The Financial Accounting Standards Board has recently announced that it plans to release its codification of accounting standards in July of 2009.  The codification does not change Generally Accepted Accounting Principles (GAAP), rather it re-organizes, codifies, and simplifies the existing structure of guidance which had become a labyrinth of convoluted accounting literature.  The new codification will be based on a topical format rather than the existing format that is organized by standards.  So, how does this affect our San Diego accounting firm, other San Diego accountants, CPAs, and others within the industry?  And is this a change for the better?

To begin, once released, the codification will supersede all existing guidance from the Financial Accounting Standards Board (FASB), the American Institute of Certified Public Accountants, emerging issues task forces, and other related sources.  So, say goodbye to every acronym that once went by FASB, FIN, EITF, SOP, ARB, SAB, etc, etc, etc…  All of this literature will now be considered non-authoritative.  This puts all of those in the accounting environment on a level playing field in terms of locating certain accounting related literature and guidance, as we all must now familiarize ourselves with the changes so that we are ready for the transition.

Next, as opposed to the current format, the new codification will be topical in format, reorganizing U.S. GAAP into about 90 accounting topics.  This will greatly simplify the research process.  As opposed to running the risk of being unaware of existing guidance, the researcher can now take comfort that all information on the related topic is organized together, thus reducing the risk of noncompliance with standards and reducing time and effort in research.

Once released on July 1, the codification will become the single official source of nongovernmental U.S. generally accepted accounting principles, superseding existing literature from FASB, the American Institute of Certified Public Accountants, emerging issues task forces and related sources.   After that date, all other literature will be considered non-authoritative.

The current codification changes are a step towards simplifying and organizing GAAP as it has become today.  In addition, it is a switch toward the more topical approach, which is consistent to the eventual plan of converting to the International Financial Reporting Standards (IFRS).  Most of the younger generation accounting and financial personnel will applaud the change as overdue.  Some seasoned veterans of the profession may grumble about having to find where everything is again.  Overall, this is a positive step for the FASB and will assist in easing the transition into IFRS.

Now that the November elections have come to a close and all of the politicking is over, we can finally sit back and divulge or at least try to comprehend what changes might be in store for us in the coming years.  As you would expect, local, regional, and global tax and professional service firms are diving into any information that is available in an attempt to predict what the country’s income tax future may hold.  One of the most recognizable and respected firms is that of the Tax Policy Group of Deloitte Tax LLP, in Washington, D.C.  Recently, this group issued “Tax policy decisions ahead - President-elect Obama’s call for change”, which focuses on the President-elect’s likely tax agenda for 2009 and 2010.  According to the Deloitte study, the likely agenda for 2009 and 2010, “may unfold in two distinct pieces.  The first could be tax cuts focused on economic recovery and other stimulus actions meant to address the current economic downturn.  The second could be a package of tax proposals to address the longer-term issues that were raised in the campaign.”  Now that we have a very broad understanding of the agenda, what does this actually mean to small business, referred by many as the “backbone” of the economy?  Let’s take a look.

The Deloitte study categorizes Obama’s business tax strategy into four broad themes.  They are the following:

• Protecting and growing U.S. jobs;
• Changing how we produce and use energy;
• Restoring “fairness” to the tax code; and
• Providing quality health care.

Let’s take a further look into the categories that will have the largest impact on small businesses, “Protecting and growing U.S. jobs” and “Providing quality health care”.

-Protecting and growing U.S. jobs

President-elect Obama ran a campaign that strongly endorsed creating incentives to companies for maintaining jobs in the U.S. and limiting benefits of companies that ship jobs overseas.  Based on the Deloitte study, we can come to the conclusion that there are several key incentives for small businesses as well.  These include proposals to:

• Reduce the corporate tax rate for companies that start or expand operations domestically;
• Elimination of all capital gains taxes on small business investments and for startups;
• New American Jobs Tax Credit during 2009 and 2010 that would provide existing businesses that make net additions to their U.S. workforce a $3,000 refundable tax credit for each additional full-time employee hired. President-elect Obama has also proposed to extend the temporary increase in the small business expensing allowance to $250,000 through 2009.

-Providing quality health care

We have also seen President-elect Obama call for health care reform throughout his campaign.  Based on the Deloitte study, most of the reform that Obama is referring to will impact the economy’s larger employers.   According to the Deloitte study, Obama’s changes would create a potential mandatory contribution to the National Health Insurance Exchange for those large employers that do not offer or make a meaningful contribution to the cost of health care to their employees.  Obama’s plan, however, would exempt small businesses from this requirement and they would receive a new Small Business Health Tax Credit intended to reduce their health care costs.

