Jun 8, 2020
Many companies struggle to close the books at the end of the month. The month-end close requires accounting personnel to round up data from across the organization. Under normal conditions, this process can strain internal resources.
However, in recent years the accounting and tax rules have undergone major changes — many of which your personnel and software may not be ready to handle. This state of flux may be pushing your accounting department to its breaking point. Fortunately, there are five simple ways to make your monthly closing process more efficient.
1. Create a standardized, repeatable process. Gathering accounting data involves many moving parts throughout the organization. To minimize the stress, aim for a consistent approach that applies standard operating procedures and robust checklists. This minimizes the use of ad-hoc processes and helps ensure consistency when reporting financial data month after month.
2. Allow time for data analysis. Too often, the accounting department dedicates most of the time allocated to closing the books to the mechanics of the process. But spending some time analyzing the data for integrity and accuracy is critical. Examples of review procedures include:
- Reconciling amounts in a ledger to source documents (such as invoices, contracts or bank records),
- Testing a random sample of transactions for accuracy,
- Benchmarking monthly results against historical performance or industry standards, and
- Assigning multiple workers to perform the same tasks simultaneously.
Without adequate due diligence, the probability of errors (or fraud) in the financial statements increases. Failure to evaluate the data can result in more time being spent correcting errors that could have been caught with a simple review, before they’re memorialized in your financial records.
3. Adopt a continuous improvement mindset. Workers who are actively involved in closing out the books often may be best equipped to recognize trouble spots and bottlenecks. Brainstorm as a team, then assign responsibility for adopting changes to an employee with the follow-through and authority to drive change in your organization.
4. Build flexibility into your staffing model. Often accounting departments require certain specialized staff to be present during the month-end close. If an employee is unavailable, the department may be shorthanded and unable to complete critical tasks. Implementing a cross-training program for key steps can help minimize frustration and delays. It may also help identify inefficiencies in the financial reporting process.
5. Minimize manual processes. Your accounting department may rely on manual processes to extract, manipulate and report data. Manual processes create opportunities for errors and omissions in the financial records. Fortunately, modern accounting software can automate certain routine, repeatable tasks, such as invoicing, accounts payable management and payroll administration. In some cases, you’ll need to upgrade your current accounting package to take full advantage of the power of automation.
Keep it simple
Closing the books doesn’t have to be a stressful, labor-intensive chore. We can help you simplify the process and give your accounting staff more time to focus on value-added tasks that take your company’s financial reporting to the next level.
© 2020
Jun 3, 2020
For business owners, succession planning is ideally a long-term project. You want to begin laying out a smooth ownership transition, and perhaps grooming a successor, years in advance. And you shouldn’t officially hand over the reins until many minute details have been checked and rechecked.
But it doesn’t always work out this way. As the coronavirus (COVID-19) pandemic has made clear, a business owner may suddenly vanish from the picture — leaving the company adrift in a time of crisis. In such an instance, a traditional succession plan may be too cumbersome or indistinct to execute. That’s why every company should create an emergency succession plan.
Contingency people
When preparing for potential disasters in the past, you’ve probably been urged to devise contingency plans to stay operational. In the case of an emergency succession plan, you need to identify contingency people.
Larger organizations may have an advantage here as a CFO or COO may be able to temporarily or even permanently replace a CEO with relative ease. For small to midsize companies, the challenge can be greater — particularly if the owner is heavily involved in retaining key customers or bringing in new business.
Nevertheless, an emergency succession plan needs to name someone who can take on a credible leadership role if you become seriously ill or otherwise incapacitated. He or she should be a trusted individual who you expect to retain long-term and who has the skills and personality to stabilize the company during a difficult time.
After you identify this person, consider the “domino effect.” That is, who will take on your emergency successor’s role when he or she is busy running the company?
Communication strategies
A traditional succession plan is usually kept close to the vest until it’s fully formulated and nearing execution. An emergency succession plan, however, needs to be transparent and well-communicated from the beginning.
After choosing an “emergency successor,” meet with the person to discuss the role in depth. Listen to any concerns raised and take steps to alleviate them. For instance, you may need to train your emergency successor in various duties or allow him or her to participate in executive-level decisions to get a feel for running the business.
Beyond that, your company as a whole should know about the emergency succession plan and how it will affect everyone’s day-to-day duties if executed. Now may be an optimal time to do this because COVID-19 has put everyone in a “disaster recovery” frame of mind. It’s also a good idea to develop a communications strategy for letting customers and suppliers know that you have an emergency succession plan in place.
© 2020
Jun 1, 2020
Private companies and most nonprofits were supposed to implement updated revenue recognition guidance in fiscal year 2019 and updated lease guidance in fiscal year 2021. In the midst of the novel coronavirus (COVID-19) crisis, the Financial Accounting Standards Board (FASB) has decided to give certain entities an extra year to make the changes, if they need it.
Expanded deferral option
On April 8, the FASB agreed to issue a proposal that would have postponed the effective dates for the revenue recognition guidance for franchisors only and the lease guidance for private companies and nonprofit organizations that haven’t already adopted them. In a surprise move, on May 20, the FASB voted to extend the delay for the revenue rules beyond franchisors to all privately owned companies and nonprofits that haven’t adopted the changes. FASB members affirmed a similar delay on the lease rules.
The optional “timeout” is designed to help resource-strapped private companies, the nation’s largest business demographic, better navigate reporting hurdles amid the COVID-19 crisis. A final standard will be issued in early June.
