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Are you Ready for Revenue Recognition

As the effective date of the Financial Accounting Standards Board’s new revenue recognition standard approaches, there’s increasing pressure on companies and/or their audit committees to assess their companies’ implementation efforts. For the very large publicly traded companies, the new standard will apply to annual reporting periods beginning after December 15, 2017 (including interim periods) whereas it is effective for calendar year private companies on January 1, 2019.  However, understanding the new standard and evaluating its impact is a very complex undertaking in order to understand the over 1,000 pages outlining this new standard.

The Center for Audit Quality (CAQ) has published Preparing for the New Revenue Recognition Standard: A Tool for Audit Committees to help committees fulfill their oversight responsibilities. The publication is organized into the following four sections:


1.) A new revenue recognition model

Accounting Standards Update No. (ASU) 2014-09, Revenue from Contracts with

Customers, established a new core principle for revenue recognition “to depict the

transfer of promised goods or services to customers in an amount that reflects the

consideration to which the entity expects to be entitled in exchange for those goods or

services.” It created a model for recognizing revenue:


-Identify the contract (s) with the customer.

- Identify the contract’s separate performance obligations.

- Determine the transaction price, using extra scrutiny if a contract calls for variable consideration, such as bonuses, incentives, rebates or penalties.

- Allocate the transaction price to the contract’s performance obligations, if there are multiple performance obligations.

- Recognize revenue when (or ad) the entity satisfies a performance obligation (that is, when the customer obtains control of the good or service).


The need to identify separate performance obligations — distinct promises to transfer

goods or services — is critical. To make the transition to the new standard, companies

may elect full retrospective application — which requires prior-period financial

statements to be recast — or modified retrospective application — which doesn’t require

recasting, but does require the cumulative effect of initially applying the standard to be

recorded as of the initial application date.


2. Impact assessment

This section assists audit committees in evaluating management’s assessment of how the

new standard will affect the company. For some companies, the amount and timing of

revenue recognized under the new standard won’t differ significantly from their results

under current U.S. Generally Accepted Accounting Principles. But audit committees will

still need to make the analysis under the new standard’s requirements to reach that

conclusion. In addition, all companies will be affected by the new standard’s disclosure

requirements, regardless of its impact on revenue. The new rules expand disclosure

requirements and require qualitative and quantitative disclosures intended to provide

information about a company’s contracts with customers. The disclosures must include

information about revenue and cash flow stemming from such contracts.

The audit committee should look at how the standard’s impact was assessed and who was

involved in the assessment. In addition, determine what company-specific factors were

considered and when management will provide pro-forma financial statements that

illustrate the expected impact. Finally, review how the company’s external auditor views

the assessment.

When making the assessment, it’s important to seek input from a wide range of

departments, including accounting, tax, financial reporting, financial planning and

analysis, investor relations, treasury, sales, legal, information technology and human

resources. The CAQ also urges audit committees to ask management about the standard’s

potential impact on specific aspects of the company’s business. (See “How will the new

standard affect your company’s revenue?”)


3. The implementation plan

This section helps audit committees understand and assess management’s implementation

plan. It provides detailed questions audit committees should ask on such subjects as

project milestones, progress reports, external auditor and third-party vendor views,

adequacy of resources, qualifications of the accounting team, accounting policy and

significant accounting judgments, systems and controls, and company culture.


 4. Other implementation considerations

The final section covers other considerations, including deciding on a transition

approach, handling dual recordkeeping requirements for retrospective application,

determining whether to consider early adoption and complying with new disclosure



The publication also includes a list of articles, technical guides and other resources for

navigating the implementation process.

By now, public companies should have made substantial progress toward implementing

the new revenue recognition standard. The CAQ’s publication can help audit committees

evaluate the status of their companies’ implementation efforts and, if necessary,

accelerate the process. Please reach out to H&M with any questions or concerns you may have.

Bah Humbug! The Ghost of Taxable Income for Christmas Presents May Come to Haunt You and Your Employees This Holiday Season

By: Mark Rhea, J.D.- Senior Assistant Accountant

During the Holiday Season, many employers want to show appreciation for their employees and the hard work they have done all year by giving presents. Some people might not think twice about doing something nice for their employees, but Treasury rules and regulations can turn that generosity into a potential headache for both employers and employees.

For example, let’s assume that the owner of Scrooge Enterprises, Ebenezer, decides that he wants to spread holiday cheer by giving each one of his employees a copy of his favorite movie “A Christmas Carol.” He has two options to accomplish this. The first is that he purchases copies of “A Christmas Carol” DVDs at $20 per DVD and gives those copies to his employees. The second is that he purchases $20 gift cards to the same store where he would have bought the DVDs.

