Category: Auditing & Assurance

New Accounting Standard Recognizes Losses Earlier

By Eric Woodruff, CPA, CCIFP
Partner, Director of Audit & Assurance Services
Email Eric

The last of the Financial Accounting Standards Board’s “Big Three” Accounting Standard Updates — (ASU) 2016-13, Measurement of Credit Losses on Financial Instruments — is now in effect.

Under generally accepted accounting principles (GAAP), the old standard delayed recognition of credit losses until it was probable they had been incurred. The new standard, commonly referred to as Current Expected Credit Losses (CECL), allows for earlier recognition by incorporating historical loss information, current market conditions and reasonable, supportable economic forecasting in the process of measuring and reporting losses.

The final measurement reflects an organization’s current estimate of all expected credit losses over the contractual life of financial assets.

When measuring the allowance for credit losses (formerly known as the allowance for doubtful accounts), entities should pool assets that share similar risk characteristics, including location, age, term, industry or credit ratings.

In terms of the scope of the CECL standard, it applies to the following financial assets measured at amortized cost:

  • Loans
  • Trade receivables
  • Contract assets (including retainage)
  • Net investments in leases as a lessor
  • Held-to-maturity debt securities

It excludes:

  • Loans and receivables between entities under common control
  • Pledges receivable for nonfarm payroll (conditional and unconditional)
  • Notes receivable for employee benefit plans
  • Operating leases of lessors

The CECL standard is effective for fiscal years beginning after December 15, 2022. Institutions should implement this guidance with a cumulative effect adjustment to retained earnings in the adoption period. In other words, private entities with a calendar year-end initially adopt the standard on January 1, 2023. The cumulative effect adjustment enables entities to increase their allowance for credit losses through an adjustment to equity rather than impacting net income.

Entities should start assessing their asset pools based on risk characteristics, reviewing their historical loss rates and identifying whether an additional allowance for credit losses is necessary at the date of adoption.

If we can assist you further with your business or personal affairs, please email Eric or call us at (317) 608-6699.

Conduct Your Summer 401(k) Audit With Us!

By Eric Woodruff, CPA, CCIFP
Partner, Director of Audit & Assurance Services
Email Eric

Summer is an ideal time for a 401(k) audit. First, summer months tend to be a better time for CPA firms to take on these audits, as the hustle and bustle of tax filing season is behind us. Second, for 401(k) plans with calendar year ends, Form 5500 and the auditor’s report are usually due at the end of July, unless an extension is filed.

Need an audit? We’re here to help!

As an employer, a common deficiency in employee benefit plans that you should keep in mind is related to the timely remittance of employee contributions. When an employee withholds funds from their paycheck and designates them for their 401(k) account, it is the responsibility of the employer to remit those funds in a timely manner. Holding those funds for a week is basically the same as the employer taking an interest-free loan from their employees.

The U.S. Department of Labor has been clear in their guidance that if payroll taxes can be remitted in the matter of a few days, they expect 401(k) contributions to be remitted in the same timeframe.

Sponsel CPA Group is a member of the American Institute of CPAs (AICPA) Employee Benefit Plan Audit Quality Center and is qualified to perform audits of most 401(k) plans. We are also available to help management teams prepare for an outside audit of their plan. And we have a team that can provide third-party administration services for your benefit plan throughout the year, should you wish to outsource this function entirely.

Benefits of working with our team include:

  • Experienced auditors with specific knowledge of your industry/profession
  • Stable audit team that delivers a consistently smooth audit process for your company
  • Improved business decisions based on reliable data
  • Gaining competitive analysis through key performance indicators (KPI)
  • Ensuring reliability and credibility of financial reporting and analysis
  • Ensuring compliance with industry regulations and standards
  • Providing accountability to your Board of Directors and other stakeholders

If we can assist you further with your 401(k) plan, please contact Eric Woodruff at (317) 613-7850 or email Eric.

A Lease Accounting Update

The first Accounting Standards Update (ASU) of the year was issued in March. ASU 2023-01 Leases (Topic 842): Common Control Arrangements clarifies treatment for related party leases to be incorporated with the new lease standard Topic 842 effective for years beginning after December 31, 2021.

In this ASU, the practical expedient provides options for private companies (including non-profits) that have leases under common control and clarifies treatment of leasehold improvements connected with those leases under common control. The ASU is in effect for those issuing GAAP financial statements for years beginning after December 15, 2023, but can be early adopted for those financials not yet issued. For both options, the practical expedient, if elected, can be applied retroactively to the beginning of the period Topic 842 was first adopted or applied prospectively on date the practical expedient is applied.

The first issue addressed in this ASU relates to leases under common control. Based on the new guidance, private companies (including non-profits) can elect to follow written lease terms, regardless of legally enforceable rights. This allows month-to-month related party leases to be written as such, and would therefore fall under the short-term leases exemption for calculating right-of-use assets and liabilities. If written leases are already in place, those agreements should be followed to evaluate for the standard as written.

Key reminders and takeaways on leases under common control

  • If there are no written terms put in place for related party leases before issuance of financial statements, an entity is prohibited from using the practical expedient and must evaluate following the regular Topic 842 standards for enforceable rights.
  • At any point in time, if the lease under common control changes to a lease with an unrelated party, the lease needs to be re-evaluated based on the legally enforceable terms.

The second issue addressed in this ASU relates to leasehold improvement life. Typically, leasehold improvements have an amortization period following the shorter of the remaining lease term or estimated useful life. However, due to the above treatment of leases under common control, the amortization period may not accurately reflect the useful life if based on the documented lease terms.

The changes from this ASU allow for leasehold improvements for leases under common control to be accounted for by:

  • Amortizing the leasehold over the economic life of the leasehold improvements (as long as the lessee controls the use of the asset).
  • Transferring the asset through equity (or net assets if a non-profit) to the entity under common control when the lessee no longer controls the asset.

If the useful life of the leasehold improvements exceeds the related lease term, the lessee is also required to disclose:

  • The unamortized balance of the leasehold improvements.
  • The remaining useful life of the leasehold improvements.
  • The remaining lease term.

In addition to these terms, the ASU clarifies that lease payments in right-of-use assets and lease liability calculations should exclude leasehold improvements recognized by the lessee. And similar to the first issue addressed in this ASU, if the lease with common control transitions to an unrelated party, the leasehold improvement amortization period must be re-evaluated prospectively and may require a change in accounting estimate if significant.

For any further guidance on the new lease accounting standards, please call 317-608-6699 and ask for Lisa Blankman or Eric Woodruff.

Employee Spotlight: Beth Terry

Beth Terry is soon to celebrate her first full year here at Sponsel CPA Group, as she joined the firm in November of 2021. As a Manager in the Audit & Assurance Services department, her duties include audits, compilations, reviews, 401(k) audits and agreed-upon procedures across a broad spectrum of industries.

Prior to joining the firm, Beth earned a bachelor’s degree in business administration from Dalton State College and a master’s degree in accountancy from the University of Tennessee at Chattanooga.

In terms of her professional background, Beth has more than 12 years of experience in accounting and auditing, mostly in public accounting. Her career includes working among top 50 CPA firms, serving manufacturers, service providers, financial institutions and more. She also spent six years working in a boutique Employee Retirement Income Security Act (ERISA) audit practice, performing and managing retirement plan audits. She’s a member of the American Institute of Certified Public Accountants (AICPA) and Tennessee Society of Certified Public Accountants (TSCPA). Beth has served on the TSCPA EBP Conference Task Force since 2016. She was among the first CPAs to receive the AICPA Intermediate EBP’s Audit certificate in April 2016, subsequently attaining the AICPA Advanced Defined Contribution Benefit Plans Audit certificate in October 2017.

When she’s not engaged in client assignments, you’re likely to find Beth spending time with her dog, hiking or reading.

Introducing the New Lease Accounting Standards

By Lisa Blankman, CPA
Manager, Audit & Assurance Services
[email protected]

Back in 2016, the Financial Accounting Standards Board (FASB) published ASC 842, a new lease accounting standard that ensures transparency and auditability in financial reporting.

The new standard requires companies to record virtually all leases on their balance sheet, no longer allowing them to hide certain assets and liabilities in the off-balance-sheet leasing that was so prevalent under the previous leasing standard, ASC 840. Now, the balance sheet will better present the lessee’s obligations to users of financial statements. From the lessor perspective, however, there is not a significant impact under the new ASC 842 standard.

Under ASC 840, only capital leases had to be reported on the balance sheet. Now, operating leases have to be accounted for as well. Under ASC 842, the two types of leases for lessees are now classified as finance (formerly known as capital), and operating leases. One of the following criteria must be met to qualify as a finance lease:

  • Ownership transfers to the lessee at the end of the lease term.
  • The agreement includes an option to purchase the asset at a bargain, and the lessee is reasonably certain they will exercise that option.
  • The lease term represents a major part of the asset’s remaining economic life.
  • The present value of the lease payments represents substantially all of the fair value of the asset.
  • The asset is of no valuable alternative use to the lessor after the lease term.

If none of the above apply, then the lease is classified as an operating lease. For both finance and operating leases, companies must then calculate and report leases as right-of-use (ROU) assets and lease liabilities on the balance sheet.

How to calculate lease liabilities:

  • Present value of all scheduled payments, including fixed and variable payments based on index or rate, any guaranteed residual value, purchase price option expected to exercise, termination penalties if expected to exercise, fees paid to owner for special structuring of lease.
  • Discount rate to calculate the present value must be determined for each asset class using one of the following options:
    • Rate implicit in lease (must be used if able to be determined).
    • Incremental borrowing rate — rate lessee could obtain for loan to purchase asset.
    • Risk-free rate — typically US Treasury rate

How to calculate ROU assets:

  • Initial lease liability + Prepaid lease payments + Initial direct costs – Any lease incentives received – Deferred rent

Other Lease Considerations

ASC 842 requires evaluation of various aspects of the lease when determining how all costs are treated and what is disclosed. For example, each lease should have determined all lease (fixed and variable rent payments) and non-lease components (CAM charges, maintenance, landscaping, etc.). These may be combined and included in calculation of lease liability and ROU asset, or treated separately and expense non-lease components as they occur. If your financial statements include footnote disclosures, those will be expanded to disclose the terms of the lease and incorporates both qualitative and quantitative information, including the disclosure of weighted average of remaining lease term and weighted average discount rate for both finance and operating leases.

Lease modifications are another area to consider for evaluating and reassessing lease treatment. The first step you should take is determining whether the modification should be remeasured or treated as a separate contract.

You should treat the modification as a separate contract if it grants the lessee an additional ROU not included in the initial lease agreement. Even if the modification is not a separate contract, several scenarios can call for a remeasurement under ASC 842, such as:

  • The resolution of contingencies that result in variable payments becoming fixed for the rest of the lease term.
  • A change in the term of the lease contract.
  • A change in the assessment of whether the lessee is reasonably certain to exercise a purchase option.
  • Changes to amounts expected to be owed under a residual value guarantee.

Transitioning Toward ASC 842 Standards

The updated standard is in effect and required to be implemented for GAAP financial statements for periods beginning after December 15, 2021. See below for guidelines on the implementation process.

  • Consult with your accountant and users of the financial statements. Verify your requirements to follow GAAP and the new lease standard.
  • Start smart. Take advantage of ASC 842 software or Excel templates to assist in calculations of ROU assets, liabilities, and expenses. We can assist in the calculations as well!
  • Build an ASC 842 team. Smooth transition to this new standard requires a dedicated team of key members who can teach and supervise others through the implementation process.
  • Determine your policies. Your policies should cover lease elections, capitalization protocols, and lease components treatment.
  • Consult your lending sources. Will implementing the new lease accounting standards negatively impact debt covenants? Sit down with your lender to discuss different options and potential outcomes.

For any further guidance on the new lease accounting standards, please call Lisa Blankman at (317) 613-7856 or email [email protected].

Employee Spotlight: Wyatt Althoff

Staff Accountant Wyatt AlthoffWyatt Althoff joined our firm last September upon graduating from Anderson University with a bachelor’s degree in accounting and finance.

As a Staff Accountant, Wyatt’s duties include audits, reviews and compilations as well as federal and state taxation, including compliance and planning for clients across a broad spectrum of industries.

When he’s not in the office, you can find Wyatt enjoying the great outdoors, whether through fishing, hunting, horseback riding or harvesting livestock. Raised on a farm, he went on to show livestock at 4-H fairs, and he’s looking to get back in the game. He’s starting with a horse and a few chickens. Best of luck, Wyatt!

Financial Reporting for PPP Loan Forgiveness

By Mike Bedel, CPA, CGMA
Partner, Director of Audit and Assurance Services  
[email protected]
As new pronouncements and interpretations continue to be released about the forgiveness of PPP loans generated by the CARES Act, many organizations will soon be determining how to account for the partial or full forgiveness of this loan on their financial statements.
The AICPA (Association of International Certified Public Accountants) recently released Technical Question and Answer (TQA) 3200.18, Borrower Accounting for a Forgivable Loan Received Under the Small Business Administration Paycheck Protection Program to acknowledge and address some common questions.
Non-governmental organizations receiving the PPP loan should have recorded an initial liability and should be accruing for interest on that loan. FASB ASC 405 and 470 provide guidance on accounting for a loan and forgiveness of a liability. That guidance clarifies that the forgiveness of a loan is to be recognized when the debtor is legally released from their obligation. As we look to forgiveness on a PPP loan, this would seem to take place when the debtor receives notification from the SBA or their bank that the loan has been forgiven.
TQA 3200.18 acknowledges that some individuals contend that the PPP Loan is, in substance, a “governmental grant” instead of a loan.
Accounting principles generally accepted in the United States (US GAAP) provides guidance for grants in FASB ASC 958 under guidelines for conditional contributions. This section of the guidance applies to non-profit entities. For non-profit entities that believe this PPP Loan is really a “governmental grant,” they would follow the guidelines to account for conditional contributions. These specify that a liability be recorded until the entity has substantially completed all required conditions of the grant or the conditions are waived by the grantor. As we look to forgiveness on a PPP loan, this would take place sooner than the receipt of notification that the loan has been forgiven.
TQA 3200.18 also offers that any entity (for-profit in this scenario) who does not find explicit applicable guidance within US GAAP still has options. US GAAP suggests that when there is no clear guidance available, entities may look to other parts of the accounting guidance to analogize the proper treatment in their situation. Following this process, a for-profit entity believing this transaction to be a grant could analogize guidance from non-profit section (FASB ASC 958) that otherwise would not apply to them. They may also seek to analogize from International Accounting Standards.
In all cases, the organization should disclose their accounting policy and treatment of these PPP loans within the footnotes of their financial statements. A liability will be recorded on the front end, regardless of whether the transaction is viewed as a loan or a governmental grant. Accrued interest will also need to be recorded and addressed.
The effective difference between the two views (loan versus governmental grant) seems to be the date when the liability is converted into income. In the forgiveness of a loan, the liability is converted upon legal release of the obligation. In the conditional contribution (or grant), the liability is converted when the conditions are substantially met.
Please reach out to Mike Bedel at (317) 613-7852 or [email protected] if you’d like assistance accounting for your PPP loan forgiveness.
This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.

Cost Allocation for Budgeting or Financial Reporting

Developing a solid financial budget for 2022 is a living project for most organizations this time of year. While this budget is designed to provide a unified vision for the entire organization, that vision is sometimes sidetracked by disagreements between management when it comes time to determine who is responsible for shared costs within the organization. This comes as no surprise if management is going to be held accountable for shared costs they do not directly control.

The most common method for allocating costs is to do it the same as last time, whether that be last month, last quarter or last year. While there is value in a consistent allocation of costs from period to period as it provides comparability for the periods, the allocation method of costs can become outdated when an organization grows and changes.

When that same method of allocating costs leads to disagreements between management or provides misleading financial reporting, it’s past time to re-evaluate the cost allocation method utilized. How do you best identify each department’s “fair share” of these costs?

Many organizations will take shared costs and split them evenly over the number of business units or departments within the organization. While this is the simplest way to allocate costs, it is not typically the most representative or appropriate method and is usually not viewed as “fair.” Understanding what drives the specific cost is the best way to identify how to allocate that cost. Common cost drivers that can be used to allocate costs include:

  • Revenue
  • Employee head count
  • Customers served
  • Number of production resources

Here is an example: Company A has five departments and 100 employees. The departments are Marketing, Finance, Production, Human Resources and IT.

Employee benefits (including health insurance) is one of the large expenses each year. They are currently splitting that total cost between their five departments equally, like most other general and administrative costs they incur. This bodes well for Production but yields an imbalanced burden for each of the other departments.  Understanding that head count is one of the primary drivers of the employee benefits cost, this would be a natural allocation method. In doing so, 8% is assigned to Marketing, 4% to Finance, 80% to Production, 3% to Human Resources and 5% to IT.

