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  • 12/22/2020 7:24 AM | Anonymous member (Administrator)

    December 21, 2020

    By Jeff Drew

    The U.S. Senate and House of Representatives overwhelmingly passed a $900 billion COVID-19 relief bill Monday night that provides $600 stimulus payments to individuals, adds $300 to extended weekly unemployment benefits, and provides more than $300 billion in aid for small businesses.

    The legislation, the Consolidated Appropriations Act, 2021, also ensures tax deductibility for business expenses paid with forgiven Paycheck Protection Program (PPP) loans, provides fresh PPP funding, makes Sec. 501(c)(6) not-for-profit organizations eligible for loans for the first time, and offers businesses facing severe revenue reductions the opportunity to apply for a second loan.

    The Senate approved the bill with a 92-6 vote at about 11:45 p.m. Monday, just a couple of hours after the House approved it 359-53. The measure now goes to President Donald Trump, who is expected to sign it into law.

    The COVID-19 relief package is tied to a $1.4 trillion resolution to fund the government through September 2021.

    Key provisions in the bill include:

    • $325 billion in aid for small businesses struggling after nine months of pandemic-induced economic hardships. The bill provides more than $284 billion to the U.S. Small Business Association (SBA) for first and second PPP forgivable small business loans and allocates $20 billion to provide Economic Injury Disaster Loan (EIDL) Grants to businesses in low-income communities. In addition, shuttered live venues, independent movie theaters, and cultural institutions will have access to $15 billion in dedicated funding while $12 billion will be set aside to help business in low-income and minority communities.
    • $166 billion for economic impact payments of $600 for individuals making up to $75,000 per year and $1,200 for married couples making up to $150,000 per year, as well as a $600 payment for each child dependent.
    • $120 billion to provide workers receiving unemployment benefits a $300 per week supplement from Dec. 26 until March 14, 2021. This bill also extends the Pandemic Unemployment Assistance (PUA) program, with expanded coverage to the self-employed, gig workers, and others in nontraditional employment, and the Pandemic Emergency Unemployment Compensation (PEUC) program, which provides additional weeks of federally funded unemployment benefits to individuals who exhaust their regular state benefits.
    • $25 billion in emergency rental aid and an extension of the national eviction moratorium through Jan. 31, 2021.
    • $45 billion in transportation funding, including $16 billion for airlines, $14 billion for transit systems, $10 billion for state highways, $2 billion each for airports and intercity buses, and $1 billion for Amtrak.
    • $82 billion in funding for colleges and schools, including support for HVAC repair and replacement to mitigate virus transmission, and $10 billion in child care assistance.  
    • $22 billion for health-related expenses incurred by state, local, Tribal, and territorial governments.
    • $13 billion for emergency food assistance, including a 15% increase for six months in Supplemental Nutrition Assistance Program benefits.
    • $7 billion for broadband expansion.

    The bill also extends the employee retention tax credit and several expiring tax provisions and temporarily allows a 100% business expense deduction for meals (rather than the current 50%) as long as the expense is for food or beverages provided by a restaurant. This provision is effective for expenses incurred after Dec. 31, 2020, and expires at the end of 2022.

    Breaking down the PPP provisions

    The return of the PPP is of particular interest to accountants, who played a significant role in helping millions of small businesses acquire $525 billion in forgivable loans during the five months the program was accepting applications, according to SBA reporting. The new round of PPP, or PPP2 as some are calling it, contains many similarities to the first round of the PPP but also has several important differences. The following is a high-level view of the PPP provisions.

    Who is eligible to apply

    PPP2 loans will be available to first-time qualified borrowers and, for the first time, to businesses that previously received a PPP loan. Specifically, previous PPP recipients may apply for another loan of up to $2 million, provided they:

    • Have 300 or fewer employees.
    • Have used or will use the full amount of their first PPP loan.
    • Can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019.

    PPP2 also makes the forgivable loans available to Sec. 501(c)(6) business leagues, such as chambers of commerce, visitors’ bureaus, etc., and “destination marketing organizations” (as defined in the act), provided they have 300 or fewer employees and do not receive more than 15% of receipts from lobbying. The lobbying activities must comprise no more than 15% of the organization’s total activities and have cost no more than $1 million during the most recent tax year that ended prior to Feb. 15, 2020.  

    PPP2 will also permit first-time borrowers from the following groups:

    • Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans.
    • Sole proprietors, independent contractors, and eligible self-employed individuals.
    • Not-for-profits, including churches.
    • Accommodation and food services operations (those with North American Industry Classification System (NAICS) codes starting with 72) with fewer than 300 employees per physical location.

    The bill allows borrowers that returned all or part of a previous PPP loan to reapply for the maximum amount available to them.

    PPP loan terms

    As with PPP1, the costs eligible for loan forgiveness in PPP2 include payroll, rent, covered mortgage interest, and utilities. PPP2 also makes the following potentially forgivable: 

    • Covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines.
    • Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations.
    • Covered operating costs such as software and cloud computing services and accounting needs.

    To be eligible for full loan forgiveness, PPP borrowers will have to spend no less than 60% of the funds on payroll over a covered period of either eight or 24 weeks — the same parameters PPP1 had when it stopped accepting applications in August.

    PPP borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs in the year prior to the loan or the calendar year, the same as with PPP1, but the maximum loan amount has been cut from $10 million in the first round to the previously mentioned $2 million maximum. PPP borrowers with NAICS codes starting with 72 (hotels and restaurants) can get up to 3.5 times their average monthly payroll costs, again subject to a $2 million maximum.

    Simplified application and other terms of note

    The new COVID-19 relief bill also:

    • Creates a simplified forgiveness application process for loans of $150,000 or less. Specifically, a borrower shall receive forgiveness if a borrower signs and submits to the lender a certification that is not more than one page in length, includes a description of the number of employees the borrower was able to retain because of the loan, the estimated total amount of the loan spent on payroll costs, and the total loan amount. The SBA must create the simplified application form within 24 days of the bill’s enactment and may not require additional materials unless necessary to substantiate revenue loss requirements or satisfy relevant statutory or regulatory requirements. Borrowers are required to retain relevant records related to employment for four years and other records for three years, as the SBA may review and audit these loans to check for fraud.
    • Repeals the requirement that PPP borrowers deduct the amount of any EIDL advance from their PPP forgiveness amount.
    • Includes set-asides to support first- and second-time PPP borrowers with 10 or fewer employees, first-time PPP borrowers that have recently been made eligible, and for loans made by community lenders.

    Tax deductibility for PPP expenses

    The bill also specifies that business expenses paid with forgiven PPP loans are tax-deductible. This supersedes IRS guidance that such expenses could not be deducted and brings the policy in line with what the AICPA and hundreds of other business associations have argued was Congress’s intent when it created the original PPP as part of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136 (see the Dec. 3 letter from the AICPA and state societies to congressional leaders).

    The COVID-19 relief bill clarifies that “no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income provided” by Section 1106 of the CARES Act (which has been redesignated as Section 7A of the Small Business Act). This provision applies to loans under both the original PPP and subsequent PPP loans.

    While the CARES Act excluded PPP loan forgiveness from gross income, it did not specifically address whether the expenses used to achieve that loan forgiveness would continue to be deductible, even though they would otherwise be deductible. In April, the IRS issued Notice 2020-32, which stated that no deduction would be allowed under the Internal Revenue Code for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a PPP loan because the income associated with the forgiveness is excluded from gross income for purposes of the Code under CARES Act Section 1106(i).

    In November, the IRS then expanded on this position by issuing Rev. Rul. 2020-27, which held that a taxpayer computing taxable income on the basis of a calendar year could not deduct eligible expenses in its 2020 tax year if, at the end of the tax year, the taxpayer had a reasonable expectation of reimbursement in the form of loan forgiveness on the basis of eligible expenses paid or incurred during the covered period. Treasury Secretary Steven Mnuchin also argued against businesses being able to deduct business expenses paid with forgiven, tax-free PPP funds, calling it an unwarranted double benefit for businesses.  

    The AICPA disputed this interpretation of the CARES Act loan forgiveness rules, arguing that it was not Congress’s intent to disallow the deduction of otherwise deductible expenses. Congress has now agreed with that position.

    AICPA experts discuss the latest on the PPP and other small business aid programs during a biweekly virtual town hall. The webcasts, which provide CPE credit, are free to AICPA members. Go to the AICPA Town Hall Series webpage for more information and to register. A special edition town hall will be recorded this week to review the provisions of the stimulus bill. Look for the recording Wednesday on AICPATV.

    The AICPA’s Paycheck Protection Program Resources page houses resources and tools produced by the AICPA to help address the economic impact of the coronavirus.

    For more news and reporting on the coronavirus and how CPAs can handle challenges related to the outbreak, visit the JofA’s coronavirus resources page or subscribe to our email alerts for breaking PPP news.

    — Jeff Drew (Jeff.Drew@aicpa-cima.com) is a JofA senior editor.


