National Social Security Advisor Training Goes Online with CPE Link

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The Baby Boomer generation is a market of 70 million people with about 10,000 turning 65 every day. The number of individuals eligible for social security rises daily. And unfortunately, 90% of recipients are not maximizing their benefits due to a lack of information and guidance. Social Security benefits can be a vague mystery to both advisors and clients, as it is hard for both parties to find information.

To educate advisors in guiding their clients, Marc Kiner and Jim Blair of Premier Social Security Consulting now offer a Social Security training and certification program. A successful combination of Blair’s 35 years of experience in the Social Security administration and Kiner’s 30 years as a CPA make them the ideal choice for NSSA instructors. Together Kiner and Blair prepare CPAs, Enrolled Agents, Lawyers, Financial Advisors, Insurance Agents, Tax Professionals, and other professional advisors to add Social Security expertise to their list of qualifications.

The demand for Social Security advice continues to increase, and NSSA certified advisors will be able to act as a valuable retirement resource for their clients. In addition to offering this new service to clients, advisors will also be able to obtain a higher level of credibility as Social Security advisors in order to stand out from competing advisors in their field.

The National Social Security Advisor certification training is a completely new program, and many professional advisors have been greatly benefiting from its expert information and instruction. Kiner and Blair travel across the country to offer NSSA training seminars, but an increase in demand will now bring their classes online and available to a national audience. Kiner and Blair have partnered with online continuing education provider CPE Link to bring training for the NSSA Certification Program to CPE Link’s online webcast platform.

In this online training program, Kiner and Blair will cover topics including how benefits are calculated, how benefits are affected by the client’s age, Social Security options available to different marital demographics, and other relevant issues.

Upon completing the webcast training, attendees must pass an online certification test in order to become a National Social Security Advisor and receive their NSSA certificate from the National Social Security Association. The training program includes material filled with invaluable information, a full year of support from instructors, video recordings of the presentations, and exam and certification fees. The online training will make its first appearance on July 10 and August 12, 2013 at www.cpelink.com.

Interpretation of Financial Statements

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When reviewing the financial statements of a business, what interpretation can be extracted from these statements? This article covers several types of financial statement analysis, mostly related to the ratio comparison of different line items in the statements. By comparing these results, and especially over multiple reporting periods, you can arrive at a reasonable estimation of the financial results and condition of a business.

There are two key techniques for analyzing financial statements. The first is the use of horizontal and vertical analysis. Horizontal analysis is the comparison of financial information over a series of reporting periods, while vertical analysis is the proportional analysis of a financial statement, where each line item on a statement is listed as a percentage of another item. Typically, this means that every line item on an income statement is stated as a percentage of gross sales, while every line item on a balance sheet is stated as a percentage of total assets. Thus, horizontal analysis is the review of the results of multiple time periods, while vertical analysis is the review of the proportion of accounts to each other within a single period. Later sections describe horizontal and vertical analysis more fully.

Another heavily-used technique is ratio analysis. Ratios are used to calculate the relative size of one number in relation to another. After you calculate a ratio, you can then compare it to the same ratio calculated for a prior period, or that is based on an industry average, to see if the target company is performing in accordance with expectations. In a typical financial statement analysis, most ratios will be within expectations, leaving a small number of outlier ratios that require additional detailed analysis.

There are several general categories of ratios, each designed to examine a different aspect of a company’s performance. These categories are:

Liquidity ratios. This is the most fundamentally important set of ratios, because they measure the ability of a company to remain in business. Samples of ratios in this category are:

  • Cash coverage ratio. Shows the amount of cash available to pay interest.
  • Current ratio. Measures the amount of liquidity available to pay for current liabilities.
  • Quick ratio. The same as the current ratio, but does not include inventory.
  • Liquidity index. Measures the amount of time required to convert assets into cash.

