“They are the Green Berets of the accounting and finance world in that they parachute into situations and get things to run right.”
“They are the Green Berets of the accounting and finance world in that they parachute into situations and get things to run right.”
CFO Consulting Partners’ pre-audit services helps public and private companies produce workpapers and a full set of GAAP financial statements, including footnotes, for review by its independent auditors. Workpapers are cross-referenced and references are made to supporting documentation. For public companies, CFO Consulting Partners offers SEC report preparation services (i.e., 10-Qs and 10-Ks, including MD&As).
Typically in a Pre-Audit engagement we:
Benefits to include:
Our firm is a team of senior financial executives. We provide a broad range of financial management services to public and private companies. We work for CEOs, CFOs, Controllers, as well as audit committees and boards.
Our mission is to apply our consultants’ considerable collective experience to resolve client issues in a professional and efficient manner.
Further information is available at: www.cfoconsultingpartners.com.
A $100 million publicly-held service Company had not filed its SEC reports (10-Ks, 10-Qs) on a timely basis. The CFOs attention had been focused on non-financial reporting operational matters.
The Company, wishing to bring its reporting current, engaged CFO Consulting Partners LLC to prepare the financial sections of its 10-K, including the MD&A section. Before completing the SEC statement, various reconciliations and other accounting matters needed to be addressed and completed. CFO Consulting Partners accomplished those operational and accounting needs, developed practices to assure such matters could be addressed in a timely manner on an ongoing basis, and prepared the financial statements, footnotes and MD&A section.
All objectives were completed.
A public-company community bank had aggressively expanded its commercial lending business. The growth in this product line outstripped the Bank’s staffing and internal controls in its credit and accounting areas. Symptoms at the Bank included significant loan losses, errors in its calculation of its Allowance for Loan and Lease Losses (ALLL), and its lack of adequate training and oversight of the credit administration function. When CFO Consulting Partners was engaged, the Bank did not have a Chief Financial Officer.
The Bank’s Board engaged CFO Consulting Partners LLC to provide it with a CFO who was acceptable to the regulator and who could provide the senior-level financial management support needed to mitigate the internal control weaknesses. We found that some of the errors were so significant that reports to the SEC (10-Qs) and reports to bank regulators (Call Reports) were materially inaccurate, and we suggested to the Board that those financial reports be restated.
We restated SEC financial statements, implemented controls and policies and procedures to resolve the internal control weaknesses, reviewed and corrected various analyses, and trained credit department staff in the preparation of the ALLL analysis. We frequently communicated our many reviews and changes to the Board and to Senior Management. Finally, we assisted in the hiring of a permanent CFO, and developed a transition and knowledge transfer plan which we executed during an overlap period with the new CFO.
CFO Consulting Partners LLC is a boutique financial management consulting firm providing accounting and risk management services to CEOs and CFOs of small and midsized public and private companies. For more information, please contact Allan Tepper at 609-309-9307, x701 or visit us on the web at www.cfoconsultingpartners.com
Alternative asset management firm Equinox Fund Management has appointed David P DeMuth, to the Executive Committee of The Frontier Fund, its public managed futures fund.
The Frontier Fund is a family of funds available to retail investors, which carries a low minimum investment requirement (USD1,000 in most states) and features daily liquidity.
DeMuth replaces Ajay Dravid, PhD, who served on the Executive Committee from March 2009 through December 2010 and was recently named Director of Risk Management at Solon Capital, LLC, an affiliate of Equinox.
DeMuth has many years of experience as a senior finance and operations professional. He is a Co-Founder of CFO Consulting Partners LLC, providing interim CFO services to public and private companies. His previous positions include appointments as the Interim Co-Chief Financial Officer and Treasurer at Kodak Polychrome Graphics (a USD2 billion global manufacturer of graphic arts materials), the Division Vice President of Continental Grain Company (a multi-billion provider of commodities and financial services) as well as and Director of Tax Services at PepsiCo Inc. (a multi-billion global consumer products beverage and food company). His industry experience includes technology, real estate development, financial services, and consumer products.
DeMuth specializes in global risk management and regulatory compliance. He has created corporate strategies to manage financial reporting, financial and operations risks, and compliance with regulatory authorities internationally.
Mr. DeMuth, who holds a BS in Accounting from Loyola University, and an MBA in Finance from LaSalle University, is also a Certified Public Accountant (CPA).
“We are thrilled to have David on the Executive Committee,” says Robert J Enck (pictured), President and Chief Executive Officer of Equinox. “His strong financial services experience and expertise, particularly his global focus on risk management, will be invaluable to The Frontier Fund. We thank Ajay for his service, and look forward to his continued insight and sage, professional counsel.”
Valentine Ejiogu, Director, CFO Consulting Partners
Late last year, the FASB and IASB released an exposure draft on the proposed new accounting standard, Topic 840. This will be the first significant change in lease accounting since FAS 13 was released in 1976.
