In 2016 a major revision of the accounting requirements for leases is set to have a significant impact on huge swathes of industries doing business internationally who rely on leasing assets as a way of doing business. International Accounting Standards Board (IASB) now requires that all leases be reported on balance sheet as assets and liabilities. Generally Accepted Accounting Principles (GAAP) does not have the same requirement.
Most people are aware of loss contingencies, where a company writes down a portion of an asset when there is a likelihood that a loss will occur. Some companies have insurance policies to protect from loss, others take the write down. A loss contingency is used is to account for invoices that may not be collectible. You can see this pretty regularly as an Allowance for Bad Debt. The loss hasn’t occurred yet, but history shows that it is likely.
I’m often asked about the two different ways of preparing cash flow statements. They are methods. Just methods. We all have our favorite way of doing things and they work for our purposes. Sometimes we can’t even explain why we use one technique over another. The best answer we can muster is, “that’s the way I was trained”. In accounting, as long as we adhere to the guiding principles, most every method has a reasonable explanation. Preparing a statement of cash flow for a company is no different.
But there has to be a reason why nearly all companies use the indirect method versus the direct method.
There is – and the answer isn’t that interesting. It’s just easier. So let’s discuss what the primary differences are so you can come to your own conclusion about which method you prefer...
I often get asked about goodwill – its importance as well as how to value it. It’s complex. Goodwill is intangible. Hard to quantify but an important asset none the less.
Goodwill is defined as the amount of money someone is willing to pay for a company over and above the value of the assets within the company. The company’s book value is the equity within the company as listed on the balance sheet. Any money paid above the book value is considered goodwill. It’s the difference between cash received during the purchase and the actual value of the company.
I love being on the front end of a movement. In its second year, the Canadian Accounting Technology Show (CAT) currently in Toronto holds great promise for the future of Canadian accounting firms. While the attendance is a little lighter than expected, the thirst for information is pervasive. Accountants are engaging with world-class vendors like Intuit, Sage, Wolters Kluwer, and Thompson Reuters.
In a study published in late 2013 by Carl Frey and Michael Osborne of the Oxford Martin School, 47% of all US jobs are susceptible to the risk of automation by computer. Surprising, it’s not the jobs may you think.
A heavy portion of the jobs listed in the study as ripe for automation included jobs in the accounting and banking fields. The Future of Employment provided the accounting world with the catalyst it needed to evolve its services in an automated world. The accounting profession itself was analyzed to have a 94% chance of automation. While another common profession, loan officer, has an astonishing 98% chance of being automated. As shocking as it seems, the technology market has already set this prediction into motion with fantastic new tools being introduced every month. Products like Expensify, for expense reporting; T-Sheets, for automated timekeeping; and Finagraph, for automated financial analysis.
I have seen it all as a consultant. Accountant’s advise their clients to maintain separate business and personal accounts and ensure that all reasonable business expenses are accounted for in the business. These include things like a home office, cell phones, automobile expenses, client meals and entertainment, etc. The key is being able to meet the standards set by the government and being able to articulate the business reason for the expense. The goal is to not be charged with tax evasion for taking advantage of the system.
In the last 10 years, the most often stated characteristic of the small business owner by bankers and accountants is the lack of awareness and sophistication. Being a serial entrepreneur who prided himself on understanding my company’s financial position and using technology to help me in that process, I usually felt slighted by this comment. What I didn’t understand was that I was part of the “early adopter” group of entrepreneurs.
An article on Capterra.com presented the results of a survey of over 500 businesses who use accounting software. One results stood out in particular. It stated that over 52% of users saw a decrease in financial errors by adopting accounting software. Over half is significant. I thought about the financial wake that’s bound to occur when small business owners are presenting higher-quality accounting information to lenders. Heck, think about the operational efficiency of managers within small business when they have a cleaner set of numbers to make decisions from. 52% means that the early majority of software adopters were experiencing positive results.