Activity ratios. These ratios are a strong indicator of the quality of management, since they reveal how well management is utilizing company resources. Samples of ratios in this category are:

  • Accounts payable turnover ratio. Measures the speed with which a company pays its suppliers.
  • Accounts receivable turnover ratio. Measures a company’s ability to collect accounts receivable.
  • Inventory turnover ratio. Measures the amount of inventory needed to support a given level of sales.
  • Fixed asset turnover ratio. Measures a company’s ability to generate sales from a certain base of fixed assets.
  • Sales to working capital ratio. Shows the amount of working capital required to support a given amount of sales.

Leverage ratios. These ratios reveal the extent to which a company is relying upon debt to fund its operations, and its ability to pay back the debt. Samples of ratios in the category are:

  • Debt to equity ratio. Shows the extent to which management is willing to fund operations with debt, rather than equity.
  •  Fixed charge coverage. Shows the ability of a company to pay for its fixed costs.

Profitability ratios. These ratios measure how well a company performs in generating a profit. Samples of ratios in this category are:

  •  Breakeven point. Reveals the sales level at which a company breaks even.
  •  Gross profit ratio. Shows revenues minus the cost of goods sold, as a proportion of sales.
  •  Net profit ratio. Calculates the amount of profit after taxes and all expenses have been deducted from net sales.
  •  Return on net assets. Shows company profits as a percentage of fixed assets and working capital.

This article is an excerpt from Steven Bragg’s new guidebook Financial Analysis: A Business Decision Guide.

The Cash Forecasting Procedure

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It is impossible to manage cash effectively without an accurate cash forecast. The forecast is designed to give the treasurer insights into the state of cash inflows and outflows over the next few weeks and months. It is critical to have a consistently-applied process for generating a cash forecast, similar to the one shown below.

1. Prepare forecast template. Create a copy of the last cash forecast, and prepare it with the following information:

  • Extend the forecast to cover the new forecast period
  • Delete from the forecast any dates that are now in the past
  • Label the spreadsheet with the forecasting date
  • Clear all numbers from the forecast line items

Tip: If you are calculating the cash forecast on an electronic spreadsheet, copy the most recent version of the forecast onto a new tab, and label the tab with the date of the forecast. This allows you to keep a historical record of all prior cash forecasts.

2. Populate the template. Enter the following information into the cash forecast template for each designated time bucket:

  • Current cash balance
  • The best estimate of cash receipts from open accounts receivable
  • The projected cash disbursements for payroll and payroll tax payments
  • The projected cash disbursements for accounts payable
  • The projected timing of expenditures for capital projects
  • The projected timing of dividend payments
  • If the cash forecast extends beyond the period covered by the current group of accounts receivable,estimate the cash receipts from new sales that will arrive during the cash forecast period. The timing of these receipts will likely be based on the company’s experience with the timing of cash receipts from the customers to whom sales are expected to be made.
  • If the cash forecast extends beyond the period covered by the current group of accounts payable, estimate the cash disbursements related to the cost of goods sold and normal selling and administrative expenses during the relevant cash forecast periods. Another use of cash that may be included in the cash forecast is that portion of an expected acquisition paid for with cash.

Tip: Compile a checklist of all the sources of information for the cash forecast and use it every time a new forecast version is compiled, to ensure that every issue impacting cash is included.

3. Review and revise the forecast. Print an initial copy of the forecast and review it for reasonableness. If any cash inflows or outflows appear to be unusual, confirm them with the person who compiled the information. It may be necessary to avoid funding shortfalls by shifting planned expenditures further into the future, which usually requires a discussion with the controller. This review and revision process can require several iterations.

Tip: A good way to detect flaws in a forecast is to compare the cash flow results for each forecast period to the results predicted for the same periods in the preceding cash forecast, and to investigate any large differences.

4. Adjust for funding changes. If the cash forecast indicates that the company can invest funds or must borrow to meet expenditure requirements, discuss these issues with the treasurer. Incorporate into the forecast any cash withdrawals for new investments or the reduction of loans. Also make note of any loan drawdowns needed to fund forecasted cash requirements.
Control issues: Consider having the treasurer formally approve the final version of the cash forecast, since the treasurer will likely be held accountable if the forecast turns out to be flawed.

Tip: It may be useful to note on the forecast the projected remaining borrowing base against which the company can draw down funds from its line of credit. This is useful for planning when to obtain additional debt.

