Author: FFC

In these waning days of summer, my Instagram feed looks like a Lonely Planet top 10 list. I don’t know how, but it seems like the 300+ people I’m following have all conspired to be someplace awesome, while I’m toiling away in the office. It can feel frustrating when it seems like everyone (except for you) is having the time of their lives – and bragging about it online.

A new survey, conducted by Harris Poll on behalf of the AICPA, found that when it comes to feeling envious on social media, I’m far from alone. In fact, many Americans are caught in a cycle of feeling jealous of friends who post about their lavish vacations and extravagant purchases, while admitting that they also post things solely because they are fancy or expensive.

Almost half of all Americans (47 percent) with social media accounts have posted photos of their vacation in the past year – which is a lot of shots of “hot dog legs” on tropical beaches for people to take in while they’re going about their daily life. And so, it’s no wonder that almost four in 10 U.S. adults with a social media account (39 percent) say that seeing other people’s purchases and vacations online makes them look into a similar purchase or vacation. And more than one in 10 of these U.S. adults (11 percent) are acting upon their interest and have taken a vacation or made a purchase in the last year after seeing someone’s post.

However, there is a fine line between interest and envy, and social media tends to make people feel the latter. One in four U.S. adults with a social media account (25 percent) were left feeling jealous after seeing someone’s post about a purchase or vacation online in the past year. Those feelings of envy may be causing people to make financial mistakes in an effort to keep up with the Joneses.

“Feeling envious on social media can certainly put pressure on individuals to try and live beyond their means, either from pictures of celebrities posting about their lifestyle, or even from peers posting about their most recent purchase, vacation or day trip,” said Dr. Sean Stein Smith, CPA, a member of AICPA’s National Financial Literacy Commission. “After all, everyone wants to have the good things in life, and the onslaught of social media posts has the potential to make this desire to spend money exponentially more powerful.” 

In fact, more than one in five U.S. adults with social media accounts (21 percent) admit they are likely to choose an activity or make a purchase based on how their friends and family will view it when they share it on these social media platforms. And when people are making these financial decisions to help craft an image online, there’s a good chance it’s an upscale one. The survey found that 14 percent of Americans with social media accounts say they’ve posted about something specifically because it seemed fancy or expensive.

However, if you happen to find yourself caught up in a group of friends who have a bigger budget than you, there are ways you can work to keep the friendship alive without living beyond your means or making them feel like you don’t ever want to hang out.

“You can educate your friends as to your opinions on savings vs. spending and give them a reasonable picture of your finances,” says Michael Eisenberg, CPA/PFS, and a member of the AICPA National Financial Literacy Commission. “You may not have been able to take a group vacation this summer, but make sure your friends are aware that you want to know about the next trip, so you have time to save in advance and not go into debt paying for it.”

Eisenberg also recommends that people can get peer approval online by posting about reaching financial milestones, and maybe encourage greater financial literacy in their friends at the same time.

“While I would caution against sharing too much about your finances in a public setting, if you’ve reached a milestone like paying off your student loans, you can definitely post on your social media account about it,” said Eisenberg. “It’s positive reinforcement for your friends and followers. It lets them know that paying down debt is possible, if you prioritize. And people who care about you will genuinely be proud. Paying off your loans demonstrates financial sacrifice in a way that posting pictures of yourself in Hawaii doesn’t really convey.”

That said, as long as you’re keeping your eyes on the financial prize there isn’t anything inherently wrong with showing your friends you’re having a good time on social media. In fact, it may even help keep you in the habit of saving.

“Splurging every once in a while on a vacation or new purchase is healthy and an excellent way to reward your long term discipline,” said Dr. Smith.

Although social media could cause you to spend more than may be wise, there are new apps that can use the power of peer pressure to your advantage. In addition, the AICPA has a number of social media accounts that can help you make better financial decisions. To learn more, see the social media page for AICPA’s financial literacy initiatives.

James Schiavone, Senior Manager – Public Relations, American Institute of CPAs

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In the iconic 1984 film The Karate Kid, Daniel, the young protégé of Mr. Miyagi, can’t understand why he’s being told to do basic tasks such as paint the fence, sand the floor, or polish the car with “wax on, wax off.” Daniel thinks he should focus on karate moves. While he pushes through and does what Mr. Miyagi tells him, Daniel eventually realizes the value and relevance of these tasks when he begins to spar. Each task in its own way serves as the basis for developing Daniel’s martial arts skills and ultimately prepare him to win the tournament against the Cobra Kai.

