Category Archives: Audit & Accounting

Financial Statement Relief is in Sight

It seems like each year, new accounting rules are issued that make financial statements more complicated and less relevant for privately-held companies, especially those that are small and medium-sized businesses. Most of the new accounting requirements have been intended more for larger publicly-traded companies. The good news is that there has been some recent relief for privately-held companies.


For those privately-held companies required to issue financial statements using generally accepted accounting principles (GAAP), the Financial Accounting Standards Board (FASB) issued in 2014 some amendments to accounting rules that should simplify the accounting requirements in regards to recording goodwill, interest rate swaps, and variable interest entities (such as leasing relationships that previously were required to be consolidated). These amendments become effective for annual periods beginning after December 15, 2014, with early application allowed.

For those privately-held companies whose financial statements users don’t require GAAP-based financial statements, the tax basis of accounting has always been a popular more simplified option. There is also a new non-GAAP basis of accounting available for small and medium-sized enterprises (SMEs) called the Financial Reporting Framework for SMEs. This basis of accounting is accrual-based and uses more simplified principles that don’t include deferred taxes, interest rate swaps, comprehensive income, variable interest entities, etc. that have complicated a lot of GAAP-based financial statements. This new framework basically is like an old version of GAAP before the more complicated rules came into being.

Let us know if you have any further questions. While the relief noted above doesn’t guarantee more simplified accounting for all privately-held companies, it’s definitely a step in the right direction.

By: Brent Ringenberg, CPA

Employee Benefit Plan Fiduciary Responsibilities: What do you need to do?

Plan fiduciaries have important responsibilities and are expected to maintain certain standards of conduct.  Both plan sponsors and plan fiduciaries are responsible for protecting the interests of the participants involved with the benefit plan.  The Employee Benefits Security Administration (EBSA) has stepped up their enforcement of employee benefit plans and the fiduciary duties that are associated with administering these plans.  Below we have summarized several topics that we wanted you to keep in mind as you perform these fiduciary duties.

  1. A fiduciary of the plan is not only the individual named in the plan document as the plan administrator, but also trustees, investment advisors, and any individual that exercises discretion in the administration of the plan.  Therefore, even if an individual is not listed as a plan administrator, they may demonstrate control over the plan due to their job responsibilities and it would be necessary to consider them a fiduciary of the plan.
  2. Fiduciaries are expected to understand the terms of the plan.  In order to accomplish this, you must be familiar with your plan document and follow the terms of the plan document exactly as they are stated.
  3. Service providers of the plan should be selected and monitored very carefully.  A formal review process of service providers should be established and followed at routine times (i.e. monthly, quarterly, etc.).  As a plan fiduciary, you should regularly be benchmarking the cost of plan services to ensure that your plan is paying costs that are fair when compared to other service providers in the market.  Investment policy statements should be periodically reviewed to ensure that fiduciary actions are consistent with what is stated in the investment policy and also to ensure that documents are up to date and reflect the intent of the responsible fiduciary.  The service provider’s performance should be evaluated and any reports that are provided to you from the service provider should be read
  4. Plan fiduciaries are responsible for the timely remittance of contributions to the plan.  For large plans, the law states that salary reductions from an employee’s paycheck for contributions to the plan must be deposited into the plan as soon as it is reasonably possible to segregate them from the company’s assets, but no later than the 15th business day of the month following the payday.  In addition to the remittances being made timely, it is also recommended that the remittances be done consistently.  Not only is a late remittance of employee contributions considered a breach of fiduciary duties, it is also considered a prohibited transaction.
  5. Fiduciaries of employee benefit plans should avoid prohibited transactions.  These prohibited transactions would include fiduciaries who use plan’s assets in their own interest or who act on both sides of a transaction involving a plan.  Fiduciaries are not permitted to receive money or any other consideration for their personal account from any party doing business with the plan related to that business.  These potential conflicts of interest could be harmful to the plan.
  6. Plan fiduciaries are required to make timely disclosures to all employees, participants and beneficiaries and to submit reports to the appropriate government agencies.  These reports include the summary plan description, summary of material modifications (when applicable), an individual benefit statement, summary annual report, and a blackout period notice (when applicable).

The above items are important reminders to protect plan fiduciaries.  If your fiduciary responsibilities are not met various civil and criminal penalties can be charged against you.  If you have questions or would like to discuss any of the above issues in more detail, please contact our office.