Another example is Company B, a retailer with four locations. Company B knows that Location 1 is their stronghold and accounts for 40% of sales volume. Locations 2 and 3 both account for about 25% of sales each, and location 4 accounts for 10% of sales. Management has determined that this breakout of sales is due to the size and geographic location of each store and has budgeted future sales forecast using the same expectations. (Store 4 doesn’t have the capacity to meet the sales volume of Store 1.) So how does company B allocate the $50,000 marketing campaign they’ve rolled out this month? They could assign one-fourth of that cost to each store location — assessing a $12,500 cost to each location. Alternatively, they could allocate the cost of that marketing campaign based on their anticipated sales to be generated — assessing 40% to Store 1, 25% to Store 2, 25% to Store 3 and 10% to Store 4. The difference in these two cost allocation methods is $12,500 or $20,000 assessed to Store 1 and $12,500 or $5,000 assessed to Store 4.

Company C has 10 sales associates. They meet with customers of all sizes, and part of the new closing process is to share a leave-behind piece with each customer. Company C has purchased $200,000 of these leave-behinds and intends to charge each sales associate with $20,000 of that total. One sales associate quickly points out that it’s unfair for her to receive $20,000 of that total because she focuses on a much smaller number of large-value customers compared to other sales associates. She feels that she’s being charged for other sales associates’ leave-behind materials. Upon further inspection, the sales manager identifies that she can better allocate the $200,000 using the goals set for each sales associates’ customer visits in the next quarter.

As you work through your budgets for 2022 and historical reporting for 2021, consider how costs are allocated among your business segments and whether they need to be re-evaluated.

 

Customers Want … “Experiences”

By Lisa Blankman, CPA
Manager, Audit & Assurance Services
[email protected]

In 2019, when customers enter any business, they are seeking more than a transaction — they want an experience. Customers crave human connections and the feeling that people in the marketplace care about them on a personal level. Rather than simply providing a product or service, businesses should ultimately focus on building relationships with those that come in contact with their enterprise.

Think about when you visit a Chick-fil-A. It’s not just the hot and tasty food that makes you come back. It’s the personal touch of the customer service, specifically the way their staff members subvert expectations by saying “my pleasure” rather than “you’re welcome.” The phrase was embedded into the company’s culture after founder Truett Cathy heard it uttered by an employee of the Ritz Carlton. It filled him with a warm feeling that he wanted to bring to his restaurants.

So, what do you do to give your customers this feeling?

First, take a fresh look at your company’s culture. Is the environment vibrant and positive? How do your staff members greet your customers? Remember that an employee can only share a positive experience if they themselves feel valued and appreciated — and THAT starts at the TOP! Make sure you institutionalize attentive friendliness within the culture of your operations on a daily basis.

More importantly, be transparent with your customers. Let them know you want them to have an exceptional experience, and ask for honest feedback about your performance. Also ask how they’d prefer you interact with them. Over the phone? Via email? In person? Customize your relationship to fit their needs.

Speaking of communication preferences, always be aware of generational differences among your customers. For example, baby boomers are often called members of the “show me generation,” as they place importance on body language and in-person interactions. Millennials, on the other hand, prefer digital communication. The attention span of millennials is roughly 11 seconds, so keep those emails short and sweet! Another fun fact: 78% of Generation Z members (born between 1996 and 2011) have never visited a brick-and-mortar bank. Imagine their expectations for face-to-face customer service, or even walking into your business. You may have to go to them!

Every customer is different, but they all long for a positive personal experience tailored to their individual needs. Think about what you can do to leave a smile on their faces after they do business with you. If you are successful, they will crave your relationship and tell others about your enterprise.

If we can assist you further with achieving success in your business or personal affairs, please call Lisa Blankman at (317) 613-7856 or email [email protected].

Financial Reporting for Not-for-Profit Entities — A NEW STANDARD!

By Lila Casper, CPA
Senior, Audit & Assurance Services
[email protected]

ASU 2016-14 is a new Financial Reporting Standard affecting not-for-profit (“NFP”) entities, which is effective for fiscal years beginning after December 15, 2017. In the year of implementation, all prescribed provisions must be applied. Some of the primary changes in NFP financial reporting pertain to net asset presentation, a required liquidity and availability of resources disclosure, and expense reporting.

On the Statement of Financial Position, the minimum required presentation includes presenting net assets under the following two classifications: without donor restrictions and with donor restrictions. An allowable alternative presentation includes additional categories of net asset classifications, which are considered subsets of without donor restrictions and with donor restrictions, and they can include the following: undesignated, operating reserve, board-designated (for specific purpose), time restricted for future periods, purpose restricted, and endowment fund. NFP entities are also required to disclose the timing and nature of restrictions, the composition of net assets with donor restrictions, an analysis by time, purpose, and perpetual restrictions, and board designations.

Board-Designated Net Assets are defined as net assets without donor restrictions subject to self-imposed limits by action of the governing board. NFP entities are required to disclose the nature and amounts of board designations. Amounts may be earmarked for future programs, investment, contingencies, purchase or construction of fixed assets, or other uses. Organizations will need to review their existing policies regarding board designations.

In addition, NFP entities are required to provide qualitative information (in the footnotes to the Financial Statements) on how they manage their liquid available resources as well as their liquidity risk and quantitative information that communicates the availability of their financial assets at the Statement of Financial Position date to meet cash needs for general expenditures within one year. Also note that the availability of a financial asset may be affected by its nature, external limits imposed by donors, laws, and contracts or internal limits imposed by governing board decisions.

The schedule of functional expenses will no longer be an optional supplemental schedule. It is now a required part of the basic financial statements. The new standard also expanded on guidance for allocations of Management and General Expenses.

Sponsel CPA Group has expertise in not-for-profit financial reporting and can go over the new rules with you to find the best options for your organization. If you have any questions please contact Lila Casper at (317) 613-7860 or email [email protected].

Is Your Accounting Department Dysfunctional?

By Mike Bedel, CPA, CGMA, MBA
Partner, Director of Audit & Assurance Services
[email protected]

Cash flow is the lifeblood of any business. That’s why the cornerstone of any company is an efficient accounting department and financial reporting system that promptly measures and reports the results of your operations.

Financial statements should be prepared on a regular, systemic basis, around the 15th of the month. Timely, accurate information is essential to your management team. Consistency of practice is crucial.

Is your accounting department meeting these demands? Failure to pay invoices on time or deliver accurate, comprehensive reports can severely harm your company’s reputation and result in late payment fees, decreased credit worthiness, issues with your suppliers, etc. Lack of consistency, planning, transparency and oversight can also quickly lead to untimely financial reporting and poor management information systems. The risk of fraud is also increased in an undisciplined accounting environment.

As a business owner, it’s vital that you determine the people, processes and discipline necessary to make your accounting function run as smoothly as possible. Your management team should be reviewing your financial statements and key performance metrics on a regular, MONTHLY basis! A business that is not doing this on a regular basis is setting itself up for a less than successful result!

If you’re experiencing accounting issues in your company, it’s time to step back and determine the source of the problem. And if you need a fresh set of eyes on your accounting function, Sponsel can help!  Is it your people? Is it your systems, or lack thereof? Or do you simply not know? Whether you’re seeking consultation or thinking about outsourcing your bookkeeping needs, we can offer support.

If we can assist you with achieving success in your business or personal affairs, please contact Mike Bedel at (317) 613-7852 or email [email protected].

Are Relationships Really That Simple?

By Eric Woodruff, CPA
Manager, Audit & Assurance Services 
[email protected]

Spending a little quality time with your colleagues can make a huge difference! Just look at what happened when New England Patriots coach Bill Belichick offered to spend more time mentoring offensive coordinator Josh McDaniels. This gesture reportedly played a large part in convincing McDaniels to stay in New England and pass on the head coaching position for the Indianapolis Colts. McDaniels considered the extra time with Belichick to be “extremely valuable.”

One of the main reasons people quit their jobs is because of an inadequate relationship with their immediate supervisor. The best way to build a strong rapport with your employees is to be like Belichick — pencil in some one-on-one time with them and show that you care. Even a brief, sincere interaction can leave a lasting impact.

Remember — it’s all about quality, not quantity. You don’t have to sit down with your colleagues for hours and tell them your whole life story. Just ask how they’re doing as you pass them in the hallway or take a few minutes to chat with them during your lunch break. Focus on subject matters that are important to them. You’d be surprised how much of a difference it makes just to have these short, simple conversations. You open the door to easier conversations when the topics become more challenging.

These days, we tend to forget about the value of face-to-face communication, or even picking up the phone. We get lost in cyberspace, always sending texts and sifting through emails. Although it may be more convenient, digital communication just doesn’t make the same impression as talking to someone in person. We’re so accustomed to dashing off messages that we lose sight of how much it means to people when we take the time to have a more intimate, meaningful interaction with them. You should make the interaction impactful but in a casual and informal manner.

Please note: Efficient communication rarely results in EFFECTIVE Communication

The more you show your employees that you care about them, the more motivated they will be to deliver on the results that your team seeks from them. Don’t let your relationship with them get lost in the flurry of emails. Make it flourish with a caring relationship, based on mutual respect and achieving the goal of the whole team!

If Sponsel CPA Group can assist you with achieving success in your business or personal affairs, please contact Eric Woodruff at (317) 613-7850 or email [email protected].

Employee Spotlight — Christopher Sargent

Christopher Sargent started as an intern for Sponsel CPA Group in the spring of 2016 and became a full-time staff member in the fall of 2017. As a Staff Accountant in the Audit & Assurance Services department, his duties include conducting audits, reviews, compilations and agreed-upon procedures for clients across a broad spectrum of industries including construction, distribution, manufacturing, service and not-for-profit.

Christopher earned his master’s degree in accounting from Ball State University this past summer. He also recently passed all four parts of the CPA exam.

Outside of work, Christopher enjoys spending time with friends and family, watching movies and cheering on his favorite sports teams — the Indiana Pacers and Indianapolis Colts. Born and raised in Central Indiana, Christopher is full of Hoosier pride.

Tax Law Changes – The GAAP Effect

By Lisa Blankman, CPA
Manager, Audit & Assurance Services
[email protected]

The tax reform is here, with significant changes to both individual and business taxation that have been covered extensively in recent weeks. As you’re closing out your books for 2017 and preparing the year-end financial statements, you may be wondering if the tax law changes have any direct effect on your company’s GAAP financial statements? The answer is yes, they do — if you have a C corporation.

For C corporations, deferred tax assets and liabilities are recorded based on temporary differences between book and tax reporting. For example, if a company has a significant net operating loss carryforward, the deferred tax asset recorded will represent expected tax relief in future periods.

Deferred tax assets and liabilities are recorded as of the balance sheet date based on expected future tax rates. With the tax law changes in effect by the end of 2017, the new effective tax rates starting in 2018 should be used when calculating and recording the deferred tax asset/liability. For GAAP financial statements with footnotes, there will also be a new paragraph added to disclose the change in tax rate, including the prior rate and the newly enacted rate. Considering the tax law changes, this is a relatively minor change to the presentation/disclosure in your financial statements, but it’s something to be aware of when preparing and reviewing your 2017 financial statements.

If you have any questions, please call Lisa Blankman at (317) 613-7856 or email [email protected].

Employee Spotlight — Lila Casper

Lila CasperLila Casper joined Sponsel CPA Group one year ago after already having experience in public accounting. As a Staff Accountant in the Audit & Assurance Services department, her duties include conducting audits, reviews, compilations and agreed-upon procedures for clients across a broad spectrum of industries including construction, distribution, manufacturing, service and not-for-profit.

She is a CPA and a member of the Indiana CPA Society (INCPAS), as well as a member of the Fun Committee at Sponsel CPA Group. Lila earned her bachelor’s degree in business administration and master of accountancy degree from the University of Texas at San Antonio.

In her spare time, Lila volunteers with Second Helpings, serving on their Audit Committee, and is a member of the INCPAS Emerging Leaders Alliance. She loves spending time with her nieces and nephew, and rooting for the sports teams from towns where she’s previously lived: the Carolina Panthers, San Antonio Spurs and L.A. Dodgers. Lila also enjoys drawing, painting and putting together puzzles and Legos.

New intern is Skyler McCool

Skyler McCoolSkyler McCool will be interning with the firm for the next few months, splitting his time between the Audit & Assurance Services and Tax Services departments. He is currently attending Marian University with a major in Accounting and Finance. In addition to preparing individual, corporation, partnership, fiduciary and other tax returns, he will perform audits, reviews, compilations and agreed-upon procedures, primarily for clients in the construction, manufacturing and nonprofit sectors.

Don’t Wait to Put Your 2018 Plan into Action

Eric WoodruffBy Eric Woodruff, CPA
Manager, Audit & Assurance Services

Now is the time of year when people look back on 2017 to take stock of the good and the bad, both personally and professionally. If you’re the member of an organization, whether as an employee, manager or owner, this is the season for things like performance evaluations, making goals for the new year and setting budgets.

If you really want to feel satisfied when this time rolls around at the end of 2018, you need to develop a strong bias for ACTION, and avoid accepting the status quo of yesterday!  Put together your plan for improvement, and put it into action – TODAY!

Not long ago we were speaking to a client who was talking about how 2017 was such a bad year for their company, but they had high hopes for 2018, with a list of plans to start doing in January. Our reaction was, if those steps will make a significant improvement in your operations and outcomes, why aren’t you doing them right now instead of waiting for New Year’s Day?

We all know how New Year’s resolutions tend to fade if you procrastinate about putting them into action right away. Without accountability and follow-up, they get put in a drawer and forgotten. So don’t wait for January 1 to get started!

If you’re an employee looking to move up the ladder at your firm, reflect on the things you’re not happy about from your last performance review, and set out a plan for improvement. Think about the skillset you want to build upon. Set benchmarks, such as monthly self-evaluations, to help measure your progress.

If you’re the owner or leader of a business, perhaps your plan of action is about increasing revenue or net profits, or articulating a vision for the future of the company. For a manager, your goals may have to do with improving operational efficiency and meeting the aspirations of the owners, or enhancing the working relationship you have with the team you supervise.

Most people find it difficult to truly hold themselves accountable. Endeavor to step back from your daily duties to give yourself some frank self-analysis that allows you to look for barriers to personal performance. Identify mistakes you’ve made, and take proactive plans not to repeat them.

If you start right away to set a really strong foundation for action in 2018, you’ll be better poised to ask the big question – “Am I satisfied?” – and come away with a positive answer a year from now.

Take the first steps now, even if it’s something as simple as scheduling time every month next year to do a self-evaluation of your progress, and perhaps asking colleagues and supervisors to give you feedback, too. Match their views with the self-assessments you perform to see where you are lacking.

The challenge is to open yourself up, be transparent and be willing to accept constructive criticism. If criticism is delivered in a positive way, it should be focused on ways of making you better. It can be hard to hear, but it gives you a solid plan going forward.

And don’t wait – start right now!

If you need any assistance with helping improve your organization, please call Eric Woodruff at (317) 613-7850 or email [email protected].

6 Ways to Prepare for Your Audit

Emily CampbellBy Emily Campbell
Staff, Audit & Assurance Services
[email protected]

When you hear the word “audit,” do the words “stress” or “dread” immediately come to mind?

At Sponsel CPA Group, we want your audit to be a positive, hassle-free experience with us. Consider the audit process as an investment in your organization’s future by way of fine-tuning processes that allow for adequate oversight and preparation of financial statements.

To ensure you have the best experience possible with your audit, here are six steps to help the process go smoothly:

  1. Communicate with your audit team

The first thing you can do to reduce the stress of an audit is establish a timeline with your audit team. Set fieldwork dates and deadlines for compiling all requested items. Make sure any required financial statement deadlines are communicated. This will ensure everyone is on the same page and allow both you and the audit team to plan accordingly.

It is also important to communicate significant changes from prior years, such as changes in business operations, changes in accounting methodology or other major transactions (refinancing debt, new lease agreements, adopting a new accounting pronouncement, etc.) with your audit team, so that they can appropriately plan for the audit. In addition, be prepared to discuss variances in budget to actual, variances between current and prior year, and other changes – such as restructured management, ownership, new business operations, or a change in accounting personnel.

  1. Reconcile your accounts

It is crucial to reconcile all balance sheet accounts at year-end. Maintain supporting schedules for the final balances, especially for major accounts such as cash, accounts receivable, inventory, accounts payable and accrued expenses. Make sure you are able to support any management estimates used in financial reporting (e.g., allowance for doubtful accounts, inventory allowance, depreciation, functional expense allocation, etc.). We recommend having different levels of review to identify any errors, discrepancies, or variances from expectations. Review the prior year adjusting journal entry report to determine whether or not similar adjustments should be made in the current year.

  1. Update your Property, Plant and Equipment (PP&E) schedules

Review your current PP&E schedules to determine whether all assets listed are still in use and if there have been any additions or disposals the past year. Compile a list of assets purchased or sold during the year, including dates, amounts and detailed description of the assets to provide to the auditors. Also, review repair and maintenance detail to verify all assets were appropriately capitalized.