Revenue recognition
Under the changes, all private companies and nonprofits that haven’t yet filed financial statements applying the updated revenue recognition rules can opt to wait to apply them until annual reporting periods beginning after December 15, 2019, and interim reporting periods within annual reporting periods beginning after December 15, 2020. Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), replaces hundreds of pieces of industry-specific rules with a principles-based five step model for reporting revenue.
FASB members extended the revenue deferral to more private companies and nonprofits to help those that were in the process of closing their books when the COVID-19 crisis hit. Private entities told the board that having to adopt the standards amid the work upheaval created by the pandemic layered on unforeseen challenges. In today’s conditions, compliance may need to take a backseat to operational issues.
Leases
Last year, the FASB deferred ASU No. 2016-02, Leases (Topic 842), for private companies from 2020 to 2021. This standard requires companies to report — for the first time — the full magnitude of their long-term lease obligations on the balance sheet.
The FASB’s recent deferral will allow private companies and private nonprofits that haven’t already adopted the updated lease rules to wait to apply them until fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Public nonprofits that haven’t yet filed financial statements applying the updated lease rules can opt to wait to apply the changes until fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.
© 2020
May 27, 2020
The IRS has issued guidance clarifying that certain deductions aren’t allowed if a business has received a Paycheck Protection Program (PPP) loan. Specifically, an expense isn’t deductible if both:
- The payment of the expense results in forgiveness of a loan made under the PPP, and
- The income associated with the forgiveness is excluded from gross income under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
PPP basics
The CARES Act allows a recipient of a PPP loan to use the proceeds to pay payroll costs, certain employee healthcare benefits, mortgage interest, rent, utilities and interest on other existing debt obligations.
A recipient of a covered loan can receive forgiveness of the loan in an amount equal to the sum of payments made for the following expenses during the 8-week “covered period” beginning on the loan’s origination date: 1) payroll costs, 2) interest on any covered mortgage obligation, 3) payment on any covered rent, and 4) covered utility payments.
The law provides that any forgiven loan amount “shall be excluded from gross income.”
Deductible expenses
So the question arises: If you pay for the above expenses with PPP funds, can you then deduct the expenses on your tax return?
The tax code generally provides for a deduction for all ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business. Covered rent obligations, covered utility payments, and payroll costs consisting of wages and benefits paid to employees comprise typical trade or business expenses for which a deduction generally is appropriate. The tax code also provides a deduction for certain interest paid or accrued during the taxable year on indebtedness, including interest paid or incurred on a mortgage obligation of a trade or business.
No double tax benefit
In IRS Notice 2020-32, the IRS clarifies that no deduction is allowed for an expense that is otherwise deductible if payment of the expense results in forgiveness of a covered loan pursuant to the CARES Act and the income associated with the forgiveness is excluded from gross income under the law. The Notice states that “this treatment prevents a double tax benefit.”
More possibly to come
Two members of Congress say they’re opposed to the IRS stand on this issue. Senate Finance Committee Chair Chuck Grassley (R-IA) and his counterpart in the House, Ways and Means Committee Chair Richard E. Neal (D-MA), oppose the tax treatment. Neal said it doesn’t follow congressional intent and that he’ll seek legislation to make certain expenses deductible. Stay tuned.
© 2020
May 21, 2020
The recently enacted Coronavirus Aid, Relief, and Economic Security (CARES) Act provides a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees during the COVID-19 pandemic. The employee retention credit is available to employers, including nonprofit organizations, with operations that have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings.
The credit is also provided to employers who have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis.
IRS issues FAQs
The IRS has now released FAQs about the credit. Here are some highlights.
How is the credit calculated? The credit is 50% of qualifying wages paid up to $10,000 in total. So the maximum credit for an eligible employer for qualified wages paid to any employee is $5,000.
Wages paid after March 12, 2020, and before Jan. 1, 2021, are eligible for the credit. Therefore, an employer may be able to claim it for qualified wages paid as early as March 13, 2020. Wages aren’t limited to cash payments, but also include part of the cost of employer-provided health care.
When is the operation of a business “partially suspended” for the purposes of the credit?The operation of a business is partially suspended if a government authority imposes restrictions by limiting commerce, travel or group meetings due to COVID-19 so that the business still continues but operates below its normal capacity.
Example: A state governor issues an executive order closing all restaurants and similar establishments to reduce the spread of COVID-19. However, the order allows establishments to provide food or beverages through carry-out, drive-through or delivery. This results in a partial suspension of businesses that provided sit-down service or other on-site eating facilities for customers prior to the executive order.
Is an employer required to pay qualified wages to its employees? No. The CARES Act doesn’t require employers to pay qualified wages.
Is a government employer or self-employed person eligible?No.Government employers aren’t eligible for the employee retention credit. Self-employed individuals also aren’t eligible for the credit for self-employment services or earnings.
Can an employer receive both the tax credits for the qualified leave wages under the Families First Coronavirus Response Act (FFCRA) and the employee retention credit under the CARES Act? Yes, but not for the same wages. The amount of qualified wages for which an employer can claim the employee retention credit doesn’t include the amount of qualified sick and family leave wages for which the employer received tax credits under the FFCRA.
Can an eligible employer receive both the employee retention credit and a loan under the Paycheck Protection Program? No. An employer can’t receive the employee retention credit if it receives a Small Business Interruption Loan under the Paycheck Protection Program, which is authorized under the CARES Act. So an employer that receives a Paycheck Protection loan shouldn’t claim the employee retention credit.
For more information
Here’s a link to more questions: https://bit.ly/2R8syZx . Contact us if you need assistance with tax or financial issues due to COVID-19.
© 2020
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