CFO Essentials Newsletter - May 2012

May 2012

RISKSINTERNALCONTROLS

I.T.MANAGEMENT

FINANCIALREPORTING

TECHNICALACCOUNTING

REGULATORYREPORTING

M&A

TAX

RESOURCEMANAGEMENT

CASHFLOW

REGULATORY REPORTING____________________________________________________________

Jumpstart Our Business Startups (JOBS) Act

I.T. MANAGEMENT____________________________________________________________

The Benefits of Moving Our Lives into the Cloud: It’s Business and Personal

TAX____________________________________________________________

Amazon Law Held Unconstitutional

Essential BriefingsCERTAIN PROPOSED FASB STANDARDS

Contents______________________________________________________________________________________________________________________________________________________

ESSENTIAL BRIEFINGS2 CERTAIN PROPOSED FASB STANDARDS

The FASB currently has numerous outstanding Exposure drafts, but there are two that potentially have a significant impact on our clients. These proposed standards have been continually discussed within the accounting profession, and in the business press.

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REGULATORY REPORTING5 JUMPSTART OUR BUSINESS STARTUPS (JOBS) ACT

On April 5, 2012, President Obama signed into law the “Jumpstart Our Business Startups Act” (JOBS Act). JOBS Act was previously passed by both the House of Representatives and U.S. Senate.

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I.T. MANAGEMENT7 THE BENEF ITS OF MOVING OUR L IVES INTO THE CLOUD:

I T ’S BUSINESS AND PERSONAL The risk of losing documents, photos and files on our personal computers and business networks through viruses or hardware malfunctions has become too great and hard to manage.

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TAX9 AMA ZON L AW HELD UNCONST I TUT IONAL

In a decision that could have far-reaching impact, an Illinois state court judge has ruled that the state’s Amazon law, passed to tax online sales of in-state affiliates, is unconstitutional.

May 2012

1 | SingerLewak May 2012

E S S E N T I A L B R I E F I N G S

CERTAIN PROPOSED FASB STANDARDSBY JIM PITRAT, CPA | CO-MANAGING [email protected] | 310.477.3924

The FASB currently has numer-ous outstanding Exposure drafts, but there are two that potentially have a significant impact on our clients. These proposed standards have been continually discussed within the accounting profession, and in the business press. These proposed standards are:

1. Leases2. Revenue RecognitionAll three proposals are considered “Convergence” standards and are being exposed in conjunction with IASB. All three proposed standards have been exposed for some time and have drawn a significant amount of comments and discussion on their drafts. The status of these three stan-dards and the primary provisions of each are as follows:

LEASES

The Proposed ASU on Leases, was issued in July 2010. The stan-dard would substantively elimi-nate the concept of an operating lease. The following summarized the primary provisions:

•A lessee would recognize an asset representing its right to use an underlying asset and a liability (at present value of the lease payments) to make lease payments. The asset would be amortized over the shorter of the expected lease term, or the useful life. - A lessee would recognize interest expense would be recognized on the lease li-ability.

- At the end of each reporting period, a reassessment of the carrying amount of the lease liability may be required if there are significant changes from the previous reporting period.

- In the event that there is a change to the lease term, both the liability and the as-set are adjusted.

•A lessor would recognize an asset representing its right to receive lease payments and one of the following (depending on risks transferred and other considerations): - Under the “performance-ob-ligation” approach, recognize a lease liability and receivable and continue to recognize the underlying asset itself. or

- Under the “derecognition” approach, an asset represent-ing the right to receive lease payments is set up, the por-tion of the carrying amount representing the lessee’s right to use the asset during the term of the lease would be derecognized, and the re-maining portion of the asset’s carrying amount represent-ing the rights in the asset retained by the lessor would be reclassified as a residual asset. The right to receive lease payments is measured at amortized cost.

May 2012 SingerLewak | 2

• In addition, there are certain rules applicable to short term leases.

• In a Sale-Leaseback Transac-tions the transferor would set up a right-of-use asset and liability to make lease payments if the transfer meets the condi-tions for a sale. If the transfer does not meet the conditions for a sale, the transferor would account for the transaction simply as a financing.

•Additionally, in a Sale-Lease-back Transactions, if the trans-fer qualifies as a purchase, the transferee would account for the transaction as such. If the transfer does not qualify as a purchase, the transferee would not capitalize the asset and would recognize the amount paid as a receivable.

The FASB is expected to reissue exposure drafts based on com-ments received and discussions with the IASB during 2012.

REVENUE RECOGNIT ION

In November 2011, the FASB issued Proposed ASU No. 2011-230, Revenue Recognition. The exposure draft would create a comprehensive revenue recogni-tion model and would supersede most current revenue standards.

Recognition Principle:

The core principle of the stan-dard would be to account for the transfer of goods and services to customers in an amount reflect-ing the consideration which the entity expects to receive in ex-change. Under the proposal, this requires the reporting entity to:

1. Identify the contract with a customer.

•Under the standard, a contract exists only if neither party could unilaterally terminate an unperformed contract without penalty, and - The contract has commercial substance,

- The parties have approved the contract and are committed to satisfying their respective obligations,

- The reporting entity is able to identify each party’s enforce-able rights, and

- The reporting entity can identify the terms and man-ner of payment.

