General

Accounting Update and Options

Posted on December 1, 2015 by

Clayton & Mckervey

Clayton & McKervey

Share This

At the September CFO/Controller Roundtable, Timothy J. Hilligoss, CPA, MST, Shareholder – International Accounting, Practice Leader for Asia, and Bryan Powrozek, CPA, CGMA, Senior Accountant – SME, discussed unique financial reporting and tax situations that would impact small to mid-sized entities. The open forum covered four main topics:

Accounting for Income Taxes for Pass-Through Entities

  • Importance of differentiating between tax and non-tax distributions
    • Review bank covenants to determine whether distributions for taxes can be excluded from covenant ratios
  • Best practice: Account for owner taxes (composite/withholdings) within the pass-through entity. Taxes include composite state taxes, non-resident withholding, and federal and state income taxes.  Alternative presentations include:
    • Establishing a payable account
    • Accrue monthly distributions in order to stabilize interim financials
    • Accrue tax distributions in relation to monthly performance (i.e., percentage of net income)
  • Other concerns addressed by participants
    • What is the appropriate tax rate to use?
      • Highest tax rate for any given owner
    • How to account for tax-related distributions on the statement of cash flows?
      • Gross Amount Presentation Method
      • A contra dividend account reflecting dividend accrued but not yet paid
      • Separate dividends for taxes from non-tax dividends

FRF for SMEs

  • An alternative framework intended to be simplified and relevant
  • No GAAP departure needed for variable interest entities (VIEs) under FRF alternative framework
  • Participants questioned whether there would be any additional cost
    • The alternative framework is intended to provide efficient, meaningful financial statements in a cost-effective manner. This is accomplished by alleviating the burden of complex account practices required by US GAAP, originally intended for non-SMEs.

The Use of Normalized Free Cash Flow in Operations and Business Valuation

  • A measure of financial performance which evaluates the availability of cash (EBITDA – Earnings Before Interest, Taxes, Depreciation, and Amortization) after accounting for discretionary items/adjustments (i.e., management fees, bonuses, etc.)
  • Calculation typically not straightforward; requires management to identify discretionary and non-recurring items

IRS and State Audit Areas of Focus

  • Federal Audits
    • Personal use of vehicles
    • Significant meals and entertainment
    • Club expenses and dues
  • State Audits
    • Errors in apportionment calculation
      • Every state has a different method
    • Reviewing all purchases made within a given year for items subject to Use Tax
      • Agent walkthrough with extrapolation for years not reviewed but still open for adjustment based on statute of limitations. No statute of limitations if a return has not been filed.
    • High risk states: Pennsylvania, New York, California, Texas, and Washington
      • Gross receipt and franchise taxes have lower threshold for creating taxability in the respective states

Clayton & McKervey

Related Insights

Digital Advisory Services

Using Standardization for Anything-But-Standard Results

Posted on June 29, 2022 by

Elly Mioduszewski
Running your business is hard, but how it’s run can be made easier. Implementing standardized work processes can provide you and your team with more time to look at results so you can determine where to go next—rather than spending unnecessary time capturing and correcting routine activity. 

Tax & Assurance Guidance

Understanding Your Cash Flow is Important-Here’s Why

Posted on June 24, 2022 by

Dave Van Damme
Managing cash flow in a business should go far beyond ensuring that you have funds available to pay your current bills. While that’s a threshold every new business should meet, developing deeper cash flow management skills is necessary to scale your business and prevent unnecessary stress. 

International Businesses

Teresa Gordon Selected for Select USA Mentorship Program 

Posted on June 24, 2022 by

Clayton & Mckervey
C&M Shareholder Teresa Gordon will be participating in SelectUSA’s Select Global Women in Tech (SGWIT) Mentorship Network.

Sign up for our newsletters

Get business and industry-specific news and knowledge straight from our consultants and accounting specialists.

The Sound of Automation Podcast

The Sound of Automation Podcast

Industrial automation businesses are the driving force behind Industry 4.0, and Clayton & McKervey is here to help.

Insights & Perspectives

Using Standardization for Anything-But-Standard Results

Running your business is hard, but how it’s run can be made easier. Implementing standardized work processes can provide you and your team with more time to look at results so you can determine where to go next—rather than spending unnecessary time capturing and correcting routine activity. 

Read More

The Sound of Automation Podcast

Industrial automation businesses are the driving force behind Industry 4.0, and Clayton & McKervey is here to help.

Skip to content