I.T. MANAGEMENT FINANCIAL REPORTING
TAX M&A REGULATORY REPORTING
Essential Briefings FINAL RULES REGARDING THE NET WORTH STANDARD FOR ACCREDITED INVESTORS
FINANCIAL REPORTING ____________________________________________________________ Analysis of the Updated Exposure Draft on Revenue as it Relates to the Technology Industry
I.T. MANAGEMENT ____________________________________________________________ Where Does My YouTube Video Come From?
TAX ____________________________________________________________ Update on the California Enterprise Zone Program
Contents February 2012
ESSENTIAL BRIEFINGS 2 F I N A L RUL E S R E G A R D I NG T HE N E T WOR T H S TA N DA R D F OR AC C R E D I T E D I N V E S T ORS The Securities & Exchange Commission issued rules to implement Section 413(a) of the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd–Frank Act) related to qualifications of high net worth investors in Final Rulemaking Release No. 33–9287, Net Worth Standard for Accredited Investors.
FINANCIAL REPORTING 3 A N A LY S IS OF T HE UP DAT E D E X P O SUR E D R A F T O N R E V E NUE A S I T R E L AT E S T O T HE T EC H N OL OGY I N DUS T R Y The FASB and IASB released and updated exposure draft in November 2011, which requires a five step approach with a goal to converge the revenue guidance for IFRS and US GAAP.
I.T. MANAGEMENT 5 W HE R E D OE S M Y YOU T UBE V ID E O C OME F ROM? If you haven’t see this video yet, you need to, just as almost 15 million others have. That’s right, this single video has been viewed almost 15 million times since June 2006 around the entire globe.
TAX 6 UP DAT E O N T HE C A L IF OR N I A E N T E R P R ISE Z O N E P ROG R A M On October 10, 2011, Governor Brown resumed the process of completing the final California Enterprise Zone (“EZ”) designations for the eight conditional EZs that were established in 2010. Conditional Designation is a phase in the process of establishing an Enterprise Zone.
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FINAL RULES REGARDING THE NET WORTH STANDARD FOR ACCREDITED INVESTORS BY JIM PITRAT, CPA | PARTNER ASSURANCE & ADVISORY
firstname.lastname@example.org | 310.477.3924
The Securities & Exchange Commission issued rules to implement Section 413(a) of the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd–Frank Act) related to qualifications of high net worth investors in Final Rulemaking Release No. 33–9287, Net Worth Standard for Accred-
Rule 215 defines an accredited investor as a person whose individual net worth or joint net worth with that person’s spouse exceeds $1 million ited Investors. The standards for qualifying as an “accredited investor” are used to determine if exemptions for private offerings from required disclosures about a sale of securities. Offerings made only to accredited investors generally need not comply with the disclosure requirements called for by the
qualifies as an accredited. Rule 215, Accredited Investor, and Rule 501, Definitions and Terms Used in Regulation D.
Securities Act, nor do they count toward the 35-purchaser limit of the limited offering exemption, and they are not required to meet the conditions of a sophisticated investor. Rule 215 defines an accredited investor as a person whose individual net worth or joint net worth with that person’s spouse exceeds $1 million. Before Dodd–Frank Act the term “net worth.” It was commonly interpreted to mean the difference between a person’s assets and liabilities was not defined. Section 413(a) of the Dodd–Frank Act requires exclusion of the value of a principal residence for purposes of determining whether a person
Rules 215 and 501 have been amended as follows: • A primary residence is not included as an asset. • Indebtedness secured by such residence (limited to the residence’s fair market value at the time of the sale of securities, is not included as a liability). • Indebtedness secured by the primary residence in excess of the residence’s estimated fair market value is a liability. These requirements do not apply to the calculation of net worth made in connection with a sale of securities pursuant to the right to purchase the securities if (1) such right was held by the individual on prior to enactment of the Dodd–Frank Act, the individual qualified as an accredited investor at the time the right was acquired, and the individual held other securities of the same issuer. SingerLewak | 2
ANALYSIS OF THE UPDATED EXPOSURE DRAFT ON REVENUE AS IT RELATES TO THE TECHNOLOGY INDUSTRY
BY SUZIE DORAN, CPA | PARTNER ASSURANCE & ADVISORY
email@example.com | 310.477.3924
E X EC U T I V E SU M M A R Y The FASB and IASB released and updated exposure draft in November 2011, which requires a five step approach with a goal to converge the revenue guidance for IFRS and US GAAP. The result is a new revenue recogni-
A new revenue recognition model that could significantly change the way entities recognize revenue by removing inconsistencies and improving comparability of revenue recognition tion model that could significantly change the way entities recognize revenue by removing inconsistencies and improving comparability of revenue recognition. It employs an asset and 3 | SingerLewak
liability approach. The following is a summary of how this proposed standard may impact the technology industry from current US GAAP guidance. SU M M A R Y O F AC C OU N T ING: This draft proposes the following changes: Elimination of software specific guidance - Recognition will be based on distinct performance obligations met at a point in time with the ability to estimate a standalone selling price. This eliminates the need for VSOE and can result in earlier revenue recognition. Intellectual Property Licenses Revenue will be recognized when the customer gets control of the license rights. This removes current use of judgment in determining if substance of agreement should be recognized upfront or ratably over the term of agreement and can result in earlier revenue recognition.
