1099 Changes Are Coming

Included within the 2010 Health Care Reform Bill were substantial potential changes to the current 1099 reporting requirements. Some of the key changes are as follows: • The corporate exception is ending and, with few exceptions, all corporations will need to be reported on Form 1099-Misc for payments made after December 31, 2011. • Payments for property (goods) will need to be reported on the 1099-MISC if at or above the familiar $600 annual payment threshold. These changes are effective for all payments made after December 31, 2011. • Establishment of Form 1099-K which aims targets currently hard-to-track payment stream: credit cards. Starting in 2011, financial firms that process credit or debit card payments will be required to send their clients, and the IRS, an annual form documenting the year's transactions.

So how large of an impact will this have on small businesses? No one currently knows; however, the accumulation of payee data will be the area where companies will need to devote additional time to comply. Assuming the $600 threshold is met, all vendors will have to provide their name and taxpayer identification number, generally on Form W-9. Currently, many companies required such information and report payments made for services. The new law includes reporting for amounts paid for goods. For instance, a 1099 will be required to be issued if you purchased a computer at a local retailer. However, there appear to be benefits of the change due to the $600 “bright line” for all payments. Another key change is that financial firms that process credit or debit card transaction will now be required to provide that information on Form 1009-K. What does this mean? All payment processors, including Paypal, eBay, Amazon, etc that service individuals and very small businesses will be providing information to the IRS regarding processed transactions. The goal of the new regulations is to capture income that is unreported to the IRS. This requirement has the potential to cause significant tax issues for various individuals and small businesses who conduct ecommerce transactions without reporting the income. Could the impact be as big as recent Foreign Disclosure (UBS, etc.) rules? Only time will tell.

Please note that final regulations are still be interpreted by the IRS and will likely not appear until next year. However, we have been guiding our clients at dbbmckennon to be aware as the reporting requirements will affect substantially all businesses in the US and doing business in the US. Please contact us if you have any questions.

dbbmckennon now registered with CPAB

dbbmckennon recently received notice from the Canadian Public Accountability Board ("CPAB") that it has been added to the CPAB's list of participating audit firms. The CPAB is Canada's version of the Public Company Accounting Oversight Board ("PCAOB") here in the United States. The CPAB was formed in 2003 and oversees auditors of Canadian reporting issuers. Generally their jurisdiction covers all companies that have raised funds from the Canadian investing public and who, for that reason, must file financial statements with one or more provincial securities commissions.

dbbmckennon is a full service public accounting firm in which was established to provide tax, attestation and consulting services to individuals and businesses through our two offices located in Southern California. To contact dbbmckennon click here.

What’s the Cloud?

Cloud computing is Internet - ("cloud") based development and use of computer technology ("computing"). In concept, it is a paradigm shift whereby details are abstracted from the users who no longer need knowledge of, expertise in, or control over the technology infrastructure "in the cloud" that supports them. It typically involves the provision of dynamically scalable and often virtualized resources as a service over the Internet. The term cloud is used as a metaphor for the Internet, based on how the Internet is depicted in computer network diagrams and is an abstraction of the underlying infrastructure it conceals. Typical cloud computing services provide common business applications online that are accessed from a web browser, while the software and data are stored on the servers.

These services are broadly divided into three categories: Infrastructure as a Service (IaaS), Platform as a Service (PaaS), and Software as a Service (SaaS). The name cloud computing was inspired by the cloud symbol that is often used to represent the Internet in flow charts and diagrams." (source wikipedia)

Why be in the Cloud?

The whole point of having a wireless enterprise infrastructure is to increase mobility, reliability, security, reduce hardware and IT consulting costs, and ultimately your software licensing costs. Yet for many enterprises, they use wireless LANs (WLANs) that require an on-site server(s) which occupy space, require field maintenance and repair, and can be stolen.

dbbmckennon and their preferred IT networking vendor is now aiming to change the wireless management paradigm with a new cloud-based Software-as-a-Service (SaaS) offering.  Can you imagine reducing your hardware costs by about 50% alone?  IT consulting costs too?  dbbmckennon will join this vendor to ensure client transitions seamlessly with integrity and security. 

Benefits of the Cloud!

• Improve company performance – Applications run real time and give your entire management team the ability to quickly view, understand and take action to respond to changing business conditions.  Improves effectiveness and efficiencies in the organization.
• Allows remote access – at high speed from anywhere in the world.
• Dramatically reduce IT and operating costs – Reduce your costs of servers and desktop computers, and probably printers.  You maintenance costs for computers and servers is substantially eliminated.  You will not need an air conditioned, dedicated server room once on the cloud.
• Reliability – In today’s data centers are extremely reliable.  These are the same data centers that fortune 100 companies utilize.  No more rebooting your company server and server downtime, as well as costly IT field maintenance.  A reliable internet connections can be found anywhere if your primary connection fails.  Back ups are imagined real time, thus no tape, disk or on-line back is needed.
• Security – Secure networks on offices are generally much more vulnerable to damage and theft. Redundant systems and data encryption protect data from loss and intruders.  The cloud greatly reduces documents sent via email, which are often not secure.  Netbooks, not  laptops, will be used by sales and field personnel; Netbooks have no confidential data stored on them if lost!
• Going Green – The cloud reduced paper, postage and handling costs.  Since you documents and files are maintained electronically, storage space is greatly reduced.