  • 12/15/2020 4:10 PM | Anonymous member (Administrator)

    December 11, 2020

    Hosted by Paul Bonner

    Eileen Sherr, CPA, CGMA, MT, director of the AICPA’s Tax Policy & Advocacy team in Washington, D.C., discusses recent IRS guidance regarding the tax treatment of loans under the U.S. Small Business Administration’s Paycheck Protection Program (PPP). This guidance holds that the amount of a PPP loan that is forgiven under the SBA’s procedures is not included in the loan recipient taxpayer’s gross income, but any expenses used to qualify for the forgiveness cannot be deducted on the taxpayer’s income tax return as an ordinary and necessary business expense. We also look ahead to what the change in presidential administration in 2021 might spell for a broad range of taxpayers.

    What you’ll learn from this episode:

    • How PPP loan forgiveness is excluded from taxpayers’ gross income for income tax purposes, but the IRS regards related business expenses as nondeductible.
    • The progress of efforts by members of Congress to clarify in new legislation that the PPP forgiveness-related expenses are intended to be deductible as ordinary and necessary expenses of loan recipients.
    • What form advocacy on this issue by the AICPA and its members is taking.
    • How and when tax law changes proposed by the Joe Biden–Kamala Harris presidential campaign might be reflected in a proposed budget by the Biden administration.

    Play the episode below or read the edited transcript:


    For more news and reporting on the coronavirus and how CPAs can handle challenges related to the pandemic, visit the 
    JofA’s coronavirus resources page.

    To comment on this podcast or to suggest an idea for another podcast, contact Paul Bonner, a JofA senior editor, at Paul.Bonner@aicpa-cima.com.

    Transcript:

    Paul Bonner: Hello, and welcome to the JofA podcast. Today, we’re talking with Eileen Sherr from the AICPA’s Washington office. She is director of Tax Policy and Advocacy for the AICPA and will bring us up to speed on the AICPA’s priorities in advocating for members and their clients. One important priority we’ll cover is the tax treatment of loans and their forgiveness under the Paycheck Protection Program, or PPP, which was enacted during 2020 as part of the Coronavirus Aid, Relief, and Economic Security, or CARES, Act.

    Hello, Eileen, and thanks for joining us again.

    Eileen Sherr: Hello. Good afternoon.

    Bonner: I should perhaps start out by saying congratulations on your new title of director of Tax Policy and Advocacy.

    Sherr: Thank you. I’m happy to be a director.

    Bonner: Yes. We’ve talked before about state tax issues, state and local taxation, and today we’d like to talk about these federal tax issues, particularly pertaining to the PPP program and loans that have been forgiven, which I imagine is most of them that have been given out. The applicants have applied for loan forgiveness, and in many or most cases, I imagine, received it, although there are some split-year considerations we want to get to a little bit later. The PPP program, of course, is administered by the Small Business Administration and provides these forgivable loans to businesses based on their number of employees and other expenses that they maintain during the covered period. And the loan forgiveness is also calculated based on some of these expenses that they’ve had.

    Now, the difficulty arises, as you know, with Notice 2020-32 that came out earlier, advising, from the IRS, that these expenses that are used in loan forgiveness are not then deductible as ordinary and necessary business expenses, which would be a double deduction, in essence, they’re saying, right?

    Sherr: Correct. Basically, Notice 2020-32 came out, and it was good in that it said that the forgiveness was not taxable, so that was good confirmation on that, but it did say, on the negative side, that the expenses related to the forgivable loans are ineligible for tax deductions, that you get the nontax treatment — you don’t get taxed on the forgiveness, but you also do not get to deduct any business expenses paid with the forgivable loans.

    Bonner: That does have a certain degree of logic to it, I suppose, although one could say that the intent of Congress was to provide a benefit here for which that tax principle would not apply. What’s the AICPA’s position on this issue?

    Sherr: Correct. The AICPA has sent in letters to Congress saying that we understand the congressional intent of the PPP legislation was to allow both the nontaxable treatment of the forgiveness and also tax business expenses — we think Congress intended to make those deductible as well.

    Bonner: Does Congress agree with that reading of its intent?

    Sherr: Yes, they haven’t acted quite yet, but it was in the HEROES bill [Health and Economic Recovery Omnibus Emergency Solutions Act, H.R. 6800]; the bill that House Democrats passed for the next round of stimulus did include deductibility for PPP expenses. Expenses that you use your loan forgiveness for would be deductible under the House-passed Democratic bill. Both their bigger bill and their skinnier version had that in it, so we’re happy to see that it was in what passed the House, and also there is bipartisan support in the Congress for this. There’s three bills that are out there: S. 3612, H.R. 6821, and H.R. 6754. All would allow deductibility for the expenses that you are getting PPP loan forgiveness for, as well.

    Bonner: And I believe that the AICPA is asking all of its members to write to their congresspersons, and that everybody should do this to try to get Congress to express this through legislation and make it clear that these expenses are deductible, is that correct?

    Sherr: That is correct; yes, we are sending — I think today, actually — we are sending something out to the AICPA membership urging everybody to contact their member of Congress about it. We’re hoping that in the lame duck session that they can move forward with it.

    Bonner: Now, I imagine that the lame duck session has lots of competing priorities of things they could be taking up. Is it really likely to expect to see movement on these proposals, and if they don’t get to it before adjournment, will it be moot next year?

    Sherr: Yes, we do not have much time left. We have about, probably, three weeks after they come back after Thanksgiving to deal with any legislation. The defense authorization bill has to go through. The funding for the government ends Dec. 11 unless they pass a continuing resolution or appropriations bills, or both. So, that’s going to be a priority, and then we’re really hoping that they do take up some more coronavirus pandemic relief. I know the state governments would like them to include something in there and lots of other provisions, and we are really hopeful and trying to work it that this would be included in such a package. If they can negotiate — and obviously, getting anything through Congress is challenging, especially in a few weeks. But they seem to like deadlines, so we’re hopeful that before they adjourn that they would include this in the bill that would include some pandemic relief.

    Bonner: I have to imagine there will be at least an attempt for another relief bill, right?

    Sherr: Yes, definitely. We are hopeful. The House has passed it; they’re really trying to move forward with it. I think it’s just some sticking points on the amount and how generous the bill will be. We’ll see.

    Bonner: You mentioned the skinny HEROES Act; I heard mention the other day of the skinny HEALS [Health, Economic Assistance, Liability Protection and Schools Act], and I had to think about what that meant.

    Sherr: Yes. The HEALS is the Senate Republican bill, and the HEROES is the House Democrat proposal, and they just need to come together on some things.

    Bonner: Right, they’re just skinny in different ways, aren’t they?

    Sherr: They always start with the biggest, the best offer, and then they kind of negotiate down. It’s just the negotiation versions.

    Bonner: Right, and then the two chambers have to negotiate with each other, I suppose.

    Sherr: Yes, to get a conference agreement.

    Bonner: Yeah. So, we could see perhaps one of these bills you mentioned passing, and we could see further aid similar to the PPP program or maybe even an extension of it for more new loans. I don’t think they spent all their authorized money in the first place, right?

    Sherr: Right. But we’re hopeful that there will be some more PPP, a phase 2 of the PPP loans, and as more businesses need more help, they would offer it. And that they would add in some more simplified processes for getting the forgiveness, and they would add in 501(c)(6) organizations into the PPP — that would help with state [CPA] societies. And also that maybe they would have a simplified process for getting the forgiveness; I think right now they have $50,000 [maximum eligible loan amount], and I think they’re talking about a $150,000 possibility for the simplified process. Those are all things that are being considered.

    Bonner: I looked the other day when you mentioned the 501(c)(6) organizations; I thought, how many are there? There are 29 of them; did you know that? Twenty-nine paragraphs under Sec. 501(c), and I imagine all of them would like to be able to participate in PPP. I think it’s the 501(c)(3)s, primarily, right now.

    Sherr: We’re looking at the (c)(6)s in particular; that would help state societies.

    Bonner: Those are business leagues and similar organizations, trade organizations, I think.

    Sherr: Yes.

    Bonner: Now, it’s been hypothesized until fairly recently, what happens for this PPP loan forgiveness and deductibility of expenses where you have a PPP loan granted in 2020, and Dec. 31 comes, and it’s not forgiven. But then later, in 2021, the same loan is forgiven. Maybe the taxpayer has already deducted those expenses, since one tax year stands on its own, doesn’t it? What happens then?

    Sherr: Well, the IRS just came out last week — I think it was Wednesday night at 7 p.m. — they came out with two releases, IRS Rev. Rul. 2020-27, and IRS Rev. Proc. 2020-51. Rev. Rul. 2020-27 says that if there’s a reasonable expectation of forgiveness, you are not allowed to deduct it, even if you have not yet submitted your loan forgiveness application or you have not yet received approval of your forgiveness application by the end of the taxable year. So, if you’re planning to apply for forgiveness, you are not allowed to deduct it, according to IRS.

    Bonner: “If you’re planning to apply for forgiveness,” you say. Well, I can plan to do a lot of things and they might not come to pass, right? I could make a mistake on my forgiveness application, couldn’t I, that would be fatal to that application. I could realize that I was never authorized to apply for forgiveness for one reason or another. Anything could happen that would wreck that reasonable expectation. What would the IRS do in that instance?

