Initial comments on new accounting standards for non-profit entities

I posted a comment to Wall Street Journal’s coverage FASB Updates Accounting Rules For Not-for-Profits

“The new accounting standards update makes it clear that this is the first update step in a planned two step process. On first reading of this update it would appear that the majority of the nation’s smaller non-profit organizations that have only one class of assets and issue financial statements on a basis of accounting where management elects to omit substantially all disclosures would be largely unaffected by these changes. From my perspective it seems like a lost opportunity to make a real difference in communicating to stakeholders. It would be great if the accounting profession could have an influence on the financial statement communications of these many smaller non-profit entities as well”.

This FASB announcement is the first update step in a planned two step process to update non-profit financial reporting standards.

Why are you paying more income tax than Donald Trump?

Non-profit organizations like those we support at are the most effective tax reducing tools available under our tax laws, but this is not likely the strategy used most often by candidate Trump. 

Mr. Trump tells us that he works hard to pay little or nothing in taxes. What he really means is that he has excellent tax advisers and accountants who are focused on minimizing his tax liability. The reason you pay more is that your don’t have the same strategy and don’t have the same type of focused advisers.

In my work, over the past three decades, I’ve helped hundreds of individuals, professionals and business owners do the same type of strategic tax planning even if our income figures are more modest amounts than Donald Trump’s. With solid planning, you can target the tax level you wish to attain – make it part of your overall financial plan or business strategy – and achieve the same bragging rights as Trump. Providing this individualized tax planning help is the most rewarding thing that I do.

I invite you to schedule a one hour tax planning session. That’s usually enough to make significant progress on understanding your current situation, developing a strategy, and running sample projections as a goal.

And from now until the election, I’m enhancing the offer with an additional hour of information over the next year about specific tax saving strategies and opportunities, as they arise and based on your personal tax planning strategy.

Please give me a call or send a message to get the process started toward lowering your tax bill!

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Code of conduct for a Certified Public Accountant acting as personal financial adviser

This short article of explanation followed by the reproduced guidance from the AICPA are most likely to directly affect relationships between a client and financial adviser when the adviser is a Certified Public Accountant.

The rules are designed to reduce the risk of potential conflict of interest and usually relevant under four common scenarios:

1) The adviser prepares financial statements that may be used by a bank or other third party. For example, a bank asks for a financial statement as part of a loan application. The purpose of the rule is to ensure that the third party is aware of any potential conflict of interest.

2) The adviser receives compensation from a third party like a commission or referral fee. For example, the adviser handles an insurance transaction. The intent is to provide disclosure about the compensation.

3) The adviser uses a third party service to help with work. For example, an online tax preparation service. The intent is to protect private information.

4) The adviser participates with third parties in compiling information that does not identify the client. For example, the adviser publishes “case studies” as educational material without identifying the client. The purpose is to ensure that the client gives permission to disclose any non-public information.


ET Section 302 – Contingent Fees

.01 Rule 302—Contingent fees.

A member in public practice shall not

  1. Perform for a contingent fee any professional services for, or receive such a fee from a client for whom the member or the member’s firm performs,
    1. an audit or review of a financial statement; or
    2. a compilation of a financial statement when the member expects, or reasonably might expect, that a third party will use the financial statement and the member’s compilation report does not disclose a lack of independence; or
    3. an examination of prospective financial information;or
  1. Prepare an original or amended tax return or claim for a tax refund for a contingent fee for any client.

The prohibition in (1) above applies during the period in which the member or the member’s firm is engaged to perform any of the services listed above and the period covered by any historical financial statements involved in any such listed services.

Except as stated in the next sentence, a contingent fee is a fee established for the performance of any service pursuant to an arrangement in which no fee will be charged unless a specified finding or result is attained, or in which the amount of the fee is otherwise dependent upon the finding or result of such service. Solely for purposes of this rule, fees are not regarded as being contingent if fixed by courts or other public authorities, or, in tax matters, if determined based on the results of judicial proceedings or the findings of governmental agencies.

A member’s fees may vary depending, for example, on the complexity of services rendered.

[As adopted May 20, 1991.]

Interpretation under Rule 302

—Contingent Fees

.02 302-1—Contingent fees in tax matters.

This interpretation defines certain terms in rule 302 [ ET section 302.01] and provides examples of the application of the rule. When practicing before the IRS or other taxing authorities, members should ensure compliance with any requirements that are more restrictive.

Definition of Terms

  1. Preparation of an original or amended tax return or claim for tax refund includes giving advice on events which have occurred at the time the advice is given if such advice is directly relevant to determining the existence, character, or amount of a schedule, entry, or other portion of a return or claim for refund.
  2. A fee is considered determined based on the findings of governmental agencies if the member can demonstrate a reasonable expectation, at the time of a fee arrangement, of substantive consideration by an agency with respect to the member’s client. Such an expectation is deemed not reasonable in the case of preparation of original tax returns.