  1. Assemble an audit folder

To manage the volume of information we request, it may be helpful to compile items in one folder throughout the year for the audit team. These items could include new lease agreements, line of credit renewals, correspondence with regulators and lawsuit correspondence. The year-end request information can be saved with those documents already set aside during the year.

  1. Evaluate internal controls

Review your internal control procedures as well as the prior year management letter, and correct any deficiencies. Some areas to focus on include segregation of duties, managerial review or physical safeguards. Document the controls that are in place. Following these steps can improve the company’s internal structure and will give us a good understanding of procedures in place.

  1. Review recent accounting rule changes

Read over the new accounting rule modifications and standards and evaluate if they are applicable to your entity. See our recent article, New Accounting Standards Your Organization Needs to Know, for a brief description of key changes.

If you need help preparing for your audit, please contact Emily Campbell at (317) 613-7873 or email [email protected].

Sponsel CPA Group hires Sargent

Chris SargentChristopher Sargent has joined Sponsel CPA Group as a Staff accountant in the Audit & Assurance Services department. His duties will include performing audits, reviews, compilations and agreed-upon procedures for clients, primarily closely-held companies in the construction and manufacturing industries, as well as not-for-profits.

Sargent is a graduate of Ball State University with bachelor’s and master’s degrees in Accounting. He previously interned for Sponsel in 2016, and is currently in the process of passing his exams for the CPA credential.

“The need for our clients to have accurate and reliable financial information about their operations has only grown in the present business climate,” said Mike Bedel, Partner and Director of Audit & Assurance Services. “Sponsel CPA Group is once again expanding its team to meet that need. Christopher is a top caliber young accountant.”

Lingenhoel, Sargent join firm

Abigail Lingenhoel Chris SargentSponsel CPA Group is pleased to welcome two new Staff accountants to the team. Abigail Lingenhoel will work in the Tax Services department, preparing individual, corporation, partnership, fiduciary and other tax returns. She has dual bachelor’s degrees in Accounting and Management from Taylor University. Christopher Sargent will be part of the Audit and Assurance Services team, performing audits, reviews, compilations and agreed-upon procedures for a wide variety of clients. He is a graduate of Ball State University with bachelor’s and master’s degrees in Accounting. Both are currently in the process of taking the exams for their CPA certification. Welcome to them both!

AYS taps Blankman for Board of Directors

Lisa BlankmanINDIANAPOLIS – Lisa Blankman, a Manager in the Audit & Assurance Services department of Sponsel CPA Group, has been appointed to the Board of Directors of AYS.

Formerly known as At-Your-School Child Services, AYS is a not-for-profit group that specializes in providing high-quality, educational and safe programs for Central Indiana students outside of school hours. AYS runs a number of educational and support programs aimed at helping students and schools succeed. AYS serves nearly 3,000 children through the school year and 500 during summers.

Blankman is a veteran CPA who conducts audits, reviews and agreed-upon procedures. She works with clients across a broad spectrum of industries, including construction and non-profits, helping them find efficiencies and become more effective in the marketplace. She is a graduate of Marian University with a bachelor’s degree in accounting.

“I am so excited and honored to join the board of AYS,” Blankman said. “This is a vital organization that brings so much benefit to Indianapolis-area youth. I will bring all my energy and financial expertise to bear as a director.”

New Accounting Standards Your Organization Needs to Know

adam-parkhurstBy Adam Parkhurst
Staff, Audit & Assurance Services

Beginning Dec. 15 this year, several significant changes are going into effect for financial statements reported under Generally Accepted Accounting Principles (GAAP). These Accounting Standard Updates (ASUs) could affect the reporting requirements of your business or not-for-profit.

Below is a quick rundown of what these new standards could mean, broken down by types of organizations.

The following ASUs are becoming effective for all applicable entities:

  1. ASU 2016-14 Presentation of Financial Statements of Not-for-Profit Entities

This ASU significantly changes financial reporting for Not-For-Profit entities by making changes to net asset classes, expense presentation, statement of cash flows requirements and disclosure requirements. For more information on this ASU, please see 5 Things You Need to Know About the New Not-For-Profit Accounting Standard (ASU 2016-14).

  1. ASU 2017-09 Compensation – Stock Compensation: Scope of Modification Accounting

The purpose of this ASU is to provide clarity and reduce diversity in practice, as well as cost and complexity, when applying stock compensation guidance to a change in the terms or conditions of a share-based payment award.

The following ASUs are becoming effective for non-public entities, but are already effective for public entities:

  1. ASU 2015-17 Income Taxes: Balance Sheet Classification of Deferred Taxes

The purpose of this ASU is to eliminate the presentation of current deferred income taxes. All deferred taxes will now be presented as non-current.

  1. ASU 2016-05 Derivative and Hedging: Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships

This ASU clarifies whether the use of hedge accounting for a derivative arrangement must be discontinued when there is a change in counterparty.

  1. ASU 2016-06 Derivatives and Hedging: Contingent Put and Call Options in Debt Instruments

This ASU clarifies that the four-step decision model should be utilized when evaluating whether contingent call (put) options in debt instruments are clearly and closely related.

The following ASUs are becoming effective for public entities for fiscal years beginning after Dec. 15, 2017, and will become effective for non-public entities in the future.

  1. ASU 2015-14 Revenue from Contracts with Customers (previously ASU 2014-09)
  2. ASU 2016-15 Classification of Certain Cash Receipts and Cash Payments
  3. ASU 2016-16 Intra-Entity Transfers of Assets Other Than Inventory
  4. ASU 2016-18 Restricted Cash
  5. ASU 2017-01 Clarifying the Definition of a Business
  6. ASU 2017-07 Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

For further information regarding the upcoming effective ASUs and how they might apply to your organization, please contact Adam Parkhurst at (317) 613-7858 or email [email protected].

Blankman joins AYS board

Lisa BlankmanLisa Blankman, a Manager in the Audit & Assurance Services department, has been appointed to the Board of Directors of AYS. Formerly known as At-Your-School Child Services, AYS is a not-for-profit group that specializes in providing high-quality, educational and safe programs for children outside of school hours. AYS runs a number of educational and support programs aimed at helping students and schools succeed.

Casper named to Second Helpings committee

Lila CasperLila Casper, a Staff Accountant in the Audit & Assurance Services department of Sponsel CPA Group, has been appointed to the Audit Committee of Second Helpings, a Central Indiana nonprofit group that repurposes unused food for the hungry.

In addition to accepting donations of perishable and overstocked food, Second Helpings prepares nutritious meals for 4,000 children and adults on a daily basis in the Greater Indianapolis area, which are distributed to more than 85 social service agencies that feed people in need. The group also trains adults for careers in the culinary industry.

As a member of the audit committee, Casper will use her expertise in conducting audits, reviews and compilations to ensure the financial resources of Second Helpings are being utilized in the most efficient manner possible.

Casper holds bachelor of business administration in accounting and master of accountancy degrees from the University of Texas at San Antonio.

“I’m excited to use my skills on behalf of Second Helpings. It’s an amazing group that is effecting real positive change in Central Indiana each and every day,” Casper said. “I’m also proud to work for a firm like Sponsel CPA Group that puts civic involvement front and center in their mission.”

Will salesforce Impact Your Company Culture?

Lisa BlankmanBy Lisa Blankman, CPA
Manager, Audit & Assurance Services

Indiana has been blessed with the arrival of a number of high-profile companies in recent years, either through acquisitions or organic growth. These include many information technology firms that represent the second wave of the Dot-com boom, such as salesforce, a cloud computing company that acquired ExactTarget in 2013.

The entrance of salesforce is having a rippling effect on the Indianapolis marketplace beyond the highly visible Salesforce Tower (rechristened from Chase Tower), with its name beaming from the top of the tallest building in Indiana.

It and other companies are bringing new ideas to the workplace that could spread to other businesses and alter their culture – not the type of work they do, but how they do it. This may make it more challenging for others to acquire and retain top talent, especially the Millennial generation that will soon dominate the U.S. workforce as Baby Boomers pass into retirement.

In short, Silicon Valley is invading Central Indiana with new ideas about the workplace and desirable concepts.

Cummins and other businesses have made a big splash with tours of new facilities that include onsite amenities that are now standard on the West Coast – coffee bars, exercise stations, lounge areas, laundry service, even things like video game consoles. The “new casual” atmosphere may seem shocking to older generations, but you can believe that locals in their 20s and early 30s know about the sort of accommodations their peers are being offered.

Beyond the actual worksite, the dot-com wave is also impacting old ways of how businesses conducted their human relations operations. Things like flexible hours, remote work days and casual dress codes are slowly seeping into the expectations workers have for their employers.

Younger generations also desire to work somewhere that mirrors their own values, so things like sustainability and diversity in the workforce become important.

If you’re in the leadership of an organization, you need to be thinking about how you are going to hire and keep the best talent, especially Millennials, given this new paradigm. Because our expectation is it’s only going to accelerate. HR practices that may seem bleeding-edge in the Indianapolis market now will be standard operating procedure in five or 10 years.

As with any aspect of your operation, if you don’t adapt to the changing times you will quickly find your organization left behind.

Start engaging with your HR department and think of ways your business can be proactive about offering accommodations to your team that will enhance their work experience. The goal is to build loyalty and encourage them to stay and develop their skillsets to benefit your organization, rather than seeing that talent drain away to more nimble competition.

You may not be able to replicate everything a salesforce or Cummins is doing, especially if you don’t have the resources of a Fortune 500 company. But you may be surprised how easy it can be, for example, to allow some of your staff to work remotely a few days a week. Or wear jeans and casual shirts in the office when they’re not out meeting with clients.

By making your company’s workspace inviting and flexible, thoughtful managers/CEOs can make their organizations a destination where talented people want to work, grow and become the next generation of leaders themselves. Talent management will be the critical success factor for the growing business in need of energetic talent to take the company to the next level of success!

If you have any questions or comments, please contact Lisa Blankman at (317) 613-7856 or email [email protected].

 

5 Things You Need to Know About the New Not-For-Profit Accounting Standard

Emily CampbellBy Emily Campbell, MPA
Staff, Audit and Assurance Services

Last August the Financial Accounting Standards Board (FASB) released the first major changes to Not-for-Profit financial reporting since 1993. Accounting Standard Update 2016-14 includes significant impact to the look of financials for nonprofits.

If you are in a leadership position or on the board of a not-for-profit, you need to be aware of how this will affect your organization’s financial reporting process. Here are the Top 5 things you need to know about ASB 2016-14:

  1. Net Assets

ASU 2016-14 changes the net asset class structure from Unrestricted, Temporarily Restricted, and Permanently Restricted to Net Assets without Donor Restrictions and Net Assets with Donor Restrictions. This update removes the distinction between temporarily and permanently restricted net assets in an effort to simplify restrictions. In addition, FASB eliminated the “unrestricted” language to reduce confusion. Not-For-Profit entities will continue to report the change in total net assets for the period. They will also have to report changes in each of the two classes of net assets in their Statement of Activities.

  1. Expense Presentation

Not-For-Profit entities are now required to break out expenses by both nature and function. This was previously an option under GAAP, but now all entities must do so. The purpose of the update is to show how an entity’s expenses relate to their programs and to make Not-For-Profits more comparable. Additionally, investments are now presented net of investment expenses. Because of this, it will no longer be included in functional expense breakout.

  1. Statement of Cash Flows

Not-For-Profits may choose to present either the direct or indirect method of Statement of Cash Flows. If the direct method is selected by the entity, it no longer is required to prepare a reconciliation of the change in net assets to net operating cash flows. FASB’s intention was to decrease the burden placed on entities to present the same information in multiple ways. FASB also wanted to increase an entity’s flexibility to present the Statement of Cash Flows using the method that best suits the needs of the entity and its financial statement users.

  1. Increase in disclosures

Another big change with ASU 2016-14 is the enhanced disclosure requirements. The goal is to improve clarity and transparency in reporting. This includes an increase in net asset disclosures to enrich readers’ understanding of the donor restrictions. There will also be a new requirement to provide quantitative and qualitative information regarding the Not-For-Profit’s liquidity. The entity must communicate the availability of financial assets to meet cash needs for general expenditures for one year after the Statement of Financial Position date.

  1. Effective Date

ASU 2016-14 is effective for fiscal years beginning after December 15, 2017 and interim periods thereafter. Changes are to be retroactively applied, with options to omit analysis of expenses and disclosures of liquidity in the year of adoption. Early adoption is permitted, so reach out to a trusted financial expert to discuss whether early adoption is best for your Not-For-Profit.

Sponsel CPA Group has expertise in Not-for-Profit financial reporting, and can go over the new rules with you to find the best options for your organization.

If you have any questions regarding ASU 2016-14, please contact Emily Campbell at (317) 613-7873 or email [email protected].

Employee Spotlight: Adam Parkhurst

adam-parkhurstOne of the newer faces on the team, Adam Parkhurst joined the Sponsel CPA Group team last fall as a Staff accountant in the Audit & Assurance Services department shortly after graduating from Purdue University’s Krannert School of Management with a bachelor’s degree, triple-majoring in Accounting, Management and Finance.

His work includes audits, reviews, compilations and agreed-upon procedures, mostly for clients of privately-owned companies in the construction, manufacturing and not-for profit industries. Adam has already passed the first three sections of the CPA examinations and is preparing to receive his score on the fourth and final part.

Adam was born and raised in Columbus, Ind., playing on the Columbus North High School varsity soccer team. He loves to play and watch all sorts of sports, cheering the teams at Purdue, the Colts and the Pacers. He regularly takes part in cycling races and triathlons, including charity events, and is currently training for the Race Across Indiana Bike Race in July and the Hilly Hundred in October.

In August, Adam will be a participant in The Subaru CASA Cycling Challenge, a 24-hour race that raises money for Casas for Kids fund, a non-for-profit organization to support abused and neglected children in Tippecanoe County.

Indiana Moves Up Ranks of Business-Friendly States

Eric WoodruffBy Eric Woodruff, CPA
Manager, Audit & Assurance Services

Indiana has moved up to two spots in CNBC’s rankings of “America’s Top States for Business,” according to the new list for 2017. The Hoosier State now comes in at #14, compared to the 16th slot last year.

The annual list looks at a variety of factors, economic and otherwise, to determine which states are the friendliest to starting and growing businesses — and which are not. For 2017, Washington ranked #1 and West Virginia came in dead last.

“Low costs and a solid infrastructure meet at the Crossroads of the World, but quality of life tends to lose its way,” CNBC said about Indiana.

As in previous years, Indiana scored very well on Cost of Living and Cost of Doing Business (both #2 in the nation). The quality of the state’s Infrastructure also buoyed their standing with the #3 ranking. The state also tied at 8th for Business Friendliness, tied for 10th in overall Economy and 24th in Access to Capital.

The state got dinged by coming in 45th on Quality of Life, 35th on Workforce and 29th on Education.

The state profile by CNBC noted that Indiana has a very strong bond rating and outlook (Aaa by Moody’s and AAA by S&P), low individual and corporate income tax rates (topping out at 6.25% and 3.23%, respectively) and a very low unemployment rate of 3.2% as of this May. Economic growth for the fourth quarter of 2016, at a feeble 0.8%, was down compared to the rest of that year.

After Washington, Georgia, Minnesota, Texas, North Caroline, Colorado, Virginia, Utah, Tennessee and Massachusetts rounded out the CNBC’s top 10.

Although CNBC’s list is the most watched, other sources also produce their own lists of state business and economic rankings. Here’s how Indiana stacks up in a few of those:

5th – Best & Worst States for Business, ChiefExecutive.net

8th – Top States for Doing Business, Area Development

8th — 2017 State Business Tax Climate Index, The Tax Foundation

13th – Best States for Business, Forbes

We are proud of our state for business environment. We also believe these ranking will assist our state economy as we grow and develop our existing Hoosier businesses, as well as attract new businesses and talent to share in our success.

If you need any assistance with helping your business move up, please call Eric Woodruff at (317) 613-7850 or email [email protected].

Casper Named to Emerging Leaders Alliance

Lila CasperKudos to Lila Casper, a Staff accountant in Audit & Assurance Services, on being appointed to the Emerging Leaders Alliance within the Indiana CPA Society. Her term will start later this month. Aimed at up-and-coming leaders, ELA members serve as advocates for the CPA profession, as effective communicators to peers and as active volunteers in Society outreach.

The Real Purpose of Your 401(k) Audit

Mike BedelBy Mike Bedel, CPA, MBA, CGMA
Partner, Director of Audit & Assurance Services

If your company’s 401(k) plan has more than 100 eligible participants, it is large enough that the U.S. Department of Labor requires an audit of your plan. This audit must be attached to your annual 5500 filing, but is often viewed as an unnecessary compliance cost by the 401(k) plan sponsor.

The true purpose, however, for the required audit of this employee benefit plan is to protect various stakeholders in the plan, especially the plan participants.

Many employees rely on their 401(k) plan to save for retirement. Many expert resources such as Forbes describe it as “the single best wealth accumulation vehicle available to the vast majority of Americans.”