While we’ll never know if Daniel subsequently dropped his martial arts training to pursue a career as a CPA, one thing is certain – Mr. Miyagi taught the essential lesson that learning the basics and understanding foundational concepts is the key to success.

CPA candidates can learn a thing or two from Mr. Miyagi’s teachings when it comes to understanding the importance of the content covered in the Business Environment and Concepts (BEC) section, and how to manage it when sitting for the Exam. Since the introduction of BEC, the section has long been a mix of essential general business information, including corporate governance, economics, information technology, and financial and operations management, which provides a foundation for the other sections of Audit and Attestation (AUD), Financial Accounting and Reporting (FAR) and Regulation (REG). As a component of the Exam, the section reinforces the value of core business knowledge that a CPA must bring to the table when providing audit, accounting and tax services.

For instance, a newly licensed CPA needs to know basic economic concepts to effectively conduct an audit. An understanding of corporate governance will aid in determining how to conduct the audit and where to focus their attention when faced with an entity that demonstrates a weakness in this area. This general business knowledge strengthens the CPA’s ability to perform the work, ask the right questions, and know the appropriate steps to protect the public interest.

As announced earlier this year, the BEC section, like AUD, FAR and REG, will undergo substantive changes beginning April 1, 2017, to maintain its alignment with professional practice. This includes the introduction of task-based simulations (TBSs) that will be used in the BEC section for the very first time, and will require that the section’s testing time be increased to four hours. The simulations are a highly effective way to assess higher-order skills. While today’s Exam sections assess critical thinking, problem solving and analytical ability to a certain extent, the marriage of content and skills, as outlined in new, in-depth Exam blueprints, will drive how content is tested starting April 2017.

During its comprehensive practice analysis, the AICPA and its Board of Examiners identified the need to test higher order skills beyond basic content knowledge. In the next Exam, there will be greater content integration among the four sections. Candidates who are given application-, analysis- and/or evaluation-level tasks may experience content from other sections that would occur naturally in the task from a contextual perspective. While the tasks will always be rooted in a primary area of content knowledge and skills, they could draw upon a candidate’s basic knowledge, such as general business concepts as covered in the BEC section.

With a thorough understanding of these foundational concepts, and the ability to demonstrate that knowledge, just like Daniel in the Karate Kid, any CPA can succeed. Mr. Miyagi was right when he told Daniel, “You trust the quality of what you know, not quantity.” When it comes to taking the Exam and ultimately being an effective CPA, BEC content as presented in the blueprints, and how thoroughly you know it, is essential and important.

David Doroski, CPA, Sr. Technical Manager, BEC Section, American Institute of CPAs. 

Mr. Miyagi courtesy of Wikipedia.

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Value pricing has been a hot topic among CPA firms for a while now as it enables them to focus on what clients really care about. All firms should consider adopting this approach. But while you may be able to quantify the value of what you offer clients in time, it’s crucial not to stop there. Do you know, for example, what truly matters to your clients? What they value in their relationship with you and the services you provide? While your approach to billing is important, the most critical concern for any firm should be the client’s perception of value.  These three steps will help you better understand your own value, ensure that clients are aware of all that you’re worth to them and enable you to take your client relationships to a much deeper level.

1. Make It Personal

It is important for clients to associate high-quality work and a strong relationship with you and your firm. If another firm promised to complete the engagement for less, would your clients run? You have to differentiate yourself from the competition in a unique way. As simple as it sounds, you should initiate regular meaningful contact with your clients throughout the year, not just when a due date is looming as many CPAs do. Establish a system or process for reaching out so that it happens methodically. Make sure clients realize you aren’t just the person who delivers only compliance work or some required paperwork, but rather the trusted business adviser they can count on.

You can radically change your client’s perception of your firm’s value when you:

• Proactively initiate contact throughout the year by calling just to “check in” on how business is going or to talk about a business development or idea you think will interest them.
• Visit their place of business often and show interest in how they do what they do. Gain a deeper understanding of their products or services and their industry. Become acquainted with others at the client’s site.
• Ask well thought out questions to deepen your knowledge of their challenges, and potential opportunities. Probe deeper to offer solutions or collaborate with them on possibilities that will demonstrate your value.

