May 2016 Article Archives

Five Things to Consider Under the New Lease Accounting Standards

Published on May 24, 2016

The Financial Accounting Standards Board (FASB) released the long-awaited lease accounting standard on Feb. 25. The first exposure draft on the topic was originally released in August 2010 and has undergone several revisions. 

Although there are several elements of the standard, the most significant is the requirement for lessees to include the future lease payments on the balance sheet as a liability and a related right-of-use asset. Leases with terms less than one year are excluded from recognition. 

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The Raw Nerve of Materiality

Published on May 24, 2016

FASB’s plan to use only the U.S. Supreme Court’s definition of materiality draws fire.

Last year, when the Financial Accounting Standards Board first proposed jettisoning existing accounting lingo in favor of a legal definition of the word “material,” the board members may have thought they were making a confusing issue clear, according to former FASB chairman Robert Herz. 

Instead, the board’s issuance of a proposed accounting standards update last September that would shed previous descriptions of materiality in favor of the U.S. Supreme Court definition “touched a raw nerve,” he observed in an interview with CFO earlier this year. 

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New Product or Different Presentation?

Published on May 24, 2016

Courts and the IRS differ over a key qualification for the domestic production activities deduction.

Since its inception, the Sec. 199 domestic production activities deduction (DPAD) has caused great confusion to many taxpayers trying to comply with its provisions. Though its intent was simple—to provide relief to U.S. manufacturers—its implementation has spawned a labyrinth of litigation, administrative rules, and procedures. 

The IRS recently published proposed regulations (REG-136459-09) to better define and provide guidance on various DPAD provisions. Though the proposed regulations have implications for a wide range of the deduction's aspects, this article focuses on a key but often problematic provision—that qualifying production property (QPP) eligible for the DPAD must have been manufactured, produced, grown, or extracted by the taxpayer in whole or in significant part within the United States (Sec. 199(c)(4)(A)(i)(I)). 

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FASB Proposes to Streamline Goodwill Impairment Tests

Published on May 24, 2016

The Financial Accounting Standards Board is proposing to simplify the test for goodwill impairment for public companies and nonprofits similar to recent accommodations it made for private companies. 

FASB issued an exposure draft of the accounting standards update, asking for comments on the proposal by July 11. FASB amended its standards in 2013 to allow private companies an alternative accounting treatment for subsequently measuring goodwill in response to input from its sister organization, the Private Company. 

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FASB Makes Additional Revenue Recognition Clarifications

Published on May 24, 2016

FASB issued a third round of clarifications to its revenue recognition standard recently, focusing on narrow-scope changes and practical expedients. 

In coordination with the International Accounting Standards Board (IASB), FASB is responding to preparers’ concerns about implementing the revenue recognition standard the boards issued jointly in May 2014. In some cases, the boards came to different conclusions about issuing clarifications. 

The IASB issued its changes last month in Clarifications to IFRS 15. FASB has taken a piecemeal approach to the changes, and issued Accounting Standards Update (ASU) No. 2016-12Revenue From Contracts With Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients

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Three Ways to Improve Your Vendor Management

Published on May 03, 2016

Most companies hire vendors in the course of doing business. The vendor could be a supplier of goods, a service company, a technology provider, or a building contractor. Senior management and corporate boards justifiably have questions and concerns about how to protect against vendors’ actions that might produce a loss. 

Examples that could happen to any organization include the following: (1) a software vendor’s employee sabotages the hiring company’s records because of personal animus; (2) a vendor hired for window washing has an accident at the hiring company’s building, suffering a crash that injures the vendor’s employees and passersby; or (3) a vendor hired by a doctor to handle medical records leaves files on the train by accident, exposing patients’ confidential personal information. 

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Preparing Businesses for the New Overtime Pay Rule

Published on May 03, 2016

In 2015, the Department of Labor proposed a rule that could have a significant impact on the way employers compensate their employees.

This rule proposes changes that would expand the number of workers who are eligible for overtime pay: time and one-half their regular rate of pay for hours worked over 40 in a workweek. Most businesses will be required to comply with the changes once a final rule is released. 

Here are five workflow recommendations that may be critical to your company’s success and compliance with the new overtime pay regulations: 

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Anti-fraud controls cut significantly into losses, new report finds

Published on May 03, 2016

The presence of anti-fraud controls such as management reviews and telephone hotlines can greatly reduce the damage done by fraud schemes. And the use of such controls is slowly on the rise. 

Those are two of the trends identified in the 2016 Report to the Nations on Occupational Fraud and Abuse, released Wednesday by the Association of Certified Fraud Examiners. The biennial report, which is based on thousands of fraud cases reported by fraud examiners worldwide, provides a detailed look into how fraud is being perpetrated, detected, and combated in various industries and regions. 

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IRS issues 2016 and revised 2015 vehicle depreciation limits

Published on May 03, 2016

The IRS issued guidance providing revised limits for the amount of depreciation taxpayers can take for the first year they use a passenger automobile (including a truck or van) for business in 2015 and the new depreciation limits for 2015. The guidance also includes the lease inclusion amounts that vehicle lessees must include in income for 2016 (Rev. Proc. 2016-23). 

The revisions apply to passenger vehicles that were placed in service during 2015 and to which 50% bonus depreciation applies. They were necessitated by retroactive extension of bonus depreciation for 2015 by the Protecting Americans From Tax Hikes Act of 2015, P.L. 114-113. Accordingly, the first-year depreciation limitation for 2015 is increased by $8,000. For passenger automobiles (other than trucks or vans) placed in service during calendar 2015 to which 50% bonus depreciation applies, the depreciation limit under Sec. 280F(d)(7) is $11,160 for the first year. The corresponding figure for trucks and vans is $11,460. 

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New credit impairment standard, hedge accounting proposal on the way

Published on May 03, 2016

The FASB hopes to issue a new credit impairment standard in the second quarter of 2016 that would require entities to estimate and recognize an allowance for lifetime expected credit losses for loans, trade receivables, held-to-maturity debt securities and certain other financial assets measured at amortized cost. Estimating an allowance for lifetime expected losses would likely require changes in the processes, systems and controls entities use to estimate incurred losses today. The FASB recently held a public meeting with community bank preparers, auditors and banking regulators to discuss the banks’ concerns about the potential complexity in measuring expected losses on loans.

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