However, most employees are not well-versed in how their 401(k) plan operates. As a result, they may not be aware if their personal accounts are not being appropriately credited for their contributions.

By taking the audit process seriously, the plan sponsor communicates that they understand the value their employees place on the wealth they’ve accumulated in their individual 401(k) accounts. When a plan sponsor makes decisions that minimize the role of the audit, they are perceived by their employees as not valuing the hard-earned money set aside over the years – or even as putting their own interests ahead of the employees’.

The Department of Labor and the Internal Revenue Service continue to emphasize the importance of fiduciary responsibility to those involved in the management of the retirement plans. They also stress the importance of a thorough and complete audit process as a significant means of oversight on the plan’s operations.

Additionally, the audit provides some protection to a fiduciary of the plan who is taking their role seriously. It is a way for them to act upon their responsibilities to protect the plan. And it serves to identify if the plan is operating outside of compliance with regulations from the DOL or IRS.

Sponsel CPA Group performs audits of defined contribution employee benefit plans, such as 401(k) plans. We take this responsibility very seriously and value the role we play in protecting the interest of all stakeholders for the plans we audit.

If you have questions about audits of 401(k) plans, please contact Mike Bedel at (317) 613-7852 or email [email protected].

 

Employee Spotlight — Brandon Hoge

Brandon_Hoge_smallAs a Staff accountant in the Audit & Assurance Services Department, works on audits, reviews, compilations and agreed-upon procedures for clients, primarily closely-held companies in the construction and manufacturing industries, as well as not-for-profits. He joined the firm in 2015 after graduating from IUPUI with a master’s degree in accounting, after previously receiving a bachelor’s degree in financial planning from Purdue University. He also served an internship at Sponsel CPA Group before being brought in as a permanent member of the team.

Brandon has already passed the exam for CPA licensure, which he will receive later this year after earning the requisite two years of public accounting experience. He is a member of the Indiana CPA Society.

In his spare time, Brandon enjoys exercising and playing sports, listening to music and watching movies and television, and rooting for his favorite teams: Purdue, the Indianapolis Colts and Chicago Cubs.

Changes to Auditing Standards for Going Concern

Mike BedelBy Mike Bedel, CPA, MBA, CGMA
Partner, Director of Audit & Assurance Services

The AICPA Auditing Standards Board (ASB) has updated their standards on the topic of Going Concern. Statement on Auditing Standards (SAS) No. 132 was issued in February 2017 under the title, The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern.

The term “going concern” relates to the expectation that an entity will continue operations in the future. It is often taken for granted, or assumed, that the entity under audit will continue operations in the near future.

These new standards supersede previous guidance that existed for auditing standards, SAS No. 126 (under the same title), and follows recent pronouncements on the same topic by the International Auditing and Assurance Board. In 2014 Accounting Standards Update 2014-15 was issued to place the initial responsibility to identify a going concern on management, before the auditor is required to address the topic.

This most recent update is effective for audits of financial statements for the year ending December 31, 2017.

SAS No. 132 aligns the previous standards more closely with the responsibility placed on management by ASU 2014-15. It also aligns the auditing standards with standards recently issued by the Governmental Accounting Standards Board (GASB).

SAS No. 132, clarifies that the auditor is responsible to determine whether management has appropriately utilized a going concern basis of accounting and whether there are any substantial doubts about the entity’s ability to continue as a going concern in the near future.

SAS No. 132 also adds a requirement to evaluate the reliance upon third parties, owners or management in the organization’s plans to continue as a going concern.

For more information about the topic of Going Concern, please contact Mike Bedel at (317) 613-7852 or email [email protected].

Innovation Will Set You Apart!

Lisa BlankmanBy Lisa Blankman, CPA
Manager, Audit & Assurance Services

The concept of innovation is very critical to any organization that wants to grow and evolve. Some business leaders will fall into the pattern of doing things the same old way, almost out of habit. And not without reason: if the status quo has worked well for a long time, there is fear of disrupting a pattern of “success” by changing. A feeling of safety and consistency is comforting.

But the only truly consistent thing about the marketplace is that it is always changing. If you’re not looking ahead, you’re already at risk of falling behind. A “success” of the year 2005, may lead you to a false sense of accomplishment. A prudent leader must be intentional in driving new ways of thinking into their organization.

In order to build a business that will be successful for the long term, you must create a philosophy and corporate culture of continuous innovation. That mindset needs to be a component of everything you do. “Change” is the only constant in your strive to be superior to your competition.

When we talk about innovation, most people think of a specific product or service that is ahead of the competition. And that can be critical to your success, given the rapid changes in technology and social engagement. Devices and ways of doing things can quickly become obsolete.

Remember standalone GPS devices? Ten to 12 years ago, they were the hot new gadget everyone wanted. Now they’re in the technological dustbin. And how about fax machines? It’s difficult to even find one nowadays that’s not incorporated into a printer/scanner.

So beyond finding that next product or service, try to be innovative in the way you deliver that to the marketplace. Innovate in the way you interact with your customers, be creative in how you deal with vendors, employees and other stakeholders.

In short, focus on making innovation not a one-off event but a continuous theme that is driven into the heart and soul of your organization’s culture.

Examine your internal processes from time to time and ask yourself if they are up to speed. Look at what others in your industry are doing, especially those who have recently adopted new methodologies. Are they working? Can they be improved upon?

Talk to your customers and vendors and ask their advice. See what their needs are, and task your team with coming up with a better way to satisfy it. Solicit your team of employees: “Is there a better way to do this?”

For example, in the accounting/bookkeeping world it was once a universally accepted practice to make a daily run to the bank for deposits. Now that’s virtually all handled with online tools. And that came to be because some people thought about ways to make the process faster, simpler and more reliable. Improved Productivity!!

The reality is that new products and service follow innovation, not the other way around. Innovation is a mindset that constantly questions how you’re doing things, and looks for ways to do it better.

If you’re a business owner or manager, thinking innovatively means being responsive to what the market demands. You should want your company to be seen as creative and dynamic. An organization doesn’t necessarily have to live on the bleeding edge, but at least be in tune with the latest best practices.

Whatever you do, you don’t want your company to be regarded as being obsolete or out of the mainstream of what the consuming/retail customer expects. That is not a formula for growth and prosperity. At a minimum, be open-minded to a different way of accomplishing a goal and encourage your team members to make similar recommendations.

When your organization is viewed as being proactive in adopting new ways of doing business, it’s easier to attract more customers and explore untapped opportunities.

If we can assist you with any process improvement, please contact Lisa Blankman at (317) 613-7856 or email [email protected].

Speed is Key to Success in 2017

Eric WoodruffBy Eric Woodruff, CPA
Manager, Audit & Assurance Services

Technological advances always bring new opportunities, but also fresh challenges. Just a decade ago, a phone call or an email from a customer could be reasonably expected to be returned in a day or two. Now, with social media, texting, Snapchat, etc., any communication response that isn’t near-instant risks alienating a client and sending them running to a competitor.

Our society is undeniably a speedier one – so an organization’s chances for success rests more on being highly responsive in the manner the consumer prefers.

The speed factor also makes it harder to make your company set itself apart in its products and services. If everyone’s customer service is expected to be lightning fast, the marketplace becomes like the cavemen running from the sabre tooth tiger – the slowest one is the loser.

Think about Amazon. People have gotten used to ordering something at noon, and having it waiting for them on their doorstep when they get home. And with Amazon’s pilot program in drone deliveries, the wait can be cut to literally minutes!

That mentality is now spreading to every customer interaction and every industry. Business owners and managers need to ask themselves:

  • Are we set up to be nimble and flexible in responding to our customers and stakeholders?
  • How quickly do we respond to communication contacts?
  • How quickly can we adapt to new changes so we can beat our competition to the market?
  • Is our website set up so it can be properly viewed on a mobile device? Is it easy to find information on our products and services?
  • How can we make it easier to do business with our company?
  • Are we set up to meet the 24/7 demands of the e-commerce world?
  • How can we stay abreast of upcoming developments?

As a rule of thumb, any contacts from potential new customers should be responded to the same business day. The person or persons monitoring the phone extension or email address linked to your website’s “Contact Us” page should be your proactive point person. Even if a principle team member is not available, at least have a responder let them know when they can expect communication from them.

Just a quick acknowledgement can give the person reaching out that “touch” they need to feel their concerns are being addressed in a timely way. It is important to acknowledge the request and set the expectation of a timely response.

If you’ve ever participated in any customer feedback services, you probably know how important a quick response can be. A horrible client experience can often be rectified with a timely attempt to make good on any failure to meet expectations. On the flip side, a response that is late is usually going to be seen as lacking from the customer’s dissatisfaction perception, and any apology as disingenuous.

Even worse than a slow response is none at all. If you’ve been asked to fill out a survey from, say, a car rental company and gave negative ratings, you may have checked a box that asked if you would like to speak to a manager. Did that manager ever get back to you? If not, chances are you’re not using that car rental agency anymore. Today’s world of commerce demands immediate responsiveness.

It’s also wise to manage expectations for response, especially with existing customers. Have your voicemail message or out-of-office email function let people know you will try to get back to them within 24 hours. If that’s not sufficient for their needs, provide an alternate contact within your business who can jump on the requested task ASAP.

It may sound self-evident, but even an automated response that says “I’ll get back to you soon” is better than none at all.

Analyze your company’s response to communications and judge if your organization is meeting the speed factor necessary for success in 2017. Call your clients and vendors and ask them if they feel your staff is sufficiently responsive.

If the answers you receive are negative ones, take a look at your controls and processes to see how you can get things up to the speed you need.

If we can assist you with any process improvement, please contact Eric Woodruff at (317) 613-7850 or email [email protected].

Lila Casper joins Sponsel CPA Group

Lila CasperLila Casper has joined Sponsel CPA Group as a Staff Accountant in its Audit & Assurance Services department. She has two years of experience in public accounting.

Her duties will include conducting audits, reviews, compilations and agreed-upon procedures for clients across a variety of industries including construction, distribution, manufacturing, service and not-for-profit.

Casper graduated from the University of Texas at San Antonio with a bachelor of business administration in accounting and a master of accountancy degree. She previously lived in Fort Wayne prior to a stint in California.

“We’re so pleased to have found such a high-quality candidate, and with roots in the Hoosier state,” said Mike Bedel, Partner and Director of A&A. “Lila will help Sponsel CPA Group continue to expand the breadth and depth of audit services we can offer to the marketplace.”

When You DON’T Need an Audit

Mike BedelBy Mike Bedel, CPA, MBA, CGMA
Partner, Director of Audit & Assurance Services
[email protected]

There are many compelling reasons to have an audit performed on your financial statements. But there are also many reasons to NOT have an audit.

As director of our audit and assurance services department, I often receive phone calls from clients and potential clients who begin the conversation with, “We need an audit for our organization.”

My response is to always ask, “Why?” Very often, I quickly find their organization does not really need an audit. Nearly always, some level of professional service is appropriate – but it is very often not an audit.

Here are some of the common scenarios that occur when leaders think their organization needs an audit – but really doesn’t.

  • Suspicion of Fraud. When the suspicion of fraud rises at an organization, one of the knee-jerk reactions from board members or management is to request a financial statement audit. However, an audit is not designed to detect fraud. In this situation, we recommend that clients engage our forensic accounting services. They specialize in detecting fraud.
  • Improving Efficiency. A growing organization will often come to a point where their governing board recognizes a need to review and improve the efficiency of their finance and accounting function. In this situation, a consulting engagement typically becomes the most efficient use of the organization’s resources to identify past issues with internal controls and recommend ways to improve them. While an audit does take the internal control environment into consideration as part of developing an opinion on the overall financial statements, it is not designed to provide an opinion on those internal controls or design an improved accounting process.
  • Valuation. When a transfer of ownership is being considered, sometimes the current or future owners will seek an audit to help substantiate the value of the organization or ownership shares. While an audit opinion will provide assurance on the overall financial statements for a historical period, the audited financial statements are not designed to determine the current or future value of the enterprise. In these cases, our valuation services are most useful to clients. Valuation is an area of accounting that requires very specific knowledge and experience; Sponsel CPA Group has its own outstanding team of valuation experts. An audit can be a useful resource to a valuation specialist, but the audit itself is not the answer to determining the value of an organization.
  • Other Levels of Service. Lenders, such as banks and other financial institutions, often require financial reporting for the financial statements when there is an outstanding loan. Depending on the size of the loan and the risk assessed by the lender, they are often satisfied with a lower level of service than an audit. Namely, a compilation or review of the financial statements is sufficient for lenders in many cases, and should cost less to the organization than a full audit.

Now is a good time to review what an audit IS designed for.

A financial statement audit is designed to provide assurance on a set of financial statements. In an audit, an independent CPA issues their opinion that the financial statements are free of material misstatement. This provides assurance for stakeholders such as owners, lenders, members and others that the financial information reported with the audit is reliable and allows them to manage their various risks.

Most often, we see that audits are required by significant lenders or by donors to non-profit organizations to provide them certainty that the financial results reported to them are reliable and can be used in their decision-making processes.

When an audit is appropriate, we are at the ready to help and serve our clients! Because we value our client relationships, however, we always seek to understand what is truly needed so that we are providing the best value to our clients and not selling them a service they don’t need.

If you think your organization needs an audit — or something different than an audit — please contact Mike Bedel at (317) 613-7852 or email [email protected].

Leaders: Do You Have a Vision?

Mike BedelBy Mike Bedel, CPA, MBA, CGMA
Partner, Director of Audit & Assurance Services

If you’re the leader of any organization, one of your most critical responsibilities is to have a vision for the future. It may sound obvious, but many leaders are so focused on dealing with the current situation or rectifying past mistakes that they fail to sufficiently look ahead.

Assuming you do have a vision for the future, you need to be planning the steps necessary to make that vision a reality. Once that vision and process are in place, you must communicate them to your entire organization in order to have the best possible chance of achieving that vision successfully.

Your vision process must become a daily stepping stone to the future you seek.

Many agree that the best way to learn is from mistakes. If we don’t take the time to examine missteps, we are more likely to repeat them. So looking back at your organization’s history can be very bountiful.

Be mindful, however, that looking at the past doesn’t blind you from looking to the future. Don’t dwell on past mistakes at the expense of establishing a vision.

As we start a new year, this is a great time to focus on critical aspects of your operation –financial performance, expected capital expenditures, maintaining or increasing your workforce, market trends, changes to your culture, etc.

To establish or refine your vision, start by asking yourself: where is the organization today? Where do you want it to be in 12 months? What are the milestones necessary to get from here to there? The answers you come up with will lay the foundation for your vision and process.

External factors can and should influence your vision. You probably have trade organizations or industry publications that can help educate you on the expected trends for this year and beyond.

There is new leadership coming to the White House in Washington D.C. and the statehouse here in Indiana. However you feel about the election results, it’s incumbent upon the leader of an organization to think about how that political change could impact their future.

The best leaders are constantly forward-thinking. They clearly articulate and communicate their vision to those they lead. Assuming that your vision requires efforts across the entire organization, it does no good to have a plan for the future if you’re not sharing it, promoting it and making it a critical part of your daily work plan.

Understand that the employees of any enterprise expect their leaders to point the way.

Make sure you have established a vision for 2017 and beyond. Ensure it is clearly communicated to everybody in your organization so that they can all help achieve that vision. Don’t let the daily grind push this essential task away into the future.

This is where a lot of leaders fall down. Either they haven’t formulated a vision, don’t define the path to make it happen or fail to share it with the very people who will carry it out.

The purpose of a vision is to help ensure that the future is an improvement over the past. That’s all anyone can hope for, whether in their personal life or their professional endeavors. That is exactly what Sponsel CPA Group hopes for your organization in 2017.

Good Luck and hopefully your vision for 2017 and beyond will become a successful reality!

If you need help with crafting your vision for your company’s future, please contact Mike Bedel at (317) 613-7852 or email [email protected].

Full-time staff grows again

Lila Casper
Lila Casper
Jack Hiatt
Jack Hiatt

Sponsel CPA Group is pleased to welcome two new Staff accountants, Lila Casper and Jack Hiatt. Casper, a CPA who is returning to Indiana and has two years of public accounting experience, will work in the Audit and Assurance Services department. Hiatt, a recent graduate of Marian University, joins the Tax Services department. Welcome to the team!

When Great Customer Service Is Not Enough

Eric WoodruffBy Eric Woodruff, CPA
Manager, Audit & Assurance Services

In today’s fast-moving world of instant and universal communications, the old standards for customer service no longer apply. It used to be if you delivered a great product or service on time and at a good price, the client would be happy and pass that information on to others.

Now, with online reviews, social media and the like, people will find something to complain about if the customer experience isn’t positive from top to bottom. And the “long tail” of digital communications means that negative feedback can follow your company around for years.

Take the example of going to a restaurant. They may serve the best food in town. But if they lose your reservation, or make you wait for a long time to get a table or take your order, or the waiter fails to top off your drink, you will probably come out with a negative impression of your visit.