ExamplesThe following are examples, not all-inclusive, of circumstances where a contingent fee would be permitted:

  1. Representing a client in an examination by a revenue agent of the client’s federal or state income tax return.
  2. Filing an amended federal or state income tax return claiming a tax refund based on a tax issue that is either the subject of a test case (involving a different taxpayer) or with respect to which the taxing authority is developing a position.
  3. Filing an amended federal or state income tax return (or refund claim) claiming a tax refund in an amount greater than the threshold for review by the Joint Committee on Internal Revenue Taxation ($1 million at March 1991) or state taxing authority.
  4. Requesting a refund of either overpayments of interest or penalties charged to a client’s account or deposits of taxes improperly accounted for by the federal or state taxing authority in circumstances where the taxing authority has established procedures for the substantive review of such refund requests.
  5. Requesting, by means of “protest” or similar document, consideration by the state or local taxing authority of a reduction in the “assessed value” of property under an established taxing authority review process for hearing all taxpayer arguments relating to assessed value.
  6. Representing a client in connection with obtaining a private letter ruling or influencing the drafting of a regulation or statute.

The following is an example of a circumstance where a contingent fee would not be permitted:

  1. Preparing an amended federal or state income tax return for a client claiming a refund of taxes because a deduction was inadvertently omitted from the return originally filed. There is no question as to the propriety of the deduction; rather the claim is filed to correct an omission.

[Revised effective May 31, 2011]

ET Section 391 – Ethics Rulings on Responsibilities to Clients

1. Use of a Third-Party Service Provider to Provide Professional Services to Clients or Administrative Support Services to the Member

.001 Question—A member in public practice uses an entity that the member, individually or collectively with his or her firm or with members of his or her firm, does not control (as defined by in Financial Accounting Standards Board Accounting Standards Codification 810, Consolidation)or an individual not employed by the member (a “third-party service provider”) to assist the member in providing professional services (for example, bookkeeping, tax return preparation, consulting, or attest services, including related clerical and data entry functions) to clients or for providing administrative support services to the member (for example, record storage, software application hosting, or authorized e-file tax transmittal services). Does Rule 301, Confidential Client Information [ET section 301.01], require the member to obtain the client’s consent before disclosing confidential client information to the third-party service provider?

.002 Answer—No. Rule 301 [ET section 301.01] is not intended to prohibit a member in public practice from disclosing confidential client information to a third-party service provider used by the member for purposes of providing professional services to clients or for administrative support purposes. However, before using such a service provider, the member should enter into a contractual agreement with the third-party service provider to maintain the confidentiality of the information and be reasonably assured that the third-party service provider has appropriate procedures in place to prevent the unauthorized release of confidential information to others. The nature and extent of procedures necessary to obtain reasonable assurance depends on the facts and circumstances, including the extent of publicly available information on the third-party service provider’s controls and procedures to safeguard confidential client information.

In the event the member does not enter into a confidentiality agreement with a third-party service provider, specific client consent should be obtained before the member discloses confidential client information to the third-party service provider.

See ethics ruling No. 112 [ET section 191.224–.225] under Rule 102, Integrity and Objectivity [ET section 102.01], and ethics ruling No. 12 [ET section 291.023–.024] under Rule 201, General Standards [ET section 201.01], and Rule 202, Compliance With Standards [ET section 202.01], for additional responsibilities of the member when using a third-party service provider.

[Revised, effective July 1, 2005, except for professional services performed pursuant to agreements in existence on June 30, 2005 that are completed by December 31, 2005, by the Professional Ethics Executive Committee. Revised effective May 31, 2011]

2. Disclosure of Client Information to Third Parties

.003 Question—A member has received a request from a third party (for example, a trade association, member of academia, or surveying or benchmarking organization) to disclose client information or intends to use such information for the member’s own purposes (for example, publication of benchmarking data or studies) in a manner that may result in the client’s information being disclosed to others without the client being specifically identified. May the member comply with such a request or use client information for such purposes without violating Rule 301 [sec. 301 par.01]?

.004 Answer—A member would be in violation of Rule 301 [sec. 301 par.01] if the information is considered to be confidential client information, unless the member has the clients’ specific consent, preferably in writing, for the disclosure or use of such information. The disclosure or use of the information that is available to the public is not subject to Rule 301 [sec. 301 par.01]. The member should be cautious in the disclosure or use of the information so as not to disclose client information that may go beyond what is available to the public or that the client has agreed may be disclosed.

Accordingly, before disclosing confidential client information to a third party or using such information for the member’s own purposes when the use of such information results in disclosure of confidential client information to others, the member should obtain the client’s specific consent, preferably in writing, about the nature of the information that may be disclosed, the type of third party to whom it may be disclosed, and its intended use.

A member is not prohibited from marketing his or her services or advising a third party, such as a current or prospective client, of information based on his or her expertise or knowledge obtained from prior experiences with clients (for example, the nature of services provided to other clients or common practices within a client’s industry). However, in cases when such information may be identifiable to one or more clients, specific consent, preferably in writing, would be required from such client(s). Prior to disclosing confidential client information to a third party, the member should consider whether a contractual agreement with the third party to maintain the confidentiality, or limit the use, of the information is necessary.

