Standards Board, users would have available improved information about financial and derivative instruments subject to offsetting, or "netting," in statements of financial position.
Have you ever wondered what your auditor is talking about? Rest assured you're not alone. While most auditors are diligent in their quest for clarity, the lingo trap can sometimes rear its ugly head. Here's a bit of a primer on that crazy audit - and accounting - language.
Because of the economic woes seen during the past few years, many businesses have seen decreased profits. Some companies that were barely getting by and didn't adjust during these tough times have gone out of business. A review of the statement of cash flows could have revealed that operations had been using - not providing - cash and that the company had been relying greatly on bank financing to stay afloat. An analysis of the accounts receivable may have alerted business owners and managers that a majority of their receivables were not current and collection issues might arise in the future.
In an audit, effective and timely two-way communication is essential to ensure that the auditor and the client's board of directors have a common understanding of significant audit issues and a constructive working relationship to address those issues. Because of the importance of effective two-way communication, auditing standards require auditors to formally communicate certain audit-related matters to those charged with governance. Learn the three primary purposes of the auditor's communications.
If segregating duties is one of the primary methods to prevent employee fraud - why don't all businesses use it? Many companies have only one to three people in their accounting department or their entire administrative staff. During annual audit engagements, they usually hear about a lack of segregation of duties - allowing one employee to collect customer payments, write and record checks, prepare bank reconciliations and then ultimately record all of these transactions. Audit clients typically respond: "My business is too small to hire additional employees to get a true segregation of duties." Before dismissing the auditors' comments, business owners should keep in mind that a large percentage of employee theft and embezzlement occurs in small businesses with fewer than 10 employees.
The Financial Accounting Standards Board intends for new guidance to enhance disclosures employers include in their financial statements when they participate in multiemployer plans. To properly address disclosures required by the update, it is important to assess which multiemployer pension plans are considered individually significant. Some of the disclosure requirements relate only to those plans. As such, all relevant facts and circumstances associated with individual plans - for example, expected future contribution requirements, number of employees participating in the plans, potential withdrawal liabilities, etc. - need to be considered to determine whether the individually significant threshold is met.