Accounting & Audit

Internal Control Questionnaires: How to See the Complete Picture

Businesses rely on internal controls to help ensure the accuracy and integrity of their financial statements, as well as prevent fraud, waste and abuse. Given their importance, internal controls are a key area of focus for internal and external auditors. Many auditors use detailed internal control questionnaires to help evaluate the internal control environment —…

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cutoff rules

Follow the Cutoff Rules for Revenue and Expenses

Timing counts in financial reporting. Under the accrual method of accounting, the end of the accounting period serves as a strict “cutoff” for recognizing revenue and expenses. However, during the COVID-19 pandemic, managers may be tempted to show earnings or reduce losses. As a result, they may extend revenue cutoffs beyond the end of the…

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accounting estimates

Accounting Estimates Present Challenges in Times of Uncertainty

In today’s unprecedented market conditions, it can be challenging to predict metrics that underlie your company’s accounting estimates. Examples of key “unknowns” include how much longer certain pandemic issues will continue, how federal stimulus spending will affect the economy over the long run, and the extent to which tax laws and environment regulations may change…

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working capital

Hit or Miss: Is Your Working Capital On-Target?

Working capital equals the difference between current assets and current liabilities. Organizations need a certain amount of working capital to run their operations smoothly. The optimal (or “target”) amount of working capital depends on the nature of operations and the industry. Inefficient working capital management can hinder growth and performance. Benchmarks The term “liquidity” refers…

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capital

Using Your Financial Statements to Evaluate Capital Budgeting Decisions

Strategic investments — such as expanding a plant, purchasing a major piece of equipment or introducing a new product line — can add long-term value. But management shouldn’t base these decisions on gut instinct. A comprehensive, formal analysis can help minimize the guesswork and maximize your return on capital investment. Forecasting cash flows  Financial forecasts…

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fair value accounting

What’s “Fair Value” in an Accounting Context?

In recent years, the accounting rules for certain balance sheet items have transitioned from historical cost to “fair value.” Examples of assets that may currently be reported at fair value are asset retirement obligations, derivatives and intangible assets acquired in a business combination. Though fair value may better align your company’s financial statements with today’s…

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receivables may be a source of cash in tough times

Receivables May be a Source of Cash in Tough Times

Many companies are continuing to struggle financially during the COVID-19 pandemic. If cash is tight, what can your business do to shorten its cash cycle? The answer could lie in your outstanding accounts receivable. Here are five strategies to help convert receivables into cash ASAP. 1. Apply for a line of credit. A line of…

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Liabilities for unused time off mount as pandemic lingers

Liabilities for Unused Time Off Mount as Pandemic Lingers

During the pandemic, many employees have postponed using their allotted paid time off until COVID-related restrictions are lifted and safety concerns subside. This situation has caused an increase in accruals for certain employers. Here’s some guidance to help evaluate whether your company is required to report liabilities for so-called “compensated absences” and, if so, how…

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accounting for business combinations

Accounting for Business Combinations

If your company is planning to merge with or buy another business, your attention is probably on conducting due diligence and negotiating deal terms. But you also should address the post-closing financial reporting requirements for the transaction. If not, it may lead to disappointing financial results, restatements and potential lawsuits after the dust settles. Here’s…

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FASB new agenda for 2021

What’s on the FASB’s 2021 Agenda?

In December 2020, Richard Jones stepped up as chairman of the Financial Accounting Standards Board (FASB). After meeting with stakeholders in early 2021, Jones identified a list of high-priority projects that he plans to tackle under his leadership. Big picture The FASB is responsible for creating and updating U.S. Generally Accepted Accounting Principles (GAAP), the…

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