http://www.riccicpa.com/index.php/site/index/ Ricci & Company is an accounting and financial consulting firm in Albuquerque, New Mexico. en frontdesk@riccicpa.com Copyright 2012 2012-02-03T21:51:20-07:00 http://www.riccicpa.com/index.php/site/what_to_do_if_your_w_2_is_wrong/ http://www.riccicpa.com/index.php/site/what_to_do_if_your_w_2_is_wrong/#When:21:51:20Z {summary}By now you should have received most, if not all, of your W-2s from 2011; employers are required to provide the forms by Jan. 31. The first thing you should do when you receive a W-2 is to check the figures against your records to make sure the reported amounts are correct. Using your final pay stub from last year, carefully compare the gross federal and state wages, federal, state and local income tax withheld, and Social Security and Medicare taxes withheld with the figures on the W-2s. Also be sure to verify that the Social Security number on the W-2 is correct. This is perhaps the most important number on the form.  If you find an error or discrepancy, contact the employer, which will issue a corrected W-3c and W-2c to the Social Security Administration (employers send W-2s to the SSA and not the IRS, although the IRS eventually gets the information for matching) and send copies of the corrected W-2c to you. Attach Copy B of the W-2c to your tax return, along with the original erroneous W-2, when you send it in. While you should also notify your current employer if you find an error or typo in your name or address, such errors should not affect your tax filing and should not require a new W-2. If you don’t receive a W-2 and can’t contact the employer because it has gone out of business or disappeared, all is not lost. You can use your pay stubs or other records from that job to reconstruct the various items of income and withholding and file Form 4852 (.pdf file), the Substitute for Form W-2 Wage and Tax Statement, with your federal and state tax returns. Of course, you should also verify that the Social Security and income numbers reported on 1099s you receive for interest, dividends or miscellaneous income are correct as well. News & information 2012-02-03T21:51:20-07:00 http://www.riccicpa.com/index.php/site/tax_developments_client_letter/ http://www.riccicpa.com/index.php/site/tax_developments_client_letter/#When:16:28:31Z {summary}Dear Client: The following is a summary of the most important tax developments that have occurred in the past three months that may affect you, your family, your investments, and your livelihood. Please call us for more information about any of these developments and what steps you should implement to take advantage of favorable developments and to minimize the impact of those that are unfavorable. Payroll tax cut temporarily extended. The Temporary Payroll Tax Cut Continuation Act of 2011 was enacted late last year. It temporarily extends the two percentage point payroll tax cut for employees, continuing the reduction of their Social Security tax withholding rate from 6.2% to 4.2% of wages paid through Feb. 29, 2012. Shortly after its passage, the IRS instructed employers to implement the new payroll tax rate as soon as possible in 2012 but not later than Jan. 31, 2012. The law also includes a “recapture” provision, which applies only to those employees who receive more than $18,350 in wages during the two-month period (i.e., two-twelfths of the 2012 wage base of $110,100). This provision imposes an additional income tax on these higher-income employees in an amount equal to 2% of the amount of wages they receive during the two-month period in excess of $18,350 (and not greater than $110,100). In addition, under the new law, the social security tax rate for a self-employed individual remains at 10.4%, for self-employment income of up to $18,350 (reduced by wages subject to the lower rate for 2012). Congress is going to try to negotiate a deal to extend the payroll tax cut for all of 2012. If a deal is struck to extend it for the full year, the recapture provision for employees would not apply. Credit for hiring veterans extended and enhanced. A law enacted last November extended and enhanced a credit for hiring qualified veterans. Before the law was passed, the credit would have been available only if the qualified veteran were hired before Jan. 1, 2012, and only certain veterans were considered qualified veterans. The new law extends the credit for hiring qualified veterans, adds two new classes of veterans who are considered qualified veterans, increases the credit for hiring certain qualified veterans, “fast-tracks” the process for certifying that an individual is a qualified veteran, and provides tax-exempt employers with a credit against payroll tax for hiring qualified veterans. The credit amount varies depending on a number of factors. It can be as high as $9,600 for hiring a qualified disabled veteran. For an employer to qualify for the credit, the qualified veteran must begin work for the employer before Jan. 1, 2013 and