Cybersecurity and Accounting

 

In today’s current digital age, a lot of people have at one point wondered if their online accounts have been compromised or have been part of a large store or restaurant data breach. With the constant news cycle, it can become desensitizing but it is imperative, especially for public companies, to be vigilant and educate their employees and stakeholders on proper protocols and procedures for minimizing risk. Accounting professionals are in a unique position to be utilized in the effort to maintain cybersecurity.

SEC Release

The Securities and Exchange Commission (SEC) issued guidance on cybersecurity. In an article produced by Deloitte’s Christine Mazor and Sandra Herrygers that appeared in The Wall Street Journal, they explained that “issued on February 21, 2018, the release largely refreshes existing SEC staff guidance related to cybersecurity and, like that guidance, does not establish any new disclosure obligations but rather presents the SEC’s views on how its existing rules should be interpreted in connection with cybersecurity threats and incidents.”

The rise and scope of these threats is important to note, as well as the varying type of attacks. The compromising of an employee’s password and the complete breach of a major retailer’s financial transactions are difference in degree, but the need for security is the same.

Further detailing the SEC’s release, EY provided this statement from the SEC: “given the frequency, magnitude and cost of cybersecurity incidents, the Commission believes that it is critical that public companies take all required actions to inform investors about material cybersecurity risks and incidents in a timely fashion, including those companies that are subject to material cybersecurity risks but may not yet have been the target of a cyber-attack.”

In a description of the release, EY explains that one of the main components is “clarifying that disclosure controls and procedures should enable registrants to identify cybersecurity risks and incidents, assess and analyze their implications and make timely disclosures.”

Risks

Due to the nature and increased sophistication of cyberattacks, PricewaterhouseCoopers stated that “the current US standalone cyber insurance market is estimated at $2.5-$3.5 billion annually…” This alone portrays the vastness and severity of cyber dangers that face companies, specifically public ones.

Lisa Traina lists for AICPA the top 5 cybersecurity dangers that companies and CPAs face:

  1. Ignorance
  2. Passwords
  3. Phishing
  4. Malware
  5. Vulnerabilities

The first, ignorance, is important because accountants and other hired parties cannot help a company if there is no belief that a danger exists. Regarding passwords, Lisa explains that due to the cloud and remote accessing, the need for strong passwords has increased. Furthermore, she advises against employees carelessly storing passwords in places that can be easily compromised, such as a desktop folder. Phishing, malware and vulnerabilities speak to the need for strong IT infrastructure as well as strong employee training on how best to avoid recognizable compromises.

Given the climate of increased technologies correlating to increased risk, Terry Sheridan asserts that “not all that long ago, most companies relegated anything “cyber” to the IT department. But as recognition grows that cybersecurity risks include personnel practices, supply chain management, and operational decisions, more enterprise-wide approaches to managing these risks have evolved.” This includes accountants and finance professionals.

Accounting Attributes

Terry notes that the Center for Audit Quality (CAQ) published a white paper entitled “The CPA’s Role in Addressing Cybersecurity Risk,” which highlights the inherent strengths of accountants to aid with cybersecurity.

  1. Core values and attributes

Terry explains that “CPAs are viewed by management and boards as trusted advisors who have a board understanding of businesses, who receive appropriate annual training, who comply with a code of ethics, and who are subject to rigorous external quality reviews.”

  1. Experience in independent evaluations

The framework has already been laid to make the connection from accounting to cybersecurity, Terry reveals: “…many large and midsized CPA firms have built substantial IT practices that provide attestation and advisory services to organizations on IT security-related matters…”

  1. Multidisciplinary strengths

This point is important as the combination of accounting knowledge and information technology knowledge is being specifically sough after by firms. For students and professionals looking to enrich or advance their accounting career, adding a specialty of IT knowledge would be very useful for public companies.

Unified Framework

Furthermore, there is a need for common language and procedures so companies can have a roadmap to assess their situation and progress. Susan S. Coffey explains that “there hasn’t been a consistent, common language for describing and reporting on the cybersecurity risk management programs organizations put in place. This lack of transparency makes it difficult for stakeholders to determine whether an organization’s cybersecurity risk management plan effectively addresses potential threats.”

