Braddon Group

It’s not surprising that National Relaxation Day (Aug. 15) is observed in the thick of summer because, for many, ideal relaxation involves lounging on a tropical beach and just feeling away from it all. For me, however, snowboarding is a great way to relax. When I’m carving down a beautiful snow-covered mountain, I’m able to allow my concerns to drift off into the background. From these two examples, it’s plain to see that perceptions of what constitutes relaxation vary.

Relaxation does not inherently require us to be inactive or unplugged from our normal routine. Perhaps you make room in your weekly schedule to take a morning run, practice yoga or spend some time in your garden. These activities may be great when we can engage in them, but how can we find other ways to help us relax the rest of the time, which is most often spent at work? One way to find some space and peace, no matter where we are, is through the practice of mindfulness.

Jon Kabat-Zinn, PhD, the founder of the Center for Mindfulness in Medicine, Health Care, and Society at the University of Massachusetts, defines mindfulness as “awareness that arises through paying attention, on purpose, in the present moment, non-judgmentally.” You may have heard about mindfulness meditation, or you may even know someone who uses mindfulness techniques to help manage stress, sleep issues or chronic pain. In addition to these benefits, mindfulness practices can also offer a way to extend relaxation by helping people develop skills in concentration.

Our minds are often like balloons in the wind, blown in all directions by thoughts and judgments about the past or worries about the future. We can sometimes even push ourselves to the point of mental and physical exhaustion when struggling to compete with these hook-like thoughts constantly pulling for our attention. With practice, however, we can learn to place more of our focus on the present moment, watching, listening, feeling what is in front of us. We can recall how it feels to be fully absorbed and free of distractions when completely immersed in something that is pleasing or enjoyable to us. As our concentration becomes stronger and more stable, we can also experience similar levels of relaxation in our minds and bodies, regardless of our chosen activity or task.

Mindfulness practices are not just limited to formal sitting meditation as some might assume. Try this simple walking mindfulness exercise today:

1. Take a short walk and feel the bottom of your feet as your steps connect to the ground.
2. Notice five things around you that can be seen.
3. Listen to four sounds you can identify.
4. Touch three different objects, feeling the shapes and textures.
5. Identify two different smells.
6. Lastly, stop and take one deep, relaxed breath.

For those who don’t already have a mindfulness practice built into their daily schedule, regular participation in meditation activities might seem to be a waste of valuable time. Fight that assumption! Countless studies have found strong correlations between mindfulness and increased productivity in the workplace (and, by extension, even increased profits). Bear in mind that mindfulness is a practice. There are some immediate results (lowered heart rate, for example), but the major benefits take time and a commitment to simply ‘showing up.’

Skeptics should definitely give it a try even if there are only a few minutes available to practice; otherwise, how else can the mind discover what it’s been missing?

David Perrin, Senior Advisor, Member Service,  Association of International Certified Professional Accountants

Relaxing on the beach courtesy of Shutterstock

     

Related Stories

• Plan Smart: Banishing Time Wasters
• 4 Things You Need to Know About Gender Equality
• One Attestation Engagement that Can Save the Planet

 

You’re doing your passwords all wrong.

So says the developer of the guidelines most internet users have been following for 15 years, anyway. Passwords that L00K l!ke tHi$ are actually much more susceptible to hacking than most people realize, says Bill Burr, former manager of the National Institute of Standards and Technology (NIST) and author of the NIST’s 2003 recommendations for password management.

In an interview with The Wall Street Journal, Burr said that his previous advice to use numbers, symbols and randomized capitalization resulted in people creating passwords that are easy for computers to predict.

A more secure option is to use four random words, such as “that purple monkey dishwasher.” Such a phrase is actually much more complicated for computers to guess, The Wall Street Journal reports. (Cartoonist Randall Munroe explained the math in a comic six years ago.)