Variable Consideration - The transaction price is based on the estimated consideration, including uncertain or variable amounts using either a probability or cash flow analysis. As current guidance requires a fixed and determinable price before recognition, this may result in earlier recognition. Multiple Element Arrangements - Bundles of services and goods can be recognized as either a single or multiple performance obligations. This will result in more judgment in determining the number of performance obligations in a bundle of services and goods. Allocation of Transaction Price - This price can be allocated based on the relative standalone selling price, which can be estimated. The residual method can be used and certain elements such as discounts or change orders can be allocated to only one specific performance obliga-
tion. Easier revenue recognition on items not sold separately and more variability of judgment on allocation of pricing.
be grossed up to include the refund obligation and the asset for the right to the returned goods.
Consulting Services Contract Revenue recognized when control of the good or service transfers to the customer. Judgment on if a performance obligation is satisfied over time, but no significant change anticipated as current guidance is based on benefits received or if not obvious, a straight-line method.
An asset and corresponding adjustment to COGs is recognized on the right to recover goods from customers on settling the refund liability
Rights of Return - Liability accrued for expected refunds, which are updated based on changes. An asset and corresponding adjustment to COGs is recognized on the right to recover goods from customers on settling the refund liability. No material changes except that the BS will
Product Warranties - Separate performance obligations will be recorded for each warranty that the customer has the option to purchase separately. Extended warranties will be treated similarly as they will give rise to a separate performance obligation. Warranties that are separately
priced will be allocated on a relative standalone price rather than the contractual price, resulting in differences in the amount of deferred revenue recognized for extended warranties. Performance Obligations Performance obligations settled over time will be analyzed to determine if they are deemed onerous. If they meet this criteria, a liability will be measured as the excess of the cost to settle the performance obligation over the amount of consideration allocated to that performance obligation. Current onerous contracts are usually recognized under construction contract accounting. The proposed standard would broaden the impact of onerous contracts.
F OR F UR T HE R I N F OR M AT IO N , P L E A SE C O N TAC T US: GALE MOORE, CPA | ASSURANCE & ADVISORY PRACTICE LEADER firstname.lastname@example.org | 949.261.8600 JIM PITRAT, CPA | PARTNER email@example.com | 310.477.3924 SUZIE DORAN, CPA | PARTNER firstname.lastname@example.org | 310.477.3924 SingerLewak | 4
I .T. MANAG E M E NT
WHERE DOES MY YOUTUBE VIDEO COME FROM? If you haven’t seen this video yet, you need to, just as almost 15 million others have. That’s right, this single video has been viewed almost 15 million times since June 2006 around the entire globe. If you think that’s impressive, today, YouTube serves more than 3 billion views per
What does YouTube have to do with Cloud Computing, business applications and services? Everything! YouTube is a cloud-based video sharing service day across its vast network of super computers with 60+ hours of video being uploaded to its servers every minute around the planet. Now let’s talk about Cloud Computing. What does YouTube have to do with Cloud Computing, business applications and services? Everything! YouTube
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is a cloud-based video sharing service. YouTube is truly global with thousands of servers located in more than 40 countries being able to deliver its application and content on global demand. Though this example of cloud computing is extreme, the technology has paved the way over the last 6 years to allow the rest of us to utilize cloud computing in many different ways. Through SaaS, IaaS, PaaS and DaaS services (Software, infrastructure, platform and desktop as a service), todays’ companies can take advantage of inherent and dynamic scalability, advanced business continuity planning and overall data and application serving without the need to locally house or be responsible for large data centers of their own.
