To expense or not to expense – that is the question.

Capitalization or repair expense?  IRS issues field memorandum to agents.

In December 2011, the IRS issued temporary regulations that offer guidance on capitalizing or expensing costs incurred in the acquisition, production, or improvement of tangible property.  Recently, the IRS’ Large Business and International (LB&I) Division issued a memorandum to field agents concerning their examination of whether such costs have been properly treated Continue reading »

The House Gives PCAOB a Smackdown in Auditor Rotation Debate

The U.S. House of Representatives stepped into the fray on Wednesday by holding hearings on PCAOB’s proposal for mandatory auditor rotation for SEC companies. The chair of the House Capital Markets and Government Sponsored Enterprises Subcommittee, Rep. Scott Garrett, R-N.J., spoke up voicing concern that the PCAOB is overstepping its bounds by trying to regulate corporate governance. “I think it is important to remind the PCAOB that it is not a policy-making entity; Congress and this committee are the policy makers,” Rep. Garrett stated. OH SNAP!

That is a major SMACKDOWN that has followed what Accounting Today is referring to as a “tense exchange” between the PCAOB chairman, James Doty, and a representative from the Chamber of Commerce. Doty defended the board saying the PCAOB is “engaged in a deep and wide-ranging public dialogue about ways to enhance the independence, objectivity and professional skepticism of public company auditors.”

The subcommittee’s response was to introduce legislation that would amend Sarbanes-Oxley (which created the PCAOB) to prohibit the PCAOB from requiring public companies from using specific auditors or require rotation.

The President of the AICPA, Barry Melancon, testified at Wednesday’s hearing that he opposed mandatory auditor rotation because of increased costs, disruptions, and lack of evidence linking tenure to audit quality. “Most importantly, the risk that mandatory rotation is actually a detriment to audit quality,” he argued was the reason behind the opposition.

Doty has also introduced legislation to amend Sarbanes-Oxley to allow for making disciplinary proceedings for auditing firms public. Melancon was having NONE of that talk saying “auditors belong to a profession in which a good reputation is essential and publication of unproven charges may end an individual auditor’s career or audit firm’s existence,” which is why congress put the confidentiality clause in there in the first place.

Scorecard: Doty landed no solid punches, the House TKO

(Source: Accounting Today)

#PCAOB #SarbanesOxley #audit #auditorrotation #smackdown #ohsnap

2012 “State of the Plate” is Out

The fourth annual State of the Plate research results compiled by Maximum Generosity, in collaboration with Christianity Today International and ECFA has been released.  The State of the Plate is a valuable resource for churches.  It documents trend, demographic information and draws conclusions from its survey of thousands of churches.

#church #ECFA #stateoftheplate #nonprofit #taxexempt

Meaningfulness Matters at Work

Nonprofit HR Solutions has published results of a poll of 450 nonprofits that indicate a stronger job market for nonprofit workers in 2012. Over 40% of nonprofits reported that they are looking to add staff. Lisa Brown Morton, Chief Executive of Nonprofit HR Solutions, told the Chronicle of Philanthropy that organizations need to show caution however, and be aware that an improving job market means turnovers are going to be higher as more get job offers.

Ms. Brown Morton cites lack of money and promotions, along with workload and an perhaps most importantly work meaningfulness are the key components in an employee deciding to stay or go. When the market was in a downturn, employees locked down and held on to the positions they had. People postponed retirement. Those people may have more flexibility now. Organizations need to think about what they need to do to keep their best people and attract the best new staff.

(Source: Nonprofit HR Solutions and Chronicle of Philanthropy)

#nonprofit #jobs

Guidance on Reporting Health Plan Coverage on Form W-2

The IRS has posted a table that helps determine what employer-sponsored group health plan coverage should be included on form W-2 for years 2012 and beyond.

Determining whether or not to include some of the particulars and quirks of different medical plans as a component of wages can be tricky. This should help. For the full table click here.

Spring! Eco-Tourism! Missions! Injuries?

Spring is here and summer is quickly approaching.  And with summer coming, adults and students are anticipating traveling as part of a school, church or other nonprofit sponsored trip to all parts of our county and the world.  These trips help individuals develop a world view.  They can be a great resource to those in need.  They can also expose individuals to dangers not common in a person’s everyday life.  Last June an Arizona jury awarded an individual nearly $6 million in a case involving a mission trip that went terribly wrong when a person working on repairing a roof fell through.

Now that spring is here and trips are still in the planning stages, use this time to meet with your leaders to think through potential risks.  Develop a plan for safety.  Spend time training the participants on the risks, how they will be managed and how to do task they would not normally perform.  Don’t assume everyone knows how to be safe on a construction site.  Also, meet with your insurance, risk management professional to discuss the plans for managing the risks.  Make sure the sending organization and individuals are adequately covered.  Use this time to plan for a safe and life-changing trip!

