Finding out a quality CPA firm
3-13-10

In order to perform a high level of CPA work (such as audit or review of financial statements), many states require and also AICPA members are required to enrolled separately in the AICPA Peer Review Program.  Otherwise, a CPA is prohibited from performing such services and may lose its practice license when a CPA issues such reports without in the program.  Under the program, a CPA firm goes through itself an audit in every three years by another quality CPA firm to ensure all the work were done in accordance with professional standards.

One can check to see if a CPA firm is enrolled into the program with the name of firm by visiting: http://peerreview.aicpaservices.org/firmfile/DocDefault.aspx.

To read more about the program, visit: http://www.aicpa.org/professional+resources/peer+review/.

Car purchase breaks, $3,500 to $4,500
6-25-09

President Obama on June 24 signed legislation aimed at boosting the sale of vehicles at financially struggling U.S. automobile dealerships. The so-called "cash for clunkers" program provides $1 billion in tax-free vouchers to automobile dealers who participate in the new program. The program vouchers, worth $3,500 or $4,500, will be given to dealers when consumers trade in old vehicles for ones with higher fuel efficiency. The vouchers will not be considered taxable income for the car buyer.

The new law limits the number of vouchers to one per customer, including joint registered owners of a single eligible trade-in vehicle. The car voucher measure is included in the 2009 Supplemental Appropriations Bill for Iraq, Afghanistan, Pakistan and Pandemic Flu (HR 2346).

Federal Minimum Wage Increases on July 24
7-12-07

The Fair Labor Standards Act increases the federal minimum wage in three steps:

• July 24, 2007, $5.85 per hour
• July 24, 2008, $6.55 per hour
• July 24, 2009, $7.25 per hour

See the U.S. Department of Labor’s Wage and Hour Web site or call the DOL toll-free help line at 1-866-4US-Wage (487-9243) for more information and a copy of the poster every employer with employees subject to the Fair Labor Standard Act’s minimum wage provisions is required to display at their business.

Simple policy for the fixed assets capitalization
10-19-06

Some companies are not sure about the capitalization of fixed assets when the dollar amounts involved are varied significantly.  For example, we frequently receive a question on the small expenditure of fixed assets, such as cellular phones and portable printers.  Our advise is to set the fixed assets capitalization policy, meaning only capitalize the fixed assets expenditure more than or equal to $1,000 per an item.  Anything less than this threshold amount should be expensed.  This way, the nightmare of keeping three to four sets of the depreciation books for accounting and tax purposes can be avoided.

Should you need a sophisticated accounting program?
7-9-06

This day and age, you do not need a sophisticated accounting program unless you have a very sizable company.  The accounting software has been developed really well during last a decade or so.  On the shelve accounting software that you can buy from such store as Staples can handle most of accounting transactions for small to medium size companies.  These types of software can cost anywhere from $100 to $1,000.  They have many functions that can handle most of complicated transactions, including inventories, fixed assets and payroll modules, while to learn and use the software is really easy with a lot of helpful features.  The most popular programs are Peachtree, QuickBooks and Microsoft Small Business Accounting Program.

KPMG agrees to pay $456 million for tax violation
9-1-05

Big Four  accounting firm KPMG, LLP, will pay a $456 million penalty for tax fraud violations in connection with its sale of abusive tax shelters, the IRS and the Justice Department (DOJ) announced on August 29. According to the IRS, the case is the largest criminal tax case ever filed. The case grew out of an investigation of the DOJ's Corporate Fraud Task Force that was spearheaded by the U.S. attorney's office for the southern district of New York.  The Justice Department also indicted nine individuals for defrauding the government by designing, marketing and implementing illegal tax shelters. Eight of the individuals are former KPMG officials, including its former deputy chairman and two former heads of KPMG's tax practice.

SFAS No. 154, Accounting Changes and Error Corrections
7-25-05

SFAS No. 154, Accounting Changes and Error Corrections, requires entities that voluntarily make a change in accounting principle to apply that change retrospectively to prior periods' financial statements, unless this would be impracticable. SFAS No. 154 supersedes APB Opinion No. 20, Accounting Changes, which previously required that most voluntary changes in accounting principle be recognized by including in the current period's net income the cumulative effect of changing to the new accounting principle. SFAS No. 154 also makes a distinction between "retrospective application" of an accounting principle and the "restatement" of financial statements to reflect the correction of an error. SFAS No. 154 is part of the effort to improve the comparability of cross-border financial reporting by working with the IASB. The Statement brings U.S. GAAP toward the IASB requirements.

Another significant change in practice under SFAS No. 154 will be that if an entity changes its method of depreciation, amortization, or depletion for long-lived, non-financial assets, the change must be accounted for as a change in accounting estimate. Under APB Opinion No. 20, such a change would have been reported as a change in accounting principle.

SFAS No. 154 applies to accounting changes and error corrections that are made in fiscal years beginning after December 15, 2005. Earlier application is permitted for accounting changes and corrections of errors made occurring in fiscal years beginning after June 1, 2005. The Statement does not change the transition provisions of any existing accounting pronouncements, including those that are in a transition phase as of the effective date of this Statement.