Note that digital contact works well for checking in, as long as it’s personalized. So, in addition to reminders about deadlines or requests for data, use email or texts to follow up with a question about how the client is succeeding in getting needed financing or how a new expansion has worked out. And while video conferencing is also a great way to keep in touch, it won’t replace the connection you make when you meet a client for lunch or take a tour of their facilities. 

2. Know What Drives Them

You can get a better sense of a small business owner’s perspective if you consider the seven key emotional issues that drive them, as described in You Are the Value:  Define Your Worth, Differentiate Your CPA Firm, Own Your Market, by Leo Pusateri. They are:

• Challenges that prevent them from reaching their goals.
• Circumstances that surround events important to them.
• Concerns of interest or importance.
• Frustrations that disappoint them.
• Need for things they want or desire.
• Opportunities that will help them reach their goals.
• Problems that might stand in their way.

Understanding a client’s emotional issues will allow you to uncover opportunities to provide significant value. 

3. Know Yourself

To demonstrate your value to clients, you must recognize all that  enables you to have a deeper connection with them. The Value Ladder, which was created by Pusateri and is described in his book, helps you identify and articulate your unique value with confidence, passion and speed. It asks you to think about how you would answer key questions for a potential client, consider what the answers say about your value and decide how to communicate that value to clients. The questions are:

• Who are you?
• What do you do?
• Why do you do what you do?
• How do you do what you do?
• Who have you done it for?
• What makes you different?
• Why should I do business with you?

These questions seem simple, but they force you to review the knowledge, experience and value that you bring to the table so that you’re better able to talk about your own worth and the worth of what you do. You enter client situations with renewed confidence and inspire more respect for and interest in what you can do for them.

Clients know that their CPAs will provide high-quality work, but when you take the time to have an active personal interest in and genuinely care about the issues that are most important to them, you set yourself apart. Once you do, you will walk out of your clients’ offices with high-value, premium-priced work—and with a strong client relationship that you can count on for years to come.

James Metzler, CPA, CGMA, Founder, Metzler Advisory Group LLC

     

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For years, everyone involved with audits of partnership tax returns (tax professionals, the IRS and the taxpayers themselves) have complained about the often complicated and unclear Tax Equity and Fiscal Responsibility Act (TEFRA) rules. Disputes between the IRS and partnerships, as well as between the various partners, often dragged on for years. 

That is  if the IRS even bothered to start an audit – audit rates for partnerships were historically low compared to similar size corporate entities. Once an audit finally was completed, the IRS would face the onerous task of tracking down and collecting the assessments from each partner, often having to dive through dozens of tiers to find these ultimate taxpayers. Naturally, this resulted in difficulty collecting the additional tax, making the whole exercise seem futile to some. A better way was needed. TEFRA had to die.

There’s an old saying – “be careful what you wish for.” As part of the Bipartisan Budget Act of 2015, an entirely new partnership audit regime was established, effective with returns filed for tax year 2018 and later. TEFRA is dead, although it will be a slow and probably painful death. The best guess is that the last TEFRA audits won’t be resolved until 2022 or later.

So why do I say that? While the new regime is an improvement, it also contains a lot of subtleties, along with complicated and often confusing rules that I explain in a short video. Certain small partnerships will be able to opt out. The IRS will then presumably need to audit each partner, although this is still unclear. To be eligible for this opt-out, a partnership may not issue more than 100 K-1s for the selected tax year and may only have partners who are individuals, corporations and the estates of deceased partners. In counting the number of K-1s, each owner of an S corporation is counted as an additional one.

How Will it Work?

Under the regime’s basic framework, the IRS will notify the partnership and the Partnership Representative (but not the partners themselves) that a return has been selected for audit. The Partnership Representative replaces TEFRA’s tax matter partners, but has much more authority and responsibility. The representative is the only point of contact between the IRS and a partnership during an audit.

Below are some other key terms related to the new process:

• Reviewed year: The tax year being audited.
• Adjustment year: The year the assessment resulting from an audit is made final, either through a Notice of Final Partnership Adjustment (FPA) or court decision.
• Imputed underpayment: The amount of additional tax assessed, calculated by netting the audit adjustments multiplied by the highest tax rate in effect during the reviewed year (currently 39.6%), subject to certain modifications.