Some password advice remains relevant, however: avoid using birthdays or anniversaries, your kids’ names or your address, as all of this is information is easy for hackers to locate. Additionally, use different passwords for each of your accounts and avoid storing them where they can be easily seen or stolen.

With cybersecurity threats on the rise, CPAs are paying attention to such advice. (An article about Burr’s interview that appeared in last Thursday’s CPA Letter Daily was one of the week’s most clicked stories, natch.) Strong passwords are just the tip of the iceberg, though. CPA firms and their clients are looking at ways not only to protect sensitive information, but also to report on those efforts.

In response to this need, the AICPA has updated its Cybersecurity Resource Center to provide information on protecting firms, advising clients and reporting on an organization’s cybersecurity efforts – all using the recently released AICPA cybersecurity risk Management reporting framework.

Lindsay N. Patterson, CAE, Senior Manager – Communications and Public Relations, Association of International Certified Professional Accountants

Password courtesy of Shutterstock

     

Related Stories

• ICYMI: Protect Clients from Petya Cyberattack
• 5 Technologies Transforming CPA Practices
• 5 Emerging Services Set to Transform the Accounting Profession

 

For decades, women and men have been entering the accounting profession in equal numbers. As a result, you might reasonably assume that women are now at or near parity with men at the leadership level. However, that assumption would be wrong. Only 24% of CPA firm partners are women, according to AICPA statistics. Another recent study found that only 17% of audit partners are women. If these qualified professionals aren’t reaching the top levels, firms are clearly missing out on a lot of talent.

The AICPA Women’s Initiatives Executive Committee’s (WIEC) CPA Firm Gender Survey, first distributed in 2015, is designed to identify trends in women’s leadership over time. It informs practical solutions for firms that want to make the most of their talent and prevent the loss of leadership potential. The results provide a unique spotlight on trends related to diversity in leadership and suggest solutions on how best to address them. As we launch the second iteration of the survey this year, I’m reminded of a few of the many valuable insights that the last survey revealed, along with some of the questions firms might want to ask themselves in light of those findings. The lessons learned—and the value and perspective they can offer to CPA firms—underscore the benefits of participating in the survey. Outlined below are a few key takeaways from the inaugural CPA Firm Gender Survey.

The path to partnership is still a tough one for women. Plenty of women are entering the profession—and have been for decades—but the survey clarified how few are actually making it to partner. This finding demonstrated that it’s not enough to wait for women to move up the pipeline; a more proactive stance is necessary. Firm leaders should ask themselves if roadblocks are holding women back in their firms and whether there are unconscious biases or mistaken assumptions about their aspirations or expectations.

Women’s equity ownership remains low. While women in non-equity partner positions may count as partners, they may not have the same influence in the partner group as actual owners. The survey offered insights into the gap between these levels of partnership. Non-equity partnership may be considered a training ground and transition phase at many firms, but do the professionals in this role eventually move into ownership roles? Does it take more or less time than it would without the non-equity partner position? These are questions firms with non-equity partners might ask themselves to ensure that women at this level have an equal shot at ownership.

 Leverage talent for succession success. The survey found that about two-thirds of firms did not have a succession plan, and fewer than 5% of existing succession plans had a gender component. Having a deep bench unquestionably benefits firms, which can sometimes overlook valuable players. The solution is to create career paths and succession plans that make an intentional effort to foster women’s advancement.

Consider more than flexible work arrangements. Although flexible work arrangement policies are greatly appreciated and play a role in employee retention, they do not have a direct impact on women’s advancement to leadership positions. To examine proven advancement solutions, this year’s survey will look at intentional steps such as mentoring, sponsoring and diversity and inclusion efforts.  You may be interested in reviewing the Women’s Initiative Executive Committee’s Organizational Strategies Toolkit.

Want to make a positive difference in your firm? As you can see, the survey uncovered worthwhile details that firms can use in developing or enhancing their own women’s development efforts. I strongly encourage you to spend a few minutes taking part in this year’s survey to ensure that your practice’s experience is represented. Broad participation enables us to continue to deliver information that will benefit your practice. Survey participants receive their own customized reports that they can use to benchmark their statistics against those of the profession. It’s an excellent tool to use in crafting your own solutions to some important challenges.  