Justice Department may indict KPMG
6-22-05

The Justice Department is contemplating whether to indict KPMG for allegedly illegal tax shelters.  KPMG is cooperating with authorities to resolve the matter. Once Arthur Anderson indicted, thousands of client switched to another auditor to result in a failure among the Big Five accounting firms  The Justice Department may choose to settle for an agreement that may avoid the prosecution.

Senate approves bankruptcy reform bill
3-11-05

The Senate on March 10 passed a sweeping bankruptcy reform bill by a vote of 74 to 25, moving the measure closer to law as both the House and President Bush have signaled their approval of the legislation.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 would make it more difficult for consumers to avoid repayment of debts under bankruptcy protection, as it would subject them to a means test to determine their ability to pay. The measure would require debtors who have the means to pay to enter a repayment plan, rather than having their debts canceled under Chapter 7 of the Bankruptcy Code.

FASB to require expensing of options from 2005
12-17-04

The U.S. accounting rule-maker (FASB) decided yesterday that companies are required to start deducting the value of stock options from their profits beginning with their first annual reporting period after June 15, 2005.  FASB reiterated that these new rules will help investors and shareholders with more accurate financial information. However, FASB did not specify a particular method for valuing options as of yet.

We believe this is a right approach to adopt the new rules because earnings of a company should reflect all of its expenses including the value of stock options for investors to make a correct judgment of a company's financial status.  Of course, many start-up and technology companies benefit from stock options as they do not require the cash outlay in the beginning while attaining talented employees.  Furthermore, these companies worry that their earnings will be reduced by the value of stock options, resulting in even a higher price-earning ratio.

In order to avoid the reduction effect to the earnings, companies may start to buy back its stocks to offset the shares of stock options granted.  In this process, companies can become more conscience about the giving out stock options which will eventually benefit its shareholders.  Under current standards, a company's cost for issuing options only needs to be disclosed in a footnote in its financial statements, not deducted from net income. The new rules will instead force companies to subtract the option expense from earnings, which could dramatically knock down profits at some companies.

SEC asks Congress to leave the stock option to FASB
9-7-04

Securities and Exchange Commission Chairman William Donaldson wants Congress to stay out of the stock-options expensing debate and let the nation's accounting standards-setter (FASB) complete its work.

In a letter to 16 senators, including Senate Majority Leader Bill Frist, Mr. Donaldson said the independence of the Financial Accounting Standards Board is threatened by a bill recently approved by the House that would override an FASB proposal requiring companies to expense the value of all stock options. Under the measure, the expensing rule would be limited only to options granted to a company's top five officers.

Under the FASB proposal floated earlier this year, companies would have to subtract the value of all employee stock compensation from company profits.

Peer review
5-3-04

Many state boards of public accountancy (organizations that grant the CPA practice license if an candidate passed the CPA exam and obtained the two-year public experience) require firms (or CPA individuals) practice and perform services in the areas of financial statement audits, reviews and/or compilations to go through the peer review.

The peer review is to hire another quality peer-reviewed firm to perform a peer review on a reviewed firm's practices in the areas of audits, reviews and/or compilations.  A firm must go through the peer review initially within 18 months of the firm creation date and then once every three years in order to maintain their license to practice public accounting.

FASB proposes expensing stock options
11-3-03

The Financial Accounting Standards Board ("FASB"), the U.S. accounting rule maker, as expected, proposed today to change an almost 10 year rule that companies expense the value of employee stock options from profits, starting from 2005.  In the prior years, the plan has met strong opposition from the technology industry, where option grants have been far more generous than in the rest of corporate America.  Currently, only the disclosure is required in the footnote to the financial statements.  This proposal will have a significant impact to the earnings reported by companies that offer stock options.

Cash vs. accrual basis
11-3-03

When a company starts its business, there are normally two choices which the company can make to record accounting transactions, cash basis or accrual basis.  

Under the cash basis, a company is recording its accounting transactions based on the transaction dates generally recorded on the bank statements.  The company recognizes its revenue in accordance with deposit dates shown on the bank statements.  Likewise, expenses are recoded in accordance with the dates checks cleared through the bank.  Sometimes this method is advantageous if checks are wrote and cleared first to recognize expenses, let's say, in December 2003 while deposits are made in January 2004 to avoid paying taxes in the year 2003.

However, as a company size grows, the accrual basis is generally a better method.  Under this method expenses are recoded on the dates goods or services are purchased (let's say, in December 2003) regardless when the invoices and the actual payments are received and paid (in January 2004).  The same principle applies for the revenue side.  Regardless when the deposits are made, a company records its revenue the date goods or services are provided.  Under this method every expenses are matched accurately to related revenues.  Therefore, the net result of income or loss can be determined correctly in the income statement.  When a company is growing, this net result information is crucial for management to make an appropriate decision for a company.

Accounting and taxation rules
9-15-03

Don't be confused with the tax rules with the accounting rules.  Generally, the accounting rules are based on generally accepted accounting principles (GAAP) while the taxation rules are based on the Internal Revenue Codes or tax rules from the states.