5. Distribute the forecast. Send copies of the forecast to all parties on the distribution list, such as the controller and chief financial officer.
Control issues: If the cash forecast is distributed by e-mail, consider issuing it as a locked spreadsheet or a PDF document, so the recipients do not make changes to the information. Also, lock down the spreadsheet model so that it is not inadvertently modified within the treasury department.

This article is an excerpt from Steven Bragg’s course Corporate Cash Management: A Treasurer’s Guide.

Fixed Assets: The Asset Recognition Procedure

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There are a number of possible transactions that can potentially be generated over the useful life of a fixed asset, ranging from the initial budgeting for it to its eventual disposal. Given the significant cost of fixed assets, you should adhere to a carefully-defined set of procedures for these transactions, so that you only acquire those assets really needed, account for them correctly, and eliminate them only when it makes economic sense to do so. Without these procedures, you will have a heightened risk of investing in assets that you do not need, or of accounting for them incorrectly.

One of the areas in which a procedure can be quite useful is for the initial recognition of a fixed asset in the accounting system. The procedure is outlined below:

1. Determine base unit. Determine the base unit for the asset. This determination is based upon a number of factors, such as whether the useful lives of various components of the asset are significantly different, at which level you prefer to physically track the asset, and the cost-effectiveness of tracking assets at various levels of detail. Reviewing the base units used for other assets may assist in this determination. Responsible party: Fixed asset accountant
Tip: It is more efficient to aggregate expenditures into a smaller number of base units, where possible. Otherwise, the larger number of assets to be tracked requires too much accounting staff time.

2. Compile cost. Compile the total cost of the base unit. This is any cost incurred to acquire the base unit and bring it to the condition and location intended for its use. These activities may include the construction of the base unit and related administrative and technical activities. Responsible party: Fixed asset accountant
Control issues: This step involves having a system in place for ensuring that purchases are coded to the correct fixed assets. This may involve a summary sheet given to the accounts payable staff, detailing which fixed assets are currently active, and which expenditures should be coded to them.

3. Match to capitalization limit. Determine whether the total cost of the base unit exceeds the corporate capitalization limit. If it does not, then charge the expenditure to expense. Otherwise, continue to the next step. Responsible party: Fixed asset accountant
Tip: This step can also be handled within the accounts payable department, where the clerks can assign expenditures to expense accounts, rather than to fixed asset accounts, if the amounts are clearly below the capitalization limit. Under this approach, the fixed asset accountant can be consulted if expenditures are very close to the limit.

4. Assign to asset class. Assign the base unit to the most appropriate asset class for which there is a general ledger category (such as furniture and fixtures, office equipment, or vehicles). Responsible party: Fixed asset accountant
Tip: Again, this step can also be handled within the accounts payable department. The fixed asset accountant may be consulted regarding items where the asset class is unclear.

5. Create journal entry. Create a journal entry that debits the asset account for the appropriate asset class and credits the expenditure account in which the cost of the base unit had originally been stored. If there is a general ledger accountant, this person will record the entry in the accounting system. Responsible party: Fixed asset accountant and general ledger accountant
Control issues: Be sure to include supporting documentation in a fixed assets binder or journal entry binder, so that the outside auditors can review the information as part of their annual audit.

This article was an excerpt from Steven Bragg’s course Fixed Asset Accounting

Tax-Related Suggestions for Summer Plans

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Busy season is over, except for those extended returns. It may have seemed like a rushed season due to the lateness of 2012 tax legislation holding up some tax forms. There has been little time to consider all of the pieces of the American Taxpayer Relief Act (ARTA) of 2012 (P.L. 112-240) signed into law on January 2, 2013. In addition, there was year-end regulations released by the IRS. So, perhaps summer is a good time to catch up. Here are some suggestions for summertime work.

1. Review the ATRA to identify where clients need to know of higher taxes as well as tax planning opportunities. For example, the reduction in itemized deductions for higher income individuals (§68) returns in 2013 with different dollar amounts ($250,000 for single and $300,000 for married filing jointly). Opportunities exist with the extended American Opportunity Tax Credit, tax-free IRA distributions for charitable contributions for 2013, and expanded opportunities to transfer retirement funds to a Roth account. A helpful overview of these provisions and more is included in the Joint Committee on Taxation’s Bluebook for tax legislation of the 112th Congress.