Yasmine ElRamly, Senior Manager- Firm Services & Global Alliances, Association of International Certified Professional Accountants.

Business women courtesy of Shutterstock.

     

Related Stories

• One Attestation Engagement that Can Save the Planet
• Discounting Tax Services: Good or Very, Very Bad?
• FASB Addresses Accounting for Grants and Contracts

 

Sustainability assurance is a growing field for CPAs. While reporting on this topic remains voluntary, over 82% of the S&P 500 publish some type of sustainability report, up from 20% in 2011. Furthermore, 73% of portfolio managers and research analysts take sustainability matters into account when making investment decisions and 69% of them believe it is important that such information be subject to independent assurance.   

Sustainability reporting encompasses information about an organization’s environmental, social and governance performance and can range from a full sustainability report to a greenhouse gas statement to information about select sustainability topics. As companies look to increase the credibility and reliability of their reported sustainability information, they are engaging CPAs to provide assurance on this information.  

Like other attestation engagements, sustainability attestation engagements are performed in accordance with the AICPA Statement on Standards for Attestation Engagements (AICPA, Professional Standards). So, you may be wondering, how exactly are sustainability attestation engagements unique? Outlined below are a few key ways.  

Measurement uncertainty. Similar to certain accounts in financial statement audits, significant uncertainty often exists about the exact value of information reported in sustainability information. For example, greenhouse gas emissions might be reported as 200 tons, but could reasonably be between 160 and 240 tons given the use of the selected measurement techniques and conversion factors.  As a result, CPAs may need to consider how to approach measurement uncertainty in planning and performing the engagement, as well as in reporting.

Use of specialists. Given the wide-ranging nature of sustainability information, CPAs may turn to a various types of experts for assistance in areas that they do not have as much expertise including those with scientific and engineering expertise. These include specialists on subject matter that is not seen in financial statement reporting, such as greenhouse gas emissions, water usage, and health and safety issues. 

Consistency. Sustainability information often focuses on the level of improvement over time, which means that the criteria used from period to period needs to be consistent. In a sustainability attestation engagement, CPAs may have to consider biases by management in selecting criteria from an earlier period; whether consistent methodologies were used; and whether there is sufficient disclosure about any lack of comparability.

Material misstatements in previously issued information. Finding material misstatements in sustainability reporting is more common since the processes and systems used to gather and report the information generally are less advanced than those for financial reporting. CPAs will have to evaluate the effect of material misstatements in previously issued information on the current engagement and consider whether an explanatory paragraph on the matter is called for.

In an effort to support the growing demand for sustainability attestation engagements, a new AICPA guide, Attestation Engagements on Sustainability Information (Including Greenhouse Gas Emissions Information), offers comprehensive guidance on the matters outlined above and provides guidance on how to perform examinations or reviews of sustainability information. The guide equips CPAs for engagement acceptance, planning and performing the engagement as well as reporting. You may be interested in attending an upcoming webcast on September 14 at 1 p.m. ET, discussing this exciting service opportunity.   

Desire Carroll, Senior Manager, Assurance & Advisory Innovation, Association of International Certified Professional Accountants.

Sustainability courtesy of Shutterstock.

     

Related Stories

• Discounting Tax Services: Good or Very, Very Bad?
• FASB Addresses Accounting for Grants and Contracts
• Plan Smart: Banishing Time Wasters

 

People love discounts, coupons and the perception of saving money, even when they actually aren’t. But there is another side to the discount, and that’s the product or service provider’s. When they discount their offering, they are losing money, right? Not always.

The Good

The discount is a common and time-honored marketing tactic. It can be a powerful tool. There are a few ways discounts are used to the benefit of the provider. A few of these include: loss leader, introduction/new business and reconciliation.

