In 2014, a new accounting standard on how to recognize revenue from contracts was issued by the Financial Accounting Standards Board (FASB). Now the IRS is allowing a new automatic change in accounting method for businesses to use to conform with the new financial accounting...
The Securities and Exchange Commission (SEC) requires public companies to provide their financial statements in the eXtensible Business Reporting Language (XBRL) format as an exhibit to their regulatory filings. But XBRL isn’t just for reporting to the SEC. There are many compelling reasons for public...
Auditors must test the effectiveness of internal controls before signing off on your financial statements. But it’s impossible to analyze every transaction that’s posted to the general ledger, due to time and budget constraints. Instead, auditors select and analyze a representative sample of transactions to...
Small private companies often criticize the Financial Accounting Standards Board (FASB) for writing overly complex standards that focus on the needs of stakeholders in large public companies rather than “Main Street” businesses. Here’s how the FASB has addressed these criticisms in recent years. A shifting mindset In...
Management wants to paint the rosiest possible picture of a company’s financial performance. But aggressive earnings management, or “spin,” can mislead investors and lenders. Here are some ways U.S. Generally Accepted Accounting Principles (GAAP) can be manipulated to obscure the truth. Creative accounting vs. cooking the...
When accountants conduct an audit or review, they can’t test every transaction. Instead, they set a “materiality” threshold. This benchmark is used to obtain reasonable assurance in an audit — or limited assurance in a review — of detecting misstatements that could be large enough,...
Every business experiences occasional cash shortages. When this happens, owners often assume they should go out and sell more. But this strategy can sometimes compound money troubles over the short run. Why? The answer lies in a concept known as the “cash gap.” Understanding this...
Owners of closely held businesses sometimes need to advance their companies money to bridge a temporary downturn or provide extra cash flow for an expansion, a major expense or other purposes. Should you categorize those advances as bona fide debt, additional paid-in capital or something...
Custom jobs require ongoing supervision to achieve the best financial results. Whether you’re a general contractor constructing a strip mall, a manufacturer building made-to-order parts or an architect drawing up blueprints, once a project is underway it’s easy to focus on getting the job done,...
As the term suggests, for-profit companies are driven primarily by one goal — to maximize profits for their owners. Nonprofits, on the other hand, are generally motivated by a charitable purpose. Here’s how their respective financial statements reflect this difference. Reporting revenues and expenses For-profits produce an...