The Partnership Representative will have full authority to negotiate and resolve the audit with the IRS. Upon completion of the audit and issuance of the FPA, the partnership itself will pay the imputed underpayment. The ultimate financial responsibility for the assessment payment falls on the adjustment year partners, who may not necessarily be the same as the reviewed year partners.

Picture Still Muddy on Tiered Partnership Impact

The Partnership Representative can make elections or modifications to achieve what one IRS official has called “rough justice.”  These permitted adjustments reflect an attempt to better align the amount of additional tax due, as well as the ultimate financial responsibility, with what the result would have been had the partnership reported the adjusted items correctly on the original return.

While still requiring the partnership to pay the assessment directly, the amount of the imputed underpayment can be reduced through several modifications, subject to approval by the IRS. 

Alternatively, the Partnership Representative may select what is called the push-out option. Under this option, the partnership will issue “adjustment K-1s” to each reviewed year partner, reflecting their allocable share of the adjustments. The additional tax, interest, and penalties would be reported and paid by the partner on their tax return for the adjustment year.

Perhaps the most critical unanswered question at this time is how the modifications allowed under the basic framework or use of the push-out option will work in the context of tiered partnerships. Public statements by several IRS representatives have raised concerns that the proposed regulations will interpret the law in a taxpayer adverse manner. The indications have been that the IRS will allow a partnership to request modifications or push out the adjustments up to one tier only, to its direct partners, rather than to multiple tiers, which would reach the ultimate indirect taxable partners. For a more detailed discussion of what we know about the regime at this time, along with other potential areas of concern, see the July 2016 issue of The Tax Adviser.

As the IRS and Treasury work to develop guidance implementing these new rules, the AICPA Tax Advocacy and Policy team will continue to advocate for the taxpayer- and practitioner-friendly answers to the many other open questions. Our Partnership Tax Technical Resource Panel met with government officials to discuss these issues in June and will do so again in November.   Meanwhile, the AICPA anticipates submitting detailed recommendations to the IRS and Treasury regarding the new partnership audit rules in the next several weeks. Finally, the AICPA will be working with CPA state societies as the states consider the impact of new rules for partnership audits on their own procedures.

Jonathan Horn, CPA, CGMA, Senior Technical Manager, Tax Policy and Advocacy, American Institute of CPAs. 

Crossroads and dice courtesy of Shutterstock.

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It’s not every day a tax accountant from Wisconsin wins a gold medal at the Olympics. But on Saturday, Aug. 20, Gwen Jorgensen, formerly of the EY corporate tax group in Milwaukee, became the first U.S. woman to do just that. Crossing the finish line with a time of 1:56:16, Jorgensen won gold in the triathlon.

Jorgensen, who earned a master’s degree in accounting at the University of Wisconsin-Madison and passed the CPA exam, didn’t even take up triathlon until after college. Jorgensen was a runner and swimmer in college, and was approached by USA Triathlon looking for college athletes they thought would be successful in the sport. At the time they contacted Jorgensen, she was still in school and had an offer from EY. She turned USA Triathlon down, but they convinced her to at least try triathlon as a hobby while she worked for EY. And, thus, a grueling schedule began: waking at 4 a.m. to ride her bike to the pool, swimming, and getting to the office at 8 a.m. After work, Jorgensen trained some more. And found that she loved triathlon.

With the support of one of the tax partners at EY, Jorgensen was able to work a flexible schedule that allowed her to travel for competitions, and eventually take time off to train for the 2012 Olympics in London. She fully intended to return full-time to EY after London, but, as any accountant or CPA knows, accounting is a full-time job. And so is being an elite triathlete. Jorgensen decided to pause her accounting career to devote her time to training.

Jorgensen says her time in accounting taught her lessons that apply in triathlon as well: don’t procrastinate, be flexible and fully invest in your craft, be it numbers or a grueling athletic pursuit. And those lessons paid off: Jorgensen amassed 13 consecutive victories in the ITU’s World Triathlon Series between May 2014 and April 2016.