For this reason, she described that a framework has been developed by Assurance Services Executive Committee (ASEC) comprised of accountants with IT work history with clients; the framework can be found at aicpa.org/cybersecurityriskmanagement.

Coffey outlines how the framework helps accountants become further involved in cybersecurity: “management accountants more directly involved with the organization’s cybersecurity efforts can promote awareness and use of the framework as a means of communication those efforts, both internally and externally, and of evaluating the effectiveness of the organization’s controls in achieving its cybersecurity objectives.”

Expounding on the framework, Russ Banham for Journal of Accountancy, specifically outlines the opportunities for accountants:

  • CPAs to perform a consulting engagement to help a client’s management develop a description of its cybersecurity risk management program to provide to the board and other internal parties…
  • CPAs to perform a consulting engagement known as a “readiness assessment” to help a client identify where its cybersecurity processes and controls may need to be shored up.
  • CPAs to perform a System and Organization Controls (SOC) for Cybersecurity examination engagement to assess the client’s cybersecurity risk management program…

The framework’s suggestion that accountants can be on the forefront of providing sensitive information to a company’s Board is important to note, as a Board’s responsibility is to monitor and be made aware of critical issues facing company operations.

Role of the Board

Christopher P. Skroupa, a Contributor to Forbes, has interviewed Michael Yaeger, an expert in cybersecurity. In response to a question about the role of cybersecurity as it relates to the Board, Yaeger explained that “one basic function of a modern corporate Board is to oversee risk management, and many risks do not present themselves as cybersecurity issues.” This is all the more reason to be vigilant on all sides of a company’s operations, including accounting and finance.

Speaking specifically on what the Board can do regarding cybersecurity, Yaeger asserts that “the board must ensure that the company has cyber risk management policies and procedures consistent with its strategy and risk appetite, and the board must ensure that these policies and procedures are functioning.”

It is a given that there are moving pieces when it comes to cybersecurity and the need for employees and a company at large to be secure. For this reason, it is most beneficial when accounting professionals have a multi-layered background that includes cybersecurity so they are able to be an additional line of defense. And as the research has shown, accounting and cybersecurity is a perfect match.

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Sources:

Banham, Russ. “Cybersecurity: A new engagement opportunity.” Journal of Accountancy, 22 May 2018. < https://www.journalofaccountancy.com/issues/2017/oct/cybersecurity-engagement-for-cpas.html>

Coffey, Susan S. “It’s Time to Speak the Same Language on Cybersecurity.” AICPA, 22 May 2018. < http:// blog.aicpa.org/2017/05/its-time-to-speak-the-same-language-on-cybersecurity. html#sthash .aVdMkso8  .pnI16iEE.dpbs>

Mazor, Christine and Herrygers, Sandra. “SEC Issues Cybersecurity Guidance.” The Wall Street Journal, 22 May 2018. <http://deloitte.wsj.com/cfo/2018/04/27/sec-issues-cybersecurity-guidance/>

Porcelli, Mike et al. “Are insurers adequately balancing risk & opportunity? Findings from PwC’s global cyber insurance survey.” PwC, 22 May 2018. < https://www.pwc.com/us/en/industry/assets/pwc-cyber-insurance-survey.pdf>

“SEC Reporting Update: SEC issues guidance on cybersecurity.” EY, 22 May 2018. < file:///C:/Users / llestino/Downloads/secreportingupdate_01030-181us_cybersecurity_22february2018.pdf>

Sheridan, Terry. “CPAs Have the Strengths Needed to Address Cybersecurity Risk.” Accountingweb, 22 May 2018. < https://www.accountingweb.com/aa/auditing/cpas-have-the-strengths-needed-to-address-cybersecurity-risk>

Skroupa, Christopher P. “Cybersecurity And The Board’s Responsibilities—‘What’s Reasonable Has Changed.’” Forbes, 22 May 2018. < https://www.forbes.com /sites/christopherskroupa/2018/04/19/ cybersecurity-and-the-boards-responsibilities-whats-reasonable-has-changed/#6c156c1e3c3c>