In addition, the member should consider whether federal, state, or local statutes, rules, or regulations concerning confidentiality of client information may be more restrictive than the requirements contained in this ethics ruling.

See Ethics Ruling No. 12 of section 291 [sec. 291 par. .023-.024] and Ethics Ruling No. 1, “Use of a Third-Party Service Provider to Provide Professional Services to Clients or Administrative Support Services to the Member,” of this section [sec. 391 par. .001-.002] for guidance when disclosing confidential client information to a third party used to assist the member in providing professional services to clients that will not result in disclosure to others.

[Revised August 2011, effective November 30, 2011]

ET Section 391 – Ethics Rulings on Responsibilities to Clients

24 Investment Advisory Services

.047 QuestionA member or member’s firm (“member”) provides investment advisory services for an attest client for a fee based on a percentage of the client’s investment portfolio. Would the member be considered to be in violation of rule 302, Contingent Fees [ET section 302.01]?

.048 Answer—Yes. However, the fee would not be contingent upon portfolio performance and, therefore, would not be in violation of rule 302 [ET section 302.01] if all of the following conditions are met:

1 The fee is determined as a specified percentage of the client’s investment portfolio.

2 The dollar amount of the portfolio on which the fee is based is determined at the beginning of each quarterly period (or longer period of time as may be agreed upon) and is adjusted only for additions or withdrawals made by the client during the period.

3 The fee arrangement is not renewed with the client more frequently than on a quarterly basis.

When performing such services, the member should also consider Rule 101, Independence [ET section 101.01], especially interpretation 101-3 [ET section 101.05].

25 Commission and Contingent Fee Arrangements With Nonattest Client

.049 Question—A member or member’s firm (member) provides for a contingent fee investment advisory services, or refers for a commission products or services of a nonclient or a nonattest client, to the owners, officers, or employees of an attest client or to a nonattest client employee benefit plan sponsored by an attest client. Would the member be considered to be in violation of either rule 302 [ET section 302.01] or rule 503 [ET section 503.01]?

.050 AnswerNo. The member would not be in violation of either rule 302 [ET section 302.01] or rule 503 [ET section 503.01] provided that, with respect to rule 503 [ET section 503.01], the member discloses the commission to the owners, officers, or employees or to the employee benefit plan. The member should also consider the applicability of interpretation 102-2, Conflicts of Interest [ET section 102.03], and his or her professional responsibility to clients under Rule 301, Confidential Client Information [ET section 301.01].

Small business accounting system setup checklist

This is a list of the information that you will want to have on hand before you start setting up an electronic accounting system for your small business or non-profit organization. The list may vary depending on the type of organization and legal setup.

Company data

Company legal name and address
Federal EIN or social security number
Fiscal year dates
Name of the income tax form the client files
Accounting basis (cash or accrual)

Chart of accounts

Names, numbers, and descriptions for the chart of accounts (use the existing chart of accounts, if available)
Financial statements as of the end of the prior tax year
Trial balances as of the QuickBooks start date
List of department or location classifications (for the Class list)
Numbers and balances (from the start date through today) for the following types of accounts: bank, credit card, loan, and lines of credit
Value of assets (including original cost and accumulated depreciation for fixed assets)
Equity information including all owner’s contributions, plus retained earnings for each year the company has been operating

Customers and Jobs list

Customer numbering scheme
Information to complete the Customer list: names, addresses, contact information, taxable status, etc.
Customer payment terms
Customer shipping methods
Customer types
Open balances or outstanding invoices as of the start date

Vendor list

Vendor numbering scheme
Information to complete the Vendor list: names, addresses, other contact information
List of 1099 vendors and their tax ID numbers
Vendor payment terms
Shipping methods
Vendor types
List of outstanding bills as of the QuickBooks start date

Item list

List of all inventory, non-inventory, service, and other items to complete the Item list
Price list for all items
Inventory numbering scheme
Quantities on hand and values for inventory as of the start date
Desired reorder points for all inventory items
Taxable status for each item
List of states in which the company pays sales tax
Sales tax rates, sales tax agencies, and the sales tax liability as of the start date
Frequency of sales tax reporting (monthly, quarterly, annually)
Sales tax calculation basis (cash or accrual)
Type of sales (wholesale, retail, out of state)
Manufacturer’s part numbers for client’s vendors

Fixed Asset Item list

Asset name
Account used to track the asset
Purchase date, cost, and vendor
Description, location, and warranty information

Employee list

Employee numbering scheme
Information to complete the Employee list: names, addresses, telephone numbers, social security numbers, etc.

Determine the following items for payroll:

Form 941 Deposits:

Each pay-period

State Withholding:

Multi-state (Specify:_________________)

Local Withholding:


Unemployment Tax:

SUTA (Rate:________)

Assemble the following:

YTD information for each employee as of the start date
Accrued benefits including sick and vacation time for each employee as of the start date
Earnings, additions, and deductions for payroll processing (SEP, union benefits, 401(k), reported tips, etc.
Employer federal, state, and local tax identification numbers
YTD payroll liability payments

Entering historical transactions

Accounts receivable transactions
Accounts payable transactions
Historical payroll transactions
Bank and other transactions