If finalized, the exposure draft would converge FASB’s and IASB’s accounting for lease contracts in most significant areas. The few remaining differences pertain mostly to discrepancies with other existing standards.
Companies would face significant changes in how they account for leasing transactions if the exposure draft is adopted. For example, today if a company enters into a multi-year year lease for premises, the lease payments would normally be expensed evenly over the life of the lease. If the exposure draft is adopted, that lease would be capitalized, which would result in amortization and interest expense, with more interest expense recognized in the early years and less in the remaining years. Therefore, the Company’s income statement will suffer in the early years. Further, lease expense, which is now normally considered operating expense and which is included in EBITDA, would be shown after the EBITDA line.
Lessees would be required to perform significantly more monitoring and recordkeeping, particularly for leases currently classified as operating leases. Lessees will also need to apply lease requirements to all outstanding leases as of initial application (comparative periods would need to be restated). Lessees will need to apply the proposed transition requirements to leases currently accounted for as operating leases.
All leases are to be capitalized. That is, all leases would result in asset and liability recognition. There is no exclusion from capitalization for short-term leases; though the Boards will permit leases with a total maximum lease term of 12 months or less to be capitalized at the undiscounted value of the rents. The exposure draft proposes the lessee recognize an asset for right to use the leased asset and a liability of its obligations to make future payments and in addition, amortization of the right-to-use asset and finance expense arising from the liability.
The interest rate used for present valuing the rents and recognizing interest expense is the incremental borrowing rate, except that the “the rate the lessor charges the lessee” may be used if known. This is referred to as the implicit rate, which must now include contingent rents.
Definition of a Lease
A lease is a contract in which the right to use a specified asset (the underlying asset) is conveyed, for a period of time, in exchange for a consideration.
At the date of inception of a contract, an entity shall determine whether the contract is, or contains, a lease on the basis of the substance of the contract by assessing whether:
Impact on Accounting by Lessees
The following are the major differences for lessees in the new exposure draft:
The exposure draft provides that lessee disclosure in the financial statements should include:
Impact on Accounting for Lessors
The lessor would recognize an asset representing its right to receive lease payments and, depending on its exposure to risks or benefits associated with the underlying asset, would either
The derecognition approach is similar to the current accounting for sales-type leases under GAAP. However, the amount of the upfront profit recognized, as well as the measurement of the lease receivable and the residual asset, may be different from that recognized under the sales-type lease.
The Boards are yet to determine the effective date.
For questions, please contact Valentine Ejiogu at Valentine.Ejiogu@cfoconsultingpartners.com or call Valentine at (609) 309-9307, x706.
Joe Barkley, Director, CFO Consulting Partners LLC
Information Technology (IT) is the second largest cost – after Human Resource – to most firms. It is often misunderstood and can be ineffectively managed. IT is a business within the business, and it has significant bottom and top line impact.
Chief Financial Officers (CFOs) may regard IT as a “black box:” difficult to fully comprehend exactly which technologies are worth spending money on and how to properly utilize them. Firms and management can be enticed by the latest technology because it looks slick without understanding the full capabilities and controls involved.
Ask a CFO who is responsible for the management of the IT costs and the answer is usually the Chief Information Officer (CIO), or some equivalent position. While it is imperative that the CIO have a say in IT budgeting, the CFO has ultimate control and must be involved in IT cost management as well.
There is need for adequate, effective, and efficient control process for all aspects of IT. When fully implemented, each IT process needs to include budgeting, financial reporting and accounting, capital budgeting, project management, program management, acquisition approval,and control of IT procurement of equipment, services and personnel. This is in addition to the management of the IT specific facilities such as data centers, operations centers, and ancillary facilities. This financial control needs effective benchmarking and measurement to both internal and external standards.
The development of a successful, well-managed IT Financial Management program is a multi- phase process. Along the development path, there must be a controlled and logical progression of steps and decisions. Start by identifying all of the IT costs, resources, and effective reporting on those activities. This is not a trivial task. Progress reports on what is learned should be provided to Senior Management in a consistent and routine manner because numbers should and will change as more information is discovered.
Move on to budgeting, both operational and capital, including approval and authorization processes. Get control of the maintenance activities and costs, and the personnel approval processes for both internal and external resources. Consider building a specific set of job classifications for IT units and functions.
Continue building the IT control and management processes, measurements, and reporting phase by phase until there is a comprehensive program. The detailed program should be understood and reviewed by the firm’s senior management, who should have adequate authority and resources in the IT function to sustain the operation.
Remember the adage from Lou Gerstner, “Sooner is better than perfect.” Resist the temptation to jump to a sophisticated strategic prioritization process until the organization is mature enough to do it right.
CFO Consulting Partners specializes in developing and fixing these functions and processes. We can parachute in and have “wingtips on the ground” within days and begin to understand, listen, and build. Contact us to see how we can help improve the financial management of your firm’s Information Technology.