Traina, Lisa. “The top 5 cybersecurity risks for CPAs.” AICPA Store, 22 May 2018. < https://www.Aicpa  store.com/Content/media/PRODUCER_CONTENT/Newsletters/Articles_2015/CPA/JUN/fivecybersecurityrisks.jsp>

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The Art of the Thank You Note

Congratulations! Exploring the interview thank you note means that you’ve either had a phone or in-person interview, and that in itself is worthy of celebration. Now, in order to positively seal the memory of you in the hiring manager’s head, a perfectly crafted thank you note is essential.

The Opening

It may seem obvious or like an afterthought, but correctly addressing the hiring manager’s name, or whomever you met with, is essential. Erring on the side of formality is better, too. You may have overhead colleagues address the hiring manager by a nickname or shortened version of their name, but this is best left for once you have been hired.

A good rule of thumb is to use the name that appears in the person’s email signature.

The spelling of the name is highly important as well, as this shows attention to detail and attentiveness.

The Content

The overall goal of the thank you note is to thank the person or people who took time out of their day to speak or meet with you, while also conveying yourself as a competent and engaging candidate. The sentences you write should be genuine and authentic; not boilerplate language that is recycled for use after each interview. Briefly touch on why you can see yourself in the role and the skills and experience you would bring to the table along with how your personality would be a good culture fit for the organization.

The Timing

Due to the fast-paced nature of the job market, it is imperative to send the thank you note on the same day as your interview or, at the latest, the beginning of the following day. You want to remain top of mind with the hiring manager(s) who may have met a few people that same day.

When a great candidate sends a heartfelt and timely thank you note expressing continued interest in the role, organization and potential colleagues, the positive benefits cannot be understated.

Interview Wardrobe 101

Preparing for an interview can be stressful. Not only are you focusing on impressing the hiring manager(s) with your skills, experience and personality but you have to assemble the perfect outfit that conveys that you are a competent and polished professional. Don’t allow your clothing to be an afterthought because if they were not appropriate, they will do the talking for you long after you leave.

Dress to Impress

It is no secret that you want to dress to impress for your interview not only for the hiring manager(s) but everyone else that you meet, from the receptionist to the C-suite executives you may pass in the hallway. “Who is that?” asked by the CEO as he happens to pass in the hallway about you will get you noticed quickly.

The Suit

Wearing a suit should be considered standard for an interview. If the position is in a corporate law firm or professional service environment, you will fit right in. If the role is within more of a creative company, you will stand out as a candidate who takes their job opening seriously and intends to make a good first impression. For men, the suit should be accompanied by a matching tie and dress shoes. For women, it can be paired with an appropriate shirt and business shoes; a dainty, understated necklace can tie everything together.

The Iron

Remember, if your clothes are not pressed, the effort you put in to assemble the perfect outfit will be lost. Trying everything on beforehand and setting them aside in your closet will save you the stress of finding out last minute that the suit you wanted to wear should have been dry cleaned after your cousin’s wedding!

Accessories

For women, the dainty necklace can add a nice flair to your outfit and showcase a pop of style. A professional watch can also be a nice choice. Other than additional small rings and possibly a thin bracelet, jewelry and accessories should be kept at a minimum as you don’t want them to serve as a distraction. When writing notes during the interview, you don’t want your chunky bracelet to clank repeatedly on the table. Nor do you want to be fidgeting with your necklace that has gotten tangled in your shirt.

For men as well as women, keep your phone on silent and in your purse or pocket. Making sure you remove sunglasses from the top of your head is also paramount as it can really have a negative impact on some hiring managers. Keeping the amount of items you walk in with to a minimum is also important, as you want to give the impression that the interview is a central part of your day and not part of a longer string of appointments or interviews.

Colors

A good rule of thumb is to stay away from overly bright colors and or garish patterns in your outfit. The color palette of white, blue, black, beige, brown and red is a safe bet.