    Sherr: That’s why they have Rev. Proc. 2020-51, which gives a safe harbor. It says that if some or all of the loan is not forgiven, then you can deduct those expenses up to the principal amount that is not forgiven. And you can deduct it either on the original 2020 return — so if you find out before you file your 2020 return, then you can deduct it right then and there, or you can amend, if you find out after you’ve already filed that you do not get the forgiveness, then you can amend your 2020 return and deduct those expenses, up to the amount that was not forgiven. Or, in 2021 you can take those business expenses and deduct them. And when you’re filing those returns, you need to include a Rev. Proc. 2020-51 statement that gives some information about the loan.

    Bonner: I see. You know, it reminds me of certain situations where the one-tax-year-standing-on-its-own principle comes into play, and that is when one had a reasonable expectation. We see this all the time in disaster loss deductions, for example, when you no longer had a reasonable expectation of repayment through insurance or otherwise, for example. I imagine it could happen the IRS would raise the issue of when you had a reasonable expectation. If it wasn’t until after the end of 2020, is the safe harbor still available? It looks like a problem to me.

    Sherr: I think it is, I think the safe harbor’s there for when you find out about your forgiveness. If you find out you did not get the forgiveness, then they’re allowing you to take it and to amend returns. I think the best advice for people is to wait and see what Congress does and if it does allow the deductibility. Wait till March and April next year, so you have a few more months to think about things and see what Congress does before you decide if you’re going to deduct it or not. Also, by then you will, hopefully, have received your forgiveness, and, hopefully, SBA will have confirmed that you have gotten the forgiveness. I would just say, put things off as long as you can, till we know the lay of the land with deductibility, with Congress providing it, or if you find out about your forgiveness from SBA.

    Bonner: Yes, we do have some time before 2020 returns are due, I suppose.

    But there’s going to be a lot changed in the years ahead, aren’t there, not just 2021, but with a new administration — God and the Electoral College willing — a lot could be different, too. And not only businesses but individuals, estates and trusts, corporations, everybody has to think about how tax policy might change going forward. And there could be new legislation. I’ve heard some talk already of harvesting capital gains in 2020 to take advantage of the rates now, versus what they might be next year or later. How do you assess — what’s in your crystal ball right now?

    Sherr: Obviously, with a new administration, we always get new proposals. Usually around February, the administration releases their budget proposals, and that’s going to be the beginning of what the new administration would like to see for revenue for the year and for different budget things. And usually, for tax provisions that are proposed, we’ll find out more details then. Right now, we just are working off what was in the campaign and various different proposals there. It’s possible that things could change, especially with the virus and having to fund different things; we’ll have to see. It’s possible the corporate tax rate could change from 21% to 28%. I also want to mention that the TCJA [the law known as the Tax Cuts and Jobs Act, P.L. 115-97] provisions, a lot of them, the individual ones, will expire at the end of 2025, so things will change at that point unless Congress acts. So we’ll have to watch that.

    Going back to the administration proposals, there was also a 21% minimum tax on all foreign earnings of U.S. companies that’s been proposed and a tax penalty for companies who shift jobs overseas. There’s been talk of a 15% minimum tax on book income, but we really don’t know the details on that. There’s been talk of — basically only the high-income individuals, and what they defined during the campaign as $400,000 or more, so it really just affects the really high-income people — would see the marginal tax rate go up to 39.6%, like what we had under prior administrations. The individual capital gains rate would increase for those over $1 million. They’re really just trying to target the high-income individuals.

    There are some tax cuts that we’ve heard about as well, that there would be increased tax credits to afford health insurance, there would be an increased child care tax credit, and then an increased child tax credit, and then a $15,000 first-time homebuyer’s credit. So, there’s some good and some bad that’s been suggested.

    There may be an elimination of like-kind exchanges — that’s been proposed — and reducing the GILTI [global intangible low-taxed income] deduction from 50% to 25% of the income. So those are some things that have been out there listed. Also, treating capital gains as normal income for investors, again, over $1 million. So, that would be changing that for the millionaires. And a Social Security payroll tax for income over $400,000, and I think that’s been called a doughnut. Basically, right now, Social Security taxes go up to $137,500, I think [$137,700 for 2020 and $142,800 for 2021], and then there wouldn’t be any tax until $400,000, and they would start taxing again over $400,000.

    Bonner: My goodness. That would be a lot. You know, 2017 was billed as an epochal tax reform, and it boggles the imagination to have another one so soon.

    Sherr: We’ll have to see. With the Senate race, we’ll have to see what happens in early January with the Georgia runoffs there, and that’s really going to depend on whether anything’s going to move or not this year, whether it could be gridlock again or if there will be legislation. Stay tuned.

    Bonner: All right, we’ll stay tuned for that. And meanwhile, if you’re an AICPA member, you would tell them what?

    Sherr: Basically, listen to our updates, and we’ll keep you advised on what’s going on, what’s being proposed, and the AICPA Tax Section will be definitely giving out updates as things happen. And our AICPA Tax Policy and Advocacy group will be advocating on these issues. We have various committees and technical resource panels that will be studying and analyzing these proposals, and we’ll be commenting and giving insight to Congress on them.

    Bonner: OK. Well, thank you very much, Eileen, and we’ll talk again soon, I’m sure.

    Sherr: Definitely; nice talking to you, Paul.


  • 12/10/2020 8:51 AM | Anonymous member (Administrator)

    December 9, 2020

    By Ken Tysiac

    Operational changes, remote procedures, and new risks associated with the coronavirus pandemic have made the audit environment much different than it was in the days before COVID-19.

    George Botic, director of the PCAOB’s Division of Registrations and Inspections, provided observations on the new environment Wednesday during the AICPA Conference on Current SEC and PCAOB Developments.

    He addressed audit best practices, common and recurring deficiencies identified in PCAOB inspections, reminders related to the pandemic, and other issues.

    Key audit takeaways during COVID-19

    Certain firms modified their internal monitoring programs to target specific engagements in industries more likely to be affected by COVID, Botic said.

    He said firms also emphasized the importance of consultation and in some cases established supplemental consultation requirements for issues including receipt of government assistance, changes to materiality assessments, market changes impacting accounting, and going concern considerations.

    The remote environment brought about big changes in inventory observations, with mobile devices and applications used in the process.

    “Using real-time video streaming, an engagement team verified the inventory location from its prior knowledge of the facility, had company personnel walk the floor, directed the selection of test counts, and performed the procedures otherwise completed in person using mobile devices,” Botic said. “I will add [that] for virtual inventory, be mindful of the need for portable power banks for the devices and ensure that connectivity is available throughout and around the entire facility.”

    Common deficiencies

    The most common deficiencies identified in PCAOB inspections included areas that have been challenges for auditors in the past:

    • Auditing revenue. The design and performance of audit procedures to address assessed risk of material misstatement related to revenue was a common challenge for practitioners.
    • Auditing accounting estimates. “We continue to identify deficiencies related to auditing estimates, particularly in the area of the allowance for loan loss and estimates used in the accounting for business combinations,” Botic said. “Auditors need to identify and understand the significant assumptions used by the company that are susceptible to manipulation or bias.”
    • Internal control over financial reporting (ICFR). Deficiencies in ICFR continue to include insufficient evaluation of whether controls with a review element selected for testing operate at a level of precision that would prevent the detection of a material misstatement, Botic said. “Auditors also did not identify or test controls that sufficiently addressed the risk of material misstatement related to relevant assertions of significant accounts,” he said. “An example would be multiple revenue streams and not testing controls over the significant revenue streams.”

    Independence remains a concern

    Auditor independence is foundational for high quality, Botic said.

    “Auditors are required to be independent of their audit clients both in fact and in appearance,” he said. “We continue to identify deficiencies that suggest that some firms may not have appropriate quality control systems in place to prevent violations of SEC and/or PCAOB independence rules.”

    He said PCAOB inspections focus primarily on four areas related to independence. Inspectors:

    • Analyze firm-identified violations of independence rules for possible quality control concerns.
    • Evaluate compliance with the independence pre-approval rules for significant nonaudit services.
    • Review firms’ communications with audit committees concerning independence matters.
    • Review the firm’s responses to past inspection quality control concerns. For example, he said, inspectors would review high rates of exceptions noted by the firm’s personal independence compliance testing.

    Best practices observed

    The PCAOB has noted some good practices developed by firms in their continuing quest to improve audit quality:

    • Some firms have created narratives of their own quality control systems and prepared process flow maps linked to quality objectives and controls, Botic said. “These facilitated the monitoring of engagement performance and enhanced the effectiveness of the firms’ root-cause analysis,” Botic said.
    • Certain firms have implemented interactive engagement team meetings often tied to particular audit milestones or phases. Coaching workshops among engagement team members also have been implemented, Botic said.
    • Partner involvement has been increased at some firms during the planning of tests of controls.

    “All these good practices should of course be adjusted for the size of the firm and the size and nature of the engagement,” Botic said.

    Emphasis on fraud

    New fraud risks have emerged as a result of the pandemic.

    Auditors may need to revisit their initial assessment of risks and modify planned procedures accordingly as circumstances evolve, Botic said. He encouraged engagement teams to consider procedures in areas that may be more susceptible to fraud.

    Examples of those areas include:

    • Estimates or valuations that are largely based on forecasts of future events, particularly given uncertainties in information.
    • Management override of ICFR in areas where there have been staff changes, staff downsizing, reporting structure changes, or any change that will impact segregation of duties.