Now that we have an idea as to the basics surrounding Obama’s tax plan as it relates to small business, we should also quickly consider its impact on the small business owner.  The good news is that if you are a single small business owner that makes less than $200,000 or married making less than $250,000, your benefits are preserved and most likely, your taxes will not increase.  However, once above those thresholds, there is the possibility that taxes will increase for the higher tax brackets.  There have been recent discussions that suggest that Obama will not be making any changes to the existing tax structure in 2009 and will instead wait until the Bush tax plan expires in 2010.  There is fear that the sluggish economy will take longer to recover if taxes are raised at any level.  These questions will most likely be answered fairly shortly after the President-elect takes office.  As a San Diego accounting firm, we can recommend that it is always best to consult with your tax advisor over any questions that you may have.  In San Diego alone, there are plenty of San Diego accountants, CPAs, and accounting firms of which to choose from.

The common perception among small business owners is that the tax environment proves more challenging with a Democratic President in office.  However, with the current state of the economy, the President and Congress will be hesitant to raise taxes on the economy’s “backbone”.  As a result, small businesses may catch a break… in the short term.

If you’re a small business needing accounting and consulting services, visit Resource Nation online accounting and bookkeeping business center, or Signature Analytics.

Because of the economic conditions that are currently facing our economy, many businesses are struggling to remain cash flow positive.  In order to accomplish this, the first thing that companies look to do is to reduce expenses.

As we approach the end of 2008, companies are also in the process of completing their 2009 budgets.  While the prospects of reducing salaries and headcount, advertising costs, or a host of other costs can be frightening and painful, reducing the fees that you are paying to your financial statement auditor can save your business thousands of dollars and can be easy and painless.  So what are ways to reduce audit fees and create a more efficient audit?  The following strategies can be used by businesses of any size to assist in creating a more efficient and less costly financial statement audit.

• - Manage your Auditor. As a former Audit Senior Manager with a “Big Four” San Diego accounting firm, I know firsthand the enormous amount of pressures and time constraints that the typical auditor is facing during the audit process. The typical auditor is juggling multiple engagements of all complexities, all while working 60+ hours per week. Because of this, it is the proactive companies that will get the best service and most attention. Being proactive and asking questions during the audit process will keep your auditor focused on you and your company. In addition, you will be more aware of what to expect during the process and will be more prepared for any obstacles that may arise.

• - Start early. Request a planning meeting with the auditor BEFORE year-end. Preferably this meeting would take place at the company’s location and would include Company management and all relevant parties. Depending on the size of the company being audited, this could include the company’s CEO/President, the individuals responsible for overseeing the progress of the audit (CFO/Controller/Accounting Manager), Audit Partner, and Audit Manager. Ask for a copy of the list of items that they will request of the company in order to begin the audit. Become familiar with this information and plan accordingly. Make sure that your team and accounting department is adequately staffed to take on the rigors of an audit. If you have any questions of the auditor, ask them now and any time prior to the start of the audit. By becoming familiar with the information prior to year-end, you will be in a position to appropriately prepare the information correctly, with no errors, when it is due. Remember, the auditor will send a bill for this meeting, but in the end, it will be well worth the extra few hours.

• - Be Complete. Fully complete the year-end close process AND the list of items and schedules requested by the auditor prior to the beginning of the audit. This is the cause for most inefficiencies during the audit process and as a result, the result of the increased fees. Many companies feel that they can complete the list of requested items during the completion of the audit. This is rarely the case. Unexpected questions will arise from the auditor during the audit process. These questions will create additional questions that Company management may have not been prepared for and will delay the preparation of the other items on the list. In order to maximize efficiencies and to support their accounting department, many companies these days will hire an outside specialist or accounting firm to work with the company and their auditors to assist in the year-end close process, preparation of all auditor requested schedules and documents, preparation of financial statements, and assistance with research and resolution of any complex accounting issues that may arise. These firms work with the company to put a plan in place that is in the best interest of the company. These services typically result in a reduction of audit fees that exceed the fees charged by the accounting firm. These firms also assist in offloading management time by providing an extra layer of expert review to reduce the number of audit adjustments and to make sure that all schedules, source documents, and sub-ledgers tie back to the final trial balance, thus providing Company management with additional flexibility to attend to their regular daily responsibilities. In San Diego alone, there are several San Diego accountants and San Diego accounting firms of which to choose from.

To summarize, an efficient audit results in the reduction of audit fees.  To accomplish this, a company must be organized, prepared, and must have the infrastructure in place within their accounting department to appropriately prepare and complete the requested information, along with the time to answer all audit related questions.