If Ebenezer decides that he wants to go to the store and purchase the DVDs himself and give those gifts to his employees, the IRS would not treat those gifts as income to his employees and the IRS would permit Ebenezer to fully deduct the cost of those DVDs as the $20 spent per DVD would likely be considered a “de minimis fringe benefit” holiday gift with a “low fair market value.” See Treasury Reg § 1.132-6(e)(1). However, if Ebenezer decides to purchase gift cards in the amount of $20 to the same store that he would have bought the DVDs and gives those gift cards to his employees so they can go to the store and purchase “A Christmas Carol” on their own, the IRS would consider that gift card a cash equivalent and therefore must be reported as income and subject to employment taxes. Cash or cash equivalents, no matter how small, are never considered a “de minimis fringe benefit” excludable as income. See Treasury Reg § 1.132-6(c).

Ebenezer should take comfort in the fact that he can still treat his employees to a holiday cocktail party or meal at his favorite establishment as “occasional” cocktail parties and group meals are still considered “de minimis fringe benefits.” See See Treasury Reg § 1.132-6(e)(1). However, if Ebenezer decides to buy his employees gift cards to his favorite establishment instead of taking his employees there himself, the IRS again would find that those gift cards would be cash equivalents and treated as income subject to employment taxes.

There are many regulations and rules governing the giving of gifts to employees not just during the holidays, but year-round and for special situations such as employee awards and retirements. Holbrook & Manter is prepared to help you answer any questions regarding your generosity with your employees. Happy Holidays!

Selecting a Guardian for your Minor Children

If you have minor children, arguably the most important estate planning decision you have to make is choosing a guardian for them should the unthinkable occur. It’s critical to put much thought into this decision to ensure your children would be cared for as you wish in such a situation.

Evaluating potential candidates

Here are a few issues to consider when evaluating potential guardians:

  • Do they want to serve as guardians?
  • Does your estate plan provide sufficient resources so that caring for your children won’t cause an economic hardship?
  • Do they share your values and parenting philosophy?
  • If they’re married, is the marriage stable?
  • If they have children, do your children get along with them?
  • How old are they in relation to the children? A grandparent or other older person may not be the best choice to care for an infant or toddler, for example.
  • Are their homes large enough to make room for your children?

Keep in mind that a court’s obligation is to do what’s in the best interest of your children. The court isn’t bound by your guardian appointment but will generally honor your choice unless there’s a compelling reason not to. It’s a good idea to prepare a letter explaining the reasons you believe your appointees are best equipped to care for your children.

Naming others

It’s also important to choose a backup guardian. Why? If your first choice dies or is unable or unwilling to serve for some other reason, a court will appoint a guardian, and you likely wish to provide some guidance on that as well.

Your estate plan should list anyone you wish to prevent from raising your children. Contact us for more information regarding estate planning for parents with minor children. Contact Holbrook & Manter today for more information about the role your accountant should play in your estate planning.

The Financial Accounting Standards Board: New Lease Accounting Standard Update

By: Andrew Roffe, Staff Accountant

The Financial Accounting Standards Board’s (FASB) new lease Accounting Standard Update (ASU) is fast approaching and will bring a major change to lease accounting. The ASU presents challenging issues for management accountants, predominantly accountants with large lease portfolios. The new standard will also require organizations to recognize the leases on the balance sheet– assets and liabilities –for the rights and obligations created by those leases. For non-public companies and other organizations, the ASU will take effect with fiscal years beginning after December 15, 2019 and with interim periods within fiscal years beginning after December 15, 2020.

FASB issued the standard in February 2016 with the goal to improve financial reporting about lease transactions. The ASU affects all organizations that lease assets such as real estate, airplanes, ships, constructions, and manufacturing equipment. The ASU will require disclosures to help investors and other financial statement users by providing more transparency into the leases effects on cash flows. The new guidance will require lessees to record leases with terms of more than 12 months. Currently, GAAP only requires capital leases to be reported on the balance sheet.

However, the accounting for organizations that own the assets leased will remain mostly unaffected from current GAAP. The slight improvements that the ASU does contain is to bring into line lessor accounting model with the lessee accounting model and with the updated revenue recognition guidance issued in early 2014.

This undertaking began in 2006 when the FASB and the International Accounting Standards Board (IASB) began working on a joint project to improve the financial reporting of leasing activities. FASB and the IASB conducted widespread outreach with diverse groups that included meetings with prepares and users of financial statements, public round tables, preparer workshops, and three issued documents for public comment.

FASB Chair Russell G. Golden stated, “When the new FASB and IASB leases standards take effect, they’ll provide investors across the globe with more transparent, comparable information about lease obligations held by companies and other organizations.”