other requirements must be met. New rules for deducting or capitalizing tangible property costs. The IRS has issued new regulations for determining whether amounts paid to acquire, produce, or improve tangible property may be currently deducted as business expenses or must be capitalized. The regulations will affect virtually all taxpayers that acquire, produce, or improve tangible property. They are comprehensive, voluminous and virtually rewrite the rules in this area. For example, they provide detailed definitions of “materials and supplies” and “rotable and temporary spare parts” and prescribe new rules and elective de minimis and optional methods for handling their cost. They also have rules for differentiating between deductible repairs and capitalizable improvements, among many other items. The regulations generally are effective in tax years beginning after Dec. 31, 2011. However, to add to their complexity, some of the new rules in the regulations do not supersede prior IRS guidance. New foreign asset reporting guidance and form. The IRS issued detailed guidance on the new law requiring individuals with an interest in a “specified foreign financial asset” during the tax year to attach a disclosure statement to their income tax return for any year in which the aggregate value of all such assets is greater than $50,000 (or a dollar amount higher than $50,000 as the IRS may prescribe). In addition, the IRS issued Form 8938 (Statement of Specified Foreign Financial Assets), which individual taxpayers will use starting in the 2012 tax filing season to report specified foreign financial assets for tax year 2011. The guidance consists of detailed temporary regulations. They define terms that apply for purposes of the reporting requirement; provide rules to determine if a specified individual must file a Form 8938 with their annual return; define what are specified foreign financial assets; detail what information needs to be reported; provide guidelines for valuing specified foreign financial assets; list exceptions to the reporting requirements; and describe the penalties that apply for failure to comply with the reporting requirements. Standard mileage rates flat or lower. The optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) is 55.5¢ per each business mile traveled after 2011. For 2011, it was 55.5¢ for miles driven after June 30 and 51¢ per mile for miles driven before July 1. Further, the 2012 rate for using a car to get medical care or in connection with a move that qualifies for the moving expense deduction is 23¢ per mile. For 2011, it was 23.5¢ for miles driven after June 30 and 19¢ per mile for miles driven before July 1. New Form 8949 replaces Form 1040, Schedule D-1. Many transactions that, in previous years, would have been reported on Form 1040, Schedule D or D-1 must be reported on Form 8949 if they occurred in 2011. Specifically, a taxpayer uses Form 8949 to report: • The sale or exchange of a capital asset not reported on another form or schedule, • Gains from involuntary conversions (other than from casualty or theft) of capital assets not held for business or profit, and • Nonbusiness bad debts. The taxpayer uses Schedule D to figure the overall gain or loss from transactions reported on Form 8949 and to report capital gain distributions not reported directly on Form 1040, line 13, a capital loss carryover from 2010 to 2011, and certain specialized items. Withholding requirement for government contractors repealed. A law enacted in 2005 was to have required the Federal government and the government of every state, political subdivision of a state, and instrumentality of a state or state subdivision (including multi-state agencies) making certain payments to a person providing any property or services (e.g., payments to a government contractor) to deduct and withhold 3% from that payment. Although the withholding requirement was originally set to apply to payments made after 2010, it was subsequently deferred to apply to payments made after 2012. A law enacted in November 2011 repealed the government contractor withholding requirement. Sincerely, Ricci & Company News & information 2012-01-16T16:28:31-07:00 http://www.riccicpa.com/index.php/site/few_new_accounting_standards_take_effect_in_2012/ http://www.riccicpa.com/index.php/site/few_new_accounting_standards_take_effect_in_2012/#When:21:44:56Z {summary}Few new accounting standards take effect in 2012, but many are under development. Even though only a small number of new accounting standards will take effect this year, several major changes are close to being ready for comment. Standards under development include new approaches for recognizing revenue and accounting for leases. The Financial Accounting Standards Board is also modifying the other comprehensive income presentation, and is expected to defer a requirement regarding how to present reclassifications of OCI. For more information, visit the AICPA’s Financial Reporting Center. News & information 2012-01-02T21:44:56-07:00 http://www.riccicpa.com/index.php/site/new_mexico_resident_business_certification/ http://www.riccicpa.com/index.php/site/new_mexico_resident_business_certification/#When:21:41:09Z {summary}NM Changes to Resident Contractor/Business Preference Rules Effective January 1, 2012 any business or contractor that wants to use the NM resident business preference when contracting with the state of New Mexico under RFP’s or competitive bid will need to obtain a new resident business certification from the State of New Mexico.  