Now that she’s won gold, the world will have to wait to see whether Jorgensen returns to tax accounting or continues a career in triathlons, perhaps as a coach. Regardless, the accounting community is proud to call one of their own an Olympic gold medalist.

Lauren J. Sternberg, Communications Manager-American Institute of CPAs. 

<a href=”https://feeds.feedblitz.com/~/t/0/0/aicpainsights/~Stefan Holm / Shutterstock.com“>Gwen Jorgensen at the 2013 ITU World Triathlon Series in Stockholm courtesy of Stefan Holm/Shutterstock.

 

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On August 18, 2016, the Financial Accounting Standards Board issued a standard that affects all not-for-profit entities issuing GAAP-basis financial statements. The new standard simplifies and improves how a not-for-profit entity classifies its net assets as well as the information it presents in financial statements and notes about its liquidity, financial performance and cash flows.

One goal of the standard is to improve how not-for-profits (like charities, foundations, colleges and universities, health care providers, religious organizations, trade associations and cultural institutions) communicate their financial performance and condition to their stakeholders.

 

Why a New Standard?

The current not-for-profit financial reporting model has held up well for more than 20 years, however, the FASB’s Not-for-Profit Advisory Committee and other stakeholders have reported that, while existing standards were sound, they could be improved to provide better information to users of not-for-profit financial statements.

Specifically, stakeholders voiced concerns about the following issues:

• Complexities in the use of the required three classes of net assets
• Deficiencies in the transparency and utility of information in assessing an organization’s liquidity
• Inconsistencies in the types of information provided about expenses and investment return
• Misunderstandings about and the limited usefulness of the statement of cash flows, particularly with regard to the reporting of operating cash flows

 

What Does the Standard Do?

The standard requires not-for-profits to improve their presentation and disclosures.

This will foster the provision of more relevant information about their resources (and the changes in those resources) to financial statement users.

Generally, the qualitative and quantitative requirements fall in the following areas:

• Net asset classes
• Investment return
• Expenses
• Liquidity and availability of resources
• Presentation of operating cash flows

 

What Are the Benefits?

By simplifying the face of the financial statements and enhancing the disclosures in the notes, not-for-profits will provide more relevant information about their resources and the changes in those resources.

This will be helpful to donors, grantors, creditors and other users, in assessing a not-for-profit’s:

• Availability of resources to meet cash needs for general expenditures
• Liquidity and financial flexibility
• Financial performance
• Service efforts and ability to continue providing services
• Execution of its stewardship responsibilities and other aspects of its management’s performance

 

When Is the Standard Effective?

The standard is effective for annual financial statements issued for fiscal years beginning after December 15, 2017, and for interim periods within fiscal years beginning after December 15, 2018.

Application to interim financial statements is permitted but not required in the initial year of application. Early application of the amendments in this Update is also permitted.

 

What’s Next?

This standard is actually the first phase of the FASB’s project to improve financial statements for not-for-profit organizations.

The second phase of the project is expected to address issues such as:

• The requirement and/or definition of a measure of operations
• The realignment of certain line items in the statement of cash flows to better match a required measure of operations
• Whether or not segment reporting is a viable alternative to an analysis of expenses by nature and function for business-oriented health care not-for-profits.

Additionally, on September 13, 2016, the FASB is hosting a free webcast taking place live from 1:00 p.m. to 2:15 p.m. EDT, discussing the new standard and answering questions submitted by viewers. There are also some educational opportunities available through the AICPA’s Not-for-Profit Section online community that is being led by AICPA’s technical staff.

On behalf of FASB, I am looking forward to answering questions our stakeholders may have on the standard. In the meantime, you can find more information on the standard on the FASB website. 

Larry Smith, Member of the Financial Accounting Standards Board (FASB). Prior to being appointed as a Board member in 2007, Larry served five years as FASB’s Director of Technical Application and Implementation Activities. Mr. Smith joined the FASB staff in 2002 after a distinguished 25-year career at KPMG.

 College campus image courtesy of Shutterstock

 

     

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Earlier this month Twitter user Marian Call, a singer-songwriter, started a viral trend when she tweeted her first seven jobs. Since then, social media has been all abuzz with users reminiscing about their #firstsevenjobs.

There’s no doubt that every job someone holds will teach them some kind of lesson. First jobs in particular teach those lessons in tough ways. To find out what lessons CPAs have learned, we put out a call for responses on social media; here’s what we heard.

