Greencrest, Author at Whalen & Company, CPAs

Are you ready for the new disclosure requirements for government assistance?

Greencrest on February 25, 2022

Starting in fiscal year 2022, all entities — except nonprofit organizations in the scope of Topic 958, Not-for-Profit Entities, and employee benefit plans — must provide detailed disclosures about government assistance. Here are the details of the new rules.

Defining government assistance

The term “government assistance” may refer to perks and other incentives policymakers provide to lure large companies to establish a business in their states. The goal of these incentives is to drive economic growth by boosting jobs for residents. However, government assistance can take many forms because there are many types of governments, related entities and enterprises authorized by governments to administer assistance for them.

Examples of government assistance transactions include grants of assets, tax assistance, low-interest-rate loans, loan guarantees and forgiveness of liabilities. The COVID-19 pandemic significantly increased the number of entities receiving assistance and the level of government funding provided.

Following new rules

Accounting Standards Update (ASU) 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, was finalized in November 2021. Previously, there were no explicit accounting rules for government incentives under U.S. Generally Accepted Accounting Principles (GAAP), leading to divergent practices.

The scope of ASU 2021-10 is limited to transactions accounted for by applying a grant or contribution accounting model by analogy. It specifically excludes transactions accounted for under other GAAP, such as:

Topic 450, Contingencies,
Topic 470, Debt,
Topic 740, Income Taxes,
and Topic 606, Revenue from Contracts with Customers (when the government is a customer).

For instance, the new rules don’t apply to Paycheck Protection Program loans provided under the CARES Act, if they’re accounted for under Topic 470, Debt.

Providing enhanced transparency

Under the new rules, the following details must be disclosed about government assistance transactions:

The nature of the transactions and accounting policies used. This includes a general description and whether the assistance was received in cash or other assets.

Financial statement effects. You must disclose all balance sheet and income statement line items where the transactions were recorded and the amount of each line item.

Significant terms and conditions of the transactions. Examples include 1) the agreement length, 2) amounts to be received each year and whether they are fixed or variable, 3) commitments made by the government and the entity, and 4) whether the government can recapture any of the amounts and under what conditions.

If any disclosures aren’t provided because of legal prohibitions on disclosing them, there should be a general description and indication of the legal restriction for the omitted disclosures.

We can help

The new rules are effective for annual periods beginning after December 15, 2021. But early application is permitted. Contact us for more information.

February Short Bits

Greencrest on February 23, 2022

MATH ERRORS

The IRS had a record-setting year in 2021 for sending notices to taxpayers who made math errors on their returns. From January 1 to July 15, about nine million notices were sent out, compared to just over 600,000 for the same period in 2020. Most of the math errors were related to the stimulus payments provided by the pandemic financial relief legislation.

TRAILBLAZING WOMEN

Starting this year and through 2025, the U.S. Mint will release five new quarter designs each year to recognize the accomplishments and contributions of trailblazing American women. The 2022 coins recognize the achievements of Maya Angelou, Dr. Sally Ride, Wilma Mankiller, Nina Otero-Warren, and Anna May Wong.

TEACHING PERSONAL FINANCE

Ohio became the latest state to pass legislation requiring high school students to take a personal finance class before graduation. Beginning in the 2024-2025 school year, Ohio joins other states like Mississippi, North Carolina and Rhode Island with similar education requirements. Topics kids will learn include basic budgeting, opening a bank account and managing student loans.

REMOTE WORK

According to a recent Gallup Poll, 91% of remote employees surveyed reported their desire to continue working from home, while over half support a hybrid at-home and at-office arrangement. And about 30% of workers said they would look for another job if their current employer eliminates remote work. Commute time coupled with wellbeing and flexibility were the top reasons workers mentioned for continuing remote working. And the majority of employees didn’t believe company culture would be harmed without a physical office location.

Are you ready for the 2021 gift tax return deadline?

Greencrest on February 22, 2022

If you made large gifts to your children, grandchildren or other heirs last year, it’s important to determine whether you’re required to file a 2021 gift tax return. And in some cases, even if it’s not required to file one, it may be beneficial to do so anyway.

Who must file?

The annual gift tax exclusion has increased in 2022 to $16,000 but was $15,000 for 2021. Generally, you must file a gift tax return for 2021 if, during the tax year, you made gifts:

That exceeded the $15,000-per-recipient gift tax annual exclusion for 2021 (other than to your U.S. citizen spouse),
That you wish to split with your spouse to take advantage of your combined $30,000 annual exclusion for 2021,
That exceeded the $159,000 annual exclusion in 2021 for gifts to a noncitizen spouse,
To a Section 529 college savings plan and wish to accelerate up to five years’ worth of annual exclusions ($75,000) into 2021,
Of future interests — such as remainder interests in a trust — regardless of the amount, or
Of jointly held or community property.