A good example is the expense treatment of the meals and entertainment.  For the taxation, this expense is 50% deductible; while for the accounting, this expense is 100% expensed.  You might ask, then, when different rules are used.  As you may have guessed, the taxation rules are used when the tax returns are prepared.  For the accounting rules, they are used when the financial statements are prepared.  Any difference between these two rules are accounted for as deferred tax assets or liabilities in the financial statements.

Capital contribution to a business
6-16-03

When a person starts a business, he or she has to put money into a business.  This is called capital contribution.  Generally, there is no minimum amount one has to contribute to a business.  It is all depended upon how much a business is needed to operate.  In order to build up a credit, a lender (bank) is looking for an adequate capital in a business before they lend money.  Once contributed capital can be withdrawn any time if an owner wants to.

Big troubles at Big Four accounting firms
3-15-03

Only a year ago, Arthur Anderson was in a growing business with more than 28,000 employees in the U.S. and $9 billion in revenue per year.  Now, it barely exists with only fewer than 500 employees after the Enron scandal.  The Big Four now faces another big problem of tax shelters, challenged by the IRS and litigations from its clients.  It is not easy to estimate the potential liabilities but it is likely to result in the billions.  The current status of pending cases for the Big Four is:

KPMG--lawsuits from both clients and the IRS over the tax shelter sales, and the SEC has filed a fraud complaint against the firm for its audit of Xerox, alleging an overstatement of its revenues by $3 billion.

Deloitte & Touche--helped Enron avoid $2 billion in taxes with complex offshore tax shelters.

PricewaterhouseCoopers--paid the IRS $1 million to settle an investigation into its tax-shelter business.

Ersnt & Young--a $1 billion lawsuit was filed over bad tax shelter.

Inventory valuation
2-15-03

A major departure from adherence to the historical cost principle is made in the area of inventory valuation.  If the inventory declines in value below its original cost for whatever reason (for example, obsolescence, price-level changes, or damaged), the inventory should be written down to reflect this loss.  The accounting rule is that the historical cost principle is abandoned when the future utility (revenue-producing ability) of the asset is no longer as great as its original cost.  

The lower of cost or market rule of inventory requires that the inventory be valued at cost unless "market" is lower than cost, in which case the inventory is valued at market.  The term market as used in this rule is determined by choosing the middle of replacement cost, selling price minus cost of completion (Net Realizable Value--NRV), or NRV minus a normal profit.

Revenue recognition
2-14-03

The revenue recognition is a term used in the accounting industry to determine when the revenue should be recorded by a company.  It is important because a company's earning process is said to be completed in accordance with its revenue recognition policy.  Normally, revenue is recognized when goods are shipped or services are rendered in a particular date or dates.

Operating and capital leases
1-8-03

A lease is an agreement that conveys the right to use property for a specified period.  Generally, leases are entered into under the operating leases, such as renting an office space.  However, certain leases need to be treated as if sales had occurred at the beginning of lease if an ownership of leased property transfers to a lessee from a lessor at the end of leased term.  Under the capital lease, the entire asset and liability amounts of property, such as a leased car, are recorded in the lessee's books while only the monthly payment is recorded as expense under the operating lease.

FASB issued guidance on guarantee
12-9-02

The FASB recently issued new guidance on disclosure requirements for guarantees. Interpretation No. 45, "Guarantor's Accounting and Disclosure requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," clarifies that when a company issues a guarantee, it must recognize an initial liability for the obligations it assumes, and it must include the liability information in all financial statements. The Interpretation expands on guidance in Statements No. 5, 57 and 107, and incorporates Interpretation No. 34, which will be superseded. The goal of the new guidance is to provide a clearer picture of a company's financial position and the risk it has assumed. The interpretation can be accessed at www.fasb.org.

Co-signing a loan
11-8-02

Many people agree to cosign loans for friends or relatives. They do this as a favor, a vote of confidence or because they just can't say no. Unfortunately, they often find that they've bitten off more than they intended to chew.

The cosigner of a loan agrees to be responsible for its repayment along with the borrower. While a lender will generally seek repayment from the debtor first, it can go after the cosigner at any time. (On the other hand, where a loan is guaranteed, the lender can usually go after the guarantor only after the principal debtor has actually defaulted.)

Finance companies report that most cosigners end up paying off the loans they've cosigned — along with late charges and legal fees. Not only is this an unwanted out-of-pocket expense, but it can also be an undeserved blot on the cosigner's credit record.

It's better to guarantee a loan than to cosign it. However, if you're willing to cosign a loan, at least seek the lender's agreement to refrain from collecting from you until the borrower actually defaults, and try to limit your liability to the unpaid principal at the time of default. Then stay on top of the borrower's financial situation to help avoid a default (for example, have the lender notify you whenever a payment is late). At least you can preserve your credit rating by knowing payment problems in the beginning.

SAS 99 on fraud approved by AICPA
10-22-02

The AICPA has approved SAS 99, "Consideration of Fraud in a Financial Statement," which will supersede the Auditing Standards Board’s earlier standard, SAS 82. The new standard provides for the following:

• An emphasis on professional skepticism;
• Discussions with management about fraud;
• Providing employees with the opportunity to blow the whistle on fraud;
• Surprise audit tests on areas that might not otherwise be tested; and
• Procedures to test for management override of controls on every audit.