2. Get up to speed on the new 3.8% Medicare tax of §1411. This new tax on net investment income of high income individuals, estate and trusts, starts this year. In December 2012, the IRS issued 42 pages of proposed regulations explaining this new tax. There is a lot to understand such as when income from a passthrough entity or rental real estate is subject to this tax. The regulations also allow for a one-time regrouping of passive activities. This is a complex new provision that you’ll need to be up to speed on if you have individual clients with more than $200,000 of income or estates or trusts with over $11,000 of income.

3. Study the health care law. The extensive health care legislation enacted in 2010 contained provisions that come into effect over a period of years. Key items that come into effect in 2014 are the individual mandate (§5000A) and employer shared responsibility payment (§4980H). Individuals and employers will want to be familiar with these new rules well before 2014. Proposed regulations on these provisions were issued in early 2013. For these and other rules, the IRS has an extensive website that should be a good starting point before delving into the statute and regulations.

And, hopefully a vacation is on your summer agenda as well.

This article was written by Annette Nellen, CPE Link instructor and director of the Masters of Science in Taxation program at San Jose State University. Visit her page here to view upcoming Quarterly Tax Updates.

Principles vs Objectives-Based Accounting Systems

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At the heart of a recent debate is whether a principles-based accounting system should replace the more concrete, yet inflexible, rules-based approach. For years, the accounting profession has been criticized for its “black and white” approach to setting rules. In some instances, quantitative thresholds and rules have replaced logic. The result is that in recent instances, companies have “technically” satisfied GAAP’s rules even though the substance of the transaction was contrary to the rules-based form. Below are arguments for and against a principles-based accounting system.

Congress passed the Sarbanes-Oxley Act. Sarbanes-Oxley required the SEC to conduct a study on the adoption of a principles-based accounting system by United States SEC companies. The conclusion reached by the Study is that the adoption of objectives-oriented, principles-based accounting standards in the United States would be consistent with the vision of reform that was the basis of the Sarbanes-Oxley Act. Unlike a pure principles-based system, an objectives-oriented, principles-based system has certain attributes as follows:

1. In applying a particular standard in practice, accountants and auditors focus the accounting and attestation decisions on fulfilling the accounting objective of the standard. This minimizes the opportunities for financial engineering designed to evade the intent of the standard.
2. Each standard is drafted with objectives set by an overarching, coherent conceptual framework meant to unify the accounting system as a whole.
3. The objectives-oriented approach has exceptions which are contrary to a pure principles-based system.
4. The objectives-oriented approach has bright-line tests, which are contrary to a pure principles-based system.
5. The objectives-oriented approach articulates the class of transactions to which they apply and contain sufficiently detailed guidance so that preparers and auditors have a structure in which to determine the appropriate accounting for company transactions.

A hybrid system such as the objectives-oriented, principles-based system could work, if appropriate implementation guidance were given. However, a pure principles-based system will never work. Accounting without a rules-based system is gray, not black and white. A system based on gray, nebulous rules is subject to dispute, confusion, and ambiguity. It also lacks consistency. Consider two companies in the same industry. Using principles-based accounting, one company interprets the timing of revenue recognition in one manner, while the other interprets it in another. Both entities reached their conclusions correctly based on valid assumptions. Yet, the system results in two entities within the same industry, with the same information, reaching different conclusions about how to recognize revenue. The result is a lack of consistency within the same industry.

Let’s also consider the impact of a principles-based system on auditors and accountants in litigation. It is difficult enough trying to defend and define the complex accounting rules under which accountants and auditors now practice. Imagine what would happen without accounting rules and how one could explain to a lay jury, conclusions reached using a principles-based approach.

Finally, the only way a principles-based system could ever work is if it operates within a universally ethical foundation. Although most accountants and their clients do follow an ethical compass, there are simply too many external forces and pressures that could persuade companies, and even their auditors and accountants, to interpret principles in one direction versus another. Such a result would mitigate the benefits expected to be derived from a principles-based system.

