Business

The pandemic and the ensuing economic turmoil have put tremendous stress on businesses. Many companies that appeared healthy on the surface, on their financial statements, quickly realized that they weren’t prepared for the unexpected. A so-called “stress test” of your company’s financial position and its ability to withstand a crisis can help prevent this situation from recurring in the future. In general, stress tests evaluate [...]

In the spirit of Independence Day, it’s a good time to review the rules for auditor independence. If you discover potential issues now, there’s still plenty of time to take corrective action before next year’s audit begins. Definition of independence Independence is one of the most important requirements for audit firms. It’s why investors and lenders trust CPAs to provide unbiased opinions about the presentation [...]

Recent supply shortages may cause unexpected problems for some businesses that use the last-in, first-out (LIFO) method for their inventory. Here’s an overview of what’s happening so you won’t be blindsided by the effects of so-called “LIFO liquidation.” Inventory reporting methods Retailers generally record inventory when it’s received and title transfers to the company. Then, it moves to cost of goods sold when the product [...]

How often does your company generate a full set of financial statements? It’s common for smaller businesses to issue only year-end financials, but interim reporting can be helpful, particularly in times of uncertainty. Given today’s geopolitical risks, mounting inflation and rising costs, it’s wise to perform a midyear check-in to monitor your year-to-date performance. Based on the results, you can then pivot to take advantage [...]

Numbers tell only part of the story. Comprehensive footnote disclosures, which are found at the end of reviewed and audited financial statements, provide valuable insight into a company’s operations. Unfortunately, most people don’t take the time to read footnotes in full, causing them to overlook key details. Here are some examples of hidden risk factors that may be unearthed by reading footnote disclosures. Related-party transactions [...]

Disclosure of contingent liabilities — such as those associated with pending litigation or government investigations — is a gray area in financial reporting. It’s important to keep investors and lenders informed of risks that may affect a company’s future performance. But companies also want to avoid alarming stakeholders with losses that are unlikely to occur or disclosing their litigation strategies. Understanding the GAAP requirements Under [...]

Business owners and investors are understandably concerned about skyrocketing inflation. Over the last year, consumer prices have increased 8.3%, according to the latest data from the U.S. Bureau of Labor Statistics. The Consumer Price Index (CPI) covers the prices of food, clothing, shelter, fuels, transportation, doctors’ and dentists’ services, drugs, and other goods and services that people buy for day-to-day living. This was a slightly [...]

Financial statements look at historical performance. But there are times when you want forward-looking reports to help your business make strategic investment decisions, evaluate the viability of a turnaround plan or apply for a loan. Your accountant can help ensure the assumptions underlying prospective financial statements make sense in today’s volatile marketplace. Key definitions When creating forward-looking financials, you generally have two options under AICPA [...]

Many companies have an internal audit department that tests whether the organization is accurately reporting financial results and complying with U.S. Generally Accepted Accounting Principles (GAAP). But it’s important for internal auditors to think beyond compliance. Internal auditors who understand the big picture can expand their department’s influence by helping their organizations mitigate risk, improve financial and operational processes, and evaluate business strategies. Here’s how [...]

In today’s volatile economy, many businesses and nonprofits have been required to write down the value of acquired goodwill on their balance sheets. Others are expected to follow suit — or report additional write-offs — in 2022. To the extent that goodwill is written off, it can’t be recovered in the future, even if the organization recovers. So, impairment testing is a serious endeavor that [...]

In recent years, accounting rule makers have issued guidance that requires certain items on the balance sheet to be reported at “fair value.” Here are some answers to frequently asked questions about this standard of value and how it’s measured. What is fair value? Under U.S. Generally Accepted Accounting Principles (GAAP), fair value is “the price that would be received to sell an asset or [...]

Small businesses may start off using the cash-basis method of accounting. But many eventually convert to accrual-basis reporting to conform with U.S. Generally Accepted Accounting Principles (GAAP). Which method is right for you? Cash method Under the cash method, companies recognize revenue as customers pay invoices and expenses when they pay bills. As a result, cash-basis entities may report fluctuations in profits from period to [...]

Major events or transactions — such as a natural disaster, a cyberattack, a regulatory change or the loss of a large business contract — may happen after the reporting period ends but before financial statements are finalized. The decision of whether to report these so-called “subsequent events” is one of the gray areas in financial reporting. Here’s some guidance from the AICPA to help you [...]

Business transactions with related parties — such as friends, relatives, parent companies, subsidiaries and affiliated entities — may sometimes happen at above- or below-market rates. This can be misleading to people who rely on your company’s financial statements, because undisclosed related-party transactions may skew the company’s true financial results. The hunt for related parties Given the potential for double-dealing with related parties, auditors spend significant [...]