The AICPA says the statement will improve the likelihood that auditors will detect material misstatements due to fraud.

Credit rating agencies
10-3-02

In addition to credit bureaus, which keep records of individuals’ credit habits, did you know that there is an electronic database that keeps files on your auto insurance dealings? There is also a large medical-file bureau. Just as the information in your credit bureau file can stop you from getting credit, data in the auto insurance database can stop you from getting car insurance and data in the medical-file bureau can stop you from getting health insurance.

That’s why it’s a good idea to check up on these three record-keepers to make sure their records on you are correct.

Here’s how to do it:

Credit Bureaus

To get a copy of your credit report from each of the three main credit bureaus, call or write them and request a report.

Equifax: Call 800-685-1111. Or, to request a credit report on Equifax’s Website, click here. The report is free if you have been denied credit; otherwise you’ll pay $9 for the report in most areas.

Experian (ex-TRW): Call 888-EXPERIAN. The report costs $9.74. To request a credit report on Experian’s website, click here.

Trans Union: Call 800-916-8800. To request a credit report on Trans Union’s Website, click here. Same pricing policy as Equifax.

The best course of action is to request a report periodically from each of the three bureaus. Check your report carefully. If you find an error, write to the bureau requesting a correction. If the bureau doesn’t agree to fix the mistake, you have the right under federal law to add a statement to the credit report, disputing the information. Or you can ask the creditor who reported the error to correct its report.

Auto Insurance

If you’ve been denied auto insurance, or charged more than you thought you were going to pay, it’s a good idea to check your Motor Vehicle record. To do so, call ChoicePoint at 800-456-6004, or click here.

Medical Reports

The Medical Information Bureau (MIB) keeps files on about 15 million individuals. More than 600 insurance companies supply MIB with data. An insurer uses an MIB report in deciding whether to issue a health policy to an individual, and how high premiums should be. The MIB report contains information on chronic health conditions, and on accidents you’ve had, among other things. If you’ve been denied health insurance, check your MIB report to make sure it’s accurate. Even if you have health coverage, it’s a good idea to check out the MIB report to avoid problems in the future. Call 617-426-3660, or click here.

Interpretation of working capital
9-17-02

The working capital is calculated by subtracting a company's current liabilities from the current assets.  The working capital is a consideration of major importance in determining the financial strengthen of a company.  It is a measure of a company's ability to carry on its normal business comfortably and without the need of new financing, and to meet emergencies and short-term losses without disaster.  The growth or decline of the working capital position over a period of years is worthy of an investor's attention.


Installment sales
8-15-02

Installment sales method of accounting defers the recognition of gross profit on installment sales until cash is collected. It is commonly used for income tax purposes, but is acceptable for purposes of financial reporting in limited situations, only under unusual circumstances in which collectibility cannot be reasonably estimated or assured.

House passes corporate fraud bill
7-25-02

The House, on a 423-3 vote, passed compromise legislation Thursday to crack down on corporate fraud, thereby moving the legislation closer to signature into law by President Bush, who has indicated he will sign it.

The bill:

• creates criminal penalties and prison terms for company fraud and document shredding that would carry a 25-year maximum sentence, and lengthens the maximum sentence for wire and mail fraud to 20 years;
• creates an independent oversight board for the accounting profession that will have subpoena power, but will ultimately be overseen by the Securities and Exchange Commission, with the two bodies coordinating investigations;
• imposes restrictions on accounting firms doing consulting services for public corporate clients whose books they audit, including banning firms from providing consulting on: bookkeeping or other services related to the accounting records or financial statements; financial information systems design and implementation; appraisal or valuation services, fairness opinions on contribution in-kind reports; actuarial services, internal audit outsourcing services; management functions or human resources; broker or dealer, investment advisor or investment banking services; legal services and expert services unrelated to the audit, but gives the oversight board the power to grant exceptions;
• prohibits personal loans from companies to their top officials and directors;
• orders new rules on financial analysts designed to prevent conflicts of interest;
• extends the period of time in which defrauded investors may bring lawsuits against companies;
• includes a GOP-pushed plan to create a federal account for defrauded investors that would take in all the civil fines, payments and assets from corporate wrongdoers.

Adequate life insurance coverage
7-17-02

Life insurance has become a popular investment vehicle, as well as a way of protecting family members on the death of the breadwinner(s). As vital as life insurance is to a family's overall financial plan, people commonly give it insufficient attention — perhaps because they are put off by the confusing array of available products, or simply because they are too busy.

How much life insurance coverage do you need? Determining how much insurance to buy requires you to invest some time in calculating, first, your current annual household expenses, and then your assets, debts, and other sources of income. Your financial advisor can assist you in this computation.

The ideal amount of coverage is the amount that would allow your dependents to invest it after your death and maintain their desired standard of living without touching the principal. Although the old rule of thumb — to buy five, six or seven times your annual salary — may serve as a starting point, it is no substitute for making the calculations to find out how much you really need.