Rand Gambrell

First seven jobs: Draftsman, McDonald’s Cook, Bus Boy, Wendy’s Cook, Bus Boy, Retail Sales, Hotel Sales Manager

Lesson learned: “No matter what your occupation or profession, perform your job to the best of your ability. People always recognize excellence.”

Morgan Hopkins

First seven jobs: Photolab Tech, Receptionist, Cook, Tour Guide, Tutor, Help Desk, CPA

Lesson learned: “How to train others and break things down into pieces. That helps with new staff, but also with clients.”

Matthew R. Johnson

First seven jobs: Lemonade Stand, Mowing Lawns, Dishwasher, Kitchen Manager, Intern, Public Accountant, Private Industry

Lesson learned: “Everyone’s job, regardless of how low in the rankings serves as a vital component to the whole. Great business insights can be gained from those who are in the trenches.”

Jaime Campbell

First seven jobs: Math tutor, Jewelry Entrepreneur, Babysitter, Choir Accompanist, Voice and Instrument Accompanist, Recorded Textbooks for Blind Students, Delivering Newspapers

Lesson learned: “Earnings are limited if I do everything myself instead of training others to execute my level of quality.”

Rob Stilley

First seven jobs: Mowing Lawns, Filing at Law Office, Pizza Delivery, Moving and Storage Labor, Accounting Intern, Investment Bank Intern, Internal Auditor

Lesson learned: “Work is only meaningful if you feel like you are adding value and see a connection between your effort and results.”

What were your first seven jobs and what lessons did you learn? Tell us on Twitter!

Elizabeth Rock, Specialist-Social Media and Member Engagement, American Institute of CPAs.

 Thought bubble courtesy of Shutterstock.

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Confronting the cold monetary and business realities of an estate is extraordinarily difficult in the midst of mourning. Even a well-planned estate’s complexity could mean the process drags on for months or even years, drawing out not only raw emotion but also tax exposure. Careful planning and a detailed explanation of your clients’ wishes are a must if you want to save their loved ones additional suffering.

My mother’s estate was moderate in terms of her personal holdings, but she also participated in substantial limited partnerships that passed to my brothers and me upon her death. While her home and personal effects were relatively simple to liquidate, the partnerships were a different matter.

There was no provision for a buyout of my mother’s interest upon her death. We found ourselves in business with people who didn’t know us, and had conflicting ideas about the future of the entity itself. Like so many partnerships, ours rarely had K-1s prepared in time to allow us to file our individual returns in advance of April 15th. We faced an indeterminate future of filing expensive extensions, estimating our individual tax liabilities and possibly increasing our exposure to an audit.

After consulting with a CPA, we decided to make a section 754 election to step up our basis in the partnership assets. This allowed us to reduce current income allocated to us and reduce taxable gain on the disposition of the partnership’s assets. A few years after my mother’s death, the partners sold one of the properties. Our gain was greatly limited as a result of the election, saving us an enormous amount in taxes.

While legacy partnerships are not the norm, it’s worth asking your clients who take part in them whether they have left guidance for their beneficiaries with regard to their inherited interests. In our case, not only were my brothers and I legacy partners, but our mother had been as well. We found ourselves two generations removed from the original partner, and not entirely sure of the next step. Our CPA was key to ensuring we minimized our tax liabilities. It’s important that you address the transfer and tax consequences of clients’ partnership interests in their estate plans.

Helping a family sort out the benefits from an estate can create a litany of emotional complications for the executor, and difficulties for the legal counsel and CPA. All three might have to weather multiple calls, emails and unwelcome family drama that can make the loss of a loved one even more acutely painful for all. Here are some simple steps to reduce the confusion and increase the efficiency of executing a will or trust:

1. When possible, involve the beneficiaries in the planning process while your client is living. Be sure all parties understand their roles and benefits, and any questions are answered up front. This will serve to expedite liquidation of the estate by reducing lengthy inquiries.
2. Have your client include instructions or suggestions for their beneficiaries about how to treat their bequeathal. This could be as simple as referring them to the family’s CPA for guidance. Remind clients that their will and any related trust documents are binding, and other instructions provided to the beneficiaries as to the property to be distributed to them can be overruled by legal authorities. Additionally, it might be helpful to have the beneficiaries meet with you and the other advisers to the estate in order to establish a relationship ahead of your client’s passing. This can help to ease implementation greatly.
3. If your client is contemplating a distribution decision that could cause family/beneficiary controversy, consider having them explain their choices in their legal documentation if they are not comfortable doing so in person. If you identify choices that could expose beneficiaries to substantial taxes, make sure the client understands these outcomes. Assist in identifying alternate strategies that would achieve the desired goal but also eliminate such liabilities.
4. If someone who might expect to be a beneficiary in a will is not included, encourage your client to reveal this prior to their passing. Challenges to a will or trust can greatly delay execution and distribution of the estate’s assets and incur unnecessary legal and administrative expenses.
5. As time passes, changes in tax law and family structure can prompt a need for updates. Be sure to check with clients regularly to make provisions for marriages, divorces, new children, deaths elsewhere in the family, or a move to a new state.

Estates vary greatly in size and complexity, and beneficiaries often do not understand the tax consequences of inherited assets. Many beneficiaries assume that because the estate’s value is below that of the unified credit, they will owe no taxes at all. The more education you can offer your clients, the better they will be prepared, allowing their loved ones more time to process their loss without worrying about the more impersonal aspects of what will be one of the most trying periods of their lives.

Adam Junkroski, Lead Manager-Tax Communications, American Institute of CPAs. 

Estate planning courtesy of Shutterstock. 

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What is a lease? And how should it be reported on a balance sheet? While your clients may not have spent much time pondering those questions in the past, the answers will take on new importance for them when a new Financial Accounting Standards Board standard on Leases becomes effective. While it’s true that the final guidance generally does not depart from existing GAAP as much as some earlier FASB proposals on this topic, practitioners should be prepared for significant changes in how all organizations that have lease assets—including private entities and not-for-profits—will account for leases. As practitioners begin to educate themselves on the guidance, here are five critical issues to keep in mind.  

1. Lessees must now recognize operating lease assets and liabilities on the balance sheet. This is the most significant change, since it will require all organizations and their CPAs to take a different approach to lease accounting. Before this standard, U.S. GAAP only required this type of recognition for capital leases. Operating lease amounts were generally shown in the financial statements as rent expense on the income statement and in disclosures to the financial statements. In implementing the new guidance, entities will have to reconsider the ways they identify lease arrangements.

2. The difference between a service contract and an operating lease will be important. Practitioners may be called on to help entities distinguish between the two, since organizations typically would not be required to recognize assets and liabilities related to a service contract.

3. The lease term matters. Lessors are only required to recognize lease assets and liabilities for leases with terms of more than 12 months. When a lease has a shorter term, a lessee can elect not to recognize lease assets and lease liabilities, if it’s reasonably certain that the lessee will not exercise any option to buy the asset. The lessee must recognize expense for these leases generally on a straight-line basis over the lease term.

4. The standard will have a broad reach. Affected leased assets include all property, plant and equipment, which might include anything from real estate and manufacturing equipment to the office printer.

5. Some things will remain the same. As was the case under previous guidance, the way that a lessee recognizes, measures and presents lease-related expenses and cash flows will depend on whether it is a finance or operating lease. In addition, the accounting for lessors will also be relatively unchanged, but practitioners should prepare for potential challenges when accounting for significant variable lease payments.

For public companies and some not-for-profits and employee benefit plans, the standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other organizations, the standard is effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. Early application is permitted.

Given the meaningful accounting changes involved, we’re urging practitioners to inform themselves and their clients early about what the standard will mean for their organizations. Fortunately, there’s a wealth of implementation assistance available. The AICPA Accounting for Leases website for the new guidance, Accounting Standards Update 2016-02, includes a practice aid, accounting brief and an overview video. In addition, the PCPS Center for Plain English Accounting (CPEA) has developed valuable implementation resources for its members. The CPEA is issuing a series of detailed implementation reports and conducting webinar tutorials on the new lease standard, focusing on the impact to private companies. For a limited time, you can access the CPEA leases report free-of-charge. Now’s the time to learn more about the new leases standard so that you’re ready to apply it when it becomes effective.  

Bob Durak, CPA, CGMA, Director- Center for Plain English Accounting, American Institute of CPAs.

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