GAAP vs. tax-basis reporting: Choosing the right model for your business
Virtually every business must file a tax return. So, some private companies issue tax-basis financial statements, rather than statements that comply with U.S. Generally Accepted Accounting Principles (GAAP). But doing so could result in significant differences in financial results. Here are the key differences between these two financial reporting options. GAAP GAAP is the […]
Credit loss standard: The new CECL model
A new accounting standard on credit losses goes into effect in 2020 for public companies and 2021 for private ones. It will result in earlier recognition of losses and expand the range of information considered in determining expected credit losses. Here’s how the new methodology differs from existing practice. Existing model Under existing U.S. […]
Close-up on cutoffs for reporting revenues and expenses
Under U.S. Generally Accepted Accounting Principles (GAAP), there are strict rules on when to recognize revenues and expenses. Here’s important information about end of period accounting “cutoffs” as companies start to adopt the new revenue recognition standard. Cutoff games How closely does your company follow the cutoff rules? The end of the period serves […]
Respecting auditor independence
Auditor independence is still a hot topic among investors and lenders even though the financial crisis of 2008 was nine years ago. Here’s an overview of the independence guidance from the Securities and Exchange Commission (SEC). These rules apply specifically to public companies, but auditors of private companies are typically held to the same […]
Employee share-based payments: FASB revises the reporting requirements
Think the rules for reporting employee stock options and restricted stock are too complicated? The Financial Accounting Standards Board (FASB) agrees — and it has simplified the rules starting in 2017 for public companies and 2018 for private companies. Here’s how. Old rules Under current U.S. Generally Accepted Accounting Principles (GAAP), for each share-based […]
Put your income statement to good use
By midyear, most businesses that follow U.S. Generally Accepted Accounting Principles (GAAP) have issued their year-end financial statements. But how many have actually used them to improve their business operations in the future? Producing financial statements is more than a matter of compliance — owners and managers can use them to analyze performance and […]
Why financial restatements happen … and how to prevent them
When companies reissue prior financial statements, it raises a red flag to investors and lenders. But not all restatements are bad news. Some result from an honest mistake or misinterpretation of an accounting standard, rather than from incompetence or fraud. Here’s a closer look at restatements and how external auditors can help a company’s […]
How to shape up your working capital
Working capital — current assets minus current liabilities — is a common measure of liquidity. High liquidity generally equates with low risk, but excessive amounts of cash tied up in working capital may detract from growth opportunities and other spending options, such as expanding to new markets, buying equipment and paying down debt. Here […]
Use pro formas to plot your route to success
Running a business is like going on a road trip — and a detailed business plan that includes a set of pro forma financials can serve as a road map or GPS app that improves your odds of arriving on time and on budget. If your plan doesn’t cover the prospective quantitative details in […]
Conflict minerals: SEC reconsiders the disclosure requirements
The Securities and Exchange Commission (SEC) is reviewing its controversial disclosure rule that requires businesses to trace the sources of certain minerals used in their products. Businesses subject to the rule complain about its costs, but human rights groups say it has produced tangible benefits and that the compliance costs are vastly overstated. Will […]