There are a lot of things to consider when mulling over a job change or accepting your first job. Conducting the interview in a fantastic and appropriate outfit will put the odds in your favor as you impress everyone with your personality and skills!

FCPA Compliance on Radar of Accounting Professionals

The Foreign Corrupt Practices Act (FCPA) should be top of mind for not only current accounting and finance employees (along with senior management, stakeholders and other relevant parties), but other professionals who are looking to advance their finance and accounting career or break into the industry.

The FCPA

Within the FCPA there are two provisions: anti-bribery and accounting.  With our focus mainly on accounting, Brian Loughman of Ernst & Young, Aaron Marcu of Freshfields Bruckhaus Deringer US LLP, and Kerry Schalders of Dex One Corporation detail for the Association of Corporate Counsel that the FCPA “requires companies registered with the SEC to keep accurate records of all business transactions and maintain an effective system of internal accounting controls” for both public and private companies. The importance of this lies in the fact that violations “can result in lengthy and disruptive SEC and DOJ criminal investigations and stiff criminal penalties for companies and individuals,” explain Loughman et al.

Origin

The origin of the FCPA goes back to the time of Watergate. Stuart H. Deming of Deming PLLC writes in Business Law Today’s “FCPA Prosecutions: The Critical Role of the Accounting and Recordkeeping Provisions” article that “one of the lesser-known problems disclosed by the revelations of the Watergate era in the United States was the accounting and recordkeeping practices that made improper payments possible. To address these practices…the FCPA placed new and significant obligations on issuers to make and keep accurate records and to maintain a system of internal accounting controls.”

Top 5 Controls

The focus and significance placed on these accounting controls has not lessened since that time. Matt Ellis for FCPAméricas lists the five most important accounting controls as:

  1. Accounts Payable
  2. Expense Reimbursement
  3. Payroll
  4. Petty Cash
  5. Claims.

The overall goal of these controls is to have accurate and detailed record books backed up with approvals and documentation that align with company procedures. Ellis expounds further on the control goals by saying that they are to “assure that (i) transactions are executed in accordance with management’s authorization; (ii) access to assets is permitted only with the proper authorization; and (iii) the accounting records reflect the existing assets.”

Also for FCPAméricas, Carlos Henrique da Silva Ayres outlines the distinction that “falsifying or failing to keep sufficient records of a transaction may also violate the FCPA if the company is publicly listed in the  United States—even if the underlying transaction is entirely legal.” This supports the notion of how careful and meticulous accounting and finance professionals must be.

In addition to the accounting employees, a company’s policies and procedures surrounding this must be detailed and comprehensive so that all employees can adopt the proper mindset and habits. Ayres goes on to say that these accounting controls are applicable to a company’s entire activity regardless of the financial amount.

Liability

In Business Law Today, Deming speaks a lot about liability, violations, and internal controls. In terms of liability, there are two distinctions: civil and criminal. He explains that “to be held civilly liable, it makes no difference whether the controlling entity lacks knowledge of the conduct” and that “criminal liability may be established where an individual or entity…knowingly circumvents or fails to implement a system of internal controls or knowingly falsifies any book, record, or account.” The illustrates the notion of intent within violations and really highlights the need for a company to have a comprehensive plan in place because claiming ignorance will not be sufficient, especially since recordkeeping violations are not reserved for senior management, but anyone.

In discussing the need for clean books and records, Deming brings to the forefront that the overall goal is to “strengthen the accuracy of the corporate books and records and the reliability of the audit process.” The records that bring the most attention are the ones having to do with audits and financial statement preparation.

Examples

To illustrate his points, Deming describes examples of violations, two of which are below:

  1. “Even if the amount of a transaction does not affect the bottom line of an issuer in quantitative terms, it may still constitute a violation of the recordkeeping provisions if not accurately recorded.”
  2. “Manipulating records to mask transactions by characterizing them in some oblique manner or actually falsifying a transaction can implicate an issuer and those individuals involved.”

The element of intent comes into play in the second example while both showcase the importance of accounting and finance professionals being above board in all aspects of company business. For those looking to begin a career in the accounting/finance industry, it behooves those individuals to grasp the gravity of this compliance.