The following news flash explains the new rule change. The New Mexico statutes regarding resident business preferences were amended by the First NM Special Legislative Session of 2011. The amended statutes set forth the criteria required for a business to qualify as a Resident Business or Resident Contractor.  It is important to note, a resident preference is applicable to contracts, which typically call for, but are not limited to, the furnishing of tangible personal property, i.e. goods, supplies, materials, equipment, printed materials and certain services. Consistent with Sections 13-1-21 and 13-4-2 NMSA 1978, “resident preference” is applicable to COMPETITIVE BID procurements only. Additionally, any person, firm, corporation, or other legal entity must have all required licenses at the time the application for preference is submitted to the Taxation and Revenue Department for consideration. Please note: All certifications are subject to revocation in accordance with applicable rules. A certification merely establishes that the Taxation and Revenue Department has determined based upon the information provided in the application, as of the date of issuance, that the holder was entitled to treatment as a resident business and/or contractor by state agencies and local public bodies. An application for preference is required by the amended statute. The application includes an affidavit from a certified public accountant setting forth certain eligibility criteria for businesses or contractors, as required by Section 13-1-22 NMSA 1978. The completed application along with payment of Thirty Five ($35) dollars must be submitted to the Taxation and Revenue Department prior to issuance of a resident business preference or a resident contractor preference certificate.  In addition to the application, the Taxation and Revenue Department may require submission of additional information to ensure eligibility. A certificate is valid for three (3) years from the date of its issuance; provided that if there is a change of ownership of more than fifty percent, a resident business or resident contractor shall reapply. All previous certified preferences held on December 31, 2011 will expire and the business/contractor that would like the resident preference in bidding on contracts with the State of NM will have to reapply. Please call us for more information.  We would be glad to help you with the certification. News & information 2011-12-19T21:41:09-07:00 http://www.riccicpa.com/index.php/site/withholding_tax_on_owners_of_pass_through_entity/ http://www.riccicpa.com/index.php/site/withholding_tax_on_owners_of_pass_through_entity/#When:20:45:44Z {summary}Refer to these guidelines for owners of a Pass-Through Entity regarding withholding tax. Withholding_Tax.pdf News & information 2011-12-19T20:45:44-07:00 http://www.riccicpa.com/index.php/site/general_rules_concerning_payroll_tax/ http://www.riccicpa.com/index.php/site/general_rules_concerning_payroll_tax/#When:15:56:17Z {summary}Please click the link below to view our annual updated payroll tax information schedule providing you with the new general rules concerning payroll tax rates, limits, and deposit requirements for the year 2012. 2012_client_ye_letter_for_website.pdf News & information 2011-12-08T15:56:17-07:00 http://www.riccicpa.com/index.php/site/new_fasb_pension_plan_standard/ http://www.riccicpa.com/index.php/site/new_fasb_pension_plan_standard/#When:19:55:37Z {summary}New FASB Pension Plan Standard The Financial Accounting Standards Board has released a new Accounting Standards Update to improve employer disclosures for multiple-employer pension plans. Accounting Standards Update No. 2011-09, Disclosures about an Employer’s Participation in a Multiemployer Plan,” is intended to encourage employers to supply additional information about their financial obligations to multiemployer pension plans. Those plans typically are used to provide benefits to union employees, who may work for many employers during their working life, allowing them to accrue benefits in a single pension plan for their retirement. Up to now, employers have been required to disclose only their total contributions to all of the multiemployer plans in which they participated. The new disclosures go much further. They include the amount of employer contributions made to each significant plan and to all plans in total; an indication of whether the employer’s contributions represent