IFRS (International Financial Reporting Standards)

What are the International Financial Reporting Standards?

The International Financial Reporting Standards are a set of accounting principles that provide guidelines for the proper reporting of financial data. The standards of the IFRS are set by the International Accounting Standards Board in London, United Kingdom. The standardization of the principles of accounting ensures the transferability of financial reporting standards between countries as the lack of such standards would mean that financial data would not be accurate and readily understood by a company or investor in a different jurisdiction or country that the reporting company is located at.

Although the United States currently abides by the Generally Accepted Accounting Principles (GAAP), the US has begun to change accepted accounting principles and standards to the International Accounting Standards Board, in order to standardize its accounting principles with the principles used by the rest of the world. If completed on schedule, this change will happen in 2014. Principles of accounting must be standardized to provide the best possible information for potential investors as well as allowing for the finances of two companies to be compared.

What are the characteristics of financial statements under the IFRS?

The core tenants of the IFRS are to make financial statements reliable, clear and comparable to other statements. This is the reason for instituting a dedicated framework for all businesses to report finances, much in the way a unified currency streamlines purchasing decisions across national borders.

Financial statements under the IFRS must contain the following elements:

Statement of Financial Position – this is a balance sheet that reports on the financial condition of a company and expresses its net worth at a given point in the year. The balance sheet will have three parts, consisting of assets, liabilities and equity. The assets are listed first with the assets that are easiest to liquidate and the top of the sheet. Assets listed include cash, accounts receivable and equipment. Liabilities will include accounts payable. Equity will include stocks and earnings.

Statement of Comprehensive Income