2. Identify the separate perfor-mance obligations within a contract.

• If the promised goods or services underlying a separate performance obligation are transferred to a customer over a period of time, a method that best measures the entity’s prog-ress in satisfying the obligation would be applied to recognize revenue.


The exposure draft would create a comprehensive

revenue recognition model and would supersede most current revenue standards

3. Determine the transaction price.

•When a performance obliga-tion is satisfied, revenue is recognized in the amount of the transaction price allocated to the performance obligation.

• If the consideration is variable, the amount of revenue rec-ognized could not exceed the amount the entity is reasonably assured to be entitled.

•The reporting company would have to consider (1) the time value of money, (2) non-cash consideration received, and (3) consideration payable to the customer when determining transaction price

•Collectability would not affect the transaction price or the amount of revenue recognized.

4. Allocate the transaction price to the separate performance obligations.

•The transaction is allocated to all separate performance obli-gations relative to standalone selling price of the goods or services underlying each of the performance obligations.

5. Recognize revenue when, and as, each performance obliga-tion (i.e., each promise speci-fied in the contract to transfer goods or services) is satisfied.

Other Items discussed in the pro-posed standard:

• If a performance obligation to be satisfied over a period longer than one year is “onerous”, a liability, and corresponding expense, is established. - A performance obligation is onerous if the lowest cost of settling it exceeds the amount of the transaction price al-located to it.

6. Costs incurred in fulfilling a contract would be capitalized if the costs relate directly to a

contract or a specific anticipat-ed contract, generate resources that will be used in satisfying performance obligations and are expected to be recovered. - An asset far capitalized costs are amortized on a systematic basis consistent with the pat-tern of transfer of the goods or services to which they relate.

- An impairment loss is recog-nized if the asset’s carrying amount is greater than the remaining amount of consid-eration to which the entity expects to be entitled.

Currently no date has been set by the FASB for issuance of a re-vised exposure draft or standard.

Recognize revenue when, and as, each performance

obligation is satisfied


JUMPSTART OUR BUSINESS STARTUPS ACTBY HARMEET SINGH, CPA | [email protected] | 408.294.3924

On April 5, 2012, President Obama signed into law the “Jumpstart Our Business Start-ups Act” (JOBS Act). JOBS Act was previously passed by both the House of Representatives and U.S. Senate.

Principally the goal of the JOBS Act is to encourage private com-panies to raise capital through an initial public offering, which hopefully will lead to job creation and growth, without carrying all the burdens and costs of being a public company. In order to achieve that goal, the JOBS Act would create an IPO on-ramp or a phase in disclosure require-ments.

Overall the JOBS Act aims to reduce the regulatory burden

created by the Sarbanes-Oxley Act of 2002. The new law makes several significant changes to the securities laws currently in place. The JOBS Act is targeted for businesses with less than $1 billion in sales or $700 million in market capitalization prepar-ing to go public. Effectively the JOBS act is creating a new category of public companies referred to as “Emerging Growth Companies” (EGC) for which the SEC reporting requirements are less robust.

In addition, the JOBS Act benefits EGC by creating an exemption for “crowdfunding” transactions and increasing share-holder thresholds that trigger

public company registration and reporting requirements from 500 shareholders of record to 2,000 shareholders of record.

The JOBS Act would allow the EGC the following:

•Submit a registration statement to the SEC on a confidential basis. (Equity IPO transaction)

• Include two years, rather than the current three year require-ments, of audited financial statements in its registration statements filed with the SEC.

•Reduced number of years presented under the selected fi-nancial data both a registration

R E G U L AT O R Y R E P O R T I N G

REGULATORY REPORTING


Principally the goal of the JOBS Act is to encourage private companies to raise capital through an initial

public offering, which hopefully will lead to job

creation and growth

Effectively the JOBS act is creating a new category

of public companies referred to as “Emerging

Growth Companies” (EGC) for which the SEC reporting requirements are

less robust

statements and periodic filings. (Exclude selected financial data for any periods prior to the earliest audited financial state-ments)

•Adopt new or revised account-ing standards in the same time frame as private companies

•Exempt from external audit re-quirement of its Internal Con-trol over Financial Reporting as currently required by Section 404 of the Sarbanes-Oxley Act

of 2002. (Management still has to assess the effectiveness of its Internal Control over Financial Reporting)

•Reduced executive compensa-tion disclosure. (Similar report-ing requirements as the smaller reporting companies)

To be qualified as an EGC, total gross revenue cannot exceed $1 billion in its most recently completed fiscal year. The JOBS Act allows for companies to be classified as an EGC for a maxi-mum of 5 years after a success-ful completion of the company’s IPO. A company will be dis-qualified as an EGC if any of the following criteria are met:

•Total gross revenue exceeds $1 billion

•Market capitalization exceeds

$700 million (qualified as a large accelerated filer)

• Issues greater than $1 billion in non-convertible debt in a 3 year period.

IPO’s effective on or before December 8, 2011, would not be eligible for EGC classification.


