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Art of Accounting: A template for next tax season

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3 months ago

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Most accountants have just completed their tax season for last year’s returns and are probably not thinking about their next tax season. But they should.  The following is a template for a plan with suggested responses.

Purpose of tax season:

Suggested response: To provide clients with an accurately prepared tax return on a timely basis and where all tax savings techniques are applied along with suggestions made to save taxes going forward.

Your response: ________________________________________________________________________   __________________________________________________________________________________________________________________________________________________________________________

Quality of the work done by the preparer:

Suggested response: All returns submitted by the preparers to the reviewers should be error free.

Your response: ________________________________________________________________________  _____________________________________________________________________________________  _____________________________________________________________________________________

Role of tax return reviewer:

Suggested response: The reviewer should spot check the return to see that it appears to be correct, compare the return with the prior year’s return and look to understand major differences, look for explanations of surprise results, and look for planning opportunities for the current return and for the following year’s return to suggest to the client. 

Your response: ________________________________________________________________________   _____________________________________________________________________________________  _____________________________________________________________________________________

How the reviewer should handle errors found by them on the return:

Suggested response: The reviewer should reassign the tax return to the preparer to make the corrections and should not make any corrections regardless of time pressures. Comment: Part of effective and lasting training is to have preparers fix all errors since they will learn better about their mistakes and will be able to work better in the future to avoid such types of errors. When the reviewer corrects the tax return, the learning would be lost, added time would be spent by the reviewer not only making the correction but in communicating the nature of the error to the preparer at a later time when neither would have that incident fresh in their minds. Also when the preparer knows the errors will be caught and fixed by a reviewer there is a lessening of care in their performance. A side issue is that when the reviewer fixes the error, no one will be reviewing that change reducing the quality control over the tax return.

Your response: ________________________________________________________________________   _____________________________________________________________________________________  _____________________________________________________________________________________

Efforts to reduce tax season workload compression:

Suggested response: Workload compression can be reduced if some of the work that can be done prior to mid-December will be done. This includes all complicated transactions a client engaged in during the year, most of which are known about at this time. This would include sales of real estate, businesses, business interests or inherited assets or collectibles. Other transactions would include stepping up the basis for inherited real estate or determining tax attributes of assets divided in a divorce. Clients with rental or business income could provide their accounting records now to be reviewed to make sure cash accounts or other schedules reconcile or are in balance. There are many other situations and calling a client to check in and find out what went on during the year might uncover work that could be shifted to now rather than the busiest time of the year for you. 

Your response: ________________________________________________________________________   _____________________________________________________________________________________  _____________________________________________________________________________________

Efforts to reduce the workload of reviewers:

Suggested response: Since most firms have many more preparers than reviewers, it would be beneficial to shift work from the reviewers to the preparers. Four suggestions are: 1) to have the preparers compare every item on the return with the previous year’s return and understand any differences and prepare a memo on those reasons; 2) have the preparer look at every bottom line result to determine if it was a surprise or fully expected and prepare a memo explaining their impression of the result and their reason for that impression; 3) have a peer preparer review the return before it is submitted to the reviewer; and 4) have the preparer use the reviewer’s checklist and prepare a memo for everything that the reviewer would specifically be checking. Comment: Some of these procedures will add more work time for the preparer than the time saved by the reviewer, increasing the total time on that return. This is so, but the preparer’s time is more readily available than the reviewer’s time and at substantially lower rates. Also, by having the reviewer’s workload reduced on processes that could be passed down, the reviewer would have more time to concentrate on adding value to the client’s tax return. 

Your response: ________________________________________________________________________   _____________________________________________________________________________________  _____________________________________________________________________________________

The above highlight six areas I consider essential to maintaining a smooth and calm tax season. I’ve provided my opinions, but to make this effective for you, add your opinions and compare them to mine. Then decide whether you are happy with your system or if changes are in order. 

Do not hesitate to contact me at [email protected] with your practice management questions or about engagements you might not be able to perform.

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Accounting

Depreciation of Assets and Key Strategies for Accurate Valuation

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2 days ago

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January 4, 2025

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Mastering Depreciation: Key Strategies for Accurate Asset Valuation

Depreciation is a cornerstone of financial accounting, playing a critical role in accurately representing an asset’s value over its useful life. Beyond its technical definition, depreciation serves as a vital tool for financial reporting, tax planning, and operational strategy. This article dives into the primary methods of depreciation and their strategic importance for businesses aiming to optimize asset valuation.