Look for more information on this topic from Holbrook & Manter in future posts. In the meantime, please reach out to us with any questions you may have.

H&M Welcomes New Staff Accountant

Holbrook & Manter is happy to announce that Jennie Schott has joined our growing team. Jennie joins as a staff accountant and works out of our Grandview Yard location.

Originally from Canal Winchester, Jenny is a Capital University graduate. She shares that she decided that accounting was the field for her after learning more about the profession through business classes. Prior to coming to H&M, Jennie interned and worked for BDO Columbus working with clients in various industries including hospitality, manufacturing and non-profit.

Jennie shares that frequent client interaction is one of her favorite parts about her position with Holbrook & Manter. In her spare time she enjoys outdoor activities such as hiking, camping and walking her dog. She also enjoys spending time with family and friend.

Welcome to the H& M family, Jennie!



Getting Remarried? Be Sure to Update your Estate Plan

If you’re in a second marriage or planning another trip down the aisle, it’s vital to review and revise (if necessary) your estate plan. You probably want to provide for your current spouse and not inadvertently benefit your former spouse. And if you have children from each marriage, juggling their interests can be a challenge. Let’s take a look at a few planning tips.

Take inventory

Have you updated your will, trusts and beneficiary designations to name your current spouse where desired? Bear in mind that the terms of your divorce may require you to retain your former spouse as beneficiary of certain pension plans or retirement accounts.

Next, assess your financial situation and think about how you want to provide for various family members. For example, do you want to provide for all children equally? Will you favor biological children over stepchildren?

Also, are children from your first marriage significantly older than children from your second marriage? If so, their needs likely will be different. For example, if children from the first marriage are college age, in the short term they may need more financial support than children from your current marriage. On the other hand, if your older children are financially independent adults, they may need less help than your younger children.

Use trusts

Trusts generally avoid probate, so your assets can be distributed efficiently. However, if you leave your wealth to your current spouse outright, there’s nothing to prevent him or her from spending it all or leaving it to a new spouse, effectively disinheriting your children. To avoid this result, you can design a trust that provides income for your current spouse while preserving the principal for your children.

Trusts are particularly valuable if your children from a previous marriage are minors. Generally, if you leave assets to minors outright, they must be held in a conservatorship until the children reach the age of majority. It’s likely that your former spouse will be appointed conservator, gaining control over your wealth. Even though your former spouse will be obligated to act in your children’s best interests and will be supervised by a court, he or she will have considerable discretion over how your assets are invested and used.

To avoid this situation, consider establishing trusts for the benefit of your minor children. That way, a trustee of your choosing will manage the assets and control distributions to or on behalf of your children.

If you’re preparing for a second trip down the aisle or have recently wed for a second time, contact us for help reviewing and, if necessary, revising your estate plan.

H&M’s Brad Ridge Facilitates Panel Discussion for the Conway Center for Family Business

H&M’s Managing Partner, Brad Ridge, had the honor of facilitating a panel discussion for the Conway Center for Family Business. The topic of the discussion was, “Managing Sibling Relationships during the Succession Planning Process.”

Siblings from Happy Chicken Farms and Citicom Print made up the panel of professionals who were gracious enough to share their succession planning strategies and experiences. The panel touched on everything from the importance of having outside counsel during the process to how they handle various financial aspects of their respective businesses. They also talked about their relationships with their siblings who chose not to work with the family business and how they are planning for integrating future generations into their operations.

H&M is a proud service provider for the Conway Center for Family Business. We extend our gratitude to them for inviting us to moderate today and also thank the panelists.

H&M specializes in working with closely-held and family-owned businesses. For more information on how we can help you with your succession planning needs, contact us today.


Handling Estimated Tax Payments

In today’s economy, many individuals are self-employed. Others generate income from interest, rent or dividends. If these circumstances sound familiar, you might be at risk of penalties if you don’t pay enough tax during the year through estimated tax payments and withholding. Here are three strategies to help avoid underpayment penalties:

1.      Know the minimum payment rules. For you to avoid penalties, your estimated payments and withholding must equal at least:

1.) 90% of you tax liability for the year,

2.) 110% of your tax for the previous year, or

3.) 100% of your tax for the previous year if your adjusted gross income for the previous year was $150,000 or less ($75,000 or less if married filing separately).

2.      Use the annualized income installment method. This method often benefits taxpayers who have large variability in income by month due to bonuses, investment gains and losses, or seasonal income — especially if it’s skewed toward year end. Annualizing calculates the tax due based on income, gains, losses and deductions through each “quarterly” estimated tax period.