Internal Controls

At the core of the compliance is making sure company finances are recorded and reflected correctly. Deming concludes that “the purpose of internal controls is to ensure that issuers adopt accepted methods of recording economic events, protecting assets, and confirming transactions to management’s authorization. No specific system of internal controls is required.”

The open-endedness of the specifics of the controls can be viewed as a positive or negative. While each company can develop a plan that works best for them, it also requires a plan to be made and in place with employees being mindful of it.

Company Management

The burden, therefore, lies with company management. Deming points out that “the accounting and recordkeeping provisions…create affirmative duties on the part of issuers and officers, directors, employees, agents, and stockholders acting on behalf of an issuer.” Furthermore, Deming explains that “subject to criminal sanctions, internal control reports are now required expressing management’s responsibility for establishing and maintaining adequate internal controls for financial reporting and assessing their effectiveness.”

This responsibility is a central notion to the FCPA compliance and should be kept at the forefront in the minds of company accounting and finance professionals.

Managing Risk

For the Association of Corporate Counsel, Loughman et. al. outlines ten pieces of advice for companies trying to mitigate risk:

  1. Determine your FCPA risk.
  2. Develop an FCPA compliance policy.
  3. Train your personnel regularly on your FCPA compliance policy and FCPA requirements.
  4. Establish an FCPA compliance team, including legal, financial reporting and internal audit personnel.
  5. Identify countries where in-house counsel employed by your company and its subsidiaries and affiliates are not covered by attorney privilege doctrines.
  6. Determine whether any other country’s anti-bribery laws may apply to your company.
  7. Judiciously consider using outside counsel in your company’s FCPA compliance program, especially where privilege may be an issue.
  8. Direct your company’s financial reporting personnel to keep accurate books and maintain a system of internal accounting controls.
  9. Make FCPA review part of M&A and JV due diligence.
  10. The SEC and DOJ expect robust and verified compliance.

These suggestions highlight the necessity that senior management not only needs to support policy and procedures that protect their company’s financial operations but provide the necessary materials and training for employees.

Perhaps Richard A. Sibery of Ernst & Young LLP says it best in the Corporate Counsel Business Journal when he says that “many more companies are taking additional steps to raise awareness of the importance of compliance with FCPA among their global employees, to assess whether they have the proper controls in place going forward and to provide training as to how employees should react if an FCPA compliance failure should be detected.”

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Sources:

da Silva Ayres, Carlos Henrique. “Key Aspects of the FCPA Accounting Provisions.” FCPAméricas, 22 Feb. 2018. <http://fcpamericas.com/english/enforcement/key-aspects-fcpa-accounting-provisions/&gt;

Deming, Stuart H. “FCPA Prosecutions: The Critical Role of the Accounting and Recordkeeping Provisions.” Business Law Today, 22 Feb. 2018. <https://www.americanbar.org/publications/blt/2010/08/06_deming.html&gt;
Ellis, Matt. “The Ten Most Important FCPA Internal Controls (Part 1: Accounting Controls).” FCPAméricas, 22 Feb. 2018. <http://fcpamericas.com/english/anti-corruption-compliance/ten-important-fcpa-internal-controls-part-1-accounting-controls/&gt;

Loughman, Brian et al. “Top Ten Tips for FCPA Compliance.” Association of Corporate Counsel, 22 Feb. 2018. <http://www.acc/com/legalresources/publications/topten/fcpa-compliance.cfm&gt;

Sibery, Richard A. “FCPA Compliance: How Accounting Professionals Can Help.” Corporate Counsel Business Journal, 22 Feb. 2018. <http://ccbjournal.com/articles/8134/fcpa-compliance-how-accounting-professionals-can-help&gt;

Lease Changes and Ramifications

2019 will be a big year for the treatment and reporting of leases and the impacts to the lessee, lessor, and company at large are shaping up to be significant.

Origin of Change

In a news release by the Financial Accounting Standards Board (FASB), it was noted that these changes have been a long time coming and first began in 2006 with the teamwork of the FASB and International Accounting Standards Board (IASB).

