I.T. MANAGEMENT FINANCIAL REPORTING
TAX M&A REGULATORY REPORTING
Essential Briefings I’M GOING TO
REGULATORY REPORTING ____________________________________________________________ It’s All Relative
I.T. MANAGEMENT ____________________________________________________________ Why it’s OK if an Elephant Sits on my Laptop
TAX ____________________________________________________________ Congress Extends the Payroll Tax Cut to the End of 2012
Contents March 2012
ESSENTIAL BRIEFINGS 2 I’M GOI NG T O L I V E F OR E V E R In September 2011, the FASB amended its Goodwill Impairment rules to allow (but not require) an initial assessment of qualitative factors to assess the likelihood that the fair value of a reporting unit is less than its carrying amount. The assessment is used to determine whether it is necessary to perform the first step of the impairment test.
REGULATORY REPORTING 3 I T ’S A L L R E L AT I V E Do you need an additional note for your financial statements? How about one titled “Nepotism”? The PCAOB is proposing new auditing standards around related party transactions.
I.T. MANAGEMENT 5 W H Y I T ’S OK IF A N E L E P H A N T S I T S O N M Y L A P T OP Are you ‘Clouded’ by today’s virtual technology? If you are, then dropping your laptop in a pool of water, out of a moving car, or even if it was stolen, wouldn’t really matter would it? Of course not! If you have embraced cloud computing, then your data is still safe in the Cloud, not where it doesn’t belong – on your laptop!
TAX 6 C O NG R E S S E X T E N D S T HE PAY ROL L TA X C U T T O T HE E N D OF 2012 Congress passed the Middle Class Tax Relief and Job Creation Act of 2012 on February 17, 2012. Under this new Act, the payroll tax reduction is further extended. Specifically, the two percentage point reduction in payroll tax rate is now extended to the end of 2012.
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In September 2011, the FASB amended its Goodwill Impairment rules to allow (but not require) an initial assessment of qualitative factors to assess the likelihood that the fair value of a reporting unit is less than its carrying amount. The assessment is used to determine whether it is necessary to perform the first
These amendments are meant to make the analysis of goodwill and indefinite-lived intangibles consistent step of the impairment test. The issuance of the rules may have created internal inconsistency related to other indefinite-lived intangible assets. In order to address these inconsistencies, the FASB has proposed to alter the rules similarly for indefinite lived intangible assets. The proposed guidance is Proposed ASU No. 2012-100, Intangibles—Goodwill and Other (Topic 350)—
meant to make the analysis of goodwill and indefinite-lived intangibles consistent. A summary of the proposed amendments is as follows:
Testing Indefinite-Lived Intangible Assets for Impairment. The proposed rules would permit an entity to conduct an initial qualitative assessment to determine the likelihood that a nongoodwill indefinite-lived asset is impaired as a basis for assessing whether it is necessary to perform the quantitative impairment. A N A LY SIS: Under the proposed guidance, FASB Accounting Standards Codification (ASC) Section 35030-35, Intangibles—Goodwill and Other—General Intangibles Other than Goodwill—Subsequent Measurement, would be amended. These amendments are
• Companies could elect to perform an initial qualitative assessment to determine whether it is more-likely-than-not that an indefinite-lived intangible is impaired. If it meet the more-likely-than-not criteria, it would be necessary to calculate the fair value of the asset for purposes of comparing it with the asset’s carrying amount. Companies may choose not to perform the qualitative assessment for any indefinite-lived intangible in any period and proceed directly to the quantitative impairment test. In the event a company does this, it would still be able to resume performing the qualitative assessment subsequently.
• For the assessment, the company would have to take into account all relevant events and circumstances that could affect significant inputs used in determining the fair value. This would include the following: SingerLewak | 2
Macroeconomic conditions such as a poor economy, access to capital, foreign exchange rates, state of the equity or credit markets. Industry and market conditions such as the environment in which the entity operates, competition, demand for the entity’s products, regulatory or political developments, or a decline in market-dependent multiples or metrics either relative to the entity’s peers or in absolute terms.
Recent fair value calculations (if relevant), when the value and the intangible asset’s carrying amount differ. Changes in the asset’s carrying amount • Note: these factors are identical to those to be considered when performing the initial qualitative assessment in respect of goodwill.
Declining financial performance
After making the initial qualitative assessment, if it is more-likely-than-not that the intangible asset is impaired, then company would be required to calculate the asset’s fair value and compare with the asset’s carrying amount to determine whether an impairment loss would be recognized.
Other entity-specific events such as changes in management, strategy, or customers, among other factors.
Conversely, if it does not meet the more-likely-than-not threshold, the calculation of the asset’s fair value would not be necessary.
Increases in the costs of raw materials or labor, having a negative impact on earnings or cash flows.
• In addition to the foregoing factors, companies would also have to consider the following: Positive and mitigating circumstances and events 3 | SingerLewak
The proposal not change the current requirement that non-goodwill intangible assets not subject to amortization must tested more frequently if events or changes in
circumstances indicate impairment. The current impairment rules would also be amended to exempt nonpublic entities from the requirement to disclose quantitative information, about significant unobservable inputs used in measuring the fair value of an indefinite-lived intangible categorized within Level 3 of the fair value, following initial recognition. E F F EC T I V E DAT E A N D C O MME N T PE RIO D The proposed rules would be effective for annual and interim impairment tests performed for fiscal years beginning after June 15, 2012. Early adoption would be permitted, including for impairment tests performed as of a date prior to issuance of the final ASU under certain circumstances. The proposal is subject to comment through April 24, 2012.