It’s important to be as accurate as possible in estimating your family’s needs, since an underestimation could lead to your being underinsured, and an overestimation will lead to money wasted on unnecessary coverage.

TIP: To accurately estimate your family’s annual income needs, it’s helpful to have the following documents with you: A checkbook register for one year, a year’s worth of credit card statements, and last year’s tax return.

Interest costs capitalization
7-2-02

Under certain conditions, interest is capitalized as part of the acquisition cost of an asset. Interest is capitalized only during the period of time required to complete and prepare the asset for its intended use, which may be either sale or use within the business.

House passes accounting bill
6-24-02

The House of Representative passed H.R. 3763, the Corporate and Auditing Accountability, Responsibility, and Transparency Act of 2002, by a vote of 334-90. This bill imposes significant reforms in the discipline and oversight of the accounting profession. This bill also mandates a new independent regulatory body under the oversight of the Securities and Exchange Commission by enforcing the disciplinary and peer review functions for auditors of public companies.

Fed wants reform of stock option accounting
5-7-02

Federal Reserve Chairman Alan Greenspan urged a drastic change in the way companies account for stock options. Current rules do not require companies to list stock options granted to officers as expenses; according to Greenspan, this distorts a company’s financial picture.

House passes accounting oversight bill
5-1-02

The accounting reform legislation approved by the House Financial Services Committee last week has now been passed by the House. The bill, H.R. 3763, "Corporate and Auditing Accountability, Responsibility, and Transparency Act of 2002," gives the SEC broad powers to establish its proposed accounting oversight board, which would be made up mostly of non-accountants. The bill also gives the SEC the power to make rules banning consulting work (but not tax consulting work) for audit clients.

Barring tax/consulting work for audit clients
4-5-02

Another bill to overhaul the accounting profession has been introduced in the Senate. The proposal would prohibit auditors from providing consulting services to audit clients — and the ban would extend to tax-related services. Tax services could be provided only on the approval of the client's internal audit committee. This bill is one of 30 proposals dealing with financial reporting and other Enron-related matters.

FASB delays consolidation project
2-5-02

For several years, the Financial Accounting Standards Board has intended to develop new standards for determining which affiliates to include in consolidated financial statements. FASB’s original intent was to issue a final statement and an exposure draft dealing with certain aspects of the project by the second quarter of 2001; the project has now been officially delayed.

No consulting services for auditors
1-29-02

California Senator Barbara Boxer is sponsoring a bill that prohibits CPAs from performing all forms of management consulting services for audit clients. In the wake of Enron, there has been an outcry against the perceived conflict of interest that occurs when the two types of services — auditing and consulting — are performed for the same client.

Global credential is defeated
1-7-02

The controversial Global Credential Initiative, also known as XYZ (another similar license as CPA), was defeated by a 63 percent to 37 percent margin. Of the 330,000 AICPA members, 41 percent -- or 134,000 -- voted on the issue.

Say no to personal records
12-12-01

Merchants may ask you to provide a phone number, home address, or other personal information on credit card sales slips. This practice not only violates your privacy and exposes you to potential credit card fraud, but American Express, MasterCard, and Visa prohibit requiring it as a condition of sale.

TIP: Many states now prohibit this practice. There is no need for merchants to obtain phone numbers or other personal information from customers. Once they have correctly processed the bank card transaction (gotten an authorization number and made sure the signatures match), they are guaranteed to receive payment.

TIP: If you don't want to provide personal information on a credit card sales slip, you can refuse to do so. The merchant has no right to refuse you the sale (although unknowledgeable clerks may have no authority to vary from store policy). If you exceed your credit limit, the card-issuing bank absorbs the loss, so there is no need for the merchant to contact you. Thus, there's no reason to provide your personal information.

Further, if you refuse to present identification, such as a driver's license, the merchant may not refuse to make a credit card sale under Visa, MasterCard, and American Express rules.

9-11 SBA loans available
11-16-01

The U.S. Small Business Administration is encouraging small businesses that suffered economically due to the September 11 attacks to apply for SBA disaster recovery loans. For more information on these special loans, access the SBA Website, which contains information on the Economic Injury Disaster Loan program and eligibility requirements.

Health insurance - employees pay more
11-2-01

Based on an overall industry study, the premium for the health insurance increased about 11% from last year, and the trend is that companies are requesting more premium contributions from their employees. Currently, the average annual premiums for single coverage cost about $2,700, and premiums for family coverage cost about $7,000. Employees with single coverage contributed an average of 15% of their premiums, and workers with family coverage paid an average of 27%.

Non-extraordinary for terrorism
10-9-01

Last week the Emerging Issues Task Force of the Financial Accounting Standards Board issued a tentative ruling that the September 11 terrorist attacks were an "extraordinary" event for financial purposes. This week, the EITF reversed that ruling, deciding unanimously not to allow companies to treat costs and expenses related to the attacks as "extraordinary items" in financial filings. Thus, attack-related costs and expenses will not be treated as a separate line item below income from continuing operations. Instead, such items will be considered costs that are part of normal business operations.