over 5 percent of the total contributions to the plan; an indication of which plans, if any, are subject to a funding improvement plan; and the expiration dates of any collective bargaining agreements and any minimum funding arrangements. Another change involves the most recent certified funded status of the plan, as determined by the plan’s so-called “zone status,” a requirement of the Pension Protection Act of 2006. If the “zone status” is not available, an employer will be required to disclose whether the plan is less than 65 percent funded, between 65 percent and 80 percent funded, or at least 80 percent funded. The update also requires a description of the nature and effect of any changes that affect the comparability for each period in which a statement of income is presented. For nonpublic entities, the enhanced disclosures will be required for fiscal years ending after Dec. 15, 2012. Early application will be permitted. News & information 2011-11-02T19:55:37-07:00 http://www.riccicpa.com/index.php/site/client_letter_year_end_tax_planning/ http://www.riccicpa.com/index.php/site/client_letter_year_end_tax_planning/#When:15:56:59Z {summary}Client Letter: Year-End Tax Planning Dear Client: Year-end tax planning is especially challenging this year because of uncertainty over whether Congress will enact sweeping tax reform that could have a major impact in 2012 and beyond. And even if there’s no major tax legislation in the immediate future, Congress next year still will have to grapple with a host of thorny issues, such as whether to once again “patch” the alternative minimum tax (e.g., to avoid a drastic drop in post-2011 exemption amounts), and what to do about the post-2012 expiration of the Bush-era income tax cuts (including the current rate schedules, and low tax rates for long-term capital gains and qualified dividends), and the expiration of favorable estate and gift rules for estates of decedents dying, gifts made, or generation-skipping transfers made after Dec. 31, 2012. Regardless of what Congress does late this year or early the next, there are solid tax savings to be realized by taking advantage of tax breaks that are on the books for 2011 but may be gone next year unless they are extended by Congress. These include, for individuals: the option to deduct state and local sales and use taxes instead of state and local income taxes; the above-the-line deduction for qualified higher education expenses; and tax-free distributions by those age 70 1/2 or older from IRAs for charitable purposes. For businesses, tax breaks that are available through the end of this year but won’t be around next year unless Congress acts include: 100% bonus first year depreciation for most new machinery, equipment and software; an extraordinarily high $500,000 expensing limitation (and within that dollar limit, $250,000 of expensing for qualified real property); and the research tax credit. We have compiled a checklist of actions based on current tax rules that may help you save tax dollars if you act before year-end. Not all actions will apply in your particular situation, but you will likely benefit from many of them. We can narrow down the specific actions that you can take once we meet with you to tailor a particular plan. In the meantime, please review the following list and contact us at your earliest convenience so that we can advise you on which tax-saving moves to make: Year-End Tax Planning Moves for Individuals Increase the amount you set aside for next year in your employer’s health flexible spending account (FSA) if you set aside too little for this year. Don’t forget that you can no longer set aside amounts to get tax-free reimbursements for over-the-counter drugs, such as aspirin and antacids. If you become eligible to make health savings account (HSA) contributions in December of this year, you can make a full year’s worth of deductible HSA contributions for 2011. Realize losses on stock while substantially preserving your investment position. There are several ways this can be done. For example, you can sell the original holding, then buy back the same securities at least 31 days later. It may be advisable for us to meet to discuss year-end trades you should consider making. Postpone income until 2012 and accelerate deductions into 2011 to lower your 2011 tax bill. This strategy may enable you to claim larger deductions, credits, and other tax breaks for 2011 that are phased out over varying levels of adjusted gross income (AGI). These include child tax credits, higher education tax credits, the above-the-line deduction for higher-education expenses, and deductions for student loan interest. Postponing income also is desirable for those taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. Note, however, that in some cases, it may pay to actually accelerate income into 2011. For example, this may be the case where a person’s marginal tax rate is much lower this year than it will be next year. If you believe a Roth IRA is