Keep in mind that you’ll owe gift tax only to the extent that an exclusion doesn’t apply and you’ve used up your lifetime gift and estate tax exemption ($11.7 million for 2021). As you can see, some transfers require a return even if you don’t owe tax.

Why you might want to file

No gift tax return is required if your gifts for 2021 consisted solely of gifts that are tax-free because they qualify as:

Annual exclusion gifts,
Present interest gifts to a U.S. citizen spouse,
Educational or medical expenses paid directly to a school or health care provider, or
Political or charitable contributions.

But if you transferred hard-to-value property, such as artwork or interests in a family-owned business, you should consider filing a gift tax return even if you’re not required to. Adequate disclosure of the transfer in a return triggers the statute of limitations, generally preventing the IRS from challenging your valuation more than three years after you file.

The deadline is April 18

The gift tax return deadline is the same as the income tax filing deadline. For 2021 returns, it’s April 18, 2022 — or October 17, 2022, if you file for an extension. But keep in mind that, if you owe gift tax, the payment deadline is April 18, regardless of whether you file for an extension. If you’re not sure whether you must (or should) file a 2021 gift tax return, contact us.

4 levels of audit opinions

Greencrest on February 18, 2022

The first page of audited financial statements is the auditor’s report. This is an important part of the financials that shouldn’t be overlooked. It contains the audit opinion, which indicates whether the financial statements are fairly presented in all material respects, compliant with Generally Accepted Accounting Principles (GAAP) and free from material misstatement.

In general, there are four types of audit opinions, ranked from most to least desirable.

1. Unqualified. A clean “unqualified” opinion is the most common (and desirable). Here, the auditor states that the company’s financial condition, position and operations are fairly presented in the financial statements.

2. Qualified. The auditor expresses a qualified opinion if the financial statements appear to contain a small deviation from GAAP but are otherwise fairly presented. To illustrate: An auditor will “qualify” his or her opinion if a borrower incorrectly estimates the reserve for a contingency, but the exception doesn’t affect the rest of the financial statements.

Qualified opinions are also given if the company’s management limits the scope of audit procedures. For example, a qualified opinion may have resulted if you denied the auditor access to year-end inventory counts due to safety concerns during the COVID-19 pandemic.

3. Adverse. When an auditor issues an adverse opinion, there are material exceptions to GAAP that affect the financial statements as a whole. Here, the auditor indicates that the financial statements aren’t presented fairly. Typically, an adverse opinion letter outlines these exceptions.

4. Disclaimer. Even more alarming to lenders and investors is a disclaimer opinion. Disclaimers occur when an auditor gives up in the middle of an audit. Reasons for disclaimers may include significant scope limitations, material doubt about the company’s going-concern status and uncertainties within the subject company itself. A disclaimer opinion letter briefly outlines the auditor’s reasons for throwing in the towel.

Beyond the opinion

Auditors’ reports for public companies also must include a discussion of so-called “critical audit matters” (CAMs). Essentially, these are the most complicated issues that arose during the audit. CAMs are specific to the engagement and the year of the audit. As a result, they’re expected to change from year to year.

This requirement represents a major change to the pass-fail audit opinions that have been in place for decades. It’s intended to give stakeholders greater insight into the company’s disclosures and the auditor’s work when issuing an unqualified opinion. Contact us for more information on audit opinions.

Pros and Cons of Filing Your Taxes Early

Greencrest on February 17, 2022

Taxes aren’t due until April, but there are some good reasons not to wait, and to file your tax return early.

AVOID LONG LINES

Getting your taxes ready early means you’ll have less competition for getting an appointment with your tax professional. That means less stress for you and your preparer.

PREVENT FRAUD

Filing your return early gives crooks less time to submit a fraudulent return using your identity. Untangling identity theft issues with the IRS is stressful and time-consuming.

MONEY MATTERS

If you need to pay additional taxes, your tax payment is due by April 15. Filing early means you have time to plan how to pay your bill and avoid any last-minute surprises. And if you’re expecting a refund, early filing generally means you’ll get your money sooner.

WAITING GAME

Occasionally, there can be stumbling blocks that prevent you from filing early. For example, although companies have deadlines for providing tax forms like W-2s and 1099s, sometimes they send them late. Or perhaps they send them on time, but there’s an error. So, if you receive a late or corrected form and you’ve already filed, you’ll be forced to amend your return. Luckily, this is not a common occurrence.

Author: Greencrest

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