FASB explained this surprising reversal as follows: As discussion continued, EITF members found it difficult to separate the financial effects of the attacks from the state of the economy before the events and the impact of the events on the economy.

FASB 141
9-5-01

FASB recently issued Statement no. 141, Business Combinations, which requires that companies to use only the purchase method to account for business combinations. This statement eliminates the pooling-of-interests methods of accounting.

More Earnings under FASB 142
8-24-01

New accounting rules from the FASB, Statement no. 142, require companies to stop writing-off goodwill annually. The new rules require companies to review their goodwill for impairment. If the impairment occurs, then they must write them down to reflect the fair value of goodwill.

These new rules may help companies show more earnings without the annual amortization of goodwill while some companies may show a substantial write-off of goodwill to hurt their earnings.

College Funds under Parents
8-16-01

College Funds Should Generally Be Put in the Parents’ Name, Not the Child's. There are many factors that should be considered in deciding who should be the owner of funds set aside for your child’s education. We would be glad to help you determine which is right for you.

As a general rule, in advising parents about saving for college costs, we recommend that education funds be kept in the parents’ names, as opposed to the child’s. However, there are some tax and financial aid considerations that should be taken into account in making this decision.

Caution: Bear in mind that putting an investment or other asset in the child’s name means that he or she will be free to spend it without limitation.

Note: In the past, parents would invest in the child’s name in order to shift income to the lower-bracket child. However, the enactment of the so-called "kiddie tax" largely put an end to that strategy. Now, investment income of children under age 14 that exceeds a certain amount is taxed at the parents’ rate.

Once the child reaches age 14, all income is taxed at the child’s own rate. Several income-shifting strategies are still available if you want to invest in your child’s name. For instance, if you invest in equities that pay small dividends but have a high potential for appreciation, the income earned when your child is under 14 will be minimal while the growth in the stock values will occur over the long term.

A Section 2503(c) trust might be utilized. This allows a trustee to control the funds until your child reaches age 21. Or the Uniform Gifts to Minors Act (UGMA) might be used to establish a custodianship for the child.

However, keep in mind that gifts to children under the UGMA are irrevocable, so your child can use the money for non-educational purposes once he or she reaches the age of majority—a determining negative factor for many parents.

Another reason for not putting the assets in the child’s name is that the rules for determining financial aid generally decrease the amount of aid for which a child is eligible by 35% of the assets the child owns. (For example, if the child owns $10,000 worth of stock, the amount of aid for which he or she is eligible is reduced by $3,500.) On the other hand, the amount of aid is reduced by only 12% of the assets held by parents.

Avoid Unexpected Tax on Loans to Your Corporation
7-17-01
You already know you can be taxed on money you take out of your corporation. But not every corporate owner knows he or she can be can be taxed on money put into his or her corporation if it's a loan.

Stockholders who lend to their corporations are expected to charge interest on the loan at the market rate. Those who charge less, or nothing, can be taxed as if they charged at a rate periodically determined by IRS under a federal law. Specifically, the difference between that rate and the lesser (or zero) rate actually charged by the stockholder is taxable to the stockholder as interest income -- and the corporation is allowed a corresponding deduction. This "below market loan" rule is triggered once the total loan balance goes over $10,000. Paying your corporation's bills, without getting reimbursement, also counts as a loan.

IRS agents are alerted to such loans by the corporation's tax return, which asks about "Loans from stockholders."

Loans to unincorporated businesses normally aren't subject to this below-market-loan rule.

Managing credit cards
7-17-01
If you have shopped around for low-interest-rate cards, taken advantage of low introductory offers, and then moved your balance to another card when the preferential rate expired, you may have wondered whether juggling credit cards to chase low rates would come back to haunt you.

You need not be concerned. You will generally not be penalized for shifting credit-card accounts. However, you should close credit lines you no longer use. Too much available credit could hurt you if you apply for a loan, and some lenders may not like it if you've had accounts open only a short period of time

Bookkeeping via Internet
7-6-01
Do you want to look at your company's accounting information wherever you go? If your answer is yes, now that is possible by utilizing the Internet. Two major accounting software companies, QuickBooks and Oracle, are providing the accounting software through the Internet. Thus, you can keep your books online. They are secured and very easy to use. This is a very good way for a company's CPA can take a look at its client's books to ensure the accounting are properly recorded.

Keep good records of your home costs
6-26-01
Many homeowners fail to keep proper records of what their homes cost them in total. Because of this, Congress enacted an exemption of up to $250,000 of home sale gain (up to $500,000 for many husband-wife sales). For taxpayers whose homes will — or someday might — generate gain in excess of the $250,000/$500,000 exemption, good records of you home costs can avoid an overpayment of tax or a conflict with the IRS.