Impairment Testing: How does US GAAP Differ from IFRS
Due to the current economic conditions, more entities will be looking at the value of long-lived assets they are holding and recognizing that possible impairment may be imminent.
This article looks at the differences in impairment testing for long-lived assets with limited life between Generally Accepted Accounting Principles (US GAAP) and International Financial Reporting Standards (IFRS). Little attention has been paid to the differences in impairment testing between GAAP and IFRS.
Significant differences in the testing for potential impairment of long-lived assets with limited life may lead to earlier impairment recognition under IFRS. The key distinction between the impairment testings, is the use of a two-step model under GAAP that begins with undiscounted cash flows, compared with the one-step model used under IFRS, which considers recoverability of the asset value from the application of an entity-specific discounted cash-flow or a fair value measure. This distinction may make a significant difference between an asset being impaired or not.
Long-lived assets include purchase of assets such as brands that are assigned a limited life. Under GAAP, the undiscounted cash flows of the long-lived assets will be considered to see if there is impairment.
Impairment under FASB ASC, 350 is not likely, since the original purchase price was determined using discounted cash flows under FASB ASC, 805.
Impairment of Long-Lived Assets with limited life.
Requires a two step impairment model:
Step 1: The asset carrying amount is first compared with the undiscounted cash flows it is expected to generate. If the carrying amount is lower than the undiscounted cash flows, no impairment loss is recognized and step 2 is not necessary. If the carrying amount is higher than the undiscounted cash flows then step 2 quantifies the impairment loss.
Step 2: An impairment loss is measured as the difference between the carrying amount and fair value.
Requires a one step impairment model
The carrying amount of the asset is compared with the recoverable amount (which is the higher of an asset’s fair value less costs to sell and its value in use.), with any excess of recoverable amount over carrying amount representing the impairment loss. The fair value is the amount obtainable from the sale of an asset in an arm’s length transaction between knowledgeable, willing parties. Value in use of an asset is the discounted present value of the future cash flows expected to arise from the continuing use of an asset, and from the disposal at the end of its useful life.
Long-Lived Assets with limited life: Impairment Testing Compared
Step 1 of the GAAP testing, the comparison of the carrying value of the assets to its undiscounted expected cash flows, inevitably results in a lower level of occurrence of impairment losses for long-lived assets under GAAP than under IFRS.
In December 17, 2010, the FASB issued Accounting Standards Update No. 2010-28, Intangibles-Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (a consensus of the FASB Emerging Issues Task Force).
Under Topic 350 on goodwill and other intangible assets, testing for goodwill impairment is a two-step test. When a goodwill impairment test is performed (either on an annual or interim basis), an entity must assess whether the carrying amount of a reporting unit exceeds its fair value (Step 1). If it does, an entity must perform an additional test to determine whether goodwill has been impaired and to calculate the amount of that impairment (Step 2). The objective of this Update is to address questions about entities with reporting units with zero or negative carrying amounts because some entities concluded that Step 1 of the test is passed in those circumstances because the fair value of their reporting unit will generally be greater than zero. As a result of that conclusion, some constituents raised concerns that Step 2 of the test is not performed despite factors indicating that goodwill may be impaired. The amendments in this Update do not provide guidance on how to determine the carrying amount or measure the fair value of the reporting unit.
How New Pronouncement Differs From Current US GAAP
The amendments in this Update modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The qualitative factors are consistent with the existing guidance and examples in paragraph 350-20-35-30, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
The amendments in this Update modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. As a result, current GAAP will be improved by eliminating an entity’s ability to assert that a reporting unit is not required to perform Step 2 because the carrying amount of the reporting unit is zero or negative despite the existence of qualitative factors that indicate the goodwill is more likely than not impaired. As a result, goodwill impairments may be reported sooner than under current practice.
For public entities, the amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted.
For nonpublic entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Nonpublic entities may early adopt the amendments using the effective date for public entities.
On December 21, 2010, the FASB issued Accounting Standards Update No. 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations (a consensus of the FASB Emerging Issues Task Force).
The objective of this Update is to address diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations.
Paragraph 805-10-50-2(h) requires a public entity to disclose pro forma information for business combinations that occurred in the current reporting period. The disclosures include pro forma revenue and earnings of the combined entity for the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period. If comparative financial statements are presented, the pro forma revenue and earnings of the combined entity for the comparable prior reporting period should be reported as though the acquisition date for all business combinations that occurred during the current year had been as of the beginning of the comparable prior annual reporting period. In practice, some preparers have presented the pro forma information in their comparative financial statements as if the business combination that occurred in the current reporting period had occurred as of the beginning of each of the current and prior annual reporting periods. Other preparers have disclosed the pro forma information as if the business combination occurred at the beginning of the prior annual reporting period only, and carried forward the related adjustments, if applicable, through the current reporting period
The amendments in this Update specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only.
The amendments in this Update also expand the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business Combination included in the reported pro forma revenue and earnings
The amendments in this Update are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010.