Reason for Change

Given the far-reaching effects, the FASB Chair, Russell G. Golden was quoted in the FASB news release explaining what brought about the changes: “the new guidance responds to requests from investors and other financial statement users for a more faithful representation of an organization’s leasing activities. It ends what the U.S. Securities and Exchange Commission and other stakeholders have identified as one of the largest forms of off-balance sheet accounting.”

Lease Importance

In their publication “IFRS 16: The leases standard is changing: Are you ready?,” PricewaterhouseCoopers explained the importance of leases to businesses and why, depending on the industry, they can be essential to operations: “leasing is an important and widely used financing solution. It enables companies to access and use property and equipment without incurring large cash outflows at the start.”

The importance of leases, therefore, directly correlates as to why these changes are consequential.

Old Method

Before delving into the changes and impacting ramifications, Work US detailed the old method of treating leases and explained that the reason the changes were made was due to a quest for transparency: “under the current accounting standards, leases must be defined as either finance or operating leases. Operating leases are treated as expenses on our income statement, leaving the balance sheet unaffected. Finance leases…are treated as both assets and liabilities on the balance sheet.”

Central Change

The deletion of the finance vs operating lease notation is the central change to the leasing standard and the basis for the impacting ramifications.

The FASB made clear in their news release that the “new ASU will require both types of leases to be recognized on the balance sheet” and “will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements.”

The significance of this cannot be understated as the effects will be felt by not only the parties to the lease but the accounting and IT departments of the company, as well.

Main Effect

Work US explained that due to the erasing of the finance and operating lease distinction, “all leases will be capitalized” and “trillions of dollars worth of leases are expected to be brought onto company books as a result.”

Dates

In their article “New leases standard-effective date and sweep issues,” EY published that the “IASB decided to require entities to apply the new leases standard for annual periods beginning on or after 1 January 2019.”

Work US further detailed that “public companies will be required to retrospectively apply the new standards to their 2017 and 2018 financial statements, with nonpublic companies expected to do the same for 2018 and 2019.”

Further changes

EY included the following decisions as central to the changes:

  • Lease modifications treated as a separate new lease;
  • Reassessment of the discount rate for Floating interest rate leases;
  • Costs associated with returning an underlying asset at the end of a lease;
  • Short-term leases and leases of low-value assets in a business combination;
  • Disclosure requirements for leases within the scope of IFRS 5.

These decisions are worth delving into further for any accountant and or accounting department to understand the true parameters of these changes and how the costs and finances of an entity will be truly affected.

For finance professionals that have just changed companies or are interviewing will new companies, studying the impact of these changes would serve you and the new/prospective company greatly.

Impacts and the way forward

PwC divulged that “the pervasive impact of these rules requires companies to transform their business processes in many areas, including finance and accounting, IT, procurement, tax, treasury, legal, operations, corporate real estate and HR.”

Street Fleet, a courier and logistics company, commented that “those in retail, distribution, agribusiness and logistics are expected to be most affected and should be aware of the potential consequences.” Once implemented, they are hoping for the financial transparency that the standard will require.

Work US suggested that given the likely increase of assets and liabilities for companies, short-term leases should be considered as well as ownership, when possible.

PwC put out the below list of ramifications and they are worth exploring:

  • Financial ratios and performance metrics redefined;
  • Stakeholder awareness and communication;
  • Implementation can be cumbersome and costly;
  • New IT systems and robust processes and controls needed;
  • Benefits to lessees beyond compliance and new opportunities for lessors;
  • Unexpected tax consequences may arise.

As January 1, 2019 is a little less than a year away, affected and interested parties should use the upcoming year to fully grasp the changes and the steps that need to be taken.