R E G U L ATO RY R E PO R TI N G
IT’S ALL RELATIVE BY GALE MOORE, CPA | ASSURANCE PRACTICE LEADER ASSURANCE & ADVISORY
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Do you need an additional note for your financial statements? How about one titled “Nepotism”? The PCAOB is proposing new auditing standards around related party transactions. Though sensitivity around reporting of related party transactions is not new, the PCAOB’s proposal will add additional steps to auditor documentation and communication of related party relationships. The new standards will require the auditor to: • Obtain an understanding of the entity’s internal controls over identification of, and transactions with related parties • Interview management (and others that have knowledge) relating to their understanding of: The nature of the related party relationships Business reasons for the relationships Knowledge of unauthorized relationships Relationships that exist based on exceptions to established policies and procedures
• Ensure that engagement team members (including participat-
ing auditors) are aware of the related party relationships
in conformity with GAAP (or other applicable framework).
• Ask other participating auditors to supply information relating to any undisclosed related party transactions
• If the financial statements assert that the related party transactions are conducted on terms that equate to armslength transactions, the auditor will need to determine if there is sufficient audit evidence to support (or contradict) management’s assertion. A qualified or disclaimed opinion might result if management cannot support its assertion that the transactions are at arms-length terms but insist that the disclosure remain in the financial statements.
• Design and perform procedures to address the risk of material misstatement associated with related party transactions • Evaluate audit findings to determine if related party relationships exist but were not disclosed by management • For each related party relationship that is required to be disclosed (or has been determined to be a significant risk), the auditor will need to: Determine whether the documentation of terms and business purpose are consistent with other audit evidence obtained. Whether the transaction(s) have been approved in accordance with company policy If possible, evaluate if the related party has performed (or has the ability to perform) per the terms of the contract (or other documentation).
• Auditors will be required to communicate with the audit committee (before the issuance of the auditor’s report), the evaluation of the company’s identification of, accounting for, and disclosure of its relationships with related parties. The comment period related to this proposal is open until May 15, 2012.
• Evaluate if the financial statement disclosure of the related party relationship(s) is consistent with a fair presentation SingerLewak | 4
I .T. MANAG E M E NT
WHY IT’S OK IF AN ELEPHANT SITS ON MY LAPTOP
BY RICK MARK | SERVICE AREA MANAGER email@example.com
Are you ‘Clouded’ by today’s virtual technology? If you are, then dropping your laptop in a pool of water, out of a moving car, or even if it was stolen, wouldn’t really matter would it? Of course not! If you have embraced cloud computing, then your data is still safe in the Cloud, not where it doesn’t belong – on your laptop!
host your own or utilize one of the many “X as a Service” offerings, Cloud adoption will minimize your reliance on that server room and the responsibility and maintenance that goes with it. Even if you start small by testing the waters with outsourcing your email services, the amount of overhead and management cost you will save will be noticeable almost immediately.
I know this sounded strange, but storing your data and running your applications in the Cloud can give you the ultimate in disaster recovery potential, data security and protection, and just about ‘anywhere use and access’ to your corporate data and applications. Today’s advanced applications delivery and integration services in the Cloud are managing the loss of data risk for you, effectively and efficiently.
your corporate server architecture to a local datacenter to accomplish the same thing. Granted the latter solution still keeps you focusing on I.T. versus your business objectives, but at least you can minimize your carbon footprint and give yourself some better choices in how to utilize that expensive office space.
Cloud services from hosted Exchange email, accounting and ERP applications, to data backup and archiving tools are just the tip of the iceberg. If you are not sure you trust 3rd party providers just yet, well, you can move
The Real Estate advantage is huge for Cloud adopters. No longer do you need extensive environmental controls, enterprise power redundancy, and complex business continuity planning and physical security. Whether you
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When you lose that laptop, or its hard drive dies, or it’s just time to upgrade to a new computer – think of how much work you have to do now to migrate your data and applications, versus just turning the new computer on and browsing the internet to your provider…sound easy? It is and sure can be that easy.
CONGRESS EXTENDS THE PAYROLL TAX CUT TO THE END OF 2012 Congress passed the Middle Class Tax Relief and Job Creation Act of 2012 on February 17, 2012. Under this new Act, the payroll tax reduction is further extended. Specifically, the two percentage point reduction in payroll tax rate is now extended to the end of 2012.
The impact of this extension is expected to reach many wage earners and self-employed individuals. The Joint Committee on Taxation estimates about 170 million wage earners and self-employed individuals will benefit from this additional payroll tax cut extension in 2012 The two percentage point reduction in payroll tax rate applies to Old-Age, Survivors, and Dis-
This recapture of the reduction in payroll taxes would have applied to individuals earning more than $18,350 from January to February in 2012 and would have been payable in 2013 with their income tax returns for 2012 year.
ability Insurance (OASDI) taxes for employees and self-employed individuals. Employees will continue to pay OASDI taxes at 4.2 percent for the entire 2012 year. For self-employed individuals, the tax rate stays at 10.4 percent to the end of 2012. The impact of this extension is expected to reach many wage earners and self-employed individuals. The Joint Committee on Taxation estimates about 170 million wage earners and selfemployed individuals will benefit from this additional payroll tax cut extension in 2012.
The new Act repeals the recapture provision included with the original two months extension under the 2011 Act As your tax and business advisors, we want to make sure you are aware of the planning opportunities currently available. Please feel free to contact any of our tax professionals with any questions you have regarding this or any other tax issues.
In addition, the new Act repeals the recapture provision included with the original two months extension under the 2011 Act.
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