By: Kristin Metzger, CPA

Is It O.K. To Pay Employees “On The Side” As Contractors?

Hiring employees to do “side jobs” for your company has been a growing trend versus trying to search for someone else to perform the job from outside the company.  Some types of jobs performed by independent contractors could be cleaning, computer work, or repair & maintenance.

Example:  A receptionist who is an employee who makes extra money by cleaning offices during non-business hours as an independent contractor.

If the job the independent contractor is hired for ends up paying more than $599 in a calendar year, a 1099 Misc form will have to be issued.  The IRS pays close attention to individuals who receive a both a W-2 and 1099 form from the same company in the same year.  A possible employment tax audit for the entire business could be triggered from doing this.

If the job is performed outside of the normal employee’s work hours and the job has no relation to the regular work of that employee then it could be an exception, but be prepared to have to prove that to the IRS.  If the employee has a legitimate independent business with separate Federal ID number and works for other companies who pay the employee for that job would be the safer option.

Even though it may be easier to hire a current employee, it could open your company up to an audit risk and isn’t usually advised.   You can have the independent contractor fill out the IRS form SS-8 (Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding) and let the IRS determine the status of the work performed.

By: Sandra Stone, Accountant

Does My Retirement Plan or Health Plan Need Audited?

Many businesses may be asking themselves this question. According to the Department of Labor (DOL) there are some general rules regarding the auditing of retirement/health plans.  First, one has to decipher whether their plan is a “small” or a “large” plan.  Plans with 100 or more participants at the beginning of the plan year are considered “large” plans.  Plans with less than 100 participants at the beginning of the plan year are considered “small” plans. “Small” plans are generally exempt from DOL audit requirements.  “Large” plans  are not exempt from the annual audit requirement.

Additionally, there is an exception for those plans that routinely fluctuate between slightly more or less than 100 participants at the beginning of the plan year that would not require the plan to switch between being categorized as a “small” plan or a “large” plan due to inconvenience.   This rule is known as the 80-120 Participant Rule.  This basically states plans with between 80-120 participants at the beginning of the plan year may elect to complete the current year return using the same category (“small” versus “large”) that was used in the prior year.  Thus, if your plan had 110 participants at the beginning of this plan year but was considered a “small” plan in the prior year, then in the current year your plan is considered a “small” plan, which would generally not require an audit.  Also, in this instance, the plan would not require an audit in subsequent years until the number of participants exceeds 120.  On the other hand, if the plan had 110 participants at the beginning of this year, and was considered a “large” plan in the prior year, the plan would be considered a “large” plan in the current year and would need to meet the audit requirement.

The following table provides a summary of the 80-120 Participant Rule:

Number of Participants at Beginning of   Current Year


 Requirements Followed for the Previous   Year Form 5500


Requirements to Be Followed for the Current   Year Form 5500

Fewer than 80 “Small” plan “Small” plan
Fewer than 80 “Large” plan “Small” plan
80-99 “Small” plan “Small” plan
80-99 “Large” plan May elect to file Form 5500 again as a “large” plan or   switch to a “small” plan
100-120 “Small” plan May elect to file Form 5500 again as a “small” plan or   switch to a “large” plan
100-120 “Large” plan “Large” plan
More than 120 “Large” plan “Large” plan
More than 120 “Small” plan “Large” plan

This is just a general guideline.  There are other factors that may influence whether an audit is required or not required by the DOL.  Contact your William Vaughan Company representative for further information.

By: Ryan Leininger, CPA

Employee Benefit Plans – Is your plan in compliance?

Large employee benefit plans are required by the Department of Labor (DOL) to have an annual audit performed to be used in filing the annual Form 5500.  A large employee benefit plan is generally defined as having 100 or more participants at the beginning of the plan year.  A small employee benefit plan is generally defined as having less than 100 participants at the beginning of the plan year and is not subject to the annual audit requirements.

The DOL also conducts its own audits of employee benefit plans as a result of an employee complaint or discrepancies on the Form 5500 report.  These audits could result in fines for inaccuracies or issues if the plan is not in compliance with the plan document.  

Common Errors                                                                                                   There are numerous errors that could be uncovered during the audit of your employee benefit plan.  However, what if you are a small plan not subject to the audit requirements?  Would the errors be identified by plan management?  As a plan sponsor of either a large or small plan, you should be aware of some common mistakes made in employee benefit plans.

