Archives for September 2013

Improving Audit Quality: The Debate

There has been a lot of discussion recently about ways to improve audit quality. Two proposals made by the PCAOB that would, in their opinion, improve audit independence and accountability. The two proposals have also received a lot of attention both bad and good. The PCAOB wants to require mandatory audit firm rotations and a signature from the lead engagement partner. While these proposals may seem like a good idea in theory, will it really work in practice?

The ideology behind each proposal is the same; both are discouraging forming social relationships that would interfere with auditor independence and create more transparency with in the audit field. Auditors should question procedures, financial statements, etc. and if they feel like they are too reliant on the client for social or economic status then it may erode their objectivity and skepticism. If the auditor’s objectivity and skepticism are decreased then their overall independence is compromised.

Many of the critics of these proposals feel that it the mandatory rotation will have increased costs and decreased quality. Many companies feel that new auditors will have to spend extra time playing catch up and the efficiencies and specific knowledge about the business will be lost in the change. The supporters of the proposal come from people who feel like the relationship has become too cozy and comfortable. This can then lead to unintended lapses in objectivity. There are always two sides to the coin.

While the mandatory audit firm rotation has garnered the most attention, another proposal of requiring a signature from the lead engagement partner has also come under scrutiny. The proposal is to increase accountability, when what is really does is increase identifiability. When a person is identified on a report, one of two things will happen. They will be very cautious to avoid disapproval, or they will become the scape goat if something goes wrong.

Neither one are perfect and will work the same way every time, but by examining the procedures and mixing in a little of both they may be a way of creating a better solution.


Elder Planning: Avoid Disputes

When it comes time to take care of the elder parent or someone who is chronically ill, helping them with their financial planning can create a new set of complications that can put everyone into a family feud. To help avoid this situation it is important to keep an open line of communication with everyone involved.

The first task to accomplish is figuring out who is the client. If the parent is the client, then they must give permission to add others on the account before sharing any information. If the client is unable to do this, then the task falls to the person who holds the durable power of attorney. Only they have the power of take actions on behalf of the client. By law, only the people list as able to receive information will be who is communicated with on a regular basis.

In many cases, this creates a family dispute. There is many reasons that this situation can turn into a family dispute, including problems already existing from childhood, jealousy or suspicions, resentment, etc. The problem arises when someone without authority on the account calls for information. They then have to be directed to another member of the family to get answers. This can only escalate the dispute, but it is important to remember that the person calling could have many devious intentions. Not everyone will, but by thinking that way, it helps to keep a perspective.

This tends to be a volatile situation. Emotions can get out of hand and what, under normal circumstances, would not be a big deal is not is now the only important thing. Carefully planning personal financial arrangements and talking about them ahead of time can help alleviate much of the tension during an already stressful time. Make sure everything is in writing and is clearly stated.


Tax Incentives for Companies from Local and State Government

Many local and state governments are trying to entice companies to invest their time, money and business resources in them. To accomplish this goal, local and state governments are offering tax incentives for business. By taking advantage of these incentives, companies can maximize their return on investment and help fund many capital improvement projects. Corporations need to keep in mind three simple steps when planning for capital improvement projects.

Gather Relevant Data

In many corporations, especially large companies, the board or CEOs will plan for capital improvements for the company. While these sounds like a good plan, there is a problem with this way of planning because corporations could evaluate projects based on tax incentives available. Planning should take place with the knowledge of what tax incentives government entities are providing.

Redefine Projects

Many times, the ways companies define capital improvement projects and the way the government entities define “projects” are two different things. Companies need to change their definition to fit the government’s definition so they qualify for the tax incentives. This will maximize the amount of incentives the company qualifies for and will supplement the money spent on capital improvements. Keep track of the requirements for the tax incentives. If the tax incentive requires a three-year window to complete the project, submit a timeline to track the progress. Follow the rules and regulation to the letter.

Let the Race Begin

It is important to realize that there are going to be other companies competing for the tax incentives. Competition is good, but keep your eyes on the prize. Contact the government entity early in the process and keep them updated. Have several different presentations, even if they do not all come into existence. The process can be compared to an auction, and the person with the “last-best” bid will with the prize of the tax incentive. During this negation time, keep a tight control on internal and external communications. Do not let a loose tongue be the downfall of any new project. Discretions is best.


Planning for Back-To-School

There are many changes occurring as millions of us head back to school. With so many changes, it is a good time to review financial plan. It is also a good time to discuss financial responsibility with children whether they are going off to college or starting Kindergarten.

During this time of year, it hit home just how much we spend on getting kids back to school. There are new gadgets to buy, clothes, shoes, school supplies, books, tuition, etc. that we spend our money on during back-to-school time. It is important, especially this time of year, to set a budget and keep it. Showing kids how to be financially responsible can start at a young age, and the knowledge will prepare them for the future.

To start create a family budget that include money for the extras of back-to-school, and keep to the limit set. If children are old enough to have and use credit cards, set a responsible limit, while allowing them the freedom to choose what they want to buy. A good way to do this would be to give them a prepaid card that has a specific limit. When the money is gone, it is gone. Make them earn more before you put more on the card.

Teach children to protect their personal information. Anyone at any age can be exploited and be a victim of fraud. Teach them to use secure passwords, and only use social security numbers if required.

For parents of children of any age, it is time to start a saving plan for college. It is never too late to start and never too early either. College can be financially draining to the college student and parents. By planning and saving even a little, it will help alleviate the cost burden of college. If starting early enough calculate cost for tuition, books, housing, etc. and set your saving to reflect the cost. Periodically check the total and adjust where needed.

By taking some small steps, financial responsibility can be achievable for anyone, including children and young adults.