I had the privilege of attending my first in-person Financial Reporting Executive Committee (FinREC) meeting last week in New York. FinREC is an AICPA committee that determines the AICPA’s technical policies regarding financial reporting standards with the ultimate purpose of serving the public interest by improving financial reporting. While the committee is not a standard setter and papers and guides are not considered official authoritative literature under GAAP, the committee’s guides and papers provide our profession with important guidance and insights on how others are interpreting GAAP with the hope of bringing consistency to various issues and topics beyond what the standard setters can provide.
At the March meeting the committee discussed three major topics including an addition to the Employee Benefit Plan guide on Multi-Employer Plans, additional revenue recognition papers for inclusion in the revenue recognition implementation guide, and some of the first papers on the Current Expected Credit Loss (CECL) model which we will all have to implement by 2020.
Multi-employer benefit plans can be pension, health and welfare or apprentice plans, which are collectively bargained and receive contributions from several different employers. A key feature of such plans is that the contributions are not made only for the benefit of the employer’s employees, but for the benefit of all participants in the plan no matter which employer the participant came from. While financial statements of such plans have many commonalities with single employer plans, there are several unique aspects to multi-employer plans which the proposed guidance addresses.
Work on revenue recognition is winding down with 130 papers already posted for comments. FinREC reviewed five papers at the meeting. Three papers covering health care and construction industry issues had already been exposed, and FinREC was reviewing and responding to the comments received. Two papers covering gaming and telecommunication industry are being prepared for exposure in the coming months.
FinREC reviewed the first two proposed topics in response to the implementation of the new CECL rules. One paper discussed whether the way an entity implemented the required reversion method in determining credit losses was considered an estimation technique or an accounting policy election. The other paper explored the potential for additional financial instruments beyond the U.S Treasury security example in the FASB standard to have zero expected credit losses under the CECL model.
The members of FinREC took their work very seriously, asked numerous questions, and discussed implications of the work throughout the day. We would love for you to do the same when these items are posted for public comment in the coming months.
Many not-for-profit organizations may think the new revenue standard does not apply to them. The thought is that while a not-for-profit university or hospital might need to deal with the standard, it doesn’t really apply to charity and membership organizations. The thought process continues that all they get are contributions and member dues, and those aren’t really revenues are they? While contributions are outside of the scope of the new ASC 606 revenue recognition standard, membership dues are not.
There is an AICPA task force dealing with not-for-profit issues under the new revenue standard. You can find out more details on what they have been up to here, but I will try to cover a couple of the more important issues the task force dealt with in this blog.
First, the task force worked with the FASB staff to clarify that contributions are not in scope of ASC 606. But as I mentioned, membership dues and receipts for service are in scope, so questions were raised about potential impacts on the method for splitting transactions between contributions and “exchange components” (dues, charges for services, etc.). The short answer is that the methods for splitting transactions between contributions and other exchange components are still valid and do not need to change.
ASC 606 will potentially change the accounting for membership dues. Not-for-profits will now need to evaluate if membership dues provide members other deliverables, now known as performance obligations, than simply an annual membership. One example is if members get a reduced price on training courses which are available to non-members. If a course is free to members, but available to non-members at a price, that means part of the annual dues is really for the training course performance obligation. The kicker is the portion of the annual dues related to the training course cannot be recognized until the training course is delivered.
Even if the course is only offered at a reduced cost to members, there is still a potential split of annual dues for the “material right” to purchase the training course at a reduced cost. Once again, revenue associated with the material right can’t be recognized until the course is delivered. As long as all performance obligations are delivered within the period covered by the dues, then a not-for-profits total revenue in its annual financial statements won’t change, although individual line items might change. If, however, the obligation, a training course in this case, is not delivered until after the annual period used for dues recognition, then revenue recognition might be delayed until a subsequent period.
This topic is covered in much greater detail in paper 11-5 which is still available on the AICPA website for a little while. The moral of this story is that even if you don’t try to make a profit, you still have revenue, and the rules are changing under ASC 606.
If you are like most CPAs, the automatic answer to the title question of this blog is of course capitalized interest is an asset. That is what the FASB says, and it is what I was taught in school. The Governmental Accounting Standards Board (GASB), which is also run under the same parent organization as the FASB, has recently come to a different conclusion. In a November 20, 2017 exposure draft, the GASB proposed eliminating the capitalization of interest related to assets being prepared for use. Many of you might have an immediate reaction that the proposal is for governmental accounting; and governmental accounting has nothing to do with financial accounting for business, so why does it matter? My response to such a question is that the GASB revision specifically applies to capital assets reported in a “business-type activity or enterprise fund.” These are the governmental “entities” that most closely resemble a business that is subject to the FASB standards, so it is closer to business reporting than you might first think.
