New Standards May Impact Budget Process

With everyone focusing on the accounting and disclosures associated with the new revenue and leasing standards, the longer term implications of the impact those standards will have on the traditional budgeting process may have been overlooked.  I want to spend a little time to give you some food for thought on the budget implications of these new standards.

The hidden impact of the new revenue standard is on the expense side.  The standard not only changes the way companies recognize revenue, it also requires the deferral of potentially significant amounts of installation and acquisition cost, especially for companies in service industries.  The traditional budget process includes a budget for revenue, expense and capital expenditures.  In general, these were good proxies for cash coming in and going out of a business.  Now with the requirement to defer potentially significant amounts of expense and then amortize those deferrals over several years, expense budgets may lose their connection to cash being spent by the business. Because cash is ultimately king, a business might want to think about the need to set up a “deferred cost” budget much like they have a capital budget today.

A capital budget is a way of reflecting and managing the cash needs of the business which will be recorded to the balance sheet instead of the income statement.  A differed cost budget would, in concept, be the same thing. It would be a way to manage the cash used by the business when that cash outflow is hitting the balance sheet rather than the income statement.

The new leasing standard may not significantly impact the income statement recognition of lease expense, but it will require all leases be recognized on the balance sheet.  Depending on the volume and dollar amount of leases, this could significantly expand the balance sheet of a business.   With leases now impacting the balance sheet as well as the income statement, the traditional budget mechanism of an expense budget to manage leases may not seem like enough to a business leader.  They might want to consider a “new RTU” budget which would be similar to a capital budget.

Such a budget, however, would have a different purpose from the cash management focus of a capital budget.  Instead this budget would be focused on the amount of assets (and liabilities) on a balance sheet which impact key metrics such as return on invested capital or total liabilities to equity.  If metrics important to the business will be impacted, then management might want to be sure they are appropriately managing those impacts.  And what better way to manage those impacts then through the tried and true budget process.

So as you go about your work of implementing these two significant changes to accounting, you might want to also take a few moments to think about how you should change other processes that will be impacted, like your budget process.

Cyber Attack now What! by Guest Blogger P.J. “Trish” Fritsche, CPA, CFF, CGMA, CITP

Businesses and other entities will suffer at some point from a computer hack or other event that affects business reputation or client relations. The idea is….Not if, but when and the question follows; does your business have a response plan in place?

Computer hacking refers to the practice of modifying or altering computer software and hardware to accomplish a goal that is considered to be outside of the creator’s original objective by  An example could be a keylogger.  While a keylogger in itself is not necessarily malicious, some people hear keylogger and think of a malicious event. A keylogger used with the intent to gain information like passwords, banking information or other sensitive data is a business issue that should have policies and procedures attached so when your turn comes, the response plan is effective and efficient. The response plan could include a specific team, mitigation and investigation, and internal and external communications.

Whether the cyber event is by an employee or sophisticated digital criminal, losing cash that is vital to a business’s ongoing operations is a disruptive event including changing bank accounts, forensic investigations, reporting to enforcement and required disclosure to clients about compromised information.

While revenue generation is a key business concern, taking the time to address limited security budgets, outdated security, appropriate insurance coverage and employee training can reduce your risk. The threat is just a click away.

In closing, when was the last time you talked to your insurance representative to understand coverages related to cyber threats.

Who to report to can be found here.

For response plan assistance go here.

Disclosure information at Cyber Privacy Fortification Act of 2017 is here.

Just remember your turn is coming….

Ms. Fritsche has more than 25 years of experience providing services related to forensic accounting, litigation support, audit assurance and tax services to public sector, profit entities and individuals. Her areas of expertise include leading special investigations, financial data analysis and conducting forensic interviews.