At its core, depreciation is the process of allocating the cost of a tangible asset over its expected lifespan. It ensures that financial statements reflect the true economic wear and tear of assets, offering stakeholders a clear picture of a company’s financial health. Choosing the right depreciation method is crucial for aligning financial reporting with operational realities.

One of the most commonly used methods is the straight-line method, celebrated for its simplicity. This approach spreads the depreciation expense evenly across the asset’s useful life. While straightforward, it doesn’t always capture an asset’s actual usage pattern, especially for items that experience higher wear and tear in their early years.

For businesses with assets that lose value more quickly in their initial years, the declining balance method provides a better alternative. As an accelerated depreciation method, it assigns higher depreciation expenses in the earlier periods of an asset’s life. This approach can align better with revenue generation during an asset’s most productive years while potentially offering upfront tax advantages.

The units of production method is particularly suitable for assets whose depreciation is directly tied to usage, such as manufacturing equipment or company vehicles. This method calculates depreciation based on output, ensuring expenses reflect actual wear and tear. It’s a practical choice for industries with fluctuating production volumes.

Another accelerated option, the sum-of-the-years’ digits method, combines aspects of straight-line and declining balance approaches. By applying a weighted percentage to each year of an asset’s life, this method suits technology assets or other items prone to rapid obsolescence, offering a balanced middle ground for depreciation calculation.

Selecting the right depreciation method is a strategic decision that extends beyond regulatory compliance. It directly influences financial statements, tax liabilities, and even operational decision-making. Factors such as the asset type, industry norms, and specific usage patterns should inform this choice. For instance, a construction company might benefit from the units of production method, while a tech startup might prefer an accelerated approach for its rapidly depreciating hardware.

Advancements in financial management software have revolutionized depreciation modeling. These tools allow businesses to simulate various depreciation methods, providing data-driven insights to support strategic decisions. Automated tracking, scenario analysis, and real-time reporting capabilities further streamline the process, ensuring compliance and accuracy.

In conclusion, mastering depreciation methods is essential for businesses aiming to maintain accurate financial records and make informed decisions about asset management. Whether choosing simplicity with the straight-line method or leveraging the flexibility of accelerated approaches, businesses that understand and strategically apply depreciation can enhance transparency, optimize tax planning, and improve operational efficiency. By prioritizing accurate asset valuation, companies can better position themselves for long-term success.

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Accounting

Terror suspects share strange similarities; FBI sees no link

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3 days ago

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January 3, 2025

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One suspect in the two New Year’s Day incidents being probed as terror attacks was a former U.S. Army sergeant from Texas who recently worked for Big Four firm Deloitte. The other was a U.S. Army special forces sergeant from Colorado on leave from active duty.

Law enforcement officials on Thursday said there appears to be no definitive link between the two deadly events: a truck attack in New Orleans that left at least 15 dead and the explosion of a Tesla Cybertruck outside of President-elect Donald Trump’s hotel in Las Vegas that killed the driver and injured seven. 

But in addition to the military backgrounds of the suspects — they both served in Afghanistan in 2009 — on the day of the attacks they shared at least one other striking similarity: Both men used the same rental app to obtain electric vehicles. 

The driver of the Cybertruck was identified as Matthew Alan Livelsberger of Colorado Springs. He rented the Cybertruck on Turo, the app also used by Shamsud-Din Jabbar, the suspect in the separate attack in New Orleans hours earlier. Turo said it was working with law enforcement officials on the investigation of both incidents.

There are “very strange similarities and so we’re not prepared to rule in or rule out anything at this point,” said Sheriff Kevin McMahill of the Las Vegas Metropolitan Police Department.

The gruesome assault on revelers celebrating New Year’s in New Orleans’ famed French Quarter and the explosion in Las Vegas thrust U.S. domestic security back into the spotlight just weeks before Donald Trump is sworn in as president.

Texas roots

As authorities combed through the macabre scene on Wednesday in New Orleans’ historic French Quarter, they said they discovered an ISIS flag with the Ford F-150 electric pickup truck that barreled through the crowd. Two improvised explosive devices were found in the area, according to the FBI.

