Management Accountants: Thinking Outside the Box!
Apr 07, 2014
I have been working in a public accounting firm for 21 years. Although I am a CPA, I am also a CMA. When I give my 30 second “about myself spiel”, those who have already heard, know that I never really cared for preparing financial statements or tax returns. Not really the best asset for a CPA firm, right?
Well the rest of my spiel is that, shortly after earning my CPA and my MBA, I earned my CMA. Eighteen years ago that was almost unheard of for practicing CPA’s and many did not even know what it meant. Now the designation is more common, generally with accountants in industry, not public accounting firms. Every single consulting job that I perform that falls under this umbrella of “Management Accounting” is unique and intriguing to me. Whether it’s data analysis, forecasting, product costing, or simply assisting management with financial oversight, it is always new and thought provoking. One of my very first blogs was about “playing by the rules”. Over three years later, I believe it to be true more than ever. To be a true management accountant, you must be very good at working without rules, without structure, without a framework, you must be able to think out of the box!
In the past few years, many governing bodies have tried to put a “framework” around the practice of management accounting. From my perspective, this is nearly impossible. When I try to apply rules to the engagements that I perform, it does not work well. According to Wikipedia,a “simple” definition of management accounting is: the provision of financial and non-financial decision-making information to managers. That is about as vague and broad as you could possibly get.
According to the Institute of Management Accountants (IMA): Management accounting is a profession that involves partnering in management decision making, devising planning and performance management systems, and providing expertise in financial reporting and control to assist management in the formulation and implementation of an organization’s strategy.
Very well thought out definition that applies many of the thought concepts that I deal with daily.
The American Institute of Certified Public Accountants (AICPA) has its own definition, as does the ICMA (Institute of Certified Management accountants) and the list goes on. I am going to go out on a limb here and say that NONE of these definitions has it right on the money and I don’t believe the process can ever truly be defined in just a few sentences. They all address characteristics of a successful management accountant. I believe each of these bodies can continually draft their version of a definition for a management accountant or for “management accounting” as a profession, but it will never be precise; it will never be entirely accurate.
A true management accountant can AND should analyze EVERYTHING in so many different dimensions. This includes historical information: company, financial, industry, geographic and projected trends in the future related to the same dimensions. They analyze financial data and non-financial data. They know operations and try to quantify impacts of everything from non-value added activities to purely developmental to the operations themselves. They act as interpreters for those who don’t understand numbers and how they impact operations. They act as the liaison between the financial accountants and operations and operations and management. They are databases of information for the design engineers and the salespeople. They are the report designers, generators AND translators for the flavor of the day. They ARE the strategic business partners; and EVERY situation they face is unique, sometimes intimidating, always challenging, and provides an opportunity to think out of the box, and help the organization grow and succeed to achieve its overall vision.
Categories: Cost Accounting
Employee or Independent Contractor?
Apr 03, 2014
The question is an important one. Failure to properly classify your workers may subject your business to large financial penalties. Under the “common law” rules developed by the courts, a worker generally is an employee for federal tax purposes if the employer has the right to control and direct the worker regarding the job he is to do and how he is to do it.
Tax Implications
Employees and independent contractors are treated differently for income-tax withholding and employment-tax purposes. With an employee, the business generally must withhold income taxes from the employee’s pay and remit those taxes to the federal (and state, if applicable) government. The business and the employee share the responsibility for Social Security and Medicare (FICA) taxes on the employee’s earnings. The business also must pay unemployment taxes for the worker. With an independent contractor, income-tax withholding is not required and the contractor is fully liable for his or her own self-employment taxes. FICA taxes and unemployment taxes do not apply.
Stiff Penalties
The IRS penalty for the unintentional failure to withhold federal income tax is 1.5% of the wages paid. Also, if IRS Form 1099-MISC (an “information return”) is not filed, the penalty is doubled to 3% of wages paid. As for Social Security and Medicare taxes, an employer’s unintentional failure to withhold the employee’s share of the tax results in a 20% IRS penalty. That assessment is doubled to 40% for an employer’s failure to also file an information return for the worker.
An intentional misclassification of the worker by the employer results in an income-tax liability equal to the amount that should have been withheld and 100% of the employee’s and employer’sshare of the Social Security and Medicare taxes.
Making the Call
If there is a question about whether a particular worker is an employee or an independent contractor, a company should analyze its entire relationship with the worker. The primary focus should be the degree of direction and control the company exercises over the worker. The IRS has a number of specific factors that come into play, but, in general, the more direction and control, the more likely it is that a worker is an employee.
Categories: Uncategorized
Costing for Inventory Valuation Only
Apr 03, 2014
As a costing consultant I am constantly looking for new and better ways to help people identify and measure their costs related to their products or operations. In virtually every case, I’m seeking to offer the best solution, one with multiple functions and that provides maximum usefulness to the management team. Costing systems can be complex and expensive, or they can be simple and inexpensive. The goal, however, is always to provide the most versatility and the highest functionality in the most cost-effective way.