better than a traditional IRA, and want to remain in the market for the long term, consider converting traditional-IRA money invested in beaten-down stocks (or mutual funds) into a Roth IRA if eligible to do so. Keep in mind, however, that such a conversion will increase your adjusted gross income for 2011. If you converted assets in a traditional IRA to a Roth IRA earlier in the year, the assets in the Roth IRA account may have declined in value, and if you leave things as-is, you will wind up paying a higher tax than is necessary. You can back out of the transaction by recharacterizing the rollover or conversion, that is, by transferring the converted amount (plus earnings, or minus losses) from the Roth IRA back to a traditional IRA via a trustee-to-trustee transfer. You can later reconvert to a Roth IRA. It may be advantageous to try to arrange with your employer to defer a bonus that may be coming your way until 2012. Consider using a credit card to prepay expenses that can generate deductions for this year. If you expect to owe state and local income taxes when you file your return next year, consider asking your employer to increase withholding of state and local taxes (or pay estimated tax payments of state and local taxes) before year-end to pull the deduction of those taxes into 2011 if doing so won’t create an alternative minimum tax (AMT) problem. Take an eligible rollover distribution from a qualified retirement plan before the end of 2011 if you are facing a penalty for underpayment of estimated tax and the increased withholding option is unavailable or won’t sufficiently address the problem. Income tax will be withheld from the distribution and will be applied toward the taxes owed for 2011. You can then timely roll over the gross amount of the distribution, as increased by the amount of withheld tax, to a traditional IRA. No part of the distribution will be includible in income for 2011, but the withheld tax will be applied pro rata over the full 2011 tax year to reduce previous underpayments of estimated tax. Estimate the effect of any year-end planning moves on the alternative minimum tax (AMT) for 2011, keeping in mind that many tax breaks allowed for purposes of calculating regular taxes are disallowed for AMT purposes. These include the deduction for state property taxes on your residence, state income taxes (or state sales tax if you elect this deduction option), miscellaneous itemized deductions, and personal exemption deductions. Other deductions, such as for medical expenses, are calculated in a more restrictive way for AMT purposes than for regular tax purposes. As a result, in some cases, deductions should not be accelerated. Accelerate big ticket purchases into 2011 in order to assure a deduction for sales taxes on the purchases if you will elect to claim a state and local general sales tax deduction instead of a state and local income tax deduction. Unless Congress acts, this election won’t be available after 2011. You may be able to save taxes this year and next by applying a bunching strategy to “miscellaneous” itemized deductions, medical expenses and other itemized deductions. If you are a homeowner, make energy saving improvements to the residence, such as putting in extra insulation or installing energy saving windows, or an energy efficient heater or air conditioner. You may qualify for a tax credit if the assets are installed in your home before 2012. Unless Congress extends it, the up-to-$4,000 above-the-line deduction for qualified higher education expenses will not be available after 2011. Thus, consider prepaying eligible expenses if doing so will increase your deduction for qualified higher education expenses. Generally, the deduction is allowed for qualified education expenses paid in 2011 in connection with enrollment at an institution of higher education during 2011 or for an academic period beginning in 2011 or in the first 3 months of 2012. You may want to pay contested taxes to be able to deduct them this year while continuing to contest them next year. You may want to settle an insurance or damage claim in order to maximize your casualty loss deduction this year. Purchase qualified small business stock (QSBS) before the end of this year. There is no tax on gain from the sale of such stock if it is (1) purchased after September 27, 2010 and before January 1, 2012, and (2) held for more than five years. In addition, such sales won’t cause AMT preference problems. To qualify for these breaks, the stock must be issued by a regular (C) corporation with total gross assets of $50 million or less, and a number of other technical requirements must be met. Our office can fill you in on the details. If you are age 70-1/2 or older, own IRAs and are thinking of making a charitable gift, consider arranging for the gift to be made directly by the IRA trustee. Such a transfer, if made before year-end, can achieve important tax savings. Take required minimum distributions (RMDs) from your IRA or 