Risk Management

Article Dean Dorton

On November 16, Dean Dorton provided its 12th version of the annual Accounting and Ethics Update. The firm utilized 17 presenters over nine sessions that covered a variety of topics from the latest in nonprofit reporting to human resources best practices. Here are some of the highlights from each session:

  • The importance of identifying and mitigating key business risks was discussed during the combined internal audit/accounting functions update. Tools such as identifying key risk indicators and auditing vendor management files were discussed as well. Updates were provided on Form 1099 and Form 5500 for benefit plans. Finally, the emergence of wellness programs was covered with a keen eye on IRS compliance.
  • The FASB update focused on the latest changes in revenue and lease accounting. All companies should have an implementation plan soon for both areas.
  • The GASB update included recent fair value, pension, and post-employment benefit plan changes.
  • The tax update included federal and state tax updates. Additionally, tax-related identity theft and fraud was covered, along with state tax incentive opportunities.
  • The tax exempt section included nuances of SMLLCs, sales tax exemptions, and the new financial reporting framework for nonprofit entities.
  • Cybersecurity continues to be the #1 business risk and our IT team presented on cyber threats and cyber protection methods, including multi-factor authentication.
  • Fraud stories were shared during the fraud session to help elevate the real risk present at every business. The Wells Fargo incident was dissected as well. Methods to set an ethical tone were shared including establishing a fraud hotline.
  • Our human resources team presented on I-9s, EEO-1 reporting, and the new overtime regulations. We now offer HR consultants as an added business service.
  • At Dean Dorton, we differential our annual update by including ethics training. Participants were reminded of the AICPA code of professional conduct, importance of social media, and recent enforcement actions.

As you can see, we are clearly are a one stop shop and stand ready to address any question you may have.

If you missed our Lexington event, you can attend our December 8, 2016 session in Owensboro, Kentucky.

Article Dean Dorton

On Monday, November 14, the United States Citizenship and Immigration Services (USCIS) released the anticipated new Form I-9 (Employment Eligibility Verification) that replaces the current version, which expired on March 31 of this year.

Beginning on January 22, 2017, employers are required to start using the updated I-9 Form (edition 11/14/16) as they review employment eligibility for their new employees.

Employers are required to utilize the I-9 Form to verify the identity and employment authorization for individuals to work in the United States within three business days of the employee’s hire date, for both citizens and non-citizens.

  • On the form, the employee must prove his or her employment eligibility, while the employer must review acceptable document(s) proving the employee’s identity and his or her employment authorization.
  • The list of acceptable document(s) can be found on the last page of the form, and the employer must determine whether the document(s) appear to be genuine before documenting the information on the I-9 Form.
  • Employers are accountable for the proper completion and retention of the I-9 for all employees.

View the New Form I-9

The new form was created in an effort to reduce technical errors and mistakes, which commonly existed on the previous version. As the Department of Labor has increased auditing efforts over the last few years, the most common mistakes found on the previous version of the form are:

  • Incomplete forms with missing information
  • Incorrect date format use
  • Failing to meet the retention guidelines or to complete the form within the required three business days

The new I-9 Form, when used in the Adobe PDF format, is a “smart” form designed to reduce those mistakes and help employers complete and retain accurate I-9 Forms.

A few of the notable improvements and features of the new PDF I-9 Form are:

  • Pre-populating certain fields for employers
  • “Click to Finish” button that reviews the form and notes errors
  • Automating format of birth date and date of hire fields
  • Drop down options to verify acceptable document(s), allowing users to easily identify where information should go

Employers should use the next two months to understand the form’s new functionality and to take the opportunity to determine how internal processes can/should change to maximize the capability of the new smart form.

If you have any questions, contact your Dean Dorton advisor or Jeff Ricketts at jricketts@deandorton.com.

Article Dean Dorton

Whether you’re happy or not about the outcome of Tuesday’s election, now that we know we have Republicans in the White House, both houses of Congress, the governorship and the state legislature, it’s time to start thinking about taxes. It is quite possible that there will be significant changes to federal income and estate taxes for 2017 and possible (though perhaps not until 2018) to Kentucky income and other taxes.

With the potential for lower income tax rates for 2017, more than most years, it’s important to consider accelerating deductions to 2016 and deferring income to 2017. Below are tables showing proposed individual rates the House Republican Tax Plan and Trump’s Tax Plan from the Tax Foundation (see below for links).