What if all your business really needs is the ability to quickly and reliably value your inventory at the end of every month or year. Many of our past cost forum attendees came from businesses that the primary function of the costing system was to accurately value inventory. In many cases, the inventory valuation method was primarily focused on passing the year-end audit testing with far less consideration to management reporting. Accordingly, all the bells and whistles available in a comprehensive cost system were of little interest to the cost managers that were directed to provide the best inventory valuation method they could.
This is not to say that just any method is acceptable for valuation of inventory. In fact a properly constructed inventory evaluation method provides alternatives for valuing inventory under Generally Accepted Accounting Principles (GAAP), as well as, the alternative for valuing inventory under today’s federal income tax rules. The computation of variances or other management information is not necessary for a system that is designed to do just inventory valuation.
It has been my experience that poorly constructed cost systems can be one of the root causes of radical fluctuations in inventory. I can cite numerous examples in my personal experience where overly simplified inventory valuation methods or perhaps improperly constructed valuations systems have led to multiple problems in determining month-to-month profitability of an operating company with little obvious indication as to what really was causing the problem.
If your goal as part of your cost management responsibilities is to simply value inventory, then I would first look to GAAP to provide guidance relative to what must be capitalized as inventory costs and what must be expensed, as well as how to deal with material differences between what was planned to be recovered in the costing process and was actually recovered. Further, I would look to income tax code section 471 and 263A to determine what must be capitalized for tax purposes. There, of course, are differences, and if you are aware of those differences at the outset of the design of the system, then you can design your costing model with both alternatives. This allows for your year-end inventory to be computed first for GAAP purposes and a second time for tax purposes. However, do not lose sight of making sure that you are meeting the management accounting goals as well.
Categories: Cost Accounting
Dental Practice Spring Checkup
Apr 03, 2014
In addition to providing for you and your family, your dental practice is a part of this country’s small business job creation engine. Small businesses make up 99.7% of U.S. employer firms and account for 64% of net new private sector jobs.* Conducting an annual review of your practice finances can help keep your business healthy and growing.
Management
No doubt you are pivotal to the success of your practice, however, at some point it’s important to focus on bringing up the next level of management, especially if you would like to sell your practice or pass it on in the future. While mentoring the key individuals who can effectively run the business, don’t forget about key person insurance for them. It’s designed to protect your business if you, a partner or another key employee were to die prematurely.
Plan ahead
What would happen to your practice if you or one of your key employees could no longer work? Unless you’ve planned ahead, the practices’s continued success, continuity of management and the future of all the families your practice supports could be jeopardized. Would the absent employee’ family — which could be yours — be fairly compensated for their interest in the practice if that interest needed to be sold?
A buy-sell agreement combined with key person insurance can help relieve concerns you may have. Work with your financial professional and attorney to make sure the agreement is drafted properly to address your and your practice needs.
Risks
Do you have appropriate processes and procedures in place to handle human resources and compliance issues, such as the new health care coverage rules under the federal health reform law? When was the last time you reviewed your practice’s insurance coverage with your financial professional? You may discover that your practice does not have all the coverage it needs in this litigious climate. Ask about umbrella and general liability insurance.
- Frequently Asked Questions about Small Businesses, SBA Office of Advocacy, September 2012
Categories: Healthcare & Dentistry
Important Birthdays Related to Your Taxes
Apr 01, 2014
From a tax standpoint, some birthdays are more important than others. Here are some notable tax milestones.
BIRTH: You generally can start claiming a dependency exemption for your child in the year he or she is born. In 2014, the exemption is $3,950, subject to phaseout for higher income taxpayers. For married taxpayers filing jointly, the phaseout begins with an adjusted gross income (AGI) of $305,050, and the credit is completely phased out with an AGI of $427,550.*
13: The child care credit is available to eligible working parents until the year their child turns 13. The credit is 20% to 35% of employment-related child care expenses, depending on income. The maximum amount of expenses eligible for the credit is $3,000 for one qualifying child and $6,000 for two or more. As a general rule, qualifying expenses are limited to the earned income of the spouse who earns the lesser amount (no earned income, no child care credit).
17: A child tax credit is available until the year a child turns age 17. The maximum credit is $1,000 per qualified child, and it is phased out above certain income amounts.
19: Your child may continue to qualify as your dependent until the year he or she reaches age 19. If your child is enrolled as a full-time student for some part of five calendar months during the year, then he or she can qualify as your dependent until age 24.
59½:You won’t have to worry about the 10% penalty tax on early withdrawals from tax-deferred retirement accounts and traditional individual retirement accounts (IRAs) once you reach age 59½.
65: If you claim the standard deduction instead of itemizing your deductions, you can celebrate your 65th birthday with an additional standard deduction. For 2014, the additional standard deduction is $1,200 for a married individual (filing jointly or separately) or a surviving spouse and $1,550 for a single or head-of-household taxpayer.
70½: After you reach age 70½, annual required minimum distributions (RMDs) from traditional IRAs and employer retirement plans generally must start — and they represent taxable income. (Your plan may allow you to delay RMDs if you are still working for the company sponsoring the plan and you are not a 5% owner.)
- The 2014 AGI phaseout range for single taxpayers is $254,200 to $376,700. It’s $279,650 to $402,150 for heads of household.
Categories: Uncategorized