401(k) plan (or other employer-sponsored retired plan) if you have reached age 70-+. Failure to take a required withdrawal can result in a penalty of 50% of the amount of the RMD not withdrawn. If you turned age 70-1/2 in 2011, you can delay the first required distribution to 2012, but if you do, you will have to take a double distribution in 2012—the amount required for 2011 plus the amount required for 2012. Think twice before delaying 2011 distributions to 2012—bunching income into 2012 might push you into a higher tax bracket or have a detrimental impact on various income tax deductions that are reduced at higher income levels. However, it could be beneficial to take both distributions in 2012 if you will be in a substantially lower bracket that year, for example, because you plan to retire late this year. Make gifts sheltered by the annual gift tax exclusion before the end of the year and thereby save gift and estate taxes. You can give $13,000 in 2011 to each of an unlimited number of individuals but you can’t carry over unused exclusions from one year to the next. The transfers also may save family income taxes where income-earning property is given to family members in lower income tax brackets who are not subject to the kiddie tax. Year-End Tax-Planning Moves for Businesses & Business Owners Businesses should consider making expenditures that qualify for the business property expensing option. For tax years beginning in 2011, the expensing limit is $500,000 and the investment ceiling limit is $2,000,000. And a limited amount of expensing may be claimed for qualified real property. However, unless Congress changes the rules, for tax years beginning in 2012, the dollar limit will drop to $139,000, the beginning-of-phaseout amount will drop to $560,000, and expensing won’t be available for qualified real property. The generous dollar ceilings that apply this year mean that many small and medium sized businesses that make timely purchases will be able to currently deduct most if not all their outlays for machinery and equipment. What’s more, the expensing deduction is not prorated for the time that the asset is in service during the year. This opens up significant year-end planning opportunities. Businesses also should consider making expenditures that qualify for 100% bonus first year depreciation if bought and placed in service this year. This 100% first-year writeoff generally won’t be available next year unless Congress acts to extend it. Thus, enterprises planning to purchase new depreciable property this year or the next should try to accelerate their buying plans, if doing so makes sound business sense. Nail down a work opportunity tax credit (WOTC) by hiring qualifying workers (such as certain veterans) before the end of 2011. Under current law, the WOTC won’t be available for workers hired after this year. Make qualified research expenses before the end of 2011 to claim a research credit, which won’t be available for post-2011 expenditures unless Congress extends the credit. If you are self-employed and haven’t done so yet, set up a self-employed retirement plan. Depending on your particular situation, you may also want to consider deferring a debt-cancellation event until 2012, and disposing of a passive activity to allow you to deduct suspended losses. If you own an interest in a partnership or S corporation you may need to increase your basis in the entity so you can deduct a loss from it for this year. These are just some of the year-end steps that can be taken to save taxes. Again, by contacting us, we can tailor a particular plan that will work best for you. Very truly yours, • Annamaria Montoya, CPA Ricci & Company, LLC News & information 2011-10-27T15:56:59-07:00 http://www.riccicpa.com/index.php/site/fasb_improves_employer_disclosures_for_multiemployer_pension_plans/ http://www.riccicpa.com/index.php/site/fasb_improves_employer_disclosures_for_multiemployer_pension_plans/#When:01:39:10Z {summary}FASB Improves Employer Disclosures for Multiemployer Pension Plans July 28, 2011 Norwalk, CT, July 27, 2011— The Financial Accounting Standards Board (FASB) today approved a revised accounting standard intended to provide more information about an employer’s financial obligations to multiemployer pension plans. Multiemployer pension plans commonly are used by an employer to provide benefits to union employees who may work for many employers during their working life, thereby enabling them to accrue benefits in a single pension plan for their retirement. “Historically, very limited information about these plans has been disclosed, even though they may represent significant potential obligations for many large, unionized industries such as trucking, supermarket chains, and construction firms,” said FASB Chairman Leslie F. Seidman. “The enhanced disclosures will ensure that shareholders in companies that participate in these plans, workers who depend on them for their retirement benefits, as well as lenders and others, will