The GASB supported their decision to stop capitalizing interest based on two primary considerations. The first is that if capitalized interest was considered discretely, it would not meet the conceptual definition of an asset. Per GASB Concepts Statement No. 4, paragraph 8, an asset is defined as “resources with present service capacity that the government presently controls.” Capitalized interest by itself does not provide any “service capacity.” The GASB further determined that interest cost “does not enhance the present service capacity of an asset because, regardless of whether interest cost is incurred during the period of construction, the asset will have the same ability to provide services.”
The second consideration was that capitalized interest could not be considered similar to an ancillary charge that is considered capitalizable costs. Ancillary charges include items like freight charges, site preparation costs and certain professional fees, without which the asset could not be placed into service. The GASB took this position a step further in pointing out that unlike ancillary charges where the entity has no choice to incur them in order to get the asset into service, how or whether to finance the construction of an asset is a discrete choice of the entity.
I haven’t had the time to line up the GASB conceptual position against the FASB’s conceptual framework, but I do wonder how different they could be when it comes to defining an asset and what it takes to get the asset ready for its intended use?
Last week the Supreme Court of the United States decided a case in favor of a company that fired a whistleblower who only reported their concerns about a potential fraud internally. The Dodd-Frank Act was built upon the Sarbanes-Oxley Act and required the SEC to set up a process for whistleblowers to report potential fraudulent activity to the SEC. It provided that the SEC will pay a portion of any fines or other monies recovered to the whistleblower. In addition, the Dodd-Frank Act had explicit language preventing whistleblowing targets from taking retaliatory measures against the whistleblower.
The Supreme Court ruled that the Dodd-Frank protections only apply if the whistleblower reports the potential fraud to the SEC. The legal protections against retaliation do not apply if the whistleblower only reported their concerns internally within the company. Many companies have internal policies against retaliation for reporting potential fraud, but the Dodd-Frank Act created an incentive to go to the SEC not just for the potential pay-off, but for the better legal protection afforded by the Act.
The Supreme Court decision should be a big concern for companies. The case makes it more likely a whistleblower will go around an internal reporting process and go straight to the SEC. The impact and repercussions of the fraud can be greater when an external regulator is doing the investigation rather than an internal party doing the work and then self-reporting to any regulators. It also puts potential whistleblowers in an even more dangerous position in trying to decide what to do.
The reality is that whistleblowers’ careers are often derailed even if no one overtly retaliates against the whistleblower. Opportunities for promotion just seem to disappear and often whistleblowers find the only way to keep their career moving is to change to a different employer. Even changing employers can be difficult if the word gets out in an industry or a geographic area about a “troublemaking” employee.
The Supreme Court stated that the wording of the Act was unambiguous that protections only applied to those reporting information to the SEC. In a strange twist, companies might want to consider asking Congress to address this issue by creating a more stringent standard on the companies themselves in order to avoid the possibility that internal whistleblower programs will be made impotent by their lack of legal protection.
I will always remember an interview I had at the end of my college years when I was trying to get a job as an entry-level tax accountant. Several firms had come to campus for interviews. I was fortunate enough to get past the campus interview with Ernst & Young and was invited to their offices for a chain of interviews that would last about 3 hours.
Things went well with the first four or five people I met. Then came the final step – to meet one of the partners. I waited outside his office for what seemed like forever (probably 5 minutes), and then was escorted in. I sat down and was prepared to answer any question he could throw at me… my goals, ambitions, strengths, weaknesses… whatever came up. He looked at me, sat back in his chair, and simply said, “So, what questions do you have for me?”
I was speechless. I was supposed to answer questions, not ask them! I didn’t know what to say. After a few moments, the only words I uttered were, “I don’t have any.” It was at that moment I realized I had blown it. I didn’t know what to do, but I knew I wasn’t getting that job. At the end of every other interview I had asked a few questions, but at this point I was out of things to ask. It was over.
The moral of the story… always have questions prepared for your interviewer. Asking questions shows many positive things about you, not the least of which is that you are taking the possibility of joining the organization very seriously. It doesn’t mean to interrogate the interviewer, but rather ask just a few meaningful questions to make sure you understand the position and expectations, and to show that you are thinking it through.