(read more on the mission trip here)

#ecotourism #riskassessment #nonprofit #taxexempt #precaution

IRS Announces Change in Form 990 K-1

The IRS recently posted a change to the new requirement on the 2011 Federal Form 990 balance sheet regarding reporting assets from partnerships and other joint ventures on the balance sheet in accordance with the Form 1065 Schedule K-1, making it voluntary for the 2011 year.  This is some welcome relief to the nonprofit community which has been grappling with how to comply with this new requirement.  The change has been issued as a “Note” on the IRS website, which means the instructions still contain the requirement.

The “Note” posted by the IRS can be found at: http://www.irs.gov/charities/article/0,,id=233830,00.html.

The 2011 form can be found at: http://www.irs.gov/pub/irs-pdf/f990.pdf.

The 2011 990 instructions can be found at: http://www.irs.gov/pub/irs-pdf/i990.pdf.

#irs #nonprofit #990

Simple Ways to Create Segregation of Duties (and avoid a management letter comment)

There are four categories of potential management letter comments: material weakness, significant deficiency, control deficiency, and “other comment”.  We want to go through some of the common scenarios that occur in each category and go through some suggestions for preventing them. We’ll start with the most common management letter comment we give: the lack of segregation of duties. Depending on severity, this is usually a control weakness. Incompatible tasks include: bank reconciliation and AP approval, cash receipts and authorization to adjust AR,   purchasing and inventory receipts, among others. They key factors to keep separate are:

• Custody of assets (cash, inventory, fixed assets)
• Authorization over transactions affecting those assets (approval for payroll, AP, purchasing)
• Recording transactions (General Ledger and subledger entry)

Of course it’s easier for one person to do it. It’s streamlined and efficient. It’s also extremely dangerous for both the organization and the sole person all fingers will point to if something goes wrong. It doesn’t have to be that complicated or time consuming to add some solid layers of separation.

Below are some suggestions on how to avoid a lack of segregation issue.  I’ve divided the suggestions up based on the size of the accounting department. Continue reading »

PCAOB Reopens Comments For Auditor Rotation

The PCAOB has revisited the idea of mandatory auditor rotation for public companies. The nonprofit community looks to the standards required by public companies to influence their own best practices and has previously embraced the rotation concept. The concept has some high level opponents, though, and the PCAOB has been flooded with opinion letters from CFOs and audit committee chairs that are pushing back against the requirement. Most of the letters argue that the PCAOB has not shown a clear link between auditor rotation and improved audit quality.

Is the argument against auditor rotation self-serving? In theory, if everyone is rotating, then clients out the door should be roughly equivalent to clients in the door, although it’s a reasonable argument to point out that not knowing where next season’s revenue is coming from doesn’t always enhance the auditor’s independence and objectivity. There have been occasions where maintaining integrity meant losing a client to someone who would do things their way and that’s one of the few times I’m happy to be on the losing side.

The goal in rotating auditors is to bring fresh eyes to the scene and reduce any possible independence issues between the auditors and management. However, arguments against rotating cite the high cost of bringing new auditors up to speed (estimated at 20% of audit costs in initial year), the chance of someone unfamiliar with the organization missing something that someone with deeper knowledge and experience would have spotted, and whether there is a sufficient number of skilled auditors with the necessary expertise in particular niches to make changing a viable option.

The comment period has been re-opened until April 22 following the March 21-22 public meeting held at 1201 15th Street NW, Washington DC that is open to the public and available via webcast on the PCAOB website. Comments should be sent to comments@pcaobus.org or mailed to the Office of the Secretary, PCAOB, 1666 K Street NW, Washington, DC 20006-2803.  For more on the meeting, click here.

(additional sources: CFO.com, Journal of Accountancy)

#audit #pcaob #nonprofit

What the (bleep) does Escheat mean? (what you need to know about unclaimed property)

Escheat is defined as a state’s rights to claim the title for unclaimed property. Before you dismiss this as N/A for your organization, take a look at your outstanding check list on your bank reconciliation. How far back does it go? It’s not uncommon for organizations to keep checks as reconciling items that are more than a year old. (The record this auditor has witnessed was 1993). It’s not limited to outstanding checks but can include unclaimed benefits, customer over-payments, gift cards, and refunds due.

It isn’t as simple as reversing the entry or voiding the checks. This is money that doesn’t belong to you anymore. Just because someone else never cashed it, doesn’t make it yours again. It is worth investigating with vendors to determine if they received it, lost it, your account was properly credited, etc. There’s a chance that a check was duplicated in the system – that money is actually yours, unlike the checks that represent actual payments.

Why does this matter? Because states are paying attention to it now. With serious governmental budget slashing, alternative sources of revenue are being sought with few stones left unturned. The state of Delaware listed unclaimed property as its third largest revenue for the year. States are shortening their dormancy periods. Continue reading »