Mitigating the risk of intellectual property destruction, loss and even theft, is key to controlling your mobile task force. Remote access to data is something we have all used in some way, usually from within our own corporate networking environments. The security risk by self-hosting your data can be detrimental in case of a systems failure, localized environment catastrophe, or some other act of God that we have literally no control over. Putting your data and applications in an environment inherently capable of ‘staying up’ 24x7 allows you, the executive, to focus on business not your technology. To learn more about how Cloud Computing can benefit your business, email us at ITConsulting@singerlewak.com and one of our professionals will arrange a time to discuss your needs and desires.
UPDATE ON THE CALIFORNIA ENTERPRISE ZONE PROGRAM
BY MARISOL CASEY | TAX MANAGER email@example.com | 949.261.8600
On October 10, 2011, Governor Brown resumed the process of completing the final California Enterprise Zone (“EZ”) designations for the eight conditional EZs that were established in 2010. Conditional Designation is a phase in the process of establishing an Enterprise Zone.
Conditional Designation is a phase in the process of establishing an Enterprise Zone. During the Conditional Designation phase, a business may generate incentives dependent on whether the EZ is a redesignated zone or a brand new designation During the Conditional Designation phase, a business may generate incentives dependent on whether the EZ is a redesignated
set for April 10, 2012. On January 10, 2012, the HCD awarded final designation to the Anaheim, Sequoia Valley (in Tulare County) and Sacramento Enterprise Zones.
zone or a brand new designation. Enterprise Zones which have been redesignated, and have been placed on conditional status may continue to afford zone incentives to businesses meeting the EZ requirements, during the period between the expiration date of the old zone and the final designation of the new zone. Brand new zones, however, must await to receive their final designations before any incentives can be generated. The Department of Housing and Community Development (“HCD”) issued a memo establishing a deadline of 180 days for all conditional zones to comply with the remaining requirements to obtain final designation. The deadline to comply is currently
• The Anaheim EZ will be effective February 1, 2012. Its boundaries include nearly all of the City’s industrial and commercial areas and approximately 80% of all Anaheim businesses. The Anaheim EZ designation will be effective for 15 years. • The Sequoia Valley will be effective retroactive to October 6, 2010 (based on AB 1550) will also be effective for 15 years. The Sequoia EZ includes the cities of Porterville, Lindsay, Exeter, Visalia, Tulare, Farmersville, Woodlake, Dinuba, Ducor, Earlimart, Goshen, Ivanhoe, Traver, North Delano, Pixley, Poplar, Richgrove, Terra Bella, Tipton and Strathmore. • The Sacramento EZ includes the Cities of Sacramento, West SingerLewak | 6
Sacramento, Rancho Cordova and County of Sacramento. Businesses operating within an EZ are eligible for substantial tax credits and benefits, such: • Hiring Credits - Firms can earn $37,440 or more in state tax credits for each qualified newly hired employee to offset California state income tax liability • Sales Tax Credit - Businesses can earn sales tax credits on purchases up to $20 million per year on qualified machinery and equipment to offset California state income tax liability • Business Expense Deduction - Up-front expensing of certain depreciable property • Net Operating Loss (“NOL”) - Up to 100% NOL carryforward for 15 years • Net Interest Deduction (“NID”) - Banks and other 7 | SingerLewak
lending institutions may receive a NID from California taxable income on the amount of “net interest” earned on loans made to zone businesses Many local jurisdictions may also offer additional incentives, such as reduced public utilities (i.e., water and power) rates, that can increase the cost-effectiveness of
Many local jurisdictions may also offer additional incentives, such as reduced public utilities (i.e., water and power) rates, that can increase the costeffectiveness of running your business in an EZ running your business in an EZ. The following six remaining conditional zones have until April 10, 2012 to comply with their
terms of final designation: 1. Harbor Gateway Communities (Cities of Los Angeles and Huntington Park, and County of Los Angeles) 2. Pittsburg (City of Pittsburg and County of Contra Costa) 3. San Diego (Cities of San Diego, Chula Vista, and National City) 4. San Francisco (City and County of San Francisco) 5. Santa Clarita Valley (City of Santa Clarita and County of Los Angeles) If you believe you are located within any of the Conditional EZs, listed above, and would like to learn more about the California Enterprise Zone program, and how it can affect your business, please do not hesitate to contact our State and Local Tax professionals for assistance.
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