    Final takeaways

    Botic highlighted five takeaways that practitioners should keep in mind as they work toward performing high-quality audits:

    • Care and skepticism. Exercising due professional care and professional skepticism remains important in all aspects of audit work. “While due professional care and professional skepticism should be applied at all times, the disruption resulting from COVID surges reminds of their continued importance,” Botic said.
    • Risk assessment, understanding client. Performing robust risk assessment procedures and understanding the client’s business is as important as ever. This includes understanding the impact of known and/or potential changes due to COVID-19 and other economic challenges. “Auditors should revisit their initial assessment of risk and modify planned procedures as circumstances evolve,” Botic said.
    • Renewed focus on fraud procedures. Botic encouraged auditors to incorporate unpredictability in the audit that is new and different year over year. “The auditor should guard against procedures that become all too predictable,” Botic said.
    • Materiality. Botic said auditors should establish a materiality level for the financial statements taken as a whole that is appropriate in light of the circumstances. “Economic challenges may cause the need for the auditor to reevaluate established materiality levels,” he said.
    • Supervision. “Given the likelihood of the need for the auditor to evaluate significant assumptions and judgments, audit engagement teams should consider the need for increased involvement of partners and other senior members of the engagement team in these areas,” Botic said.


  • 11/25/2020 9:23 AM | Anonymous member (Administrator)

    Nov 24, 2020

    Posted by AICPA Communications

    Shutterstock_488784811

    For me, Thanksgiving has historically been an endurance sport. I’ve repeatedly proven to myself that if I can only survive my family’s barrage of questions regarding my singlehood, if I can simply feign an interest in football, if I can laugh off an inebriated uncle’s inappropriate limericks while covering the ears of my innocent siblings, then I will be rewarded with hours of judgment-free gluttony. Turkey with gravy and stuffing. Warm biscuits — split, buttered and steaming. Multiple unnecessary versions of the ever-ubiquitous green bean casserole. Tomato aspic, ostracized and jiggling in a darkened corner of a makeshift buffet table. And pies. Pecan pies. Pumpkin pies. Chocolate chess pies. The delicious bounty makes the familial challenges worth it all.

    But this Thanksgiving is different. For many like myself, instead of the bounty and the family, there’ll merely be isolation.

    So, in a doldrum, I did what any sane person would do: I called my CPA.

    CPAs, after all, have an earned reputation for telling it how it is. For not mincing words. It’s an occupational advantage. Equivocating on the facts, after all, could mean a client’s business folding, a company may not properly address essential cybersecurity risks, a tax client getting a much-dreaded letter from the IRS, a startup’s intellectual properties being undervalued or overvalued… and so on.

    I expected to have a partner in sadness — a misery-loves-company companion. Instead, I got a quick rebuke. My CPA reminded me that, regardless of current realities, there’s much for which to be thankful.

    I’ve discovered that those in her profession mostly share her sentiment. In a recent AICPA Update Weekly Weigh-in poll, AICPA members were asked to state, in a few words, what they were most thankful for this year. Many answered, and the results showed that accounting and finance professionals aren’t so quick to let current events diminish their gratitude.

    Blog
    Heather Meier, CPA, is one example. Like many in the profession, she began her career at a public accounting firm. She’s since worked in accounting for various higher-education institutions such as Villanova University and now manages five teams at Montgomery County Community College. She can see “MontCo” from her home office. During the pandemic, her convenient commute across the street became even more convenient — at least physically. Now, she walks from one room to the next.

    She admits to missing the clatter and chatter of formerly busy hallways, hallways she’s proud to say are bustling with diversity, from first-generation college students to older women pursuing fresh starts and new careers.

    There’s a wistful tinge in her voice when we speak, but there’s also plenty of hope. When asked what she’s most thankful for this year, she’s quick to point out what may not have been obvious a year ago: “Accounting can be done anywhere.” For Heather, this flexibility has translated to job security. She admits that there has been a lot of adjusting. She and her teams have had to create new processes for collaborating virtually. It’s involved plenty of mental and procedural agility: scrapping what doesn’t work; keeping what does; and keeping a team of remote workers engaged, committed and connected. Ultimately, they’ve discovered that many virtual processes are more efficient than their traditional, more manual counterparts. She and her teams have also learned that by creating a sunshine fund for birthday cards, holding virtual coffee breaks in the morning and partaking in virtual happy hours in the evening, the distance between doesn’t seem as vast.  

    Heather is also thankful for this year’s many challenges. She states that the influx of federal dollars and resulting compliance with Paycheck Protection Program and CARES Act requirements have thrust her into a tighter-knitted knowledge-sharing network of accountants across her state’s community college system. “Things are changing so quickly. I don’t even think the government even knows all the rules,” she says. That makes this network irreplaceable. She’s also dealing more with small details, partnering with academic departments in her institution on best ways to save and leverage funds and even helping the culinary arts director get creative with sourcing chickens.

    Bill Wood, CPA, also works in education, heading finance for Concordia University Wisconsin. Like Heather, he misses the face-to-face energy that comes with working with and among students. He leads a currently shorthanded finance team. His biggest pandemic-related challenge has been finding and onboarding talent. Yet, despite having fewer people on staff, Bill has recently undergone probably the most seamless audit of his experience. After 17 years with the same auditing firm, the University decided to make a switch, and he’s incredibly thankful for that decision. While many organizations are opting to delay audits during the pandemic, his university’s audit was done ahead of schedule with few, if any, hiccups.

    Michael Murray, Director of Finance at the Harrisburg Symphony Orchestra, was also surprised with the ease and seamless level of service of his annual audit. He attributes this largely (and with gratitude) to the availability and affordability of technology such as Zoom and Microsoft Teams, which for nonprofits such as his are free — or close to it. Before the pandemic, Michael led his organization through a thorough digital transformation. For obvious reasons, the digitizing process then has proven serendipitous now. “[COVID-19] drove a lot of this forward, and it’s going to stay in that forward position when all this is over,” he says.

    Thank you

    Jean-Luc Bourdon, CPA/PFS, is most thankful this year for his clients. The relationships he forges in the personal financial planning process are truly reciprocal: he helps those he serves secure their dreams and futures and, in return, he enjoys indescribable feelings of fulfillment. He’s even been able to help estranged family members set aside their differences and come together again at long last. He cherishes these memories and achievements, keeping a drawer full of thank-you cards in his office as a reminder of the impact he’s made in others’ lives.

    So, despite the pandemic, , social unrest, hurricanes, wildfires, UFOs and — yes — murder hornets, plenty of CPAs (and those they serve) don’t view 2020 as a dystopia but as a year of challenges that can serve to highlight all we have to be thankful for.

    For more heartfelt messages of gratitude, be sure to check out this amazing ThisWayToCPA Instagram story, and — above all — have a wonderful Thanksgiving. You’ve earned it.


  • 11/11/2020 1:59 PM | Anonymous member (Administrator)

    November 1, 2020

    By Cheryl Meyer

    Years ago the small firm of DeLeon & Stang, based in Gaithersburg, Md., took a halfhearted approach to continuing professional education (CPE). "We'd figure out what class was out there, and try to go to it in the least expensive way possible," Richard Stang, CPA/ABV/PFS, one of the firm's founding partners, acknowledged.

    Today, though, Stang's firm, now with 45 employees and growing, is more proactive in its approach to CPE. Firm leaders realized that its staff is its greatest asset and that, in the current environment of rapid change and new information, learning is all-important. DeLeon & Stang now offers staff educational opportunities that include lunch-and-learn training, in-person webinars, and self-study choices, along with CPE options.

    The firm also creates work plans for employees, assessing their goals, strengths, and weaknesses, before it determines the best CPE options.

    "We are trying to make our work plans custom for each staff member," Stang said. "For instance, one member of our tax team may need specific technical training, while another member may need more training on soft skills to help them be better with client interviews."

    CPE training has taken a drastic shift recently due to the COVID-19 pandemic. Most opportunities for in-person CPE no longer exist, and firms have had to "pivot to virtual and online training," said Tom Hood, CPA/CITP, CGMA, the CEO of the Maryland Association of CPAs (MACPA) and the Business Learning Institute. CPE providers and firms have had to experiment and try new approaches, he said. For instance, the AICPA converted many conferences, including the multi-track ENGAGE conference, to an online-only format. “We had to move quickly to transition our conferences to virtual-only events,” said Todd Helton, senior director for meetings and conferences at AICPA. “Similarly, firms and individuals have adapted quickly to maximize the education and networking opportunities still available with virtual events and have embraced them as their primary learning options this year.”

    The shift to online professional education is why, Hood said, it's important for firms to make formal plans for directing staff to the most appropriate CPE. "The need for new skills and the advent of new ways they are available online make CPE easier to incorporate into staff development plans for busy professionals," he noted. "This increases the likelihood that staff will take the courses and offers the ability to 'rewind and review' key concepts for deeper learning."

    "Smart firms," he said, "are working on a structured curriculum and learning approach to accommodate the upskilling and reskilling necessary" for success.

    WHY FIRMS NEED TO HAVE FORMAL PROCESSES FOR GETTING STAFF THE RIGHT CPE

    Many firms don't have set processes in place to address CPE, said Edward Mendlowitz, CPA/ABV/PFS, an emeritus partner at WithumSmith+Brown PC in East Brunswick, N.J., and an active CPE instructor.