In determining the total "cost basis" of your home for tax purposes, you should add to the purchase price the cost of any permanent "improvements" (not repairs or upkeep) that you make, along with any other expenditures that are required to be "capitalized." Here are some examples of such additions to cost basis:

• A garage
• A porch
• A new wing
• A lawn
• Trees and shrubs
• Fences
• Termite proofing
• Waterproofing
• A furnace
• Shelving
• Storm and screen windows
• Lighting fixtures
• Air conditioners
• Humidifiers
• Wall-to-wall carpeting
• Antennas
• Closing costs
• Attorney's fee on purchase
• Revenue stamps on the deed and/or mortgage

These costs often add up to a substantial amount. If you fail to add them to the cost of your house, you may, if you sell your home at a profit, end up paying a greater tax than is actually due.

When Is It Worthwhile To Refinance Your Home?
6-13-01
Refinancing generally becomes worthwhile if the current interest rate on your mortgage is at least two percentage points higher than the prevailing market rate. Talk to some lenders to determine the available rates and the costs associated with refinancing (such as appraisals, attorney's fees, and points). Once you know what your refinancing costs will be, determine what your new payments would be if you refinance. You can estimate how long it will take to recover the costs of refinancing by dividing your refinancing costs by the difference between your new and old payments (your monthly savings).

Example: Your refinancing costs will be $2,000, your new monthly payments will be $600 and your current payments are $700. It will take you 20 months to recover the costs of refinancing your mortgage, viz., $2,000¸ ($700-$600).

Be aware that the amount you ultimately save depends on many factors, including your total refinancing costs, whether you sell your home in the near future, and the effects of refinancing on your taxes.

TIP: Refinancing can be a good idea if you:

• Want to get out of a high-interest-rate loan to take advantage of lower rates.
• Have an adjustable-rate mortgage (ARM) and want a fixed-rate loan in order to know exactly what the mortgage payment will be for the life of the loan.
• Want to convert to an ARM with a lower interest rate or more protective features than the ARM you currently have.
• Want to build up equity more quickly by converting to a loan with a shorter term.
• Want to draw on the equity built up in your house to get cash for a major purchase or for your children's education.

Getting low-interest credit cards
6-5-01
Promotions are flooding the mails offering low-interest credit cards and urging the recipients to transfer their balances from their high-interest cards. If you decide to apply for the offered card, keep in mind that the issuer may have criteria that could cause your application to be denied — for reasons that may have little to do with your creditworthiness. Here are some tips for minimizing these little-known obstacles:

1. Don’t apply for more than two credit cards within a six-month period. Too many applications mean too many inquiries, and probable denial.

2. Don't state your intention to consolidate other loans, unless the card advertises this opportunity. Some banks don't want their cards used for this purpose.

3. If you have high credit balances and are close to your credit limits on your other credit cards, pay them down before you apply. High credit balances, especially those up to their limits, are red flags to low-interest credit card issuers.

4. If you have several revolving accounts, close any you do not absolutely need before you apply. Some issuers total up all credit limits on the credit cards that a consumer holds and consider that total potential liability. Too much potential liability is another common basis for denial.

5. Make sure your debt-to-income ratio is under 35-40%. High debt-to-income ratios are a red flag to low-interest credit card issuers seeking to avoid risks.

Pension plans
5-17-01 Pension plans are different types of agreements that employers enter into with employees to provide pension benefits later. Pension benefits are paid to retired employees or their survivors. They may be also paid in single lump sum.

A pension plan may be contributory or noncontributory. A contributory plan is used when the employees required to contribute a part of their compensation to the plan. A noncontributory plan is used when the entire contribution to the plan is borne by the employer. The assets of a pension plan are kept in a trust account with a financial institution, segregated from the assets of the employer. The pension plan assets are invested in stocks, bonds, real estate, and other types of investments. Earnings and gains on investments will increase the value of a pension plan.

There are many different types of pension plans. There are two major different types of pension plan, a defined contribution plan and a defined benefit plan. A defined contribution plan provides the future pension benefit based the contributions made to the plan until retirement plus investment earnings. In contrast, a defined benefit plan provides the fixed future pension benefit, for example, $5,000 per month until death. Therefore, actuarial assumptions are used to estimated the cost of future pension benefits: using life expectancy of an employee, estimated rate of return of investments, discount rate, etc.

Stock compensation
5-7-01 Stock issued to employees may consider compensation or may not consider compensation. These are called a compensation plan and a noncompensation plan, respectively. A compensation plan is used when employees provide services for the issuance of stock. There are various compensation plans such as fixed plan (terms are fixed at the date of grant for the number of shares of stock and the option price), stock option and purchase plan (grants the right to purchase a fixed number of shares at a certain price during a specified period), stock bonus and award plan (grants a bonus or award for no payment for stock), shadow or phantom stock plan (receives cash or stock in an amount equal to a specified increase in the market price), and combination and elective plan (grants rights to more than one plan). A noncompensatory plan is a plan that is not intended to compensate employees. An example is when a company wants to raise additional capital or to include its officers or employees as its owners.