Tax Brackets Under Current Law and the House Republican Tax Plan

Ordinary Income Capital Gains & Dividends
Current Law Proposal Current Law Proposal Single Married Filing Jointly Head of Household
10% 12% 0% 6% $0 to $9,275 $0 to $18,550 $0 to $13,250
15% 12% 0% 6% $9,275 to $37,650 $18,550 to $75,300 $13,250 to $50,400
25% 25% 15% 12.5% $37,650 to $91,150 $75,300 to $151,900 $50,400 to $130,150
28% 25% 15% 12.5% $91,150 to $190,150 $151,900 to $231,450 $130,150 to $210,800
33% 33% 15% 16.5% $190,150 to $413,350 $231,450 to $413,350 $210,800 to $413,350
35% 33% 15% 16.5% $413,350 to $415,050 $413,350 to $466,950 $413,350 to $441,000
39.6% 33% 20% 16.5% $415,050+ $466,950+ $441,000+

Tax Brackets Under the Trump Plan

Ordinary Income Capital Gains Single Filers Married Filing Jointly
12% 0% $0 to $37,500 $0 to $75,000
25% 15% $37,500 to $112,500 $75,000 to $225,000
33% 20% $112,500+ $225,000+

Other plan elements:

  • Both plans eliminate the estate and gift taxes and the step-up in basis – the House plan completely eliminates the step-up; the Trump plan disallows a step-up for estates of $10 million or more.
  • The House plan eliminates all itemized deductions other than mortgage interest and charitable contributions.  The Trump plan caps itemized deductions at $100,000 for single filers and $200,000 for married filers.
  • Both plans eliminate the alternative minimum tax.
  • The House plan reduces the top corporate rate from 35% to 20%, the Trump plan calls for an even lower 15% maximum rate.
  • The House plan allows immediate deduction of the cost of capital investments but disallows the deduction for net interest expense on future loans for all businesses.  The Trump plan allows businesses to choose between an immediate deduction for capital items and a deduction for interest paid.
  • Both plans eliminate the domestic production deduction and all other business credits except for the R&D credit.
  • The House plan taxes business income on a territorial basis rather than a worldwide basis and creates a “deemed” repatriation of currently deferred foreign profits taxed at 8.75% for cash profits and 3.5% on other profits.  Trump’s plan proposes a 10% tax.

While we don’t yet know if any of these plans will be enacted or what their final form may be, it’s worth considering the potential impact on your tax bill.

Links to Tax Foundation articles on proposed tax plans:

Contact your Dean Dorton advisor if we can be of assistance.

Article Dean Dorton

More than ever, public companies and their auditors are under tremendous scrutiny. History shows us that changes in the public realm may trickle down to the private sector as well. An assessment of the current public landscape highlights the following audit and accounting items:

  • The SEC requires audit firms to file with the PCAOB the name of the engagement partner for all public company audits issued on or after January 31, 2017. Will the personal identification of the audit partner(s) in a public document impact the extent of audit procedures?
  • The PCAOB is working on the following projects to enhance audit procedures:
      • Work of specialists
      • Supervision of other auditors
      • Accounting estimates
      • Going concern
  • New accounting standards facing public companies include:
      • Going concern assessment relevant in 2016 for calendar year end companies.
      • Lease accounting to implement by 2019 with early adoption allowed. Traditional operating versus financing leases is relevant, but now all long-term leases are placed on the balance sheet.
      • Revenue recognition can be early adopted in 2017 for calendar year end companies. Even if companies do not early adopt, systems should be set up now for purposes of transitioning in 2019 for comparative purposes.
  • The SEC and FASB continue to work on a joint disclosure simplification project. Other interesting FASB proposals include:
    • Removing step 2 of the goodwill impairment assessment. Impairment would equal the difference between carrying value and enterprise value.
    • Inclusion of restricted cash in the beginning and ending cash total on the statement of cash flows. This will remove the need to decide between operating and investing classification for restricted cash.

At Dean Dorton, we work with public companies in a consulting capacity including SOX compliance. Contact Bill Kohm or Jim Tencza to learn how we can partner to help you tackle these audit/accounting items and free you up to stay focused on your strategic objectives.

Bill Kohm: bkohm@deandorton.com
Jim Tencza: jtencza@deandorton.com

Article Dean Dorton

We’re excited to announce a new service line, Dean Dorton accounting and financial outsourcing (Dean Dorton AFO) for back office and accounting solutions. We recognize the increase in demand for collaborative cloud-based applications for both business executives and their teams in order to provide financial data more efficiently and effectively. We are one of the first accounting firms in Kentucky to offer a cutting-edge, scalable mobile accounting solution.