    This lack of structure can mean firms aren't getting the full benefit of CPE. Without formal programs or processes to lead staff to the right CPE, firms may end up "not sending people to the right programs," Mendlowitz said, and employees may not put what they've learned into practice in the workplace. Firms also don't get a clear picture of how their CPE money is being spent, said Tracy White, chief human resources officer at Clark Nuber PS, a 220-person firm in Bellevue, Wash.

    Many firms allow employees to determine which CPE they take and how much. Though this approach gives staff greater freedom, it can also lead to missed opportunities. When staff aren't given any guidance as to what CPE they should take, they may fail to challenge themselves enough, wait until the last minute to take CPE and, as a result, limit their choices, or choose CPE options that don't necessarily align with the firm's needs, Stang said.

    What's more, most people don't know what their "blind spots" are and, thus, might not know what CPE can be of most use to them, said Melisa Galasso, CPA, founder and CEO of Galasso Learning Solutions LLC, a CPE training firm in Charlotte, N.C.

    HOW TO CREATE A CPE PLAN FOR YOUR FIRM

    Creating a process or plan to get staff the right CPE can benefit both them and the firm. Here are steps firm leaders can take to do so:

    Outline your firm's vision and strategy

    Each firm has a different mission, so it's imperative to determine where you want to go before creating a CPE plan. "Start with your goals," advised J. Michael Inzina, CPA, CGMA, founder and CEO of Audit, Litigation, Training and Efficiency Consulting Inc., a Monroe, La., consulting firm that serves public accounting firms in the areas of CPE, ethics, and more. "Think about where you want to be five to 10 years from now," he said.

    Then, brainstorm about the competencies, knowledge, and skills it will take to help you reach those goals. Ask yourself what clients need from you as a firm and which "knowledge capabilities you need to serve them and help them to grow their businesses," said CPE trainer Jon Lokhorst, CPA, founder of Lokhorst Consulting LLC in Andover, Minn. Then, you'll be in a better position to know what CPE your staff needs.

    Specify what skills are needed at each stage of an employee's career path

    To pair CPE to the needs of staff members at different stages in their careers, White suggested creating an "expectations grid": a listing of core competencies for each employee level in the firm and which skills are expected at each level. Define key job functions, such as associate, senior, supervisor, and partner, and outline what employees at each level need to know and when.

    One way to start creating an expectations grid is by modeling it after the PCPS Firm Competency Model or the AICPA Core Competency Frameworks in areas such as tax and audit, she said, then "aligning it to your mission and needs." Some state societies also offer sample curricula for staff at different levels and areas such as audit and tax.

    Map specific CPE to skills gaps or areas where staff want to grow

    Ask yourself these questions: What does each employee need to not only meet their CPE requirements but to also grow professionally? Where are the skills gaps? What type of training will help each employee and your firm? "Prioritize the skills you need that will make the most difference," Hood said. Then, research where each person can get the best CPE training to enhance those skills and knowledge. In addition, said Galasso, include some customized training for the specific industry or industries you serve.

    Create personalized plans for each staff member

    Employees should be involved in planning their CPE but should do so "collaboratively with firm leadership," Lokhorst said. "That ensures a balance between the employees' interest and the business needs of the firm."

    Give each staff member some "measure of choice" regarding their CPE training, he said. Ask them about their interests, aspirations, and preferred learning styles, and whether they prefer daylong training or shorter increments such as webinars and nano-learning.

    Not all staff members will aspire to become partners, Lokhorst said, but they should all have access to training. "The same planning and effort should be made to set all staff up for success at whatever level they desire," he said.

    Create an annual growth plan for each person, with their help, and then meet with them about it quarterly, Stang said. The PCPS Firm inMotion Staff Assessment and Career Development Plan (AICPA Private Companies Practice Section (PCPS) member login required) outlines a process and guidelines for creating employee development plans.

    Integrate CPE with career and performance management systems

    When creating annual growth plans for employees, make sure you tie any plans in with your firm's career and performance management systems. "It's always important to provide education and specialized training based on employees' career goals as part of their annual review," White said. "This supports employees to enhance their skill sets and improve their technical or soft skills." It can also help firms create budgets for continuing education, she said.

    Incorporate nontechnical skills

    Alongside technical skills, CPAs need leadership, communication, strategic, and critical-thinking skills. The MACPA calls these "success skills" rather than soft skills "because there is nothing soft about them," Hood said. "CPE has to incorporate all of those things. If you don't invest in some of these higher-level skills, when you need them, it will be too late."

    Require follow-up

    Once a CPE program is completed, ask attendees: "What were your top three takeaways, and how do you plan to integrate what you learned into your daily work?" White suggested. You can also stipulate that employees present a short summary on what they learned, often to a small group over lunch. This also enhances their presentation skills.


  • 11/03/2020 10:54 AM | Anonymous member (Administrator)
    November 1, 2020
    By Ken Tysiac

    The coronavirus pandemic has led to numerous financial reporting challenges for CPAs that didn't seem to have easy answers in U.S. GAAP.

    Although the foundational rules for U.S. financial reporting were designed to be applied across a wide range of occurrences, it would have been difficult for any standard setter to envision the number of lease concessions caused by the pandemic or the intricacies and often-changing rules associated with Paycheck Protection Program (PPP) loans.

    Through various means that have included FASB staff Q&As, AICPA Technical Questions and Answers, and a GASB technical bulletin, standard setters and experts have developed guidance designed to help CPAs and others navigate the accounting challenges posed by the pandemic. In some cases, effective dates were changed as well (see the sidebar, "Virus Leads to Effective Date Changes").

    As the fiscal year end approaches for companies that are on a calendar-year reporting schedule, here are answers to some of the year's most challenging pandemic-related financial reporting questions. (Unless otherwise noted, the text refers to for-profit and not-for-profit entities.)

    LEASE CONCESSIONS

    A FASB staff Q&A stated that for lease concessions related to the effects of the pandemic, it is not necessary for a lessor or lessee to analyze each contract to determine whether enforceable rights and obligations exist in the contract. Therefore, the lessor or lessee can elect to apply or not to apply the lease modification guidance in FASB ASC Topic 842, Leases, and Topic 840, Leases, to those contracts. This election is available for pandemic-related concessions that don't result in a substantial increase in the rights of the lessor or the obligations of the lessee.

    When a deferral affects the timing of the contract but the amount of the consideration is substantially the same, FASB's staff expects there will be multiple ways to account for those deferrals, none of which the staff believes are preferable to the others. Those methods include:

    • Accounting for the concessions as if no changes to the lease contract were made. In that case, a lessor would increase its lease receivable, and a lessee would increase its accounts payable as receivables/payments accrue. In its income statement, a lessor would continue to recognize income, and a lessee would continue to recognize expense during the deferral period.
    • Accounting for the deferred payments as variable lease payments.

    FASB's staff explained that an entity is not required to choose the same election for all of its lease concessions related to the effects of the pandemic. In other words, some lease concessions may be accounted for as if the enforceable rights and obligations to those concessions existed in the original contract, while other lease concessions may be accounted for in accordance with the lease modification guidance in Topics 842 and 840. But the staff cautioned that Topic 842 should be applied consistently to leases with similar characteristics and in similar circumstances, in accordance with Paragraph 842-10-10-1.

    The FASB staff also stated that lessors should provide disclosures about material concessions granted and that lessees should disclose material concessions received. The accounting effects of those disclosures should also be disclosed, FASB's staff said. More information is available at fasb.org.

    PPP BORROWER ACCOUNTING

    Nongovernmental entities may account for a PPP loan as a financial liability in accordance with Topic 470, Debt, and accrue interest in accordance with the interest method under Subtopic 835-30, according to AICPA Technical Question and Answer Section 3200.18.

    The TQA addresses accounting for nongovernmental entities only, which include business entities and not-for-profit entities (NFPs).

    The TQA explains that an entity accounting for the PPP loan under Topic 470:

    • Would initially record the cash inflow from the PPP loan as a financial liability and would accrue interest in accordance with the interest method under Subtopic 835-30.
    • Would not impute additional interest at a market rate.
    • Would continue to record the proceeds from the loan as a liability until either (1) the loan is partly or wholly forgiven and the debtor has been legally released or (2) the debtor pays off the loan.
    • Would reduce the liability by the amount forgiven and record a gain on extinguishment once the loan is partly or wholly forgiven and legal release is received.

    According to the TQA, if a nongovernmental entity that is not an NFP (that is, it is a business entity) expects to meet the PPP's eligibility criteria and concludes that the PPP loan represents, in substance, a grant that is expected to be forgiven, it may analogize to International Accounting Standard (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance, to account for the PPP loan. An entity accounting by analogy to IAS 20 would not be able to recognize government assistance until there is reasonable assurance that any conditions attached to the assistance will be met and the assistance will be received.

    Once there is reasonable assurance that the conditions will be met, the earnings impact of the government grants would be recorded on a systematic basis over the periods in which the entity recognizes as expenses the related costs for which the grants are intended to compensate.

    The TQA also states that in situations in which the PPP's eligibility and loan forgiveness criteria are expected to be met:

    • A business entity can also analogize to the guidance in Subtopic 958-605 or Subtopic 450-30.
    • An NFP should account for such PPP loans in accordance with Subtopic 958-605 as a conditional contribution.