FASB statement on securitizations
4-30-01 The Financial Accounting Standards Board has released a new statement on the transfers of financial assets along with better securitization disclosures. FASB released Statement 140 last week entitled, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." The new Statement replaces Statement 125, issued in June 1996. "When Statement 125 was applied in practice to securitizations of financial assets such as credit card balances and trade receivables, several accounting issues arose about special-purpose entities and about rights to get transferred assets back from them," explains FASB Senior Project Manager Halsey Bullen. "It also became clear that better disclosures were needed about securitizations and something different was needed for collateral, and that a new Statement was needed to deal with those matters." In recent years, transfers of financial assets in which the transferor has some continuing involvement with the transferred assets or with the transferee have grown in volume, variety, and complexity. Statement 140 resolves implementation issues but carries forward most of Statement 125's provisions without change. Statement 140 is effective for transfers occurring after March 31, 2001 and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. (NYSSCPA.ORG NEWSBRIEF)

Accounting software for start-ups
3-19-01 The accounting software has come a long way. As a result, it is not so surprising to find out a cheap accounting software is now doing very complex accounting functions. For start-up business owners, they are faced with two major issues when they are considering to purchase an accounting software. One is that they are afraid of investing too much time to learn a new software. The other is that they may have to spend a lot of money to get a good software. They will be very surprised to learn that these two issues can be solved well below their expectations. The accounting software, such as Peachtree Complete Accounting, is very easy to use. Basically, the computer screen shows you a check on the computer screen to fill out as if you are filling out an actual check. The same goes for the preparing an invoice. Instead of preparing it manually or with a typewriter, an invoice is shown up on the computer screen for you to fill out, just like a real invoice. The cost is about $240 for the software and you can order separately for customized checks and invoices at low prices. A company with sales over $10 million uses the software without any problems. The software is easy to use, new hires are learning it very quickly. Overall, the savings are tremendous when a similar company spent about $30,000 for a next level software just for implementation and additional services fees for all trainings and problems from complex operating functions.

Accounting for starting business
3-6-01 It's not that hard to start the bookkeeping for your new business. If you are not ready with a business checking account, you can use your personal checks until you open up the business checking account. Just make sure you save all receipts. Also, keep a record by writing each item of expenses, including any equipment or key money given. This record is important for the first year tax returns for tax deductions, depreciation calculation and future sale of your business to determine the true costs of your business. Anything above the initial costs are normally treated as capital gain and you do not want to inflate the gain by missing some of your initial business expenditures.

Simple bookkeeping for tax returns
2-12-01 From time to time, we receive questions as to what information the client should submit for the tax returns. If you haven't use any computerized accounting software, the next best way to do the bookkeeping is to use of a spreadsheet (i.e., Excel). The two basic journals that you should prepare are the Cash Receipts Journal and Cash Disbursement Journal. The Cash Receipts Journal records all cash receipts during the taxable year. For example, using each column to record the date of receipt, description of receipt, amount of receipt, and nature of cash receipts such as sales, capital contribution, loan from shareholder or other, refund, etc. The same rules apply to the Cash Disbursement Journal. Use each column for date of disbursement, payee, check number, amount of disbursement, nature of disbursements such as purchases, rent, utility, office supplies, etc. Samples of journals are:

Cash Receipt Journal

Date I Description I Amount I Sales I Capital Contribution I Loan from Shareholder I Refund I.......I Other Description I Other Amount I

Cash Disbursement Journal

Date I Description I Check I Amount I Purchase I Rent I Utility I Office Supplies I Telephone I Travel I.......I Other Description I Other Amount I

All you need to do is just filling the columns out as you conduct your business. Of course, you can create more columns and delete them if you do not need them. Preparing these journals on a monthly basis, you will have good reports to see how your business is doing.

New SEC regulation on fair disclosure
1-29-01 In August 2000, the SEC issued new regulation FD which requires public companies to abolish selective disclosure practices and to provide market-moving information to both the general public and Wall Street insiders. It used to be that public companies provided to Wall Street insiders about their market-sensitive information before the general public, such as earnings information. Thus, it will be increasingly important under regulation FD for companies to review communications, such as press releases and speeches, before they are released.

Consolidation project is stopped by FASB
1-22-01 The Financial Accounting Standards Board (FASB) has announced that it will not issue a final statement or an exposure draft on its consolidation policy project as it had previously planned. The Board reported that concerns among its members led to the decision not to proceed. However, the Board continues to believe that improved guidance in the area of consolidation policy is desirable and has asked the FASB staff to reassess the approach for providing that guidance. The FASB staff is expected to present a revised proposal for the consolidation project to the Board for consideration in the third quarter of this year.

Useful GASB Guide
12-28-00  The Governmental Accounting Standards Board recently published an informative guide that simplifies the complexities of school district financial statements.

The guide, "What You Should Know About Your School District's Finances: A Guide to Financial Statements," is the second in a series of GASB publications designed for people who use public sector financial information. Those people could include public sector managers, school board members, parents, taxpayers, financial analysts, school district finance officers and certified public accountants.

The guide, which was written in response to the 1999 GASB changes to state and local government financial statements, covers a wide range of issues. Some of these include the reasons for a school district's financial status, school district property and debt, and future matters that could effect a district's finances.

Copies of the school district guide as well as the first guide, "What You Should Know About Your Local Government's Finances," are $9.95 a piece and can be ordered through the GASB by calling (800) 748-0659.

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