The loss leader is a simple concept: by heavily discounting an offering (sometimes to cost), you get clients in the door where they will hopefully purchase additional, non-discounted offerings or upgrade from the discounted offering to a superior one that is full price.

In product or service introductions, either the product or service is new, or the client is. The idea is that the discount is used to lure the client in, give them a taste of how good the offering is, and hopefully turn them into a regular customer who pays full price.

In reconciliation, a discount is used to make amends with a good client who has been disappointed or inconvenienced. It is a goodwill gesture intended to retain business at risk, and can be very effective.

The Bad

In these brief examples, we’ve seen how a discount could benefit your firm. But what could go wrong?

-loss leader clients fail to convert to a higher-dollar service

-introductions fail because the service isn’t compelling enough, or regularly priced services are too expensive to compete

-a reconciliation discount is insufficiently generous, or results from a minor customer complaint that was specifically designed to get a “freebie.”

Tax services are like most services in that they are more relationship dependent than product offerings. Think about your favorite soda or snack. If you can get it at half the regular price, do you mind cheating on your usual grocery store? Probably not. But would you go somewhere different to get your hair cut at half the price? We come to expect a specific experience from a service, and risking getting less than we are used to is often unattractive at any discount.

The Very, Very Bad

Offering discounts is frequently a trap for service providers, and tax services are no exception.

If you are just starting your practice, offering a discount as a way to get clients in the door can backfire. People quickly grow accustomed to paying less, and question why they should have to pay more. They recognize that new businesses pop up almost daily, and by their next need for tax services, they can probably find another startup offering a “welcome” discount.

Some clients like to dangle future potential business to induce you to offer them a discount. If you’ve ever heard the words, “If you make me happy on this job, there can be a lot more work down the road,” then you’ve spent time with one of the worst kinds of clients, ever. Dealing with these clients doesn’t have to end badly, though. Explain that you would be happy to entertain price breaks when the volume or value of the work warrants it, but that you are unable to discount one-off jobs because they represent too much risk to your bottom line. Underscore your value proposition, and talk value, not price. If the client is unconvinced and still making noise about discounts, they are probably just trying to get a deal. They are less likely to be the kind of client you want to come back again and again.

If you use discounts injudiciously, you can put your future business at risk. It doesn’t take much imagination to see how razor-thin margins return very little when work is stacked to the ceiling. Growth can be inhibited. If you aren’t offering (and selling) other services that have a more significant return, you’ll spend all your time chasing pennies on the dollar.

But most importantly, a discount can send a message that your service might not actually be worth what you normally charge. Clients can begin looking for excuses and reasons to get you to renegotiate your rates. When they don’t get them, they might question the relationship. So what is an effective way to use a discount?

1. Ex post facto. Do you have a great client you’d like to reward, or maybe upsell later? Charge them your usual rate, but offer a small discount at billing time. Their surprise will be a pleasant one, and because it came on the bill, they will think of it as a personal favor instead of a promotion.
2. A volume inducement. If your client could be bringing you more business, let them know you can lower your pricing for the additional work. Do the math. A reasonable discount can bring you increased revenue from work you wouldn’t otherwise have.
3. A reward. One of the most justifiable uses for a discount is client referrals. If a good client brings in a friend or coworker who converts to a client, you can offer them a percentage off their billing as a thank you. This is a policy you can promote anytime, because it always means new business and more revenue for you. Remember to ask new clients if they were referred. If they were, be certain to thank the client who referred them and make it clear they have a discount coming.

When it comes to discounting your work, it’s important to take care not to discount its value. Resources available to AICPA members in the Tax Practitioner’s Marketing Toolkit will help you overcome fee objections and communicate your value to clients.

Adam Eric Junkroski, Lead Manager­, Communications, Tax, PFP, S&C — Public Accounting, Association of International Certified Professional Accountants

Discount courtesy of Shutterstock.