To be qualified as an EGC, total gross revenue cannot exceed $1 billion

in its most recently completed fiscal year

THE BENEFITS OF MOVING OUR LIVES INTOTHE CLOUD: IT’S BUSINESS AND PERSONALBY RICK MARK | SERVICE AREA [email protected]

The risk of losing documents, photos and files on our personal computers and business networks through viruses or hardware mal-functions has become too great and hard to manage.

In March’s article, I discussed some of the easy things we can do in the Cloud to make our lives easier and put those mundane tasks, such as bill paying on au-topilot. Well this month, we get a little more personal – let’s talk

data soup! There are lots of things that go into data, of any kind. For instance, a simple report that an employee spends a day putting

together, or how about your kid’s Basketball lineup for tomorrow’s game that you spent 2 hours putting together? I don’t know about you, but having to pay to have the employee to rebuild that report a 2nd time - if it somehow was lost or corrupted - is not the way I want my business to spend its capital. And I sure don’t have another spare couple of hours to put together that basketball lineup, but I have to so I now have to MAKE TIME where it wasn’t available before.

Wouldn’t it have been great if I could have that employee recover that document, or any variation of it, within seconds, versus hours

or days? Wouldn’t it have been great if when my home computer crashed, that I could have gone to a library or friend’s house, or even my cell phone, and recov-ered the lost basketball schedule – in seconds? Great isn’t the word really – it’s Why? Why can’t I already do this?

Well you can! Business solutions range in many sizes and com-plexities depending on your indi-vidual and business needs. Also,

the level of recovery will also change depending on amount of data, users, locations, etc. This

I . T . M A N A G E M E N T

I.T. MANAGEMENT


Wouldn’t it have been great if when my home computer crashed, that I could have gone to a

library or friend’s house, or even my cell

phone, and recovered the lost basketball schedule –

in seconds?

The risk of losing documents, photos and

files on our personal computers and business

networks through viruses or hardware malfunctions has become too great and

hard to manage


isn’t a quick and simple solu-tion in many cases. For personal storage or document archiving or storage, look into DropBox, IDrive among others. IDrive for instance will save your word,

excel and other documents as you write them and save them – to the Cloud.

So the above are some general and very standard solutions to common problems with data – but what about applications and their data?

Both business and personal solutions are out there and very affordable. You can host your accounting software, CRM and other integrated applications in the Cloud – and get the same recovery and redundancy benefits that you would for other Cloud services.

You can use services like Google Apps – and not have to worry about your general documents, storage, email, etc. – all you need is internet access and you are ready to go. Imagine how much money you DON’T have to spend on a computer that just

needs to access the internet to be fully functional? This goes for businesses too – less money spent on servers sure, but the employee computers do not have to be powerhouses anymore either. This can save you large capital dollars.You can use services like

Google Apps – and not have to worry about

your general documents, storage, email, etc. – all

you need is internet access and you are ready to go

AMAZON LAW HELD UNCONSTITUTIONAL

In a decision that could have far-reaching impact, an Illinois state court judge has ruled that the state’s Amazon law, passed to tax online sales of in-state affiliates, is unconstitutional.

The affiliates, who publish Web site content, are compensated by purchases made by “click-through” advertising. The de-cision found that the affiliate relationship did not constitute substantial nexus, and therefore violated the Commerce Clause of the Constitution.

“We were surprised, not that the court ruled in our favor, but that the decision was made so quickly,” said Rebecca Madi-gan, executive director of the

Performance Marketing Associa-tion, the trade organization that brought the suit.

“Our goal is to allow the 9000 Internet affiliate marketers to get back into business as quickly as possible.”

Madigan estimates that about a third of the affiliates moved out of state when the law restrict-ing their income was passed. “You can’t stay in business when you’re losing half your revenue,” she said. “By our estimates they earned $740 million in 2010, the year before the law passed, and paid $22 million in state income tax.”

The Illinois Department of Revenue is expected to appeal the decision.

An Illinois state court judge has ruled that

the state’s Amazon law, passed to tax online sales of in-state affiliates, is

unconstitutional Madigan estimates that about a third of

the affiliates moved out of state when the law

restricting their income was passed. “You can’t stay

in business when you’re losing half your revenue,”

she said.

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SingerLewak is a leading regional accounting services firm in California with offices in Los Angeles, Orange County, Woodland Hills, Monterey Park, San Diego, Silicon Valley and San Francisco. Serving California since 1959, SingerLewak has established a reputation for excellence as professionals with unparalleled expertise in the Accounting and Management Consulting industry. Providing the services of a large firm with a blended environment of practices, industry specializations and particular attention to hands-on service, SingerLewak continues to demonstrate leadership and industry growth year-over-year. Our client relationship approach and industry excellence is renowned.

We are nationally recognized as active community and professional services partners, working among many sectors of the business world. Our core services deliver results whether it’s auditing, accounting, entrepreneurial business services, tax preparation, business manage-ment, SEC filings, transactions, enterprise risk manage-ment, forensic accounting, business valuation, litigation support, or consulting.

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CFO Essentials Newsletter - May 2012

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