    More information is available at aicpa.org.

    LENDER ACCOUNTING

    Lenders have encountered numerous issues as a result of the financial upheaval caused by the pandemic. In a series of TQAs, the AICPA provided advice on the following issues:

    Loan restructurings resulting in periods with reduced payments

    When a loan is restructured by a creditor, and the restructured loan is neither a troubled debt restructuring nor required to be accounted for as a new loan, a creditor should determine a new effective interest rate in accordance with the interest method, as described in Subtopic 310-20. More information is available at aicpa.org.

    Accounting for the forgivable portion of a PPP loan

    The AICPA believes that payments received from the U.S. Small Business Administration (SBA) should be accounted for similarly to payments received from the borrower. When full or partial payment is received from the borrower or the SBA before the loan matures, amounts received should be accounted for as a prepayment. More information is available at aicpa.org.

    Classification of advances under the PPP

    An advance under the PPP should be accounted for as a loan. More information is available for this topic and the next two at aicpa.org.

    Consideration of SBA guarantee under the PPP

    SBA guarantees would be considered as embedded guarantees for all lenders. For lenders that have adopted FASB's new credit losses standard, ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, the guarantee from the SBA would not meet the definition of a freestanding contract and therefore would be considered to be embedded.

    Accounting for the loan origination fee received from the SBA

    The AICPA believes the clawback provisions related to PPP loans would not cause this fee to be considered refundable. As a result, the fee would be subject to Subtopic 310-20.

    Troubled debt restructuring suspension

    Meanwhile, banks may elect to account and report for loans modified under Section 4013 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, according to a statement released by a consortium of regulators in April. Section 4013 permits banks to suspend U.S. GAAP troubled debt restructuring accounting requirements for loans restructured as a result of the pandemic between March 1 and Dec. 31 of this year. More information is available at occ.gov and congress.gov.

    GOVERNMENT ACCOUNTING

    GASB addressed a number of important state and local government accounting issues in Technical Bulletin 2020-1:

    Coronavirus Relief Fund payments

    Recipients should recognize resources received from the Coronavirus Relief Fund as liabilities until the applicable eligibility requirements are met, including the incurrence of eligible expenditures. When the recipient government has met the eligibility requirements established in the CARES Act, that government should recognize revenue for Coronavirus Relief Fund resources received.

    Federal assistance and revenue recognition

    CARES Act resources, such as Provider Relief Fund payments, that were provided to address a government's loss of revenue due to the pandemic are contingent upon an eligibility requirement, as provided in Paragraph 20d of GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions. Resources received from CARES Act programs that specifically include an eligibility requirement for loss of revenue should be recognized as revenue when the government meets the action-based eligibility requirement.

    Treatment of forgivable PPP loans

    If a not-for-profit entity that meets the definition of a government determines that its PPP loan will be forgiven in a subsequent reporting period, Paragraph 12 of GASB Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees, still requires the governmental entity to continue to report the loan as a liability until that entity is legally released from the debt.

    CARES Act resources and nonoperating revenues

    CARES Act resources provided through the Provider Relief Fund, the Higher Education Emergency Relief Fund, the CARES Act Airport Grants, the Formula Grants for Rural Areas, and Urbanized Area Formula Grants to a business-type activity or enterprise fund are considered subsidies and, except for resources provided to governments through the Provider Relief Fund's Uninsured Program, should be reported as nonoperating revenue.

    No extraordinary or special items

    Outflows of resources incurred in response to the pandemic, such as actions taken to slow the spread of the virus or implementation of stay-at-home orders, should not be reported as extraordinary or special items.

    More information on GASB Technical Bulletin No. 2020-1 is available at gasb.org.

    HEDGE ACCOUNTING

    The effects of the pandemic may be considered rare cases caused by extenuating circumstances outside the control of an entity, according to a FASB staff Q&A. Therefore, the staff believes that an entity may apply the exception in Paragraph 815-30-40-4 for such rare cases. The determination will require judgment based on facts and circumstances.

    FASB's staff says that when applying the exception, an entity should consider whether the forecasted transaction remains probable over a period that is reasonable given the nature of the entity's business, the nature of the forecasted transaction, and the magnitude of the disruption to the entity's business related to the effects of the pandemic. If an entity determines that it is no longer probable that the forecasted transaction will occur within that reasonable period beyond the additional two-month period, that exception would not apply.

    FASB's staff also believes that it would be acceptable for an entity to determine that missed forecasts related to the effects of the pandemic need not be considered when determining whether the entity has exhibited a pattern of missing forecasts.

    More information is available at fasb.org.

    HEALTH CARE ENTITIES

    Provider Relief Fund payments to not-for-profit health care entities would be accounted for as nonexchange transactions in accordance with Subtopic 958-605, according to an AICPA TQA issued for health care entities.

    Contribution revenue would be recognized only to the extent that health-care-related expenses or lost revenues have been incurred at that date that will not be reimbursed from other sources. NFP health care entities will need to evaluate their individual facts and circumstances to determine the extent to which conditions have been met at a given reporting date. Payment amounts received that exceed recognizable contribution revenue are reported as a refundable advance (i.e., a liability).

    Because the general distribution payments can be used only for pandemic-related expenses, they would be considered donor-restricted.

    For-profit health care entities also would account for Provider Relief Fund payments as nonexchange transactions, the TQA states. But U.S. GAAP doesn't contain explicit guidance on the accounting for government grants to business entities. Therefore, for-profit health care entities may consider analogizing to guidance in IAS 20, Subtopic 958-605, or Subtopic 450-30.

    More information is available at aicpa.org.

    CHALLENGES REMAIN

    As the pandemic continues, additional financial reporting challenges seem likely to arise. It's possible that new government aid programs with new mechanisms and rules will need to be deciphered from an accounting standpoint, and organizations may have to adopt new strategies to protect their cash flows.

    Keeping a watchful eye for additional guidance on common accounting issues can help financial statement preparers continue to arrive at the right answers as they strive to accurately tell their organizations' stories during these difficult times.

    Virus leads to effective date changes

    As the pandemic caused a need for new accounting treatments, standard setters recognized a need for the effective dates of new standards to be delayed.

    FASB delayed the effective dates for the new revenue recognition and lease accounting standards for certain preparers that haven't yet adopted them. The board also proposed delaying the effective date for its long-duration insurance contract standard.

    For more information, visit fasb.org/COVID19.

    GASB postponed the effective dates for numerous new standards and implementation guides, including high-profile standards on fiduciary activities (Statement No. 84) and lease accounting (Statement No. 87). For more information, visit gasb.org.


  • 10/27/2020 2:35 PM | Anonymous member (Administrator)

    October 26, 2020

    By Sally P. Schreiber, J.D.

    The IRS on Monday issued the 2021 annual inflation adjustments for many tax provisions, as well as the 2021 tax rate tables for individuals and estates and trusts (Rev. Proc. 2020-45). These adjusted amounts will be used to prepare tax year 2021 returns in 2022.

    Many amounts will increase for inflation in 2021. The standard deduction will increase to $25,100 for married individuals filing joint returns or surviving spouses, $18,800 for heads of household, and $12,550 for unmarried individuals (other than surviving spouses) and married individuals filing separate returns.

    The maximum amount of the earned income tax credit (for taxpayers with three or more children) will increase to $6,728, up from $6,660 for 2020.

    The maximum amount of the adoption credit will increase to $14,440, up from $14,300 for 2020. That is also the maximum amount that will be excludable from an employee’s gross income for qualified amounts paid or expenses incurred by an employer under an adoption-assistance program.

    The 2021 exemption amounts for the alternative minimum tax will be $114,600 for married individuals filing joint returns and surviving spouses, $73,600 for unmarried individuals (other than surviving spouses), $57,300 for married individuals filing separate returns, and $25,700 for estates and trusts, all increased from 2020.

    The Sec. 179 amount for tax years beginning in 2021 will be $1,050,000 with a phaseout threshold of $2,620,000, slight increases from 2020.

    The qualified business income threshold under Sec. 199A(e)(2) will increase to $329,800 for married individuals filing joint returns and to $164,925 for married individuals filing separate returns, and to $164,900 for single individuals and heads of household, all increased from 2020.

    The Sec. 911 foreign earned income exclusion amount will increase to $108,700, up from $107,600 in 2020.

    The basic exclusion amount for determining the unified credit against the estate tax will be $11,700,000, up from $11,580,000, for decedents dying in calendar year 2021. The annual gift tax exclusion amount remains $15,000.

    — Sally P. Schreiber, J.D., (Sally.Schreiber@aicpa-cima.com) is a JofA senior editor.


  • 10/23/2020 11:40 AM | Anonymous member (Administrator)

    By Erik Asgeirsson, President and CEO of CPA.com

    This past year has further emphasized the importance of thinking strategically about your online presence, and it’s clear this will become even more critical in the future as digital inevitably becomes the dominant business channel.

    The AICPA and CPA.com have long recognized this trend and it’s the reason why we were compelled to secure .cpa, the new restricted Internet domain, on behalf of the profession. .CPA is what’s known as a top-level domain, which refers to the letters to the right of the dot on a website URL or email address. The most common of these are .com, .org, .edu and the like.