The chef may think she’s doing an outstanding job, because the meals make it to the table with perfection – ignoring the other aspects that make up the totality of the experience. People may have come for the food, but they didn’t just come to eat! The “complete experience” is what matters and will be measured in the consumer assessment.

This applies to every other kind of business, too. We should look at all the different aspects of customer service upon a continuum. Just because you’re exceling at the primary mission doesn’t mean the “little stuff” can be let slide. Businesses need to make sure they are focusing on delivering a superior overall experience, from the first point of meeting to the wrap-up.

For instance, as a CPA firm we may do terrific work on a tax return, saving the client thousands of dollars. But if the return is delivered late, or our staff isn’t responsive to questions (via email or phone) and concerns or the attitude expressed by staff is less than enthusiastic and helpful, the good part of the engagement will be diluted by the negative.

A business owner or manager keeps a big picture on customer service to make sure their team is always striving for total satisfaction. Some even hire “secret shoppers” to perform a transaction with their company and then report back in detail.

This mindset should filter down to every level of your operation, from how a receptionist answers the phone to how attentive employees are to the client’s needs and desires. Is your team consistently hitting deadlines? Do they deliver exactly what was promised – or more? Is the quality of every single deliverable or meeting  exceeding expectations? Does your team return phone calls or emails in a timely manner? Is your staff positive and enthusiastic when interacting with your customers? Is your staff helpful?

You may think you’re already delivering great customer service, but the truth is there might be pieces missing to the puzzle that keep you from reaching full satisfaction for your clients.

Do you encourage your customers to give you the owner/manager “honest” feedback – good or bad?

Do you give your customer a demonstrative “freebie” if you deliver less than a desirable experience? Let your customer know you care. Do you thank them for their feedback? A quick email or phone call can be significant!

Everything you need can be summed up with this question: Do you make it easy for your customers to do business with you?

Ask them this question yourself, and you may be surprised to find that there are ways to improve their total customer experience that you didn’t even know were lacking.

If you need on advice on how to deliver next-level satisfaction to your customers, please call Eric Woodruff at (317) 613-7850 or email [email protected].

Adam Parkhurst joins Sponsel CPA Group

adam-parkhurstAdam Parkhurst has joined Sponsel CPA Group as a Staff accountant in the Audit & Assurance Services department. A recent graduate of Purdue University’s Krannert School of Management with a B.S. in Accounting, Adam previously served an accounting internship at a global auto parts supplier and a financial analyst internship at a health services company.

His duties will be to support the audit management in preparing audit programs, perform reviews of audit documents, identify accounting and auditing issues and perform research to solve those issues, apply concepts of risk assessment and perform tests of internal controls.

“Adam is a terrific addition to our growing team,” said Mike Bedel, Partner and Director of Audit & Assurance Services. “Sponsel CPA Group continues to expand the depth and breadth of services we can offer to clients to help them achieve greater success.”

Employee Spotlight: Mike Bedel

Mike BedelMike Bedel was a young CPA moving up in a large local company when he jumped at an opportunity to start a new firm and oversee its Audit & Assurance Services department. The four partners were so impressed with his knowledge and dedication to serving clients that they invited him to join them nearly three years ago, and since then he has held the title of Partner as well as Director of Audit & Assurance.

In additional to being a CPA and MBA, Mike holds a certification as a Chartered Global Management Accountant (CGMA). He earned both his bachelor’s and master’s degrees in Business Administration from the University of Dayton.

He leads the audit team in providing clients with the financial information they need to be secure and successful in their business and personal dealings. His duties include audits, assurance services, financial statements and consulting across a broad range of industries, including acting as CFO and Controller for several companies in the Indianapolis area.

Mike is active in the Indiana CPA Society, and is currently Chairman of the board of trustees of their political action committee. He also volunteers as Treasurer for Cub Scout Pack 394 at St. Susanna Church in Plainfield and as Secretary of the School Commission for St. Susanna Catholic School.

Mike and his wife of 11 years, Ellice, have five children: Adam, 10; Isabelle, 8; Anna, 6; Sophie, 3; and baby Genevieve, whom they welcomed six months ago. They also have a 95-pound Goldendoodle, Milo. The family enjoys camping and hiking, and Mike likes assisting Ellice with her work in the Youth Ministry at St. Susanna.

Welcome Adam Parkhurst

adam-parkhurstAdam Parkhurst has joined the firm as a Staff accountant in the Audit & Assurance Services department. His duties will be to support the audit management in preparing audit programs, perform reviews of audit documents, identify accounting and auditing issues and perform research to solve those issues, apply concepts of risk assessment and perform tests of internal controls. He recently graduated from the Purdue University Krannert School of Management with a B.S. in Accounting. Adam previously served an accounting internship at a global auto parts supplier and a financial analyst internship at a health services company.

Farewell to Extraordinary Accounting

Eric WoodruffBy Eric Woodruff, CPA
Manager, Audit & Assurance Services

In January 2015, the Financial Accounting Standards Board (FASB) released Accounting Standards Update 2015-01 that eliminates the concept of “Extraordinary Items.”

The change is made in an effort to reduce complexity for financial statement preparation.

Historically, extraordinary items were defined as an event or transaction that was unusual in nature and infrequent in occurrence.

The purpose of this classification was to remove extraordinary events from operating income on financial statements so it would be clear to the user this event was truly extraordinary.

The elimination of this concept is effective for financial statement years beginning after December 15, 2015 — so the concept of extraordinary items will not be available for calendar-year 2016 financial statements.

In theory, this is a useful concept. In practice, however, transactions very rarely met the qualifications to be classified as extraordinary. As such, the removal of the extraordinary items concept from accounting principles generally accepted in the United States of America will not have a big impact on financial statement users or preparers.

The following events or transactions are listed in the FASB Codification as examples of those that did not meet the Extraordinary Item Criteria:

  • A citrus grower’s Florida crop is damaged by frost. Frost damage is normally experienced every three or four years. The standard of infrequency of occurrence based upon the environment in which the entity operates would not be met, since the history of losses caused by frost damage provides evidence that such damage may reasonably be expected to recur in the foreseeable future.
  • A large diversified entity sells a block of shares from its portfolio of securities that it has acquired for investment purposes. This is the first sale from its portfolio of securities. Since the entity owns several securities for investment purposes, it should be concluded that sales of such securities are related to its ordinary and typical activities in the environment in which it operates, and thus the standard of unusual nature would not be met.
  • A textile manufacturer with only one plant moves to another location. It has not relocated a plant in 20 years and has no plans to do so in the foreseeable future. Notwithstanding the infrequency of occurrence of the event as it relates to this particular entity, moving from one location to another is an occurrence which is a consequence of customary and continuing business activities, such as finding more favorable labor markets, more modern facilities and closer proximity to customers or suppliers. Therefore, the criterion of unusual nature has not been met and the moving expenses (and related gains and losses) should not be reported as an extraordinary item.
  • A consequence of customary and typical business activities (namely financing) is an unsuccessful public registration, the cost of which should not be reported as an extraordinary item.
  • The costs incurred by an entity to defend itself from a takeover attempt, or the cost attributed to a standstill agreement, do not meet the criteria for extraordinary classification.

If you have any questions about how the new rules could affect your financial reporting, please call Eric Woodruff at (317) 613-7850 or email [email protected].

Campbell joins firm

Emily CampbellEmily Campbell has joined the firm as a Staff accountant in the Audit & Assurance Services department. She previously served an auditing internship at a local firm, and has earned a bachelor’s degree in accounting and management information systems, as well as a master’s degree in professional accounting, both from Butler University. Her duties will include conducting audits, reviews, compilations and agreed-upon procedures. Welcome Emily!

Employee Benefit Plans: Know Your Responsibilities

Mike BedelBy Mike Bedel, CPA, MBA, CGMA
Partner, Director of Audit & Assurance Services
[email protected]

As summer arrives, our Audit & Assurance Services team has started planning for audits of employee benefit plans. Many employers offer a 401k plan as a benefit to employees to help them prepare for retirement.

These 401k plans are regulated by the U.S. Department of Labor (DOL). One of the regulations they impose is the requirement of an audit when the plan exceeds approximately 100 eligible participants.

There are two types of audits that are performed on defined contribution employee benefit plans: a full-scope audit and a limited-scope audit – both permitted by the DOL.

The limited-scope audit, as described by its name, is a shorter version in which the auditors rely upon a certification by the trustee of the employee benefit plan in place of full auditing procedures on the investments in the plan. This limited-scope audit is less costly and, as a result, a much more popular choice.

One of the common deficiencies in employee benefit plan administration is a lack of understanding of the fiduciary responsibilities of those involved in the plan. While many employers view this plan as a benefit to employees, the responsibilities assigned by the Department of Labor should not be set aside.

Another common deficiency often identified in employee benefit plans is related to the timely remittance of employee contributions. When an employee has withheld funds from their paycheck, designated for their 401k account, it is the responsibility of the employer to remit those funds in a timely manner. Holding those funds for a week, in essence, is the same as the employer taking an interest-free loan from their employees.

The DOL has been clear in their guidance that if payroll taxes can be remitted in the matter of a few days, they expect that 401k contributions are to be remitted in the same timeframe.

Sponsel CPA Group is a member of the AICPA’s Employee Benefit Plan Audit Quality Center and is qualified to perform audits of most 401k plans. We are also available to help management teams prepare for an outside audit of their plan. And we have a team that can provide third-party administration services for your benefit plan throughout the year, should you wish to outsource this function entirely.

If you are interested in assistance with your employee benefit plan, please contact Mike Bedel at (317) 613-7852 or email [email protected].

Are You a Super Boss? Do You Want to Be?

Mike BedelBy Mike Bedel, CPA, MBA, CGMA
Partner, Director of Audit & Assurance Services

Whole books and college courses have centered on the subject of what makes a GOOD LEADER. But in a business setting, you can usually identify the best bosses by looking at the people surrounding them.

A “Super Boss” aspires not just to lead the people they manage, but serve them—make them better. They seek out, hire and promote those who have an aspiration to learn more, to contribute more and to add more value to the organization. In this way, the entire triangle – manager, employee and company – obtain mutual benefit that also makes them each stronger. The whole becomes better than the sum of its parts!!!

Some people who are perceived as strong leaders do so by surrounding themselves with “yes people” or those less gifted than themselves. A Super Boss seeks out people who are smarter than they are. Then, they foster employee development so they get even better.

This falls very much in line with the model of the “servant leader” who tries to help everyone they come in contact within the organization to get what they want by helping others obtain what they want! This notion is altruistic, but there is also personal benefit in that people will naturally want to return the favor and help you get what you want.

Obviously, we won’t all get everything we want, all the time!

But the idea is that by propelling people to do better and act smarter, it will go a long way to developing a company culture that values continuous learning, experimentation and research into making the business better. This can take virtually any form, from developing a process or procedure to make or deliver something more efficiently or that helps client succeed in their own endeavors, or exceeding customer’s expectations.in an unbelievable manner.

This starts with hiring the best and brightest, something every good boss tries to do. Then take the next step and give them the maximum amount of autonomy possible within the work environment. Set limits, but encourage them to take risks — and be prepared to accept failures.

The best thing a Super Boss can do when an employee fails is to show them where they went wrong, then tell them to pick themselves up and go at it again. Simply punishing failure only teaches employees not to try new things, which means they’re not trying their best.

A poor leader often resembles a dictator, in which every decision must go through them, large or small. They take credit for everything that’s going right, and offer only blame to subordinates when things go wrong. They may wield power, but no one who works for them will feel inspired.

Creativity and dynamic thinking can only flourish in an environment where people feel nourished and empowered. And that is how they will continue to grow, professionally and personally.

Do you want to be a Super Boss? If so, strive to be humble and embolden your employees to try things — and to sometimes fail at them. Share the accolades when they come.

Most of all, understand that creating a very powerful talent pool within the organization is the most fundamental ingredient to taking your enterprise to unimaginable new levels.

Please contact Mike Bedel at (317) 613-7852 or email [email protected].

What to Do About Leases

Mike BedelBy Mike Bedel, CPA, MBA, CGMA
Partner, Director of Audit & Assurance Services
[email protected]

Balance sheets are changing! A new update released by the Financial Accounting Standards Board (FASB) in February of this year spells out the changes resulting from a lengthy deliberation on the treatment of leases in U.S. Generally Accepted Accounting Principles (GAAP).

The main changes will be noticeable to lessees involved in an operating lease – which is probably the most common lease arrangement we see in privately held organizations. Previously these leases were disclosed in the footnotes of the financial statements. After the changes go into effect, these leases will be recognized on the balance sheets of lessees as lease assets and lease liabilities.

The recognized lease asset represents a right to use the underlying leased asset over the term of the lease, and the recognized liability represents the obligation to make lease payments under the related lease agreement. In situations where an extension of the lease agreement terms is anticipated, the extended terms will be used to recognize the related asset and liability.

For example, if you lease a vehicle under an operating lease, the new standards will require you to recognize the value of your right to use that vehicle as an asset and the present value of the lease payments as a liability.

The good news, for now, is that these changes will not take effect until 2020 for most privately held organizations (years beginning after December 15, 2019). This provides time to prepare.

One of the main areas of concern voiced by initial readers of the new standards is that this recognition of assets and liabilities will impact financial ratios often used to manage debt covenants. By recognizing assets and liabilities that were not on the balance sheet before, the equity section of the balance sheet seems to shrink proportionally.

Now is a good time to investigate and start discussions with your trusted advisors about the impact this standard could have on any debt covenants you have with a bank or other financing institution.

The tracking of operating leases has traditionally been fairly simple. Monthly payments were made and recorded to expense. With the new standards, however, the asset will need to be adjusted with each payment and maintained more similarly to a property and equipment schedule.

Similarly, the liability arising from the operating lease payments will need to be tracked and reduced over time. For an organization with one or two leases, this will still be relatively easy. However, if your business model relies on a larger quantity of leases, this may require the purchase of additional software to track the lease assets and liabilities.

Many organizations will also want to take this opportunity to reevaluate the completeness of their list of operating leases. Where a missed lease in the past was difficult to identify, the missing asset and liability may be more impactful on the updated balance sheet under the new rules.

Finally, organizations will need to make a determination about when to implement the new lease standards. The FASB will allow early adoption of the leasing standards, but full compliance is required by 2020.

We will be sharing more technical implementation ideas about the changes in lease standards in the future. If you have any questions, please contact Mike Bedel at (317) 613-7852 or email [email protected].

Is Your Company Strategically Organized?

Eric WoodruffBy Eric Woodruff, CPA
Manager, Audit & Assurance Services

Your company is constantly changing and evolving, whether you are aware of it or not. The question is, are you adapting how your team is organized from a strategic standpoint?

Most businesses run on a day-to-day basis with roles and responsibilities that are changing over time – or just happen by accident. Often the owner or owners take on particular spheres of responsibility simply because it’s what they’re good at or enjoy doing. But is that really the best use of their skills and talents to further the company’s progress?

You need to ask questions like what are the primary revenue drivers for the business, who is responsible for regular operations, who oversees strategic planning and vision, and who are the employees with the most significant roles to play. This means taking the time to analyze your company to see if it’s organized in a strategic fashion that aligns with your ability to deliver on your overall goals.

The first step is obvious: do you even have an org chart? If not, now is the time to lay one out and see if it makes sense. In some cases, a specific role or title does not even represent what that person is actually responsible for on a day-to-day basis.

Look at all of your key managers and see if their areas of responsibility are a good match with their specific background and discipline – sales, engineering, manufacturing, marketing, etc. Quite often as the workplace duties evolve and people leave, you’ll find that you have someone overseeing a department for which they have little experience or passion.

Those “temporary” fixes have a way of enduring, and eventually you’ll discover parts of your operation are sagging. For example, sales and marketing are two areas that often are believed to be synonymous, but the disciplines are quite different in practice and require different skills to be successful.

Next, look further down the hierarchy and ask if every employee understands their own role in the organization, no matter how minor. It’s critical to any company’s success that everyone grasps how their role and duties contribute to the overall mission. Every team member is a link in the chain to delivering a quality product or service to customers.

At Sponsel CPA Group, we advise our clients to take a fresh look at their organization every two years or so and ask, “Is this how I want my company to run?” Just that simple question can open up all sorts of areas for analysis.

It’s more than just a matter of having ‘the right people on the bus,’ but making sure the right people are performing the appropriate role for their skills within the company.

You may well find that you have the right people serving in the wrong role. Or that the staff is “skill bankrupt” – no one has the proper skills in a particular area, so new blood is needed. This can often manifest in a business that is rapidly growing.

Our experience has shown that sometimes you may take a poor performing employee and find that they have been placed in a job they are poorly suited for; but by analyzing their personal skillset, you may find a position that the “non- performer” thrives at and they become a solid contributor in a position better suited for their skillset and talents.