This article was an excerpt from Steven Fustolo’s course 2012 Current Developments Update: Accounting & Financial Reporting.

Accounting for Non-Profits: Fundraising

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Nonprofit organizations receive many different types of revenue. Some nonprofits are government funded, while others receive funds from donors and foundations. Most nonprofit organizations conduct fundraising events to raise money for operations or for certain programs. Often nonprofits have annual fundraising events such as mailing campaigns,marathons, golf events, dinners, galas, and other events to raise funds for general use. Proceeds and expenses associated with these types of events are booked in the unrestricted/general fund. If the fundraising event is for a specific program or for something to happen in the following year, then money from the event is restricted.

Usually big fundraising events raise money for unrestricted use. This money raised is reported separately in the Statement of Activities in the unrestricted fund column. It’s also reported separate on the 990. Many times donors get something for their donation. This is known as a “quid pro quo” and may be a dinner or auctioned items. Someone makes a donation and gets something in return, such as the value of food, entertainment, or items bought at an auction, etc. This is also called “exchange value.”

Donors’ receipts must specify how much of a donation is a “real” donation, and how much is not. Donors may be able to deduct only the donation part of the gift. If a person gives $200 for a dinner fundraiser, and the ticket says “Value of the meal: $50,” then donor can deduct only $150 in his taxes, not the entire amount. In an auction, if something is valued at $1,000 and a donor gives $1,500 for it, the difference of $500 is the real donation.

When a donor makes a donation of $1,000 (or other amount) for a dinner fundraiser and doesn’t show up for whatever reason, he or she can deduct the entire amount. Beware that organizations are not supposed to determine the real deductibility of an item, which can change by person and circumstances.The IRS offers workshops to nonprofits about this topic. It also has a site just for nonprofit organizations at http://www.irs.gov/charities/index.html

Many times organizations combine fundraising activities with programs or with management and general administration. When that happens, a reasonable allocation of expenses may be used. Why? Because GAAP and an additional financial report, Schedule of Functional Expenses, require this allocation. (All expenses need to be allocated to the three major areas– general/management, programs, and fundraising.) Special events are shown separately in the Statement of Activities (Income Statement of nonprofits). If the event is not that important, revenues and “Direct donor benefit costs” can be shown as net. “Direct donor benefits costs” are direct expenses associated with the event.

The line for direct donor costs could also be reported as part of expenses. Another option for reporting major events is to use the exchange value and to divide the income between contributions and special event revenues (see quid-pro-quo discussion earlier). The fair market value is shown as special event revenue; the rest is shown as regular contribution.

This article is an excerpt from Sheila Shanker’s course Non-Profits Operations and Accounting.

 

The New Controller Checklist

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Anyone who has been hired into the controller position for the first time may feel overwhelmed, since the job description involves an enormous range of responsibilities. Where to begin? The answer is simpler than you may think. Always focus on the ability of the business to survive. Thus, if there is not enough cash on hand to pay the short-term obligations of the business, all other controller responsibilities are insignificant, because the company will no longer be in business. Thus, you should address the following issues first, and in the order presented:

1. Create a short-term cash forecast.
Develop a simple cash forecasting model on an electronic spreadsheet that tells you the expected cash balance at the end of each week for the next month. The initial results may not be that accurate, so compare actual to forecasted results, and adjust the forecast model to increase its accuracy over time.

2. Understand receivables.
 Review the accounts receivable aging report with the collections staff, to understand which customers pay on time (or not), and which receivables are likely to be delayed or uncollectible. Also, review all non-trade receivables to determine which ones are collectible, and when they are likely to be collected. Adjust the cash forecast based on this information.

3. Understand payables.
 Review the accounts payable aging report with the accounts payable staff, to learn about the payment terms associated with each supplier, the relations with each one, and which supplier invoices are likely to arrive during the cash forecasting period. Adjust the cash forecast based on this information. Refer to the Accounts Payable Management chapter for more information.