Not asking questions after being prompted by the interviewer makes the conversation come to an abrupt stop. The interviewer has no alternative other than to just awkwardly end the interview. It causes them to think you either are not that interested in the job, or are not really engaged in the process. Disinterested and unengaged people don’t get hired.
If nothing else, at least clarify what was discussed. Restating what was discussed shows the interviewer that you have been paying attention. It may not be as strong as a few in-depth questions, but at least it removes the abrupt ending that would otherwise be caused by a “No, I don’t have any questions” response.
In summary, the next time you are preparing for an interview, take the time to prepare a few questions. It may be the one thing that makes all the difference.
I wish you the best in your search.
Mark Goldman, CPA
Mark Goldman is the founder of MGR Accounting Recruiters, a San Antonio based recruiting company whose primary business is the placement of accounting professionals in both permanent and contract positions.
One of the more controversial aspects of the Affordable Care Act was the individual mandate. The law required everyone to buy health insurance or pay a penalty to the government come tax time. Some thought it was wrong for the government to force people to buy something they might not want; and others said if people weren’t required to buy health insurance then only sick people would buy insurance and health insurance would quickly become unaffordable. The Tax Cuts and Jobs Act was said to have eliminated the individual mandate. Some people are very happy about the mandate going away while others think it is a terrible idea. This blog is not here to debate that point. The question this blog is focused on is, was the individual mandate actually eliminated?
Because the Supreme Court determined that the individual mandate was a tax, Congress could address the amount of that tax in a piece of tax legislation even without touching any other aspects of the Affordable Care Act; and that is exactly what congress did in the Tax Cuts and Jobs Acts. The law did not eliminate the individual mandate, instead it set the tax rate for not having insurance to zero. What is the difference between eliminating the individual mandate and setting the amount to zero? To someone not having insurance, the answer is not much, but to any other organization having to comply with the Affordable Care Act the answer is a lot.
For example, large employers must still provide insurance to their employees or face fines and penalties even though the employees no longer face a payment for not having insurance. In fact, employers must still provide all the reporting to employees they were required to provide before the individual mandate rate was set to zero. For example, the 1095-C form is still required to be sent to all employees. That means everyone will still be getting their documentation that they have insurance through their employer even though there is no payment due for not having such documentation. This means business and organizations will still be incurring a lot of cost to comply with reporting requirements around the individual mandate even though everyone is reporting that that individual mandate has been “repealed.”
So they next time you hear someone say the individual mandate has been eliminated, maybe you can have a little fun with them by pointing out it hasn’t been eliminated, only set to zero.
Do what I say, not what I do not only doesn’t work for raising kids, it doesn’t work for setting a culture within an office either. How many times have you heard someone say “we allow flexible working arrangements, but we keep losing staff who say we aren’t flexible enough.” Or, have you heard someone say, “I tell my staff to shut down but they complain that there is no separation between family time and work time.”
When I’m feeling especially courageous, the question I like to ask is what do you do? Do you ever work from home, or do you show up at the office every day? Do you ever leave early to make it to your kid’s game that starts at 5:00? Let’s face it, our staff looks at what we are doing to understand the real rules of the work place. Maybe you are in a different life stage with all your kids gone and out of the house, so you don’t have as many family events, but then look at who you reward with better salary increases and promotions. Is it the person who utilizes the flexible working arrangements but still gets all their work done, or is it the person still working in the office when you leave every day?
On emails, are you responding, or worse, sending out emails at all hours of the day? Do you review and respond to emails even while you are on vacation? Your staff is watching you, and you are setting expectations with others based on your behavior. I hear people justify their late-night emails by saying that I didn’t want to forget that thought or idea, but I don’t expect people to actually reply. My response is, don’t you know how to use the tools in your email program? Almost every email program has the ability to delay the delivery of an email. Write your email, just set it for delivery the next morning. If you don’t know how to use that feature, then you must know how to use the draft feature. Write the email and save it as a draft and make a habit of going through your drafts and sending them out every morning.
My final question is how many of you tell your staff to stay home if they are sick, but then come into the office yourself when you are sneezing and hacking? Your staff sees that behavior and emulates it. Worse, you’re probably getting them sick, and hitting productivity even harder than if you stayed at home and got what work you could get down from there. And with today’s remote working tools, that is pretty much everything.
So are you walking the walk or are you complaining that people don’t believe what you say?