    Restricted or protected domains such as .cpa are part of the next, more secure, generation of the Internet. Internet crime is rising, according to the latest FBI statistics, and many instances of phishing or other fraud are tied to look-alike or spoofed domain addresses. To combat this, the use of restricted domains has grown dramatically in recent years as businesses and organizations seek to promote visibility and authenticity in their digital operations. (You may have noticed, for example, such recent restricted domains as .bank and .pharmacy.)

    Only licensed CPA firms and – starting next year – individually licensed CPAs can sign up for .cpa. The new restricted domain offers several advantages:

    • It allows better, more focused branding
    • It provides better security and resistance to Internet fraud
    • It promotes greater trust in firms’ online interactions with clients and the public
    • It demonstrates that firms are progressive and professional in the digital sphere

    .CPA is currently in its initial rollout phase, which is designed to permit all firms to claim their existing online branding under the new domain. This early application phase ends Oct. 31, after which the remaining domain names can be applied for by licensed firms on a rolling basis. Individually licensed CPAs can apply for their preferred names starting in January 2021, when general availability begins.

    If you have additional questions, we have a wealth of resources at domains.cpa, including a white paper, FAQs and sign-up information for the new service. We live in a digital age, and CPAs can improve the trust and security in their online calling cards with this new restricted domain.  Be sure to reserve your .cpa domain name before the Early Application phase expires on Oct. 31.


  • 10/06/2020 9:43 AM | Anonymous member (Administrator)

    October 5, 2020

    New guidance issued by the U.S. Small Business Administration (SBA) describes the procedures required for changes of ownership of an entity that has received Paycheck Protection Program (PPP) funds.

    Addressed to SBA employees and PPP lenders, the SBA procedural notice describes when a change of ownership is considered to have occurred and the responsibilities a PPP borrower continues to hold regardless of any change in ownership.

    The guidance clarifies requirements and may help businesses that have been trying to go through the forgiveness process quickly because of an impending transfer of ownership. Lenders that have been assisting these businesses also may benefit from this guidance.

    According to the notice, a “change of ownership” occurs for PPP purposes when at least one of the following is true:

    • At least 20% of the common stock or other ownership interest of a PPP borrower (including a publicly traded entity) is sold or otherwise transferred, whether in one or more transactions, including to an affiliate or an existing owner of the entity;
    • The PPP borrower sells or otherwise transfers at least 50% of its assets (measured by fair market value), whether in one or more transactions; or
    • A PPP borrower is merged with or into another entity.

    Note that all sales or transfers that have occurred since the date of the approval of the PPP loan must be aggregated. For publicly traded borrowers, only sales or other transfers that result in one person or entity holding or owning at least 20% of the common stock or other ownership interest of the borrower must be aggregated.

    Regardless of a change in ownership, the PPP borrower remains responsible for all of the following:

    • Performance of all obligations under the PPP loan;
    • The certifications made in connection with the PPP loan application, including the certification of economic necessity;
    • Compliance with all other applicable PPP requirements;
    • Obtaining, preparing, and retaining all required PPP forms and supporting documentation; and
    • Providing the required forms and supporting documentation to the PPP lender or lender servicing the PPP loan, or to the SBA upon request.

    Before closing any change-of-ownership transaction, a PPP borrower is required to notify the PPP lender in writing of the contemplated transaction and provide the PPP lender a copy of the documentation underpinning the proposed transaction. Additionally, some changes in ownership may require SBA approval, with the SBA having 60 calendar days to review and provide a determination of its approval.

    The PPP lender must notify the SBA within five business days of the completion of a transaction and is required to continue submitting the monthly 1502 reports until the PPP loan is fully satisfied.

    The SBA notice provides different procedures to be followed depending on whether or not the PPP note has been fully satisfied. If a PPP note has not yet been fully forgiven or paid, one of the requirements is that the PPP borrower establish an escrow account controlled by the PPP lender in the amount of the outstanding PPP loan balance. The escrow funds must first be used to repay any remaining PPP loan balance after forgiveness has been processed plus interest.

    The procedural notice also addresses situations where the new owners or successors arising from a transaction have a separate PPP loan. Requirements are outlined for segregating and delineating PPP funds and expenses, along with documentation and compliance by PPP borrowers.

    AICPA experts discuss the latest on the PPP and other small business aid programs during a biweekly virtual town hall. The webcasts, which provide CPE credit, are free to AICPA members. Go to the AICPA Town Hall Series webpage for more information and to register.

    The AICPA’s Paycheck Protection Program Resources page houses resources and tools produced by the AICPA to help address the economic impact of the coronavirus.

    For more news and reporting on the coronavirus and how CPAs can handle challenges related to the outbreak, visit the JofA’s coronavirus resources page or subscribe to our email alerts for breaking PPP news.

    — Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA’s editorial director.

  • 09/08/2020 8:16 AM | Anonymous member (Administrator)

    By Paul Bonner
    September 1, 2020

    Hardly anything about 2020 could be considered normal, and the annual tax software survey of AICPA member tax preparers by the JofA and The Tax Adviser is no exception. For perhaps the first time ever, the survey had to couch its questions about tax season in the present tense, for the simple reason that, with the IRS's postponement until July 15 of the April 15 return due date, tax season was not yet over, as it usually is when the survey is deployed. The COVID-19 pandemic and federal disaster declaration that resulted in that postponement and many other legislative and administrative relief measures affected CPA tax preparers' tax season as well (see the sidebar, "Amid a 'Brutal' Tax Season").

    The survey also for a fifth year asked about respondents' experience with clients whose tax-related identities were stolen, indicating that this issue, once in the forefront among those disrupting tax season, has continued to recede.

    PRODUCTS COVERED AND PROFILE OF RESPONDENTS

    The survey invited respondents to select their software from among 13 products and write in others not mentioned; of these, the same seven products as in past years accounted for most of the responses, led by:

    • UltraTax CS with 20.7% of respondents;
    • Lacerte with 16%;
    • Drake Tax with 15.1%;
    • CCH ProSystem fx with 12.4%;
    • ProSeries with 11.4%;
    • CCH Axcess Tax with 7.3%;
    • ATX with 6.4%.

    The remaining 10.7% was divided among Intuit ProConnect Tax Online, TurboTax, GoSystem Tax RS, TaxAct, TaxWise, TaxSlayer Pro, and others. CCH ProSystem fx's representation was three percentage points below that in the 2019 survey, and Lacerte slipped by 1.4 points. ATX and Drake Tax both gained 1.2 points from 2019. However, the ranking order by usage of all seven "major" products was unchanged.

    Some products are favored by smaller firms, others by larger ones, and the sample's overall profile of respondents by firm size can affect relative representation of each product. The 2020 survey sample featured a higher percentage of single-member practices (37.2%) than in 2019 (32.7%), which could account for the greater number of users of ATX and Drake Tax, both associated with smaller firms. Correspondingly, 2020 responses from members in medium to large firms, generally the province of CCH ProSystem fx users, were slightly fewer: 9.4% in firms of 21 or more, compared with 11.4% in 2019.

    Lacerte and ProSeries are Intuit Inc. products, while ATX, CCH Axcess Tax, and CCH ProSystem fx are Wolters Kluwer products. UltraTax CS is a Thomson Reuters product. For more information on correlation of product with number of preparers in a firm, see the table "Favorites by Firm Size." More information on all 13 products is available here.

    Favorites by firm size


    The chart shows that Drake Tax is the leading product among sole practitioners, used by nearly 28% of respondents in single-preparer firms. Nearly the same percentage of respondents in firms of the next tier, two to five preparers, used UltraTax CS, and among those in the next tier, six to 20 preparers, UltraTax CS was used by one-third of respondents. But by far the highest representation of any product in any of the firm-size cohorts was the nearly 73% of respondents in the largest firms, those numbering more than 500 preparers, who used CCH Axcess Tax, which correspondingly predominated in the largest firms as measured by number of clients: 62% of respondents with over 5,000 clients used it.

    Overall, respondents for whom a majority of the returns they prepared were for individuals rather than businesses were nearly 76% of users of the major products, and those for whom business returns were less than half were nearly 90%, ratios that remain relatively consistent over the years. Respondents for whom a majority of returns were for businesses were most likely to have used CCH Axcess Tax (23.4%) or CCH ProSystem fx (17.5%).

    Being personally responsible for choosing the software can affect how an individual perceives and rates it and also correlates to firm size. Some confirmation or sunk-cost bias is probably latent in the survey results, since respondents often report using a particular software mostly because they have done so for a long time and are used to it. Nearly 95% of ATX users made the decision to use it, followed by ProSeries (91.3%) and Drake Tax (89%). Only 30% of CCH Axcess Tax users made the choice, although another 30.5% had input into the decision. Overall, only 10.6% of all respondents reported a lack of any involvement in deciding on their software. But among respondents in firms of 501 or more preparers, that percentage rose to 85%.

    GENERAL PERFORMANCE

    The overall rating users gave their software (on a scale of 1 to 5, with 5 being the highest) averaged 4.4 for all seven major products (see the table "Overall Ratings"). Drake Tax users gave it an average rating of 4.6; the lowest was 4.0 for CCH Axcess Tax, which also rated significantly lower than others on ease of use (3.6, against an average 4.3 for all seven products). CCH Axcess Tax did edge above the average for ease of importing data, however (3.6; average 3.5). UltraTax CS also ranked above average for data importation (3.7), and ATX and Drake Tax below it (3.0 and 3.3, respectively).