How to Hide Taxes from the Public

This time of year, one of the things that makes me cringe the most is hearing how happy people are about getting their refund check from the government.  They talk about this money as if it was manna from heaven that just suddenly appeared to them through no effort of their own.  It makes me want to shake them and say, “Yeah you got $500 or $1,000 back, but did you see how much you paid in taxes for the year!?!”  This got me thinking about how our system of tax collection is really set up to hide the true impact of taxes on most people, and I’m not just talking about income taxes.  Think about it…

  • Someone who gets $2,250 out of their $2,500 paycheck every two weeks doesn’t realize the government just took $6,500 from them. I bet they would cringe if the government asked them to send in a $6,500 check to them once a year.
  • Someone who buys a $0.99 cup of coffee (for a $1.07 including tax) each weekday during a year pays over $200 in tax each year. I bet if you asked them to fork over $200, they would get very upset.
  • Someone who pays an extra $300 a month into their mortgage escrow account to pay property taxes pays $3,600 in tax. I bet they would freak out if you asked them to write one check for that amount.

The reality is that our tax system is based in large part of voluntary compliance, and in order to make that compliance easy, the government uses businesses to help them collect taxes a little at a time.  As a result, no one seems to notice how much they are actually paying in taxes.  So as you complete your tax form this year, take a moment to add up all the taxes you paid.  A lot of it is all there if you itemize deductions – the federal tax you paid, the property tax you paid, the sales tax you paid.  Add it all up and see the total.  More importantly, when your friends start bragging about their tax refund, ask them to do the same thing.

Maybe you’ll feel you’re getting a bargain from the government based on the taxes you pay, maybe you’ll feel like you don’t. But either way, you’ll be looking at the actual bill instead of being happy about getting your own money back that you should have never loaned to the government in the first place.

The FASB has been busy

While you have been wrapped up in year-end close and audit work, the FASB has been busy issuing new and proposed standards in 2017.  The FASB has issued six – yes, six – new standards in 2017 as well as two proposals.  To help you catch up, this blog will cover the most significant new standards as well as the two proposals.

Significant new standards:

  • Goodwill Impairment
    • Effective in 2020, early adoption permitted.
    • The standard eliminates the old two-step approach to determining impairment.
    • Instead, the loss is the difference between fair value and carrying value calculated in step one.

This simplification will likely be a target of early adoption by many companies because it greatly simplifies the testing process.

  • Definition of a Business
    • Effective in 2018, early adoption permitted.
    • In determining if a purchase/sale is a business there is now an initial screen – if substantially all of the fair value is in a single asset or a group of similar assets, then it is the purchase/sale of an asset.
    • A business must include an input and a substantive process which provide ability to create outputs (output is consistent with ASC 606); otherwise it is an asset.
  • Gains and losses from derecognition of nonfinancial assets
    • Effective in 2018, adoption should coincide with revenue standard.
    • Covers sales of non-financial assets (including real estate) to non-customers.
    • Non-financial assets include “in substance” nonfinancial assets such as the stock of a subsidiary where all the fair value is concentrated in a nonfinancial asset.
    • Full gain/loss is recognized even if a non-controlling interest is retained.

The two proposed standards include:

  • Inventory disclosures; new disclosures include
    • Disaggregated disclosure by
      • Component (for example, raw materials, work-in-process, finished goods, and supplies)
      • Measurement basis
    • Changes to the inventory balance that are not specifically related to the purchase, manufacture, or sale of inventory in the ordinary course of business .

So much for these disclosure reviews resulting in fewer disclosures. Comments are due by March 13 if you wish to make any.

  • Debt Classification now defines non-current and current debt as follows:
    • Noncurrent
      • The debt is not contractually due for more than a year.
      • The debtor has the right to push out for more than a year.
    • A waiver of debt covenant violation resulting in acceleration needs to be obtained before the F/S are issued, otherwise the debt is considered current.
    • Current
      • All other debt.
      • Refinanced short term debt would be shown as current.

It’s the last point that is the real change.  Current debt that is refinanced before the financial statements are issued can no longer be shown as non-current.  Comments are due by May 5.