3.      Estimate your tax liability and increase withholding. If, as year end approaches, you determine you’ve underpaid, consider having the tax shortfall withheld from your salary or year-end bonus by December 31. Because withholding is considered to have been paid ratably throughout the year, this is often a better strategy than making up the difference with an increased quarterly tax payment, which may trigger penalties for earlier quarters.

Finally, beware that you also could incur interest and penalties if you’re subject to the additional 0.9% Medicare tax and it isn’t withheld from your pay and you don’t make sufficient estimated tax payments. Please contact us for assistance with your estimated tax payments. Don’t play a guessing game with this tricky but very important task.

Trust & Estate Planning: Drafting a Letter of Instructions

When you draft an estate plan, the centerpiece is your will or living trust. Such a document determines who gets what, where, when and how, as well as tying up the loose ends of your estate. A valid will or living trust can be supplemented by other legally binding documents, such as trusts (or additional trusts), powers of attorney and health care directives.

But there’s still a place at the table for a document that has absolutely no legal authority: a “letter of instructions” to your heirs. This informal letter can provide valuable guidance and act as a road map to the rest of your estate.

Taking inventory

Begin your letter of instructions by stating the location of your will or living trust. Then create an inventory of all your assets and include their location, any account numbers and relevant contact information. This may include, but isn’t necessarily limited to, checking and savings accounts, 401(k) plans and IRAs, health insurance policies, business insurance, life and disability income insurance, stocks, bonds, mutual funds and other investments, and any tangible assets your heirs may not readily find.

The contact information should include the names, phone numbers and addresses (including emails) of the professionals handling your financial accounts and paperwork, such as an attorney, CPA, banker, life insurance agent and stockbroker. Also, list the beneficiaries of retirement plans, IRAs and insurance policies and their contact information.

Guidance for personal preferences

A letter of instructions is more than just a listing of assets and their locations. Typically, it will include other items of a personal nature, such as funeral, burial or cremation arrangements, accounting of fees paid for cemetery plots or mausoleums, the names, addresses and telephone numbers of people and organizations to be notified upon death, and specific instructions for handling personal and financial affairs after you’re gone.

The letter can also expand on instructions in a living will or other health care directive. For example, it might provide additional details about the decision for being taken off life support systems. It may also cover charitable contributions you wish to be made after death or the manner in which property should be donated to charity.

Putting pen to paper

As you’re writing your letter, bear in mind that there are no legal requirements backing it. And just like a will or living trust, the letter should be updated periodically to reflect significant changes in your life. Finally, keep the letter in a safe place where the people whom you want to read it can easily find it. Contact us if you have questions about a letter of instructions.

Keep your SOX Fresh!

By: Dave Gruber, CPA- Director, Risk Advisory Services

The Sarbanes-Oxley Act of 2002 (often shortened to SOX ) is legislation passed by the U.S. Congress to protect shareholders and the general public from accounting errors and fraudulent practice on the enterprise, as well as improve the accuracy of corporate disclosures.  Section 404 of Sarbanes-Oxley mandates public companies to issue an internal control report that contains management’s assertions regarding the effectiveness of the company’s internal control structure and procedures over financial reporting.  The steps leading to the company’s assessment can include:

·         Documenting the company’s processes through narratives, flowcharts, and / or matrices

·         Identifying and documenting the key controls present to prevent financial statement errors

·         Evaluating the design of the key controls

·         Perform testing on the effectiveness of the key controls

·         Evaluating the results of the testing

This compliance work of documenting and testing the internal control structure can be an arduous task. SOX  is no longer in its infancy – large companies have been performing SOX work for over 14 years.  Like with most things in life, after you have been doing things so long, it can be easy to fall into the trap of doing things “the way we always have”.  With SOX procedures, this could mean assuming things have not changed from the prior year and continue on with the documentation and test procedures “the way we always have”.  To combat this complacency, the following items are just some of the things that can be done prior to starting your SOX compliance project to insure there is a fresh and complete approach to your SOX compliance on an annual basis:

·         Hold a detailed planning meeting:

-Have there been any major changes in the business that could have an effect on the control environment:

-Major acquisitions?

-Shift in business model?

-Changes in the economy and / or industry?

-Increase / decrease in division profitability?

-Any change in major customers?

-Have there been any changes in scope?

-Any changes in key personnel?


·         Conduct a detailed review of the processes from a “fresh set of eyes” concept, including:

- Walk throughs of the documentation with the process owners, noting changes, where necessary

-Re-evaluate the design of the key controls

-Update test plans, as necessary

Making the above items an integral part of your Sarbanes-Oxley compliance project can help keep your SOX “fresh”! Contact me today for more information regarding SOX compliance. I would be happy to help.