    Overall ratings


    The table also provides assessments of ease of updating and installing the software, how well the software handled updates during tax season, transferring data within returns, e-filing, multistate business returns, and integrating with accounting and other software. UltraTax CS stood out in responses to the question of how well the product integrated with other software with 3.7, while ATX lagged with 2.8, against all products' average 3.4. While, as noted above, users of CCH Axcess Tax on average prepared more business returns than others, they were not particularly enamored of its capabilities for preparing multistate business returns, ranking it a 4.0, below the other six major products.

    Asked if they would recommend their software to someone starting a tax practice, Drake Tax users were the most sanguine, with 98% saying "yes." Only 63% of CCH Axcess Tax users, on the other hand, endorsed that product for startup firms.

    LIKES AND DISLIKES

    As in past surveys, this year's survey asked respondents to pick their top three likes and dislikes about their software from among 11 choices, plus "other," with a chance to write in something else. However, this article begins a change in how the results are reported. Previously, we gave the answers for each attribute as a percentage of the total number of responses for that product; this year, we are showing each attribute choice as a percentage of the number of users of that product. With a smaller denominator, these percentages are generally higher than in previous years and can add up to more than 100% for each product. We did this to make it easier and more natural to discuss the results as a percentage of users than as a percentage of those users' total choices. That said, the relative rankings and trends remain consistent with those of previous years, most prominently showing strong attitudes toward the products' prices.

    Nearly 89% of Drake Tax users picked price as one of the three things they liked best about it; the next highest was ATX at 61.5% of users (the average for all seven was 27.3%; see the table "Top Likes"). Drake Tax users also were the most likely to approve of its support (74%, compared with an average of 32%). However, relatively few Drake Tax users liked its number of forms and comprehensiveness (21.6%), as was the case with ProSeries users (38.4%). CCH Axcess Tax users were the most likely to see number of forms and comprehensiveness as a primary merit (78.4%), followed closely by CCH ProSystem fx (74%).

    Top likes


    Asked separately whether their software contained all the forms they needed, however, Drake Tax users said "yes" 89.3% of the time. Leading in answers to this question were UltraTax CS (92.9%) and ATX (90.7%). Users of CCH Axcess Tax and CCH ProSystem fx answered "yes" to having all needed forms at 86.6% and 89.4%, respectively.

    Two other favored traits besides forms/comprehensiveness were the most likely to be chosen for all products on average: accuracy and ease of use. CCH ProSystem fx predominated for accuracy (72%), followed by CCH Axcess Tax (nearly 66%) and UltraTax CS (61.4%). Only 22.4% of Drake Tax users picked accuracy as a top like. For ease of use, ProSeries users were the most likely to pick this as a like (73.4%), followed by Lacerte (70.1%) and ATX (62.4%). Consistent with the numerical rating for ease of use discussed above, CCH Axcess Tax users generally found other things to like than ease of use, with only 25.1% picking that attribute.

    Price headed the top dislikes for more than a majority of users of all seven products combined, as mentioned above, with 78% of Lacerte users disfavoring that product's price tag (see the table "Top Dislikes"). Close behind was CCH ProSystem fx at one-tenth of a point lower. Over three-quarters, 76%, of UltraTax CS users disliked its price, as did nearly 60% of CCH Axcess Tax users.

    Top dislikes


    Only 1.4% of Drake Tax users disliked its price, but 45.2% of them registered disapproval for "tax research included in package" (against an average of 24%), and nearly 37% found its integration with other software wanting. While only a small portion of users of ProSeries picked number of forms/comprehensiveness as a top dislike (21.1%), when asked directly in another question if that software contained all the forms they needed, they were the least likely of users of all the seven products to say "yes" (68.2%).

    While write-in "other" dislikes ran the gamut of reasons, nearly one-tenth of the 330 entries mentioned updates: their frequency, their slowness, their timeliness, updating for state returns, and a lack of information about their reason or what they covered. These complaints were not concentrated on any single product. General performance issues were also frequent complaints.

    TECHNOLOGY, TRAINING, AND SUPPORT

    Some respondents commented favorably in "other" likes about cloud deployment of their tax software, but those using it still are a small minority. This year, when asked where their software resides, 82.1% of major product users said it was on their own hard drive or network — for five of the seven products, the percentage was over 90% — and only 17.9% said it lived on the vendor's server. This ratio was nearly exactly the same last year, with only slightly more cloud computing users than in 2018. CCH Axcess Tax, which Wolters Kluwer characterizes as cloud-based, was the only product for which most users reported accessing it on the vendor's server (84.1%).

    A majority of users of the seven products said they received no formal training in the software from the provider (62.9%). Users of CCH Axcess Tax were the most likely to have received training (57.3%), followed by Drake Tax (44.2%) and UltraTax CS (42.7%). CCH Axcess Tax users, however, did not rate that training particularly highly (3.7 out of 5, with an average rating for all seven products of 4.1). The only major products to rate higher than that average were Drake Tax and ProSeries, at 4.5 and 4.2, respectively.

    As noted above, Drake Tax users were prone to pick support as a top like; they were also the most prone to say they needed technical support during tax season (86.6%), and, consistent with the "Top Likes" table, they rated the tech support highest in quality and ease of obtaining it, 4.6 and 4.8, respectively, compared with an average rating of 4.0 and 3.9 for all seven products (see the table "Technical Support"). ProSeries and ATX users reported needing support less often than most (62.8% and 67.8%, respectively).

    CPAs continued to receive their technical support predominantly by telephone (nearly 92%), followed by live chat or messaging (31.8%) and email (26.7%). Notably, live chat/messaging edged out email for the first time this year. In 2019, email was used by 28.3% and live chat/messaging by 27.1% of major product users.

    Technical support


    IDENTITY THEFT

    For a fifth year, the tax software survey also asked about CPAs' experience during the current tax season of having clients victimized by tax identity theft, and for a fourth year, the reported incidence declined. From a high of 59.3% in 2016, the percentage of respondents saying any clients were victims declined to 17.4% in 2020, down from 20.7% in 2019 (see the graph, "Identity Theft"). Most who did report ID theft said few clients were affected; for nearly 97%, less than 5% of their clients were affected. Correcting the resultant problems remained relatively onerous, however, with a rating of 3.0 out of 5 (with 1 being the most difficult and 5 the easiest), about the same as previously.

    Identity theft


    FIXED EXPECTATIONS

    The COVID-19 pandemic has led to many unforeseen circumstances and unintended side effects, notably, the delay of return due dates until July 15, coupled with taxpayer relief measures that increased the number and types of calculations CPAs were called upon to implement. Despite those uncertainties, CPAs' perceptions about their tax software programs appear to have changed little from the more settled recent past — fortunately for anyone seeking fixed expectations amid a sea of change.

    Results and methodology

    This year's survey was conducted June 1—12 and received 3,210 responses from CPAs who indicated that they prepared tax year 2019 returns for a fee. The survey asked about 13 software products by name; respondents could also provide information about other products. Most of the discussion and data in the tables accompanying this article concern the seven most commonly used software products, for which 2,866 users gave answers. For more information about the responses and company information on basic features and options for the seven major products, click here.

    Amid a 'brutal' tax season

    CPA tax preparers were also polled separately during tax season for their views on the July 15 delayed filing and payment date and whether they thought it should be postponed further. This poll was carried out by the AICPA Tax Executive Committee (TEC) in May, surveying members of the AICPA Tax Section. The questions were: "Based on the current COVID-19 environment and the impact on your tax practice, do you anticipate being able to file returns or extensions for your clients by the July 15 deadline?" and "Do you believe the IRS should automatically extend the July 15 filing and payment deadline?" Edward Karl, CPA, CGMA, the AICPA vice president—Taxation, and Chris Hesse, CPA, the TEC's chair and a tax principal of CliftonLarsonAllen LLP's National Tax Office, related the results in a blog post and a JofA podcast. The upshot was that a majority of members said they could meet the July 15 deadline, but a plurality said they preferred a further postponement to Oct. 15, with others favoring other dates. The IRS soon after made the issue moot by announcing the July 15 date would stand.

    Few respondents mentioned tax software in either case, but many of the nearly 1,000 written reasons they submitted for their answers revealed the stresses they and their clients faced. Many who favored no further postponement sent comments along the lines of this one: "Let's get this brutal tax season over sooner than later!!!" Scores of comments said further delay would only invite more procrastination on the part of clients.

    Some CPAs reflected, though, on the toll the tax season was taking on themselves and their staffs. They lamented the productivity hurdles and extra work of learning and advising on the details of new tax provisions and Paycheck Protection Program loans, loan forgiveness, and tax effects. Plus, in their personal lives, disease prevention and family care while staying at home required more of their time and attention.

    And many worried about their clients who were beset by financial dislocations. One compared the situation to medical triage. "I am already anticipating who will need help with offers in compromise or CNC [currently not collectible] status. I have had to make judgment calls based on who needs my time the most."

    Partly because of the client financial concerns expressed in the survey, the AICPA is advocating for tax administrative and penalty relief with the IRS (see the TEC's comment letter).



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