Going further, faster is the goal, allowing businesses to automate their core financials and most important processes, mitigating turnover in accounting staff, ambiguous financials, inefficient processes, and constantly outgrowing systems resulting in technology upgrade costs. Through these new technological advancements the Dean Dorton AFO team can offer assistance in:

  • Basic transaction processing: Accounts payable, employee expense reports, billing and receivables, payroll, deposits, bank reconciliations, and other accounting processes
  • Mid-level services: Controller level resource responsible for working hand-in-hand with your staff, managing bills to be paid and invoices to be collected, project accounting, time and expense management, contract revenue management, contract and subscription billing, and sales and use tax
  • Outsourced CFO services: Interpret financial information, profitability analysis, budgeting, cash flow forecasts, business planning, banking relationships, and adapting business processes to changes in the business

This innovative approach — offering outsourcing services to companies that don’t want the distraction or costs of running an accounting department, as well as offering selection, design and implementation services for companies with established finance departments — is expected to significantly accelerate client’s growth and enable them to fully utilize real-time financial data online from their office or on-the-go via an app.

“Organizations of all sizes must adapt and innovate. This includes adopting more robust financial management systems that enable them to better monitor their performance on an ongoing basis so they can react effectively to rapidly changing market dynamics,” said Jason Miller, Director of Business Consulting Services. “Fortunately, for an affordable fixed monthly fee, Dean Dorton AFO offers the next generation of financial management solutions and expertise delivered via the cloud, enabling a growing number of businesses of all sizes to respond to these challenges.”

Dean Dorton clients will benefit from the web-based dashboards, reporting, and business intelligence capabilities built into the accounting software system. The system provides a powerful set of analytics and reporting tools that empower users with real-time, accurate, and consistent visibility into financial and operational data. The ability to run financial reports by dimensions, such as by customer, by vendor, by project or by fund is particularly important to their clients. The capabilities are endless and are easily customized to each client, providing a scalable solution for companies, from small businesses to public companies and multi-national organizations.

Companies of any size and structure can receive a complimentary initial consultation regarding their accounting and finance functions by our AFO team by visiting www.deandortonafo.com.

Visit deandortonafo.com

Article Dean Dorton

In our last newsletter, Determining and Increasing Business Value, we discussed the three primary approaches to valuing a business. We described how value hinges on projected cash flows and risks associated with achieving them. And, we explained that a business owner can increase value by increasing cash flows and lowering risks. In this article we focus on the various levels of value associated with a business (or business interest), and we discuss strategies for maximizing value.

Though we often think that value means one specific amount, various levels of value are associated with business interests. These levels of value reflect varying degrees of control, marketability, and synergies with other enterprises. The levels of value, from highest to lowest, are illustrated in the following example:

$12 per share Synergistic (or Strategic) Value (reflects a 20% strategic premium)
$10 per share Control Value (reflects control and liquidity)
$7 per share Noncontrol, Marketable Value (reflects a 30% discount for lack of control)
$5 per share Noncontrol, Nonmarketable Value (reflects combined discounts for both lack of control and liquidity of 50%)

In arms-length business acquisitions lacking strategic or synergistic features, buyers and sellers tend to negotiate a purchase price that approximates the control value of the business. A buyer seeks to maximize value by identifying a target with strategic or synergistic potential. If the buyer is able to purchase the business at control value, but operate it at a level consistent with strategic value, the buyer has effectively purchased the business at a “bargain.” By capitalizing on synergies or other strategic advantages, the buyer’s return on investment will be enhanced. A buyer tries to negotiate a purchase price without paying for synergies or other strategic value that the buyer brings to the deal, while recognizing that if multiple potential buyers who recognize synergistic or strategic potential are involved, the purchase price may get “bid-up” to an amount approaching strategic value.

One of the ways to realize strategic value is by buying a competing company. By eliminating a competitor, the buyer is able to capture a greater share of the market, providing opportunities for increasing revenues and reducing costs. Similarly, a buyer can purchase a supplier or distributor to create vertical integration. This will enable the buyer to save the “mark-up” in supply or distribution costs, resulting in greater profits. Other strategic acquisition value can result from purchasing one or more companies, enabling the buyer to generate economies of scale, leverage existing expertise and know-how, provide for “one-stop” shopping, or create a level of “critical mass” that provides an advantage in the marketplace.

We have approached the idea of maximizing value from a buyer’s perspective, but a seller can also maximize price by marketing and selling to a strategic buyer that can create synergies between its existing business and the targeted business. The seller, though, often needs multiple potential buyers in order to realize a price that reflects strategic value.

If you have any questions or would like to discuss your business, please contact one of the members of our forensic accounting and business valuation group.

David Parks, dparks@deandorton.com

John Herring, jherring@deandorton.com

David Angelucci, dangelucci@deandorton.com

Missy DeArk, mdeark@deandorton.com

View David Parks’ Bio