Jabbar had claimed to join ISIS during the summer and pledged allegiance to the group in videos posted on social media prior to the attack, according to the FBI. An official said there’s no evidence that ISIS coordinated the attack.

Officials said the 42-year-old Jabbar, who lived in the Houston area, exchanged fire with police and was killed at the scene.

Jabbar has said online that he spent “all his life” in the Texas city, with the exception of 10 years working in human resources and information technology in the military, according to a video promoting his real estate business.

After serving as an active-duty soldier from 2006 to 2015 and as a reservist for about five years, Jabbar began a career in technology services, the Wall Street Journal reported. He worked for Accenture, Ernst & Young and Deloitte.

Jabbar was divorced twice, most recently from Shaneen McDaniel, according to Fort Bend County marriage records. The couple, who married in 2017, had one son, and separated in 2020. The divorce was finalized in 2022. 

“The marriage has become insupportable due to discord or conflict of personalities that destroys the legitimate ends of the marital relationship and prevents any reasonable expectation of reconciliation,” the petition stated.

McDaniel kept the couple’s four-bedroom home southwest of Houston. She declined to comment when contacted at her house in suburban Houston.

Fort Bragg

Jabbar moved to another residence in Houston, which the FBI and local law enforcement spent all night searching before declaring the neighborhood of mobile homes and single-story houses safe for residents. Agents cleared the scene shortly before 8 a.m. local time without additional comment.

Jabbar’s mobile home is fronted by an 8-foot corrugated steel fence that was partially torn apart to provide search teams access. Weightlifting equipment and a bow hunting target were scattered across the broken concrete walkway. Chickens, Muscovy ducks and guinea fowl roamed the property.

Behind the home, a yellow 2018 Jeep Rubicon sat with its doors left wide open and a hardcover book written in Arabic sitting atop the dashboard. The license plate expired in May 2023.

The other suspect, Livelsberger, was a member of the Army’s elite Green Berets, according to the Associated Press, which cited unidentified Army officials. He had served in the Army since 2006, rising through the ranks, and was on approved leave when he died in the blast.

Livelsberger, 37, spent time at the base formerly known as Fort Bragg, a massive Army base in North Carolina that’s home to Army special forces command. Jabbar also spent time at Fort Bragg, though his service apparently didn’t overlap with Livelsberger’s.

Las Vegas Sheriff McMahill said they found his military identification, a passport, a semiautomatic, fireworks, an iPhone, smartwatch and credit cards in his name, but are still uncertain it’s Livelsberger and are waiting on DNA records.

“His body is burnt beyond recognition and I do still not have confirmation 100% that that is the individual that was inside our vehicle,” he said. 

The individual in the car suffered a gunshot wound to his head prior to the detonation of the vehicle.

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Accounting

FASB seeks feedback on standard-setting agenda

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3 days ago

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January 3, 2025

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The Financial Accounting Standards Board today asked stakeholders for feedback on its future standard-setting agenda. 

The FASB published an Invitation to Comment and is requesting feedback on improvements to financial accounting and reporting needed to give investors more and better information that informs their capital allocation decision-making, reduce cost and complexity, and maintain and improve the FASB accounting standards codification. 

Stakeholders should review and submit feedback by June 30.

Financial Accounting Standards Board offices with new FASB logo sign.jpg

Patrick Dorsman/Financial Accounting Foundation

“As a result of the significant progress on the 2021 agenda consultation priorities, the FASB staff is once again seeking stakeholder input on the Board’s future agenda and initiatives,” FASB technical director Jackson Day said in a statement. “We encourage stakeholders to take this opportunity to review the ITC and share their views on financial accounting and reporting priorities they think the Board should address going forward.”

The FASB began the current agenda consultation in 2024, doing outreach to over 200 stakeholders, including investors, practitioners, preparers and academics. The discussion in this ITC is based on input received from those stakeholders and does not contain FASB views. Most of those stakeholders said “there is not a case to make major changes to generally accepted accounting principles at this time,” according to the announcement, so many of the topics that were suggested focus on targeted improvements to GAAP.

The board encourages stakeholders to continue to submit agenda requests about needed improvements to GAAP as they arise.

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