have more information regarding the employers’ pension commitments and the financial health of the plans.” Prior to today’s action by the FASB, employers were required to disclose only their total contributions to all multiemployer plans in which they participate. Today’s decisions conclude comprehensive deliberations about the disclosures an employer should provide. The FASB issued initial proposals for revising disclosures for public comment in September 2010. As part of its redeliberations, the FASB decided to delete a proposal to require employers to disclose their withdrawal liability to all plans in which they participate, or provide a “point-in-time” estimate of its obligations with respect to the underfunded status of individual plans. Many of those who commented on the FASB’s proposal on multiemployer plans told the Board that the withdrawal liability would not be an appropriate proxy for an employer’s proportional share of the underfunded status of the plan. They suggested that the employer’s share of the underfunded status of the plan can only be determined through the collective bargaining process and they urged the FASB not to require a “point-in-time” estimate of an employer’s obligations with respect to underfunding. News & information 2011-10-25T01:39:10-07:00 http://www.riccicpa.com/index.php/site/survey_finds_many_companies_unaware_of_lease_accounting_change/ http://www.riccicpa.com/index.php/site/survey_finds_many_companies_unaware_of_lease_accounting_change/#When:23:14:32Z {summary}Survey Finds Many Companies Unaware of Lease Accounting Change A Grant Thornton survey found 54% of global businesses are not aware a major accounting change: the virtual elimination of off-balance sheet leases. The survey found that awareness of the change was greatest in the United States, followed by Mexico and Chile. Awareness was lowest in mainland China, followed by Denmark and Turkey. The survey of 2,800 businesses globally was completed in early September 2011 and also found that, of those who were aware of the changes, 33% thought the change would increase cost and complexity, but only 15% thought it would increase transparency. Only 12% of business indicated they would alter the way they structure leases in the future. With the IASB and FASB set to re-expose their latest proposals in 2012, it is critical that businesses and investors engage in the process to help ensure these goals are achieved. Grant Thornton stresses the need for businesses to assess the impact of the potential changes and for investors to consider whether the new model will make leasing activities more transparent and financial statements easier to use. “There is no question that a global review of lease accounting is long overdue,” said John Hepp, a partner in Grant Thornton LLP’s Accounting Principles Group. “The lack of transparency with regard to leases has festered for years, but a major change to lease accounting is a once-in-a-generation event and the IASB and FASB need to be patient to get things right. Our survey findings should give the Boards pause for thought as businesses are seeing costs and complexity in the proposals, but are questioning whether there is any improvement in transparency. Some of the proposals we’ve seen could create a different set of incentives to structure leases to achieve desired accounting outcomes. Change for the sake of change is not the goal, and a rush to a new standard could actually make things worse.” “Grant Thornton welcomes the Boards’ decision to consult publicly on their latest thinking. We desire a new standard that is practical for business — avoiding undue complexity and excessive estimation uncertainty. Investors need transparent, understandable information on leasing transactions, including the obligations and expenses of the lessee, and the receivables and revenue of the lessor. The Boards have a difficult task, but we encourage them to look closely at two issues: first, whether the leasing proposal is sufficiently aligned with the ongoing review of revenue recognition — these areas are interrelated; and second, whether they have adequately distinguished leases from other types of contracts (so-called executory contracts) which, under current standards, generally are not recognized in the financial statements at all.” The SEC estimated the undiscounted value of future lease payments among U.S. listed companies alone at more than $1.25 trillion in a report issued in 2005 — an amount that is greater than the gross domestic product of many countries. Globally, the figure is far greater. Although there are legitimate tax and legal advantages to lease financing, too many transactions have been structured for the purpose of arriving at a desired accounting treatment. The current financial statements do not present a complete and transparent financial picture. Clearly there is a need for better disclosure about leasing arrangements and similar contractual commitments. News & information 2011-10-24T23:14:32-07:00