Please contact us if you have any questions or would like additional information.

Should I care about my firms PCAOB inspection report?

To audit public companies our Firm must be registered with the Public Company Accounting Oversight Board (“PCAOB”), the watchdog of the public accounting industry. For us smaller firms, the PCAOB is required to inspect our audit work papers at least once every three years. Believe us, these inspections are not very easy as the inspectors critically analyze and challenging key areas of the audit work papers. The process is time consuming and stressful. At the end of the process, a report is issued identifying their findings. The report is available to the public through the PCAOB’s website. Although the PCAOB members have repeatedly stated that the inspection reports are not designed or intended to rate accounting firms according to a scorecard. We at dbbmckennon believe that at times these reports can provide a rough bearing as to the quality of your independent auditor, especially for the small/medium firms. You can find your firms inspection report here. The most important area of the report is section A “Review of Audit Engagements”. Within the section, the PCAOB highlights areas in which they have identified audit deficiencies. Meaning areas in which the firm did not adequately document their audit procedures. Generally, a firm might expect to get one or two comments regarding its work papers. Anything in excess of this might be a cause for concern.

Being a member of the PCAOB is a privilege not a right. The PCAOB has the power to rescind a firm’s registration within the PCAOB. Upon rescinding, all of the firm’s audit reports will be deemed invalid, thus requiring the company’s financial reports to be re-audited by a new firm.  For an example of an action against a firm, see the disciplinary release on Moore & Associates.

The answer to our questions is YES!  At dbbmckennon we pride ourselves on the timeliness and quality of services we provide.  If you have any questions regarding your firm’s report or the inspection process and how it might impact you, feel free to contact us.

Audit, Review and Compilation – What is the difference?

The difference in each is significant. In most cases, audits, reviews and compilations are necessary to comply with the requirements of banks and lending institutions, suppliers, regulatory agencies or others who rely heavily on the information contained in your financial statements. Depending on the level of assurance required will determine the type of report needed.  The services discussed below may only be performed by certified public accountants, which are registered to do so.  Such firms are subject to quality review inspections.  dbbmckennon, certified public accountants, are registered to perform these services. An Audit provides the highest level of assurance involving gaining an understanding of the internal controls, a critical review of financial analytics, the testing of source documents such as sales orders and disbursements and an independent verification of financial information through third party confirmations. An audit results in an independent opinion from a certified public accountant attesting to the fairness and accuracy of your financial statements and the representations they contain. Audits provide the "highest level of assurance" about the reliability of your financial statements.

A Review is an evaluation of your financial statements through obtaining knowledge of the business and industry, making management inquiries, analytical procedures, and in some cases performing a limited amount of substantial testing. The scope of a review is less than an audit, and thus, the report issued provides "limited assurance" that nothing came to the certified public accountants attention that would require modification. In addition, the financial statements are clearly marked “unaudited”.

A Compilation requires the certified public accountant to obtain an understanding of your business in which your company operates, as well as the basic accounting function and those involved. A compilation is the assembling of financial data from your accounting records and presenting, in the form of financial statements, information that is the representation of management without undertaking to express any assurance on the statements. A compilation provides the assistance needed for you to prepare meaningful financial statements in which the certified public accountant provides no assurance. In addition, the financial statements are clearly marked “unaudited”.

A compilation may be prepared on a basis other than generally accepted accounting principles, such as a cash-basis financial statement.  A compilation may include notes to the financial statements or no notes at all.  The form of compiled financial statements depends on the requesting party or your particular needs.

Please contact us to assist you in evaluating your financial reporting needs and determining which level of service you require.

Is SOX 404 dead?

On November 4, 2009, the House Financial Services Committee approved the Investor Protection Act (H.R. 3817). Included within the Act was the exemption from SOX auditor attestation requirements for small businesses. Specifically, the Act was amended by the committee to exempt permanently companies with a market capitalization of less than $75 million from the Sarbanes-Oxley Act requirement that auditors attest to management's declaration that their internal controls over financial reporting are effective. However, the legislation still has to move through the House and Senate. We immediately provided a hopeful update to our clients, before many Registered Public Accounting Firm were even aware of the Committee approval.

Although it appears the requirement for auditors to attest to management's declaration that their internal controls over financial reporting are effective is well on its way to the grave. The Act does not change the requirement that all public companies must document, test and report on the adequacy of the company's internal control over financial reporting.  Sorry!  Until further notice, SOX 404 is still required for smaller reporting companies with fiscal years ending after June 15, 2010.

Since 2004, members of dbbmckennon have been assessing, documenting and testing internal controls. Our members have worked with some of the largest companies in Southern California. Please contact either Michael McKennon or Russ Boyer if you have any questions.