I’ve been collecting some quotes over the last few years and I wanted to share a few of my favorites:

8)  Resist a temptation to take shortcuts of any kind–fortune cookie

7)  Not everything that counts can be counted, and not everything that can be counted counts–Albert Einstein

6)  Compassion is not a spectator sport – everyone has to participate–Charlotte Jones Anderson

5)  We seem to always be living life in chains, never knowing we have the key–The Eagles

4)  People hate change, but they love progress–Terry Brandstad

3)  Just because you do not take an interest in politics doesn’t mean politics won’t take an interest in you–Pericles

2)  We can’t solve problems by using the same kinds of thinking we used when we created them–Albert Einstein

1)  Ignorance is courageous–fortune cookie

What are some of your favorite quotes?

“Capitolizing” Politics by Guest Blogger Sam Cheng, CPA, CGMA, CAE

Trump.  Cabinet appointments.  The women’s rallies.  The immigration executive order.  Education funding at the state level.   Balancing the budget for Texas in this session.  In a time when it often appears that our system isn’t working, it makes one wonder how we have survived over 240 years as a country.  How can we make America great again?  Let’s just start with making Texas great again.

A few weeks ago, CPAs from all over the state were in Austin to be sure that we were active in the process as Texas kicked off its legislative session.   There were issues that are near and dear to our hearts, but nothing causing consternation at the level of women or immigrants.

What was evident was that the process surprisingly works in a relatively historical place.  I have been to the Capitol many times, but decided to take a different perspective this time.  Walking up to the Capitol the first thing that you note are the live oaks and pecan trees that surround the grounds.  I am not an arborist, but the trees were spiraling wonders of nature with ranches that appear to be the second level of protection after the metal fencing installed in 1896 to our state capita l.

As you enter the steps to the Capitol and wait to go through the metal detectors you notice the door knobs and door hinges that bear the details of the state of Texas and all of the fine craftsmanship of the intricate wood work on the door.  These aren’t doors that could be special ordered at Lowe’s or Home Depot.  All of these little things hold the structure of our Capitol and the government together and have for a very long time.

Walking the halls once you get inside is like a labyrinth.  I am sure that the legislators and their staffs know the path as well as the many hidden shortcuts, but to an outsider who only visits every other year this is a mass of people moving in a chaotic motion with no real purpose.  Ant farms appear to be working with more organization.  This mass of people holds together the democracy of our state, and has been since joining the U.S. in 1845.

Our map is a necessary clue to find each of the representatives we are supposed to visit.  Even with the map we still find it possible to get lost.  A woman offers assistance in noting that the room numbers are designed to give you directional guidance.  Imagine the E2.102 would be office number in the east direction.  Order among the chaos.

We unfortunately don’t get to see the two representatives that we were hoping to meet, but we do get to talk to their staffs and let them know about our CPA platform for this session.   Both staffs were very accommodating and willing to assist.  Again, what appeared to be a waste of time did have a small or hopefully impactful consequence.

This system, as crazy as it seems, works.  It is the best in the world and we are all fortunate to live in this country and democratic system.  What sometimes seems like chaos in the big picture is a system that will evidently work.  Good values that formed this system will ultimately work and the people will have a voice.

What is our role as CPAs?  Be active in any way you can.  Representatives devote more time to personal correspondence rather than an email or random call to their office.  Each chapter has a PAC representative that could sure get you involved on a more personal level.  This doesn’t have to mean writing a check or writing a bigger check.   It just means doing your part for our democratic system.


Sam Cheng is the Director of Accounting for Earthbound Trading Company in Grapevine, TX. He is a member of the Dallas Chapter and currently serves on the TSCPA Board of Directors.




In my past three blogs I’ve talked about time, attitude and integrity; but if you think about it, all three of these concepts really center around one thing–choice.  The choice of

  • What to do with your time
  • How to react to events
  • What actions to take

Everyone has their own reason why they think this country is great; and many of those reasons are linked to the concept of “freedom.”  But too many people treat freedom as some sterile thing that is an end unto itself.  I think what most people really mean when they talk about freedom is really choice.  The freedom to choose

  • What they want to do
  • How they live their life
  • When to call out right from wrong

That is the freedom that is the envy of much of the world.  Don’t fail to take advantage of it.