Often people will outgrow a role, but sometimes a role outgrows the person you have in place. This doesn’t necessarily reflect badly on them, but most employees are loathe going to the boss and saying they feel like they’re in over their head.

We all like to think every employee will grow their skillset as the company expands, but often people reach a plateau in a particular area. Change becomes necessary to reach that next level.

Another thing to consider in organizing your team is the employees’ own comfort level and ambitions. By asking the right questions, you may find that one of your best workers is eager to take on new responsibilities – or that the person you’ve been eyeing for a new position likes where they are and the thought of additional duties would be a “de-motivator” to them personally.

Hopefully you have the right vision for your company and a strategic plan on how to get there. Now it’s time to see if you’re organized in the right way to help it come to fruition.

If you need advice on how to organize your operation to maximize efficiency, please call Eric Woodruff at (317) 613-7850 or email [email protected].

Employee Spotlight: Katie Brocklehurst

Katie Brocklehurst-oldKatie Brocklehurst has been with Sponsel CPA Group since its inception, and her working relationship with some of the partners goes back even further. Born a Bluegrass girl but raised a Hoosier, she attended Northwest High School in Indianapolis. Katie and her husband, David, have been married 42 years and are proud parents and grandparents. She enjoys spending as much of her free time as she can with her grandkids, Silas and Maren.

Katie serves as Administrative Assistant for both the Entrepreneurial Services and Audit & Assurance Services departments, assisting partners Lisa Purichia and Mike Bedel, as well as their teams of accountants, in a large variety of roles. She’s known for projecting a friendly, professional attitude to everyone she meets in or out of the office.

Hoge joins Sponsel CPA Group

Brandon_Hoge_smallSponsel CPA Group has hired Brandon Hoge as a Staff accountant in its Audit & Assurance Services department. He started work in January.

Hoge previously served with the company as an intern. His duties will include audits of manufacturing and construction clients, as well as not-for-profit organizations. He will also work on reviews, compilations, and agreed upon procedures. Hoge earned a bachelor’s degree in financial planning from Purdue University and a Master’s in accounting from IUPUI.

“Brandon is an outstanding young accountant whose diligence impressed us during his internship. It was an easy decision to bring him onto the staff,” said Mike Bedel, Partner and Director of Audit & Assurance Services. “We are continuing to expand our team and the array of services we can offer to our valued clients.”

Financial Reporting Frequency – What’s Right for You?

Mike BedelBy Mike Bedel, CPA, MBA, CGMA
Partner, Director of Audit & Assurance Services

Professionals who value and proactively manage their time have learned to manage the non-stop flow of e-mails by only checking their inbox at set intervals throughout the day. The idea of only checking in at regular times helps professionals focus on the task at hand while allowing them to still respond to important e-mails in a timely fashion.

Financial reporting is not so different.

Most successful business owners have established a frequency to review their financial reporting. For many businesses, this takes place on a monthly basis. However, there are some circumstances where it may be valuable to increase or decrease the frequency of financial reporting.

Some companies – especially in the retail sector – have been reporting on an increased frequency for some time. Established franchises with daily financial reporting systems are able to generate a profit and loss statement for each day of the week. These systems usually involve a point-of-sale system that captures detailed information and typically is found in a cash basis business-to-consumer setting.

(In fact, many retail companies don’t use calendar months for financial reporting at all – they rely on a financial calendar that consists of 13 four-week periods, usually starting on a Monday and ending on a Sunday, so as to prevent distortion from the number of days or weekends in a calendar month).

In other business models, though, daily or weekly financial reporting doesn’t make sense. For example, a contractor who bills clients at the end of each month for progress on a project will see no change to their revenue reported until those monthly invoices are submitted. Running weekly or daily financial reports will not provide a clear picture of progress and only prove to be a waste of paper and/or storage space.

Similarly, an organization that utilizes an outside payroll provider to generate bi-weekly or semi-monthly payroll may not see those personnel costs recorded to their accounting system until each payroll comes through if their time reporting system is not directly linked to their financial reporting system. Running daily or weekly financial reports will not reflect the changing payroll costs until it is entered on or around payday.

The progression of some accounting software packages offers the opportunity for real-time reporting, which may seem enticing. Financial professionals and business owners need to weigh the value and benefit of increased frequency in reporting against the cost and time incurred to produce and consume those reports.

For a smaller population of organizations, the argument can be made that monthly financial reporting is too frequent. Certain real estate development or rental entities may find that their business process runs smoothly month to month and that quarterly financial reporting is sufficient – especially if their business is founded in long-term contracts and cash collection is not a pressing concern.

As you begin your financial reporting in 2016, consider the frequency of your financial reporting and ask yourself whether it needs to be adjusted. If you’d like some assistance with that decision, please contact Mike Bedel at (317) 613-7852 or email [email protected].

 

Start 2016 Right with Proper Budgeting

Mike BedelBy Mike Bedel, CPA, MBA, CGMA
Partner, Director of Audit & Assurance Services

Hopefully you all have enjoyed a healthy and happy holiday season, and are ready to attack the challenges of the New Year with gusto. If you’re a business owner or manager, you’re busy looking over your numbers for how well the company did in 2015. Now is also the time to set your goals for 2016.

Just as many individuals form New Year’s resolutions to improve something about their personal lives, businesses need a plan in order to improve and reach their goals. For a business this plan usually takes the form of a budget.

Large companies are usually required to do detailed advance planning, but it often doesn’t happen for smaller businesses. Don’t make the mistake of becoming so engrossed in the daily operation of the enterprise that you fail to think further ahead.

The budgeting process is a key way to jump-start your strategic thinking.

At its most basic level, a budget is a simple comparison of the upcoming year to the prior year. If everything goes as planned, then the results should be similar. If you begin with the prior year as the starting point, you can then modify its actual results for things you know will change in the coming year.

One important benefit of budgeting is the potential to predict cash flow patterns for the coming year. By building a balance sheet with a budgeted income statement, a business owner can estimate how cash may be generated and used over the course of the year. This exercise can be very helpful in planning for capital expenditure needs and debt service obligations that should be part of the budget but do not manifest themselves in an income statement. It will also assist in maintaining compliance with bank debt loan covenants or identifying metrics that may require modification.

As you’re taking a hard look at the numbers, this can help open other areas of the operation to examination, such as human resources. If you don’t already have a system in place for performance evaluations, implement one as soon as possible. This can help you ascertain if you have the right people in the right positions.

This should be a collaborative process of constructive criticism, highlighting each employee’s strengths and needed areas of improvement. Set goals for them for 2016 and, wherever possible, tie that to critical metrics in your budget. Help them understand how their role fits into the overall team’s success.

Talk to your most important vendors and clients and ask them to give you feedback on how well you’re doing, where the business relationship needs development and any untouched opportunities. This could help you improve aspects of the operation that you didn’t know were lagging, or open up new possibilities for revenue and growth.

While going through the internal issues, don’t neglect to take a macro view as well. Compare your business’ performance to that of competitors, and against industry averages in the state, region and even nationally. This can help you spot weak areas that aren’t immediately apparent before they become major headaches.

Start 2016 with renewed vigor and dedication to the planning and budgeting process, and you’ll reap the benefits all year long.

If you need help getting your budgeting process into the next gear, please contact Mike Bedel at (317) 613-7852 or email [email protected].

Hoge joins audit staff

HogeBrandon Hoge has joined the firm as a Staff accountant in the Audit & Assurance Services (A&A) department. His name and face may be familiar as he previously served as one of our college interns. A native of Carmel, he has a bachelor’s degree in financial planning from Purdue University and a Master’s in accounting from IUPUI. His duties will include audits of manufacturing and construction clients, as well as not-for-profit organizations. He will also work on reviews, compilations, and agreed upon procedures. Our A&A services team are excited about Brandon joining our permanent audit staff.

FASB Changes Could Simplify Debt Rules

MaulikOn July 29, 2015, the Financial Accounting Standards Board (FASB), which establishes financial accounting and reporting standards in the U.S., proposed to simplify rules about debt classification. This proposed change would better align U.S. GAAP with the International Accounting Standards.

Under the existing U.S. GAAP guidelines, debt classification is based on specific rules depending on the type of debt arrangement. Different rules may be applied for a term-loan with covenants than a revolving credit or other specialized types of loans. These guidelines do not clearly address all scenarios.

The goal of the proposed change is to simplify the determination of debt classification. Under the proposed FASB plan, debt that will be settled more than a year from the financial statement date, or that can be deferred beyond that year, will be identified as non-current debt. The planned amendment would also offer a simplified definition of a debt arrangement.

If you have any concerns about this proposal, we would be happy to discuss them with you and assist in directing your concerns to the FASB. As any further updates on this proposal is known, we will be sure to keep you informed.

If you have any questions about this proposal, contact Maulik Khatadia at (317) 613-7860 or email [email protected].

What’s Your Fourth Quarter Game Plan?

Eric WoodruffAs the leaves change color and we dust off our heavy coats, we await the year end with anticipation, and perhaps some anxiety. If you’re a business owner or manager, by now you’ve gotten a very good sense of how the company is doing and whether you will meet your goals for 2015.

It’s also a perfect time to start your year-end planning, making sure everything can be done to make it a really strong year – and springboard into a solid 2016. It’s much like the final quarter of a big game, when strong momentum can not only win the day, but carry over into the next field of play.

Large public companies do more advance planning, usually by necessity or the requirements of being publicly traded. But many small- and medium-sized businesses don’t, and should be strongly encouraged to think further ahead. If you do not plan for where you want to go, any road will take you there!

A great start is to call up your key customers and vendors and invite their sincere feedback on how you’re doing, where the business relationship needs improvement and any untapped opportunities. This could help you improve aspects of the operation that you didn’t know were lagging, or open up new possibilities for revenue and growth.

It’s also a good time to step back and take a macro view of things – the national and regional economy, trends within your industry, geopolitical events that could impact your operations.

After taking a look at the broad picture, next examine the internal infrastructure of your business – especially your human resources. Do you have the right people in the right positions? Have you done performance evaluations, highlighted their strengths and weaknesses, and helped them think about the individual goals to set for themselves in the new year?

This is a great tactic for weaning your team onto a planning mindset, so they can think about how their role fits into the overall team’s success.

You should also take the opportunity to make the hard comparisons – between your company and competitors, and with industry averages in the nation and state. Focus on things like financial reporting, sales, profitability and other key performance indicators. This will help spot weakening areas so you can make the appropriate modifications before it becomes a critical problem.

Fall is your fourth quarter, the time when the game is decided. Work on your game plan and strategy, so your team can find its way to the end zone, now and in the future.

If you need help formulating or implementing your fourth quarter game plan, please call Eric Woodruff at (317) 613-7850 or email [email protected].

Employee spotlight: Eric Woodruff

Eric WoodruffWhen Eric Woodruff first joined the staff of Sponsel CPA Group at the firm’s founding, he was one of the youngest accountants on staff. Now a Manager in the Audit & Assurance Services department, Eric is one of the company’s most client-facing leaders and serves on the recruiting team to find new talent at Indiana college campuses.

“My time at Sponsel has been very rewarding,” Eric said. “Some of the students that I helped recruit have come to the firm and taken over responsibilities that I used to have. It’s amazing to watch them grow in their abilities, and in turn it’s given me an opportunity to be challenged with new and more things.”

He works with clients across a broad range of industries, including construction, manufacturing, distribution, service and non-profit, performing audits, reviews and compilations as well as audits of employee benefit plans.

Eric enjoys working for a CPA firm that places a special emphasis on family-owned entrepreneurship. Born in Liberty, Ind., he grew up working for his father, a third-generation business owner, and continued doing so through college.

He is a graduate of the University of Indianapolis, an avid Cincinnati Reds fan, donates blood regularly at the Indiana Blood Center, enjoys backpacking and competes in sprint triathlons. He is also a member of the Finance Committee for Jameson Camp, which helps young people develop self-respect and confidence through outdoor activities.

The Benefits of Inventory Cycle Counting

Mike BedelRecently Sponsel CPA Group has shared advice with you about checking in on the financial health of your organization and your progress towards 2015 goals now that we’re past the mid-point of the year.

Another area to focus available resources now is on inventory control. Many organizations that hold inventory dread the year-end physical counting of inventory – typically performed as close to December 31st as possible.

The year-end inventory observation is important to provide a clear picture of the assets on hand for your year-end financial statements. But it is often accompanied by a lot of stress. You can work to reduce the strain by planning ahead now.

If your company does not perform smaller counts of inventory throughout the year, referred to as “cycle counts,” you should consider doing so. Taking small cycle counts throughout the year helps increase the accuracy and reduce the time spent on year-end physical inventory observation.

If your company already performs some cycle counts, this is a great time to check your schedule of counts and make any adjustments necessary. If you’ve bumped into some problematic counts so far this year, schedule those areas again before year-end. Ideally, your cycle count schedule should set you to count everything in inventory throughout the course of the year.

Implementing a successful cycle count system now can save your organization time and money at the end of the year – but you can’t wait until December 31st to make these changes. If you have questions about your inventory controls, please give us a call!

If you’d like to know more about setting up a system of cycle counting, contact Mike Bedel at (317) 613-7852 or email [email protected].

What Does Your 2015 Halftime Report Look Like?

Mike_Bedel_smallAs the sights and sounds of the fireworks fade, we find ourselves already at the halfway point through the calendar year. In many sports this is a time to pause, reflect on how well the team has performed so far, and make adjustments in the game plan to better prepare them for success in the second half.

Why shouldn’t we do the same thing in our business endeavors?

Hopefully your company or organization has already started off 2015 on the right note by establishing some metrics at the beginning of the year – especially a budget. (If you haven’t, it’s never too late to start!)

Take a look at the benchmarks you made for financial results, such as revenue growth, capital expenditures, personnel costs and so forth. Are your projections living up to expectations? Are you achieving your targeted milestones?

If not, start asking why – and what can be done to get the team back on track.

Did external events affect your sales, such as a worsening economic outlook? Did you pick up new customers beyond expectations, or lose more than you should? Is it possible that you just made bad assumptions at the beginning of the year, which now must be revised in line with actual performance?

It can be a struggle to perform this sort of honest assessment. As anyone who’s ever been the owner or manager of a business knows, you strive so hard working in the company every day that you don’t take time to work on the business. But undertaking these sorts of regular, periodic evaluations of your organization’s actual results is critical to growing stronger and more competitive in the marketplace.

When you’re looking at the numbers, also go beyond the dollars and cents to look at the off-line factors that can crucially affect a business: employee satisfaction, turnover, etc.

Mid-year is a good time to determine if you need more bodies to shore up the segments of your operation that hold the most potential for revenue generation – or if you need to remove poor performing team members who are not adding value to your team.

A good practice when doing these kinds of assessments is to look at not only your internal projections, but compare to broader industry standards. If, for example, you’ve suffered a sharp seasonal dip in revenue that your competitors have not, then something needs to be addressed.

If you’ve done well and don’t see any black marks on your team’s performance up till now – don’t just coast on your success!

If you’ve managed to exceed your forecast and do better than planned, now it’s time to ratchet up your expectations. Point your vision even higher and raise your results. Don’t use accomplishment as an excuse to slack off.

If you need help in assessing your organization’s performance at the halfway point, contact Mike Bedel at (317) 613-7852 or email [email protected].

Changes Loom for Not-for-Profit Reporting

Lisa_Blankman_low_resThe Financial Accounting Standards Board (FASB), which establishes financial accounting and reporting standards in the U.S., has proposed significant changes to not-for-profit (NFP) reporting guidelines. While not yet approved, these new rules would represent the biggest impact on the way non-profit groups perform their financial reporting responsibilities since FASB statements in 1993.

FASB’s Not-For-Profit Advisory Committee has sought ways to make NFPs more comparable to each other through financial reporting. The changes are also intended to give donors and lenders a clearer picture of liquidity so as to better assess the financial health of the not-for-profit.

The proposed changes include:

  • NFPs would have to report all expenses by nature and function, something that currently only applies to health and welfare organizations.
  • Requiring a net presentation of investment expenses against investment return on the statement of activities, including internal salary and benefit expenses. External investment expenses netted against returns would no longer have to be disclosed.
  • NFPs must present two intermediate operating measures as defined by the dimensions of mission and availability. Mission refers to the group’s reason for existence, while availability on resources available for current-period activities.
  • The requirement to use the placed-in-service approach for the treatment of expiring restrictions on long-lived assets, thereby eliminating the possibility of releasing the donor-imposed restriction over an asset’s estimated useful life.
  • The current net asset classes of permanently restricted, temporarily restricted and unrestricted would be simplified into two classes: assets with donor restrictions and assets without restrictions.
  • Endowment funds that are currently underwater would be placed in the “with donor restrictions” class of net assets. The NFP would additionally be required to provide disclosures about the original gift amount, current fair market value and organizational spending policies.
  • Reporting cash flows for operating activities would now require the direct method, replacing the existing indirect method.
  • NFPs must provide quantitative and qualitative information for assessing liquidity, including a description of the time horizon used to manage its liquidity.