4. Understand debt payments. Review the schedule of debt payments. These payments are sometimes taken out of the company’s bank account automatically by the bank (if it is the lender), so you can reliably estimate in the cash forecast when these cash deductions will occur.

5. Reconcile accounts. If no bank account reconciliations have been completed recently, do so now. This adjusts the company’s recorded cash balance for any bank fees and other adjustments imposed by the bank. Adjust the cash forecast based on the revised current cash balance.

The preceding steps allow you to generate a preliminary cash forecast almost immediately, and one that should rapidly increase in accuracy. Over the longer term, you might also consider reviewing any supplier contracts to see if there will be scheduled payments that should be included in the cash forecast. Also, talk to other departments to determine when they may want to purchase fixed assets, so that you can build these expenditures into the budget. Irrespective of these improvements, please note that the cash forecast will never be entirely accurate, even over a period of just a month, because cash inflows are subject to the whims of customers.

This excerpt was pulled from CPE Link’s instructor Steven Bragg’s course The New Controller Guidebook.

Why Your Organization Needs a Current Policy and Procedures Manual

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By CPE Link instructor Mary S. Schaeffer

The accounts payable policy and procedures manual is more than a static document with little value. Truth be told many organizations either don’t have one or have one that hasn’t been updated in years. This is a real shame. For if the right approach is taken towards the accounts payable policy and procedures manual, it can have many uses and can help ensure best practices are used throughout the accounts payable organization.

Many problems that arise from the accounts payable process occur because there is a lack of uniformity among processors in the way they handle invoices. If the exact same process is not used by every single processor, duplicate payments and other errors are likely to creep in. The only way to ensure that the same processes are used across the board is to have them written down with detailed instructions on how each task is to be accomplished.

This is the primary goal of the accounts payable policy and procedures manual. For it to be a true guide, it must be reviewed and updated on a very regular basis. Otherwise, it will quickly be come out of date and not serve the goal it is intended. What’s more, a detailed manual can serve as a reference guide to your processors. So, when they come across an issue that does not come up every day, they won’t have to guess on the right way to handle the problem. They can simply pull out the policy and procedures manual and verify.

A good policy and procedures manual can also serve as a training guide for new employees. Each one should be given a copy when they are hired and the manual should be referenced throughout the training process.

A few managers think it is a good idea to keep the manual short. This is a terrible idea because without a detailed manual, errors will creep in. You just can’t have too much detail in the manual. Sometimes a manager will think, “oh, we don’t have to put that in. Everyone knows the right way to do the task at hand.” Unfortunately not everyone thinks the same way and this is a sure fire way to guarantee that errors will creep in.

When it comes to accounts payable policies and procedures, there is no room for creativity. This is one time when everyone has to perform tasks exactly like their colleagues. Should someone come up with a better way, they should bring their suggestion to the supervisor. If the approach is better, everyone can start using the new approach and there will be no concern for variances. Unfortunately, sometimes what looks like a good process improvement for the accounts payable department, is something that is not good for another unit within the organization. Thus, it is imperative that the employee share the new idea with the manager who can evaluate the idea and if it is workable, adjust procedures for everyone as well as updating the department’s policy and procedures manual.

This article is an excerpt from Mary S. Schaeffer’s An Effective Accounts Payable Policy & Procedures Manual.

Creating a Series of Letters in Excel

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By its very nature as a spreadsheet, it’s easy to create a series of numbers in Excel. For instance, you can enter the number 1 in cell A1, hold down the Ctrl key, and drag the fill handle in cell A1 down to create an instant series of numbers. For the uninitiated, the Fill Handle is the little black notch in the right-hand corner of the active worksheet cell. Regardless, most users don’t realize that you can configure Excel to create a series of letters in a similar fashion. Continue reading at AccountingWEB.

This article is written by one of our esteemed Instructors, David Ringstrom. David is a CPA and owner of Accounting Advisors, Inc., an Atlanta-based spreadsheet consulting firm that he started in 1991. Throughout his career David has spoken at conferences on Excel, and written dozens of freelance articles about spreadsheets. He presently writes for AccountingWEB.com, and offers Excel training and consulting services nationwide.