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Sources:

“Changes to lease accounting come 1 Jan 2019.” Street Fleet, 24 Jan. 2018. <http://www.streetfleet.com/au/news/changes-to-lease-accounting-come-1-jan-2019&gt;

“Changes to leasehold accounting standards in 2019.” Work US, 24 Jan. 2018. <http://us-en.workunitedstates.regus.com/changes-to-leasehold-accounting-standards-in-2019/&gt;

“FASB Issues New Guidance On Lease Accounting.” Financial Accounting Standards Board, 24 Jan. 2018. <www.fasb.org/jsp/FASB/FASBContent_C/NewsPage&cid=1176167901466>

“IFRS 16: The leases standard is changing: Are you ready?” PwC, 24 Jan. 2018. <http://www.pwc.com/au/assurance/ifrs/assets/ifrs16lease-brochure.pdf&gt;

“New leases standard-effective date and sweep issues.” EY, 24 Jan. 2018. <www.ey.com/Publication/vwLUAssets/IFRS_Developments_Issue_114:_New_leases_standard_-_effective_date_and_sweep_issues/$FILE/Devel114-Leases-Oct2015.pdf>

Friedman Williams Gives Back

Even though the traditional season of giving is coming to a close, the employees of Friedman Williams like to give back throughout the year.

We’ve compiled a list of organizations and efforts that our team is involved with throughout the year:

Friedman Williams cares about building strong, great business relationships as well as contributing to and strengthening our larger community. We hope this list inspires you to take action!

Corporate Tax Rate Reduction

The start of a new year always brings about fresh possibilities and resolutions. This year, in 2018, the American economy was given fresh possibilities by way of the tax bill that was passed just before the new year.

The Cut

Joe Harpaz, a Contributor for Forbes, explains that “at roughly 500 pages, the bill contains hundreds of changes to the U.S. tax code, re-configuring everything from individual income tax brackets to the individual mandate requiring every American to carry health insurance. But the real star of the show is corporate tax.”

The reason for corporate tax getting so much positive attention is because the rate was lowered from the current 35% to 21%, according to Forbes.

Craig Richards for the Fiduciary Trust International details that the bill “attempts to encourage capital spending by allowing companies to immediately deduct 100% of their expenses for qualified property that is purchased between September 27, 2017 and January 1, 2023.”

The Reaction

No matter an individual political opinion, a lessened corporate tax rate that spurs on business and helps grow the economy is a plus.

Dinesh Kanabar for The Economic Times says that the bill makes the “US corporate tax rate extremely competitive and will promote substantial growth.”

The New York Times’ Jim Tankersley, Thomas Kaplan and Alan Rappeport explain that “the bill is heavily weighted toward business, which would receive about $1 trillion in net cuts…”

Tankersley et al. included Speaker Paul Ryan’s opinion: “with this plan, we are making pro-growth reforms, so that yes, America can compete with the rest of the world…”

The U.S. Chamber of Commerce’s Chief Policy Officer, Neil Bradley, refers to the bill as a “home run for economic growth,” according to The New York Times.

In an article for the Wall Street Journal, Richard Rubin and Siobhan Hughes noted that business groups are “praising the decision to cut the corporate tax rate starting next year as well as the elimination of the corporate alternative minimum tax.”

Andrew Schmidt, an accounting professor from North Carolina State University who concentrates on taxes, was featured in the WSJ explaining that “unquestionably, these guys have to be jumping for joy…I can’t think of any business-oriented group that has not been pushing for this for the past 15 years.”

Perhaps a central reason for the passage of this tax bill is a compilation of all these reactions, and is embodied in President Trump’s opinion, found in the Wall Street Journal: “our current tax code is burdensome, complex and profoundly unfair.”

An Arduous Implementation

Because of the intricacies of the complex bill, the actual implementation of the new tax bill will require quite a lot of work. Aspects of a company’s finances that will be affected, according to Forbes, are global trade strategy, earnings forecasting and capital expenditures.

Foreign/Offshore Money

Harpaz explains that the tax bill “also contains special provisions that let U.S. companies repatriate their foreign earnings back into the U.S. at a reduced tax rate.” The reduced rate that Harpaz mentions is 12% for cash and 5% for illiquid assets, as explained by Richards in the Fiduciary Trust International.

The result of this, explains Kanabar, is that “US corporates will have no incentive to leave profits overseas, and would rather get them to the US.” The impacts on foreign money is important as the more money that comes back to the US, the better off our economy will be.