Plan Compensation                                                                                                       What is the definition of plan compensation according to your plan?  This is an error that is commonly made when the definition in the plan document is not being followed.  The definition of plan compensation in some plan documents can be very complicated, and if not followed can also be costly to the plan sponsor to correct.

What types of plan compensation are paid in your company? Many times there is base pay, bonuses, overtime, vacation, fringe benefits, etc. and the definition in the plan document may include and/or exclude different types of compensation paid.  To further complicate the matter, plan compensation could have different meanings for employee deferrals, employer match contributions and profit sharing contributions.  Your plan is not in compliance and should be corrected if the proper definition of plan compensation is not being used.

Plan Eligibility                                                                                                                Have all of the employees eligible in your plan been given the opportunity to participate?  Many times plan sponsors do not properly follow their plan’s eligibility requirements.  For example, plan sponsors may assume that their plan document excludes certain types of employees, such as part-time employees, when in fact the provisions do allow for part-time employees to participate.  It is important for plan sponsors to be familiar with their plan document’s eligibility provisions, and these provisions should be regularly monitored to ensure that all eligible participants are given the opportunity to participate in the plan.  It is also important to have procedures in place to notify employees of the eligibility criteria and provide them with guidance as to how and when they may participate in the plan.   

Late Deposits                                                                                                                   Have you deposited your employee deferrals and loan payments into the plan on time?  The plan sponsor is responsible for remitting these contributions to the plan in a timely manner.  The DOL requires that for large plans these contributions be deposited on the earliest date that the employer can reasonably segregate the amount from the employer’s general assets; however, in no event can the employer deposit the amount later than the 15th business day of the following month.  This rule does NOT provide a safe harbor for depositing deferrals, but is a general guideline.   For small plans, the DOL did establish a safe harbor for employee deferrals and loan payments which allows for these deposits to be made within seven business days following the receipt or withholding by employers.  It is important to remember that plans are required to make these deposits as soon as it is administratively feasible to separate these deposits from the general assets of the company, and the DOL can always evoke penalties if they determine the deposits can be made in a timelier manner.

If a plan sponsor does not make deposits timely, the failure may be considered both an operational mistake and a prohibited transaction.  The DOL has various correction methods available that may be able to help resolve the failure.

It is important to note that strictly adhering to the guidelines of both the DOL and the plan document are pertinent in effectively monitoring your employee benefit plan.  Plan management needs to take the time to understand their plan document and should regularly review the plan operations to ensure they are compliant.

By: Kristin Metzger, CPA

How can you support change in private company financial reporting?

The basic fact is that too much of what is included in current financial statements in not useful to private company owners, lenders or private company investors. Plain and simple, the current system does not adequately consider the needs of the private-company sector. You have read prior posts on the Blue Ribbon Panel on Private Company Financial Reporting; thier mission being to assess the standard setting process from a policy level vs. changes to individual standards.

Here are the conclusions from the panel:

  • Substantive changes and modifications in existing and future U.S. GAAP  for private companies, where appropriate.
  • A new, separate standard-setting board reporting directly into FAF (as opposed to the FASB) and consisting of people with private company experience.

Be part of the change!

If you support the panel’s recommendations for differential standards and a seperate, autonomous standard-setting body, then write the Financial Accounting Foundation. In effort to make the process as easy as possible, the AICPA has created an online letter writing tool in which you can submit electronically. 

The blue ribbon panel held five meetings during 2010 and finalized its major recommendations at a meeting on December 10, 2010. A report containing the panel’s recommendations for a new separate standard-setting board and for modifications to U.S. GAAP to recognize the unique needs of private company financial statement users was submitted to FAF in late January. FAF’s Board of Trustees discussed the report at its February 15 meeting. A proposal for public comment is expected to be released this spring. CPAs, lenders and other users, private companies and small business owners are encouraged to be engaged in this critically important initiative to help transform the recommendations into reality.

Learn the reasoning behind their decisions

AICPA Chair of the Board of Directors Paul V. Stahlin, CPA, is regional president of a community bank in New Jersey. Hear his thoughts about U.S. GAAP needing to be more relevant and useful to private company financial statement users.

A banker’s perspective