Audit Proof
May 27, 2014
I recently was talking to a CFO who seemed much more concerned about his financial statements being audit proof and way less concerned about them aiding in management decisions. I see this as a major flaw. In the spirit of full disclosure I am not an auditor and certainly am not passionate about audits. I do, however, understand being audited is important and there are many rules that need to be followed, I am by no means discounting that. Although, if you cannot rely on your financial statements to make sound management decisions, you will no longer have a company to have audit proof financial statements for.
Financial statements are a very integral part of running a business. The statements report what is actually happening day to day in your operations, and with these statements you can compare what is happening to what you thought should happen, and that is where decisions come into play. The accuracy of your daily statements is vital to the success of this comparison.
A huge part of the truth is the costing. It is important you capitalize into inventory those costs that are still in inventory, and expense those costs that were used up. But at what rate do you do those things? That is such an important question with such an important answer, if you are more concerned about the GAAP rules and what your auditor will think you may be missing the mark significantly! Make sure you know what your true costs are and that you are applying them accurately.
In the end do care about GAAP and what needs to be done, but do not get so hung up that your hugely important management decisions are inaccurate or non-existing!
Categories: Cost Accounting
Social Security Eligibility
May 22, 2014
Social Security is a topic that is often discussed but do you really understand the scope of Social Security benefits. While Social Security may be thought of as primarily a retirement program, many others are receiving benefits due to disability, or death of a wage earner. As a result you or your dependents may be eligible for benefits at any age.
How do you become eligible for retirement benefits? In 2014 a wage earner will accrue one credit for each $1,200 in earnings, up to the maximum of four credits per year. The amount needed to accrue one credit is adjusted annually. To be eligible for benefits a wage earner will need to accrue a minimum of forty credits over their working life. For younger wage earners with dependents the requirement for eligibility for survivor benefits takes a minimum of six credits earned in the prior three years before date of death, and for disability benefits it is a calculation of credits needed based on the age at which the wage earner becomes disabled.
According to the Social Security Administration, approximately 165 million people are paying Social Security taxes and about 58 million people receive some sort of monthly Social Security benefit.
So whether you are just starting your working career or are looking forward to ending your working career, Social Security can touch the life of almost every American.
By: Christine Schultz, Accountant
Categories: Uncategorized
Why is Costing Always Last?
May 22, 2014
I recently met with a potential client to discuss the current state of their costing system. There were numerous problems associated with the system and most of the management team had learned to stop relying on the system because of built-in inaccuracies that were widely known by the entire operating team. Many of the managers that have to rely on costing information had developed their own cost sheets that they were saving for each of their specific purposes simply because the company-sponsored system was in error.
As we talked through the recent history of the company, it became apparent that this company has gone through significant changes in the past. Changes of location, changes of manufacturing operation, changes in cost structure, in fact virtually every part of the financial and operational structure of the company was touched by some change in the last four or five years. Many of those changes were so significant that they by themselves would have invalidated the cost information that had been previously prepared.
As each manager talked through their interest in relevant costing information, and we went through what systems they were relying on now, I could see where at each time of significant change the modifications to the costing system were discussed but no effort was made to integrate the modifications into the costing system. I’m sure the senior management was aware of all the changes in line and wanted to wait until almost all of the changes were complete before embarking on any modification to the cost system. This makes sense, as they wanted to simply avoid having to do it multiple times. However, now in this case, the final changes had been completed several years ago so the cost system update is quite long overdue.
There were also ancillary problems being uncovered along the way which seemly were unrelated. However, as those problems were discussed individually, it became clear to me that at the foundation of all of these reporting or operational problems was the one issue that accurate costs for products produced could not be readily achieved and thereby created lots of other additional difficulties in the business.
Unfortunately, scenarios like this are not all that uncommon in today’s costing world. Business managers have evolved over the years to place less and less importance on an accurate costing system with correspondingly reduced controls in area’s that are important to the company. The reasons behind these changes are a mystery to me. It’s inaccurate to say that all managers have fallen victim to this mindset. We frequently run across very talented business managers who are conscientious about maintaining and updating their cost system as necessary. As small businesses in particular go through the evolutionary changes of growth automation and improved efficiencies, it is easy to concentrate on the technology-based solutions that are available in today’s marketplace and ignore the need for fundamental cost data that is accurate, relevant and timely.
Categories: Cost Accounting
Failure to File or Failure to Pay. Filing Your Taxes is the Only Answer
May 20, 2014
We have all heard countless tales of people avoiding income taxes: “I don’t have enough money to pay my taxes, so I wont file,” “I need additional information that I don’t have, so I wont file” “I have never filed, why start now?
Whatever the case may be for not filing your taxes, there are some serious consequences. Tax evaders can face stiff fines, criminal penalties and even imprisonment!
Not Filing and Not Paying – What is the Difference?
All too often, people believe these are one in the same. If you calculate your taxes only to realize you can pay them, still file. Why? The penalty for not filing is greater than the penalty for not paying. Generally the failure to file penalty is 5% of the unpaid tax not to exceed 25% of your unpaid taxes. It is even greater if you are more than 60 days late. The failure to pay is just ½ of 1% of your unpaid taxes.
Furthermore, the IRS reserves the right file a substitute return on your behalf which will not save you money because the substitute return will NOT include any of the standard deductions.
If you continue to pursue your personal revolt against taxation, it could cost you even more. The government has the right to recoup its money as it sees fit. It can:
- Place a levy on your bank account
- Place a lien on your home
- Seize your car boat, or any other personal or real property of value
What if I cannot pay?
If you cannot pay your bill in full, the IRS offers several solutions including installment payment plans, temporary delays, or offer in compromise.
In conclusion, FILE YOUR TAXES, regardless if you can pay the full amount or not! The consequences of failing to file are much more severe than failing to pay.
By: Tara West, CPA
Categories: Uncategorized
What a Markup!
May 19, 2014
I had the expensive privilege of going to Chicago for the weekend. I have been before several times – it is a fun and beautiful city! I think I had tourist sucker written all over me though with the places I went and things I did. I often found myself saying they sure do make a lot of money off of this!
I went up the Willis tower and onto the sky deck (formally the Sears tower), visited the amazing Shedd Aquarium, took the water taxi, and perhaps the largest mark-up of all, shopped and ate at the American Girl Doll store! Each of these places charged a lot more for their product and entertainment then I am used to spending here in the Toledo area. I cannot say I was completely surprised by it, but it certainly seemed like they were doing a lot more than just covering their costs! I think they had a pretty healthy profit margin.
I wonder though, is it as healthy as it could be? Are they making so much money and doing so well that they really do not always verify the accuracy of their true costs? I’ve seen many times where companies say we are making money so it can’t be that bad. When in reality they are also bleeding money that is completely unnecessary. The good could be better, which also means in times of bad, better decisions can be made. I have too often seen businesses that were flourishing go out of business as a result of bad costing information.
There almost certainly always comes a time when things are slow and spending from the outside is diminished. The ONLY way to survive those times is to have good costing information and be able to make good real time decisions. Plus it certainly does not hurt to have a good cash reserve. The best cash reserve you could have possibly had, not the one you just ended up with, because you determined you had enough.
Are you a cash cow? Are things going well? If so, great! Congratulations! Just make sure you still know your true costs and you are making great decisions, not just mediocre ones.
Categories: Cost Accounting