Going into more detail, Richards discusses that “any dividends a business receives from an overseas subsidiary could also be deducted as long as the company owns 10% or more of the foreign corporation.”

Tankersley et al. for The New York Times delves into the reasoning, discussing that “the effort is aimed at preventing companies from shifting profits abroad and grabbing back some of the tax revenue on income earned overseas…the White House has said more than $2.5 trillion in American profits are held offshore.”

The bill is not only structured to provide incentives to bring back foreign/offshore money to America, but it includes a financial penalty for sending money back overseas. Tankersley et al. note that “it would also force American subsidiaries of foreign-owned companies to pay a 20 percent excise tax on any payments send back to foreign affiliates.”

In discussing steps that companies should take, Deloitte suggests that “companies should confirm there is appropriate documentation of existing E&P, tax pools, and foreign tax credit carryforwards.”

Responses and Suggested Steps

Joe Harpaz spoke with a group of well over 1,000 tax professionals that work on corporate and trust taxes and found that about 30% are taking a “wait and see” approach to the changes that will be coming forth from the bill, about 14% are explaining the impacts to their company and about 5% are discussing the tax bill with their senior management and Board.

Just like last month’s GAAP change article (https://wp.me/p7umfi-22) explained, it is very important to keep upper management, the Board, and key stakeholders in one’s company abreast of salient financial updates and changes.

Deloitte highlights that the “bill would require companies to remeasure their deferred tax assets and liabilities as of the date of enactment. Any tax effects resulting from enactment would need to be accounted for in the reporting period of enactment.”

A second recommendation from Deloitte is that “companies should confirm there is appropriate documentation to support adjustments to the resulting deferred tax, income tax payable or income tax receivable balances.”

The same group of tax professionals that Harpaz spoke with also elaborated on how their accounting strategies will be reformed. As he reported it in Forbes, “59% said they were already considering near-term actions…11.2% said they are planning to accelerate or defer expenses, 4.1% are planning to address their offshore assets…”

It will take awhile for each company to become adjusted to the intricacies of the new tax bill, but 2018 is starting with a corporate tax cut that will create business incentives and maintain a strong economy.

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Sources:

Harpaz, Joe. “Corporate Tax Pros Already Prepping for Tax Reform.” Forbes, 18 Dec. 2017. <https://www.forbes.com/sites/joeharpaz/2017/12/15/corporate-tax-pros-already-prepping-for-tax-reform/#7b54e584481a&gt;

Kanabar, Dinesh. “Corporate taxation: Prepare for a US homecoming.” The Economic Times, 18 Dec. 2017. <https://blogs.economictimes.indiatimes.com/et-commentary/corporate-taxation-prepare-for-a-us-homecoming/&gt;

“Preparing for Tax Reform: Action items necessary to record financial statement impact.” Deloitte, 18 Dec. 2017. <www2.deloitte.com/content/dam/Deloitte/us/Documents/Tax/us-tax-preparing-for-tax-reform-11.16.2017-web-version.pdf>

Richards, Craig. “Ready for Tax Reform? How to Prepare for the Unknown.” Fiduciary Trust International, 18 Dec. 2017. <http://www.fiduciarytrust.com/insights/commentary?commentaryPath=templatedata/gw-content/commentary/data/en-us/en-us-ftci/tax-planning/nov-8-2017-ready-for-tax-reform-how-to-prepare-for-the-unknown&commentaryType=TAX%20PLANNING&gt;

Rubin, Richard and Hughes, Siobhan. “House, Senate Republicans Reach Deal on Final Tax Bill.” The Wall Street Journal, 18 Dec. 2017. <https://www.wsj.com/articles/house-senate-republicans-reach-deal-on-final-tax-bill-1513185360&gt;

Tankersley, Jim et al. “Republican Plan Delivers Permanent Corporate Tax Cut.” The New York Times, 18 Dec. 2017. <https://www.nytimes.com/2017/11/02/us/politics/tax-plan-republicans.html&gt;