     

Related Stories

• FASB Addresses Accounting for Grants and Contracts
• Plan Smart: Banishing Time Wasters
• Key Facts about a New SAS on Exempt Offerings

 

The Financial Accounting Standards Board (FASB) recently issued an exposure draft, Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made, which is intended to address questions stemming from their revenue recognition standard (ASU No. 2014-09) regarding its implications on the grants and contracts of not-for-profit organizations. Specifically, do not-for-profit grants and contracts fit the definition of a contract with a customer, such that the new revenue standard would apply? Or are they more appropriately classified as contributions, which would exclude them from the scope of ASU 2014-09 and instead require the application of contribution guidance? More on that below.

The FASB exposure draft clarifies that the first decision to consider is whether the transaction is reciprocal (an exchange) or non-reciprocal (a contribution). That is, does the donor or grantor “receive commensurate value in return for the resources provided?” If so, then the asset transfer is an exchange transaction. It is important to note that societal benefit—even if it furthers the resource provider’s charitable mission—is not commensurate reciprocal value.

For nonreciprocal transactions (contributions), the next point to consider is whether conditions have been placed on the resources provided, as the presence of conditions affects the timing of revenue recognition. For a contribution to be conditional, the answer to both of the following questions is expected to be “yes.”

1. Does the donor/grantor retain a right of return to the resources provided?
2. Is there a barrier the not-for-profit organization must overcome to gain rights to the resources provided?

Because the second question is the more difficult one to answer, FASB’s proposed amendments provide the following indicators that a barrier may exist:

• The not-for-profit is required to achieve a measurable outcome (e.g., incur certain qualified expenses, help a specific number of beneficiaries or produce a certain number of units).
• The not-for-profit is required to overcome a barrier related to the primary purpose of the asset transfer agreement. (Note: This excludes trivial or administrative requirements.)
• The not-for-profit has limited discretion over how the resources are spent.
• The not-for-profit is required to take significant additional actions that it otherwise would not have taken.

Conditional contributions are recognized as liabilities or not recognized at all until the barrier(s) are overcome, at which point the contributions are recognized as net assets with or without donor restrictions. Unconditional contributions are recognized immediately as net assets with or without donor restrictions. Thus, after determining the presence of conditions, the existence of restrictions (if any exist) is the final key point to consider.

The full exposure draft includes a flowchart to walk you through this evaluation process. We encourage you to read and provide feedback to FASB on the proposed standard. The comment period is open now and ends November 1, 2017.

Cathy J. Clarke, CPA, Chief Assurance Officer – National Audit and Assurance Quality Group, CliftonLarsonAllen LLP. Cathy’s primary responsibilities include overseeing the audit quality with the firm, being a technical resource for her firm’s audit and assurance practice and quality review of assurance and accounting engagements. She is the immediate past chair of the AICPA’s Not-for-Profit Industry Expert Panel. Throughout her career, Cathy has served a variety of clients in numerous industries, with an emphasis on not-for-profits and healthcare entities.

Lana Richards, CPA, Manager- Not-for-Profit Content Development, Association of International Certified Professional Accountants

Signing a contract courtesy of Shutterstock.

     

Related Stories

• Nonprofit Challenges: Accounting for Gifts-in-Kind
• Plan Smart: Banishing Time Wasters
• Key Facts about a New SAS on Exempt Offerings

 

“I cannot make my days longer so I strive to make them better.” –Henry David Thoreau

Time is money

We’ve heard the proverb many times. But when it comes to balancing client needs along with all of the nuances of leadership in a practice, time often really IS money. How many times have you looked at the clock and realized the day was half over before you’d had a chance to accomplish even a fraction of what you’d initially planned? A 2014 study found that only 13% of advisers report feeling in complete control of their time. Alarmingly, an overwhelming number of professionals frequently experience time drains that inhibit their relationships with clients, the growth of their business, and their own personal and professional productivity. Thankfully, there are some very easy-to-implement solutions that most CPAs can put into practice today to combat the time wasters in their daily schedule.

Find and eliminate your “tolerations”

What are tolerations? They are the irritations, large or minuscule, that slowly and often silently zap your energy, creativity, and productivity. They are the things you brush off as “no big deal” but add up until you begin to notice their collective weight. Tolerations can be an unorganized drawer, an appointment you’ve avoided making, a messy desk, etc. Write them all down, and you may see your list grow as large as 100 items. Next, schedule 15-30 minutes to chip away at them during your catch-up days. You’ll be amazed at how much better you feel!

Create a proactive plan

Having a focused plan for approaching the day is also key. Dealing with repetitive issues that sap our time and energy can make a tremendous difference. For example, many tasks can be streamlined simply by using better tools such as email templates or productivity software that help consolidate the time spent on the business we do each day. The essence of this problem is our tendency to be reactive rather than proactive. Lacking a comprehensive daily, weekly, and even yearly schedule deprives us of an infrastructure by which we can gauge how productive we are being with our time. So how do we build that infrastructure?

Create S.Y.S.T.E.M.S. that anticipate and eliminate time drains

A big way we waste time is simply by not taking steps to proactively allocate the hours of our day to begin with. It’s essential to remove as many time wasters as possible from our daily routine. You can best do this by creating and maintaining S.Y.S.T.E.M.S. that help you “Save Yourself Stress, Time, Energy, Money, and Succeed.” The most important SYSTEM for banishing burnout is establishing a consistent executive schedule.

To save time each week, it may help to have a daily checklist to follow, which can provide a basic structure for the most logical and productive order of your business for the day. It’s likely you can do far more work in less time just by adhering to the parameters you set in advance.

For example: do you always check email first thing in the morning?  Failing to strategically plan the time you spend reading and responding to email can be a tremendous time waster, especially if it means less time spent growing your business and developing projects. If possible, wait until 10 or 11 a.m. to open your email. This ensures that your day is directed by your priorities, not someone else’s.

If there are ways to streamline email time, consider using templates that help automate email response turnaround, or using a customer relationship management (CRM) program, then use them. Implementing these tools up front will save you time every day.

The same goes for hiring additional staff. Everyday tasks associated with office management or basic client relations can take away from the time necessary to develop long-range growth and client service plans. Don’t hesitate to hire a good assistant. Again, investment up front will yield more gains moving forward. Just make sure that you also have good written processes for everything you expect assistants or employees to integrate into their work for you; failure to have clearly written guidelines will ultimately waste far more time than carefully writing out every expectation in advance. 

Make time to save time

The heart of this life-changing process is investing in an infrastructure on which you can build a business and save time for all of the other aspects of life.  Time IS money, but if you plan well, time well spent is also the key to being able to enjoy the things in life that money affords us—that’s a good lesson for all of us.

For more information on managing your time and schedule effectively, Coach Maria Marsala has recorded a 3-part webcast series available to Personal Financial Planning Section members.  Learn more about that series and other ways you can save time and increase your energy here.

Maria Marsala is a veteran financial executive, speaker, author of Strategically Acquiring More Clients, and founder of Elevating Your Business.  As a consultative-coach, she guides seasoned financial advisors as they as they simplify business, advise more, and live better.  Connect with her today on Twitter.  To receive her twice-monthly business tips email and free business growth assessments, click here.

 Time wasters courtesy of Shutterstock

     

Related Stories

• How One CPA Got the Chance to Edit the Journal of Accountancy
• Key Facts about a New SAS on Exempt Offerings
• 3 Factors Driving Single Audit Quality [Infographic]

 

A municipal government issues a bond offering after the audit report date. Or a franchisor is getting ready to prepare its annual update to its franchise disclosure document. What are the auditor’s responsibilities in each case? Practitioners with governmental clients are probably familiar with long-standing guidelines to address involvement with municipal securities offerings, however a recently issued auditing standard expands those best practices into required guidance for all exempt offerings.  

What’s the Background?

The Auditing Standard Board’s Statement on Auditing Standards (SAS) No. 133, Auditor Involvement With Exempt Offering Documents, applies to exempt securities or franchise agreements when the auditor is involved. The Securities and Exchange Commission (SEC) oversees a significant regulatory framework for publicly traded offerings, setting rules on what types of information and documents must be filed and when, and on auditor involvement. Some offerings, such as municipal securities, franchise offerings, crowdfunding, and short-term commercial paper with a maturity of nine months or less, are exempt from SEC registration rules. Exhibit A in the new SAS includes a list of exempt offerings.

The ASB’s objective in developing this SAS was to establish when an auditor is involved with an exempt offering document and the related responsibilities. Although the AICPA State and Local Governments, Not-for-Profit Entities and Health Care Entities audit and accounting guides have long set forth best practices, an audit guide doesn’t have the same level of authority as an auditing standard. Since the SAS is based on many of the practices cited in the audit guides, auditors involved with municipal securities offerings may not experience significant changes; however, auditors involved with other types of exempt offerings (e.g. franchise agreements) will likely experience a change in practice because of the expanded scope of the SAS.

What Constitutes “Involvement”?

The SAS outlines when the auditor is involved in an offering as well as the required procedures. The auditor is considered involved if both of the criteria below are met.

1. The auditor’s report on financial statements is included in an exempt offering document.
2. The auditor performs any of the activities defined in paragraph 8(b) of the SAS. One example is reading a draft of the document at the entity’s request.

The Auditor is Considered Involved. Now What?

The auditor is required to read other information related to the offering and to perform certain subsequent event procedures.

What if the Auditor Doesn’t Know about an Exempt Offering?

In most exempt offerings, the entity making the offering may use the auditor’s report without discussing it with or obtaining permission from the auditor. Therefore, the SAS outlines triggering activities so that auditors would not unknowingly find themselves subject to this standard. The auditor has to take an action related to the offering to be involved (see paragraph 8(b) of the SAS). If a client issues an exempt security using the auditor’s report without making the auditor aware, the auditor would not have met any of the triggering activities, and therefore would not be considered involved.

As part of their risk management process, some firms may include a requirement in the terms of their engagement for clients to alert them when they are going to market. This engagement clause would not in and of itself constitute involvement. However, if a client alerts the auditor about including their report in the offering and, for example, asks the auditor to give the offering document a read, issue a comfort letter or take part in any of the other stated triggering activities, the SAS’s requirements apply.

Clarifying Expectations

The new SAS clarifies what it means to be involved and the auditor’s responsibilities involved when a client issues an exempt offering. The SAS is effective for exempt offering documents where the auditor is involved, that are initially distributed, circulated or submitted on or after June 15, 2018. Early application is permitted. You may be interested in attending a webcast on this topic on August 10 at 2 p.m. ET.

Laura Hyland, CPA, Senior Manager, Governmental Auditing and Accounting, Association of International Certified Professional Accountants.

Auditing courtesy of Shutterstock

     

Related Stories

• 3 Factors Driving Single Audit Quality [Infographic]
• Nonprofit Challenges: Accounting for Gifts-in-Kind
• 6 Reasons to Specialize in Employee Benefit Plans

 

Single audits are a highly specialized type of compliance audit performed on states, local governments and not-for-profit organizations that expend $750,000 or more of federal assistance in a single year. Given that both the public and federal agencies rely on single audits to confirm that these organizations are managing federal funds appropriately, it’s important that firms perform high-quality single audits.

That’s why the AICPA Peer Review Program recently conducted a study to determine which factors made a difference in single audit quality. Take a look at the infographic below to learn more about the three quality factors the AICPA identified and the steps firms can take to perform high-quality single audits. 

Carl R. Mayes Jr., CPA, Senior Manager, Special Projects—Public Accounting, Association of International Certified Professional Accountants.