The FASB is accepting comments on the proposal through Aug. 20. If you have any concerns about these new rules, we would be happy to consult with you and assist in directing your concerns to the FASB.

If you have any questions about financial reporting for not-for-profit organizations, contact Lisa Blankman at (317) 613-7856 or email [email protected].

Employee Spotlight – Leighton Gough

Leighton GoughLeighton joined the firm last October after graduating from Franklin College with a bachelor’s degree in accounting and finance. As a Staff accountant in the Audit & Assurance Services department, he works mostly on audits, compilations and reviews. Leighton is currently in the process of obtaining his CPA certification.

A native Hoosier, he was born in Richmond and grew up in Connersville with his mother and two older sisters, competing on his high school basketball and track teams. He continued to run on the cross country and track teams at Franklin College.

Leighton recently became engaged to his girlfriend, Jenny, and they are planning their wedding and life together. In his spare time, he enjoys spending time with friends and family – including his three nieces and nephew – watching movies, playing sports, running on the Downtown canal and attending as many Pacers game as his schedule allows.

Bedel honored by Indiana CPAs

Mike_Bedel_smallThe Indiana CPA Society (INCPAS) recently held CPA Celebration, its annual award dinner. Mike Bedel, Partner and Director of Audit & Assurance Services, received the CPA Advocacy Award, which honors the recipient for advocating for the profession through government relations. Bedel serves as a trustee and the chairman of the Indiana CPA Political Action Committee. Congrats, Mike!

Summer 401k audits available

Summer is a great time to ensure your 401k plan is performing well by conducting a comprehensive audit. Did you know that 75% of plans recently audited by the U.S. Department of Labor resulted in plan sponsors being fined, penalized or forced to make compliance error reimbursements? Consider a 401k audit as an “annual physical” to determine the state of its financial health. Contact us to learn more.

Promote Excellence in Your Employees

Mike_Bedel_smallIn last month’s newsletter, we mentioned a practice the partners have here at Sponsel CPA Group, “Catching employees doing something right.” I’d like to further expound on that topic, and discuss how you can promote excellence in the workers at your business.

The harsh truth is that at many companies, personnel view their supervisors as somebody whose job is to catch them making a mistake. Certainly, detecting and addressing problems is part of a manager’s duties.

But a good boss should strive to be a “strength finder” who actively searches for what an employee does well, rather than dwelling on what they don’t.

It starts by recognizing that we’re all different people with different talents and skills. Some things we’re good at, and some things we aren’t. Though we might improve at a skill with training and repetition, we should be aware that a weakness will sometimes remain a weakness.

Rather than obsessing over the things an employee doesn’t do well, a manager should try to zero in on the things they do do well – and then work with them to improve those skills even more. That way, a worker creates a sense of confidence and can be more valuable to the overall team effort.

Draw the big picture

When you find an employee doing something right, commend them on it. Let them know how their work impacts the greater mission of the entire company. Often, younger workers don’t understand how their duties fit into the big picture.

Take opportunities to show employees how they matter, and you’ll be rewarded with greater productivity and loyalty. And they’ll be encouraged to take that next step, so they can shoulder bigger responsibilities.

When you’re a leader at an enterprise, sometimes there is an instinct to keep information bottled up. For instance, many supervisors feel reluctant to share their experiences or anxieties with those lower in the hierarchy.

But by opening up a little about your own personal failures and mistakes, you can minimize their own anxiety or apprehension by demonstrating a shared experience. And by giving them the long-term benefit of your own experiences, they’ll have a better grasp of how to anticipate challenges and be better prepared to confront them.

If they can see their boss has been through the grinder, survived and thrived, they’ll be less afraid of responsibility and risks. Don’t let the fear of failure become the barrier to your personal success!

Use your employee evaluation process to tell employees what they’re doing really well, instead of merely what they’re not. View evaluations as a training tool to build strengths, not just a mechanism for spotlighting times they’ve screwed up.

Construction vs. confrontation

It comes down to criticism versus constructive criticism. To most people, criticism is synonymous with conflict. They become defensive and unreceptive.

Constructive criticism shows that you care about them as a professional and as a person. Rather than being afraid of the boss, employees should view him or her as a coach actively trying to make them better.

If you need advice on how to promote excellence among your staff, contact Mike Bedel at (317) 613-7852 or email [email protected].

Khatadia earns U.S. citizenship

Maulik citizenship

Maulik Khatadia, a Senior in the Audit & Assurance Services department, became a U.S. citizen in March. A native of Mumbai, India, he made his way to the American Midwest to attend college, earned a bachelor’s degree and an MBA, and met his wife, Valerie. Maulik was recently profiled in an Indiana State University alumni publication. Congrats on a very proud day for Maulik and Valerie!

What to Expect from an Audit

Mike_Bedel_smallWhen you’ve engaged a CPA to perform an audit of your financial statements, you know the CPA will have expectations about how the audit will work. But what about your own expectations? Here’s an overview of how the process works.

Unmodified Audit Opinion

Your first expectation from an audit is probably to receive an unmodified (clean) audit report. After all, that is the primary value that stakeholders seek from the audit.

Beyond that passing grade, however, your expectations from the audit can help you squeeze more value for your organization from this engagement. Let’s consider some additional expectations you might consider establishing at the outset.

Timely Reporting

This seems like a given, but it is important to communicate to maximize the value of your audit for two reasons. First, many stakeholders request the audit to be completed by a specific date each year. This can be part of a loan agreement or operating agreement. You should communicate that due date to the auditors and ensure they meet that expectation.

Second, if you have flexibility in your due date, some auditors will offer a reduced billing arrangement to perform an audit outside of their busy season. This value proposition is often utilized by non-profit organizations with fiscal year-ends or other entities that don’t have a pressing deadline. If you can take advantage of this cost savings, and the timing of the report doesn’t diminish its value to your stakeholders, this is an excellent opportunity.

Internal Control Deficiencies

While an audit is not designed to express an opinion on the effectiveness of your operating controls, auditors are required to document their understanding of your internal control environment in their planning of the audit and communicate any significant deficiencies they identify.

Your auditors will communicate these deficiencies over the course of the audit, and should explain the nature of the deficiency. This is valuable to you so that you can correct those deficiencies and mitigate the risk of future financial misstatements.

Let the auditors know that you would like suggestions to improve any significant deficiencies they identify during the audit. This will provide you and your team a starting point to evaluate and address the issues.

Recommendations for Improvement

In addition to communicating the required deficiencies in the internal control environment, many auditors can pass along other useful information and suggestions they came across during the audit process. In some cases, these are recommendations for best practices or cost-saving steps.

Establish the expectation at the start of the audit that they communicate any such recommendations to you during the course of the audit. These aren’t items that need to be disclosed in a letter to the board of directors, but can provide helpful advice.

Communication

The audit process can often span several months and involve many individuals. It is important to establish your expectations for communication from the auditors on the front end.

If you establish the expectation for clear and timely communication on the front end, you should be able to receive that throughout the entire audit engagement.

While the auditor may not be able to communicate every detail of their audit plan to you (they will likely need to include some element of surprise in the audit approach), an overall communication of the process and related timeline is important for you to manage your resources during the audit and help the auditors be as efficient and cost-effective as possible.

Similarly, if the auditors encounter something outside of their plan, the timely communication of that obstacle can help get the project back on track quickly.

Opportunity for Advice

Some organizations, in an effort to finish the audit and move on, overlook the opportunity to request advice and best practice ideas from their auditors. Auditors benefit from the experience of serving many different business clients and experiencing what works and what doesn’t work in those environments.

Don’t miss the opportunity to talk to your auditor about your business challenges and let them share those experiences. They can offer an experienced outside perspective on your current challenges.

Customer Service

You are engaging these auditors to provide you a service – so you should expect to be treated like a customer who has the choice to engage them for future services. This doesn’t mean that the auditors are going to “roll-over” any time there is a question about the financial statements; that’s not what you’ve hired them to do.

It does mean, however, that they will be respectful of you and your staff and considerate about your time and resource constraints. They should be willing to work with you to find solutions to serving you.

Like any working relationship, proactive communication of expectations will help ensure satisfaction with the work performed.

If you’d like to know more about how an audit can help your business, contact Mike Bedel at (317) 613-7852 or email [email protected].

Start Your Budget Forecasting Now

Eric WoodruffA lot of business owners/managers will wait until the New Year is nearly upon us before they start budgeting for 2015. But with three-quarters of 2014 in the books, right now is actually a great time to start the financial forecasting process.

A forecast becomes your budget, which is an essential tool for managing throughout the entire year of any organization. It connects the overarching strategic goals to the daily operations, and the executive team to the rank-and-file employees.

Leaders of a business will make a strategic plan for the next three to five years with macro goals: add x percent growth of revenue, add or cut departments, make large capital acquisitions (such as buildings or equipment), etc. But this doesn’t always translate well to the entire team operating in their respective departments.

The budget forecasting process is the way you turn the overall plan into reality. With budget forecasting, it’s your chance to plan how to break down the implementation of goals into a month-to-month basis, or even day-to-day.

Modern accounting software packages often have the capability to house a budget, and we always recommend our clients make use of it. This makes it easier to obtain comparisons when doing the required financial reporting – which is at least as important, if not more so, than actually creating the budget itself.

Too often an organization spends the resources to create a budget, and then it sits on a shelf for the next year.

A budget projection needs to be evaluated constantly against the actual results. This allows the company to make adjustments if, for example, revenues have slipped against the forecast. It also helps spot broader changes in the marketplace, potentially highlighting the need for alterations to the strategic plan.

How much detail do you need in a budget forecast? It depends on how much the company is going to rely on it, and how they’re going to use it as an oversight tool. Whether laid out quarterly or monthly, it should match any requirements for financial reporting. Using a familiar format helps you read and understand the budget better.

We at Sponsel CPA Group have learned that if a budget is going to be successful, the management team of each subgroup must have buy-in during the forecasting process. Most departments who fail to meet their budget were not involved in preparing it. By including each team early on, they’re going to be more accountable and will strive harder to meet the benchmarks they helped set. If large capital expenditures are anticipated in the coming year, include that in the budget so it’s not overlooked by individual departments.

Be on the lookout for “budget creep.” This is the tendency to add a certain amount to a particular line item every year. A 5% bump in your marketing budget may not seem like much, but repeated annually it soon compounds into a substantial cost increase. A rise in anticipated expenditures may be warranted, but it may not – perform an evaluation to determine if the proposed figure is the right number.

Another good idea is to document the key assumptions that impact the budget during the forecasting process. That way when the lines on the chart don’t match, you can go back and reevaluate those assumptions to test their validity. It will also help identify any operational issues that might be causing revenues to falter or outlays to surge.

Sponsel CPA Group has a wealth of experience in developing budgets, tools and templates. If we can assist you in your forecasting process, whether at the nitty-gritty or strategic level, please call Eric Woodruff at (317) 613-7850 or email [email protected].

New Standards for Preparing Financial Statements

Mike_Bedel_smallNew rules are coming for the preparation of financial statements that could significantly affect service engagements between CPA firms and clients – for the better.

Last week the American Institute of CPAs (AICPA) updated the professional standards for compilations and reviews with the release of Statements on Standards for Accounting and Review Services No. 21 (SSARS No. 21).

The major change with SSARS No. 21 is the establishment of standards that will apply when a CPA is engaged to prepare financial statements, but is not engaged by the client to compile, review or audit the financial statements. These new standards for preparation engagements will provide a significant and useful new service approach for CPAs and their clients.

In a preparation engagement, the statements must clearly state that the CPA does not provide assurance on the financial statements, similar to a compilation. Unlike a compilation, however, no accountants’ report will accompany prepared financial statements and the CPA is not required to evaluate independence like they must do for a compilation, review or audit engagement.

The AICPA and most practicing CPAs believe this new preparation standard clarifies a gray area that has existed for some time in the professional standards. It fills the service need when the client seeks a CPA to prepare their financial statements, but does not desire a compilation report.

SSARS No. 21 also restates the standards for compilation and review engagements with a few minor changes. It clarifies that compilations are attest engagements and modifies the format of the accountants’ compilation report to shorten it and clearly differentiate the report from that of audit or review engagements, where assurance is provided.

Changes in technology have transformed how CPAs assist their clients in preparing financial statements. In the past, it was very clear when a CPA physically prepared a hard copy of financial statements and presented them to the client.

Today, with the evolution of interactive accounting software, it is not always clear when the statements are technically “prepared” and “presented.” This update establishes standards that clearly apply when an accountant is engaged to prepare financial statements.

These standards are issued by the AICPA Accounting and Review Services Committee (ARSC). SSARS No. 21 was issued in an effort to provide clarity to the professional standards behind compilation and review engagements.

  • These changes do not impact professional standards for audits.
  • Preparation engagements are considered non-attest services.
  • SSARS No. 21 is effective for financial periods ending after December 15, 2015. Early adoption is permitted.

For more information about this update or how preparation services can be useful to your organization, contact Mike Bedel at (317) 613-7852 or email [email protected].

Sponsel CPA Group hires Leighton Gough

$RX277ITSponsel CPA Group is pleased to announce the addition of Leighton Gough. A recent graduate from Franklin College with a bachelor’s degree in accounting and finance, Gough will be a Staff accountant in the Audit & Assurance Services department.

His primary duties will include preparing compilations, audits and reviews for clients across a broad spectrum of industries. Gough previously had an internship at a Greenwood equipment company doing their books. He is currently in the process of taking the Indiana CPA exam.

“Sponsel CPA Group is one of the fastest-growing firms in the region, and we’re doing so smartly by hiring top-tier talent, including young accountants like Leighton,” said Mike Bedel, Partner and Director of Audit & Assurance Services department. “He will help us in our mission to provide the critical financial data that allows clients to make important business decisions.”

Delivering on Excellence

Mike_Bedel_smallEvery good business owner or manager wants to run a business known for excellence, and for delivering the very best service to their customers. But how do you find and sustain that commitment to excellence in your organization?

The secret is to break it down for every single individual employee in the company, from the CEO to the most junior worker. The most successful businesses are ones that strive for excellence up and down the line. Everyone must understand their specific role in the grand scheme of things, embrace their expectations, and hold themselves and their co-workers accountable for meeting those lofty standards.

For example, if you’re in charge of shipping product, your job is to expedite everything being moved that day, to make sure it’s ready and accurate so everything gets on the truck and delivered correctly. If your role is receptionist, you want to make sure every single office visitor is greeted with a smile and professional courtesy, and the phone is answered with an attitude that is positive and helpful.

You can never start too early with indoctrinating employees into a culture of excellence. Ideally, it should begin with the orientation process for new employees, and continue as part of their ongoing evaluation process. Each worker needs to be familiar with how their job functions in the delivery of your service or product, and how a single weak link can undermine the performance of the whole group.

Every employee should be made to feel that their work is vital to the company’s chain of service or manufacturing, and that excellence in their position will be recognized – as will a failure to meet expectations.

While maintaining high standards, don’t create an environment where employees are reluctant to bring a problem forward. That avoidance of reality can lead to disaster. Consider the recent recall related to the failure of ignition switches by General Motors. Years ago one or more engineers realized there was a defect that could be fixed with a part that cost $1.25. But they were either too afraid or unwilling to make waves.

Because nobody put their hand up to zero in on this issue, now it has mushroomed into a wide vehicle recall that will cost GM hundreds of millions of dollars and loss of esteem in the marketplace. This goes to show that “little things” in the company’s process can compound to become huge problems.

In some organizations, the top managers are notorious for greeting bad news with fire and brimstone, and only wanting yes-men and yes-women around them. That’s not conducive to maintaining a corporate culture of excellence.

The commitment to excellence cannot just flow downhill from manager to employee. It should be a universal desire to hold each other accountable – whether peer to peer, supervisor to subordinate, even rank-and-file employee to boss. It’s about developing a culture that says if something is outside the company’s boundaries of expectations, you’re going to be called on it. Disruptions will not be swept under the carpet.

Everyone makes mistakes – we’re all human, that’s how we learn. The true test of character is how we react to our mistakes.

If we acknowledge and correct our errors, and take proactive steps to ensure they don’t happen again, our co-workers and customers will judge us positively in our ability to handle adversity. If you work hard to correct any mistakes and strive to inconvenience the client as little as possible, they will want to keep doing business with you.

We should never stop trying to fine-tune our organization’s system of delivering our product or service in a way that will result in excellence. The ultimate test is the marketplace, and what your clients say about you.

If we can help you find ways to better deliver excellence within your organization, please contact Mike Bedel at (317) 613-7852 or email [email protected].

Employee Spotlight: Lisa Blankman

Lisa_Blankman_low_resA Senior in the Audit & Assurance Services department, Lisa Blankman has been with Sponsel CPA Group for three years. She joined the firm shortly after graduating from Marian University’s accounting program and received her CPA license in September of 2013. Lisa supervises the staff on compilations, audits, reviews and agreed upon procedures for clients in a variety of industries, including not-for-profits.

A native of Greensburg, Ind., Lisa lives on the Indianapolis Southside. She is very active in professional and community circles, including membership in the Indiana CPA Society (INCPAS), the American Institute of CPAs (AICPA) and the Young Professionals of Central Indiana. She mentors students at New Tech High School and helps them prepare for life after school, and is a board member of Marian University’s Central Indiana Chapter, helping organize alumni events. Lisa is also co-captain of the Sponsel Corporate Challenge team.

In her spare time Lisa enjoys reading, playing softball in a summer league with some of her co-workers, cheering for the Colts and Cincinnati Reds, and competing in trivia nights at local bars and restaurants.

Welcome, Leighton Gough!

Leighton_Gough_smallLeighton Gough has joined the firm as a Staff member in the Audit & Assurance Services department. His duties will include compilations, reviews and audits for various clients. A 2014 graduate of Franklin College majoring in accounting and finance, we welcome him as the newest member to our growing professional staff!

New Rules Coming for Revenue Recognition

Mike_Bedel_smallAfter many years of study and analysis, the Financial Accounting Standards Board (FASB) issued a new Accounting Standards Update earlier this summer regarding the appropriate accounting treatment for revenue going forward.

As revenue is a critical financial measure for companies and stakeholders, how it is recognized on financial statements can have a tremendous effect on the entity’s future, including its ability to attract investors and borrow money.

The new rules from FASB, outlined in ASU No. 2014-09, are an attempt to correct identified weaknesses and areas for improvement in the accounting for revenue under current standards, as well as converge the methodology used in the U.S. with that around the globe. It also aims to standardize revenue recognition practices across different industries and markets, improve the usefulness of required financial statement disclosures and make them easier to prepare.

As a guiding principle, the FASB standards state: “Revenue should be recognized in a way that reflects the transfer of promised goods or services to customers. The amount of revenue recognized should be equal to the consideration that the company expects to be entitled to for the promised goods or services.”

ASU No. 2014-09 lays out a five-step approach for recognizing and measuring revenue:

  1. Identify the contract with the customer — This defines an agreement between two or more parties on enforceable rights and obligations, payments and so forth.
  2. Identify the contract’s separate performance obligations — A performance obligation is a promise in the contract with a customer to transfer a distinct good, service or bundle of goods and services.
  3. Determine the transaction price — An entity must determine the transaction price based on the terms of the contract and the entity’s customary business practices, less amounts collected on behalf of third parties (such as taxes).
  4. Allocate the transaction price to the separate performance obligations — This is done by determining the standalone selling price of the good or service associated with the performance obligation, and allocating them within the total transaction price.
  5. Recognize revenue as the entity satisfies a performance obligation — A performance obligation is satisfied when an entity transfers a promised good or service to its customer, which is deemed to occur when the customer obtains control of the item.

The new rules also contain a subtopic on contract costs to provide guidance on whether a company must capitalize or expense contract costs.

ASU No. 2014-09 is effective for annual reporting periods beginning after Dec. 15, 2016 for public entities and after Dec. 31, 2017 for nonpublic entities. There are limitations on early adoption. The FASB established these deadlines to give companies time to consult with their financial advisors so they can best comply with these significant changes in revenue recognition rules and incorporate them into their ongoing business goals.

If you need any guidance about the changes to revenue recognition standards, please contact Mike Bedel at (317) 613-7852 or email [email protected].

Bedel hosting webinar Aug. 27

Mike_Bedel_smallPartner and Director of Audit & Assurance Services Mike Bedel will host a webinar at 2:30 p.m. on Aug. 27. The free session, “Audits, Reviews and Compilations: Choosing the Right Level of Service for Your Financial Statements,” instructs enrollees on the differences between an audit, review and compilation level of services and discusses the critical factors to evaluate. Click here to sign up.

Lease Accounting Convergence Efforts: Is Change in the Future??

Mike_Bedel_smallOver a decade ago, the improper treatment of leases by Xerox Corporation sent shock waves through the financial and accounting professions. Recently, the International Accounting Standards Board met with the U.S. Financial Accounting Standards Board in an attempt to reach consensus about how to consistently record and report leases on financial statements.

As the accounting profession continues to seek convergence between accounting principles generally accepted in the United States (GAAP) and International Standards, companies and organizations across the U.S. continue to utilize leases to finance the growth of their operations.

For most companies, the decision about whether to purchase or lease an operating asset is not so much about how it will be reported on their financial statements as it is about cash flow and the anticipated timing of business plans. For some, the prospect of entering into an operating lease and keeping that off the balance sheet (as a liability) is very enticing.

However, the prospect of capitalizing operating leases on a company’s balance sheet is looming in this proposed convergence and, if passed, could have a significant impact on your financial reporting.

For example, if ABC Company leases their corporate offices for $12,000 a month, they expense $12,000 a month and disclose the 10-year length of their lease term in the footnotes to their financial statements along with the related future minimum payments. There is no asset or liability recorded on their balance sheet under GAAP.

Under international standards, at the inception of their office lease, ABC Company would record an asset for the right to use that office space and a liability that represents their future payments on that lease – for the term of the expected use of that asset. With a monthly $12,000 payment ($144,000 annually) for 10 years, it is easy to understand why adding an asset and related liability to ABC Company’s balance sheet would cause a significant change to their financial statement presentation.

Beyond financial reporting, any agreements tied to the balance sheet of ABC Company, or related financial metrics, would be impacted – namely covenants on commercial financing agreements.

The FASB and IASB did not reach a consensus when they met last month about convergence of lease standards, but they did not give up on seeking consensus, either. This will continue to be an area of focus for standard-setters. In the meantime, companies don’t need to change their financing plans, but should be vigilant of the impact future changes in accounting policy could have on them.

For more information about accounting for leases, contact Mike Bedel at (317) 613-7852 or email [email protected].

Private Company Accounting Update: New Option for Common Control Leasing

Mike_Bedel_smallLast week during the madness of the NCAA Men’s Basketball Tournament, the Financial Accounting Standards Board (FASB) approved an opportunity for privately held companies to cease consolidating certain related entities.

The practice of consolidating “variable interest entities,” originally referred to as “FIN46,” has been one of the most discussed and disliked accounting standards implemented in the last 10 years. FASB just released Accounting Standards Update 2014-07, which provides an elective accounting alternative on consolidation requirements for certain common control leasing arrangements.

This election is available to privately held companies in situations where four specific conditions exist in their relationship with a lessor entity:

  1. The private company lessee and the lessor entity are under common control
  2. The private company lessee has a lease arrangement with the lessor entity
  3. Substantially all of the activities between the private company lessee and the lessor entity are related to leasing activities between those two entities
  4. If the private company lessee explicitly guarantees or provides collateral for any obligation of the lessor entity related to the asset leased by the private company, then the principal amount of the obligation at inception of such guarantee or collateral arrangement does not exceed the value of the asset leased by the private company from the lessor entity.

 This elective accounting alternative is available to all entities except public business entities, non-profit entities and certain employee benefit plans. When elected, it must be applied to all current and future lessor entities that meet the criteria above.

By electing this alternative, an entity will not be required to provide the traditional variable interest entity disclosures about the related lessor. In place, the FASB has established other disclosures for the private company lessee to include in their statements.

This is the third accounting standards update in 2014 designed to provide an elective accounting alternative for privately held companies. ASU 2014-02 and ASU 2014-03 were released in January 2014. Like the other two, early adoption of ASU 2014-07 is permitted for financial statements that have not yet been issued.

If you are interested in learning more about this most recent elective accounting alternative, please contact Mike Bedel at (317) 613-7852 or email [email protected].

Employee Spotlight: Kevin Womack

Kevin_Womack_smallSince joining Sponsel CPA Group last September as a Staff member in the Audit & Assurance Services department, Kevin Womack has already made his mark. Kevin has had a number of client responsibilities including financial analysis, audits, reviews and compilations. He has also successfully passed the rigorous CPA exam. Even though a new staff member himself, he has also helped with orientation for seasonal interns.

Born and raised in Terre Haute, he played football in high school before earning a bachelor’s degree in Accounting and Finance from Taylor University. He and his wife, Heidi, enjoy spending time outdoors and training their 4-month-old Belgian Shepherd puppy.

Fraud 101: What Does Occupational Fraud Look Like?

(First in a 3-part series)

Jason_ThomposnBy Jason S. Thompson, CPA/ABV, ASA, CFE, CFF
Partner, Director of Valuation and Litigation Services
[email protected]

Most people may think they know what “fraud” means, but for a business owner/manager it is especially important to understand how to find and prevent fraud in their operations. In a three-part series beginning this month, we’ll look at types of occupational fraud, learn who commits it and why.

The following is a basic discussion of fraud schemes that often occur in privately held businesses. Having a rudimentary knowledge of these schemes can help you design internal controls that reduce the opportunity for fraud in your business or organization.

Asset misappropriation is a common type of occupational fraud. It is simply a fancy word for theft. Asset misappropriation can happen either internally (committed inside the business by employees) or externally (committed outside the business by non-employees, i.e. customers, vendors, etc.).

Asset misappropriation comes in many different forms and can involve any number of business assets (cash, accounts receivable, inventory, etc.). Cash schemes tend to be the more popular types of asset misappropriation. These schemes include skimming, larceny and fraudulent disbursements.

Skimming in its simplest form is theft of cash before it is reported by the company. Not reporting or under-reporting a sale in the company’s records and keeping the payment is a typical skimming technique. Outright theft of a company’s incoming payment or swapping a payment made by check with company cash are two other methods.

Larceny is also theft. The primary difference between skimming and larceny is that while skimming happens “off the books” (before cash is reported by the company) larceny happens when funds “on the books” are stolen.

Fraudulent disbursement schemes include check tampering, register disbursement, billing, expense reimbursement and payroll schemes. These approaches tend to be the most common type of asset misappropriation.

These schemes are also “on the books” and involve an employee misdirecting company cash for their benefit – for example, an employee’s use of a company-issued credit card for personal transactions. Without appropriate internal controls, expense reimbursement schemes can be difficult to detect.

Most people believe that occupational fraud involves a complex conspiracy with lots of moving parts and many levels of deception. Our experience, however, indicates that this conception rarely aligns with real-world occurrences. In fact, in most cases, if basic safeguards had been in place and utilized, the occupational fraud that occurred could have easily been prevented.

In next month’s installment, we’ll look at what types of employees are most likely to engage in occupational fraud.

If you are concerned about occupational fraud in your organization, please call Jason Thompson at (317) 608-6694 or email [email protected] to discuss how we could be of assistance in finding or preventing fraud.

Important Accounting Changes for Private Companies

Mike_Bedel_smallThe Financial Accounting Standards Board (FASB) has released two important updates that could change accounting for some private companies, and may potentially result in cost savings in their financial reporting.

The first update introduces an alternative accounting for goodwill, whereby private companies are permitted to amortize goodwill over a period up to 10 years. Prior to this update, goodwill could not be amortized under Generally Accepted Accounting Principles (GAAP).

The second allows an alternative accounting for certain interest-rate swap agreements entered into by private companies. This modification introduces the option to utilize a simplified hedge accounting approach as a substitute for the current standards.

Both of these updates are in response to calls for a modified set of accounting standards for privately held companies; both are elective. These alternative options are intended to reduce the complexity and cost burden some private companies felt was excessive under the current standards, without departing from accounting principles generally accepted in the United States.

Public companies, non-profits and employee benefit plans are not permitted to adopt these two accounting alternatives.

If you have questions about how these updates might apply to you, or whether adopting these alternative accounting policies can really reduce complexity and cost burdens for your private company, please contact Mike Bedel, Director of Audit & Assurance Services.

The Value of an Audit

Mike_Bedel_smallIf you’ve never had a professional audit performed for your business or organization, you may not realize the many benefits they afford. Some of these are obvious, while other advantages are only realized outside of the black-and-white numbers on a page.

One of the most valued benefits is the assurance that you can rely on the financial statements you’re seeing, and know they are timely and accurate. Since an audit is a higher level of scrutiny than a review or compilation, an audit provides a clear fiscal picture that is easy to understand.

Once you are able to clearly view your revenues and expenditures, this has the effect of making it much easier to identify errors in the bookkeeping, so you can make sound decisions based on good information.

Audits can be invaluable to not-for-profit organizations whose funding often relies on being able to show that their donors’ money is going where they intended it. Without the ability to make clear and transparent financial disclosures, non-profits risk seeing their charitable giving dry up.

In a family-owned business where some of the owners are geographically distant and less active in the day-to-day running of the company, an audit can provide them assurance that operations are being run efficiently and according to common goals, reducing the possibility for acrimony.

As time goes on and the possibility of a sale or need for a valuation crops up, regular audits provide a measurable, credible history that makes planning for future events better grounded.

Beyond giving you hard financial data to enhance management of the business or organization, there are several complementary benefits of having an audit.

One is deterring or potentially finding the existence of fraud. Although audits are not designed specifically to uncover malfeasance, they can often do so by giving an extra group of eyes insight into financial dealings. The knowledge that auditors are coming to look at the books at regular intervals also helps keep employees honest and deter potential fraudulent activity.

The process of conducting the audit also gives the business owner/manager valuable feedback on deficiencies in internal control, helping expose and therefore mitigate wasteful activities.

Finally, one of the most powerful advantages of an audit is that by giving a trusted outside CPA firm access to your financial workings, you gain a recurring outside, objective perspective that can help avoid the tunnel vision that can come into play when one is neck-deep in running a business on a day-to-day basis.

Sponsel CPA Group has an experienced team of expert auditors who not only assemble the right numbers on a ledger, but also assist your organization as management consultants. By sharing our expansive knowledge of best practices across a variety of industries, audits can help make a business stronger and more efficient. In addition, in our audit reports we include supplementary schedules of Key Performance Indicators and other financial data that is meaningful to the managers of the business.

If we can be any assistance in discussing the scope and benefits of an audit for your business, please call Mike Bedel at (317) 613-7852 or email [email protected].

Sponsel CPA Group adds Bedel as partner

Mike_Bedel_smallMike Bedel has been named a Partner of Sponsel CPA Group, becoming the fifth member of the leadership team along with Nick Hopkins, Lisa Purichia, Tom Sponsel and Jason Thompson.

An employee of the firm since its inception, Bedel had held the title of Manager in the Audit & Assurance Services department, which he will now lead as Director.

A CPA and Chartered Global Management Accountant (CGMA), Bedel holds a bachelor’s degree in business administration and an MBA from the University of Dayton. He has expertise in audits, assurance services, financial statements and consulting across a broad range of industries. He has been an active member of the Indiana CPA Society, where he currently serves as trustee for the Indiana CPA Political Action Committee.

“Promoting Mike to partner is a significant evolution that is an indication of the continuing growth of our firm. His expertise and diligence have been critical to our team’s success,” said Tom Sponsel, Managing Partner. “Mike’s leadership skills have earned him a place alongside the founding partners as we continue to build for the future and expand our services for clients.”

Sponsel CPA Group taps Womack

Kevin_Womack_smallSponsel CPA Group is pleased to announce the addition of Kevin Womack as a Staff member in the Audit & Assurance Services department.

Womack is a recent graduate of Taylor University, earning Summa Cum Laude honors with a double major in Accounting and Finance. He previously served an internship at a Terre Haute firm. His duties will include audits, financial reviews, compilations and agreed-upon procedures.

“The Audit & Assurance team just keeps getting stronger,” said Tom Sponsel, Managing Partner. “We are excited to add top-caliber young talent like Kevin to the firm, and further enhance the services we provide to clients.”

Sponsel CPA Group promotes Blankman

Lisa_Blankman_low_resSponsel CPA Group is pleased to announce that Lisa Blankman has been promoted to Senior in the Audit & Assurance Services department.

A native of Greensburg, Ind., Blankman earned her bachelor’s degree in accounting from Marian University, and joined Sponsel CPA Group in January 2012. Her duties include federal and state taxation issues, individual taxes, audits, compilations and reviews.

“Lisa has proven her value to the firm with her diligence, thoroughness and professionalism,” Managing Partner Tom Sponsel said. “We continue to expand and upgrade our team by recruiting and developing top-tier young talent.”

Inside Indiana Business Reports On Better Ways to Provide Accounting Services

As some of you may have seen over the weekend, I was a guest on Gerry Dick’s Inside Indiana Business TV show. First of all, let me say “thank you” to Gerry and his team for inviting me to be a guest.

Gerry asked me why I am not focused on retirement, why after over three decades in the business did I choose to launch a new company.  The answer was quite simple – I knew there was a better and different way to provide accounting services.   Please view the entire video and my interview with Gerry Dick.

Sponsel CPA Group, located in downtown Indianapolis, is one of the region’s most experienced full service accounting firms. Providing much more than traditional accounting services, Sponsel CPA Group specializes in Entrepreneurial Services, Auditing and Assurance, Valuation and Litigation, Mergers and Acquisitions, Tax Services, Financial Planning/Wealth Management , Employee Benefit Plan Administration and Technology Services.