     

Related Stories

• 6 Reasons to Specialize in Employee Benefit Plans
• Nonprofit Challenges: Accounting for Gifts-in-Kind
• How to Build Your Back-to-School Budget

 

Many not-for-profits receive gifts-in-kind—noncash donations—to supplement their programming needs. When used properly, gifts-in-kind can greatly extend the cash resources of not-for-profits, as they often consist of goods and services the organization would otherwise have to purchase.

Not-for-profits that receive contributions of in-kind goods and services should report them in compliance with the Financial Accounting Standards Board’s (FASB) fair value measurement standard (ASC Topic 820).

Easy enough, right?

Not necessarily.

This blog post covers significant challenges that not-for-profits face when applying the accounting standards and related guidance for gifts-in-kind.

What does “fair value” mean when it comes to in-kind contributions?

Not-for-profits apply the FASB’s fair value measurement standard to in-kind contributions, where fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” However, a not-for-profit receives the goods as a contribution, not as a market participant. Thus, the not-for-profit has a hypothetical consideration: What market would it use if it were to sell the goods? Would the goods be sold in an exit market as a retailer, wholesaler or manufacturer, or in some other market? Tangible goods, such as supplies, often go through multiple markets.

Because of the volume of goods not-for-profits usually receive, many consider the wholesale exit market the most appropriate hypothetical market, and Accord Network Gifts-in-Kind Standards support this conclusion. If a not-for-profit determines the wholesale exit market is the principal market for its contributions but is only able to access valuation inputs from retail transactions, an adjustment is necessary to discount the retail value back to wholesale exit market prices.

What if no hypothetical buyer exists?

Certain goods may not have a readily determinable buyer, but typically, they have a base utility that is marketable to someone. Not-for-profits should consider that base utility when determining market values for gifts-in-kind.

When evaluating the base utility of gifts-in-kind, it is also important to assess “future economic benefit or service potential” (ASC 958-605-25-5) and make appropriate valuation adjustments. Adjusting an asset’s fair value for its brief shelf life is an example of applying future economic benefit considerations.

Management should understand the issues that would materially affect the fair value of gifts-in-kind and document its independent judgment on material issues, including risk assessments and fact-based support. Independent auditors will assess management’s gifts-in-kind valuation methodology, but the burden of support for all fair value determinations lies with management.

How might legal restrictions on the goods impact fair value?

Legal restrictions fall into one of two buckets – those that affect the entity, or those that affect the asset. Legal restrictions that affect the entity, such as an IRS limitation prohibiting the sale of the goods, do not impact the underlying assets’ fair value because a hypothetical buyer would not consider them in a purchase decision. On the other hand, legal restrictions that limit the sale of gifts-in-kind to certain markets may affect the assets’ fair value. For example, a land conservation easement that limits the use of a piece of land would be considered by a hypothetical buyer and may affect its value. Not-for-profits should consider legal restrictions that affect the asset when making fair value determinations.

In summary, although not-for-profits may lack market experience for the gifts-in-kind they receive, they can look at the characteristics of their donors, goods received and hypothetical marketplaces to determine appropriate fair values. Donors and auditors also may provide valuable information to consider, but a not-for-profit is ultimately responsible for fair values reported in its financial statements.

Additional resources on valuing gifts-in-kind include this Journal of Accountancy article on how to avoid the pitfalls in gifts-in-kind valuation, the Not-for-Profit Section’s sample gift acceptance policy and other gift-related resources, the Not-for Profit Entities – Audit and Accounting Guide and InterAction PVO Standards.

Jennifer Brenner CPA, Controller at World Vision US. Jennifer has more than fifteen years of public and private accounting experience, including domestic and international accounting and tax compliance. She serves as chair of the AICPA’s Not-for-Profit Industry Expert Panel.

Volunteers courtesy of Shutterstock.

     

Related Stories

• 6 Reasons to Specialize in Employee Benefit Plans
• How to Build Your Back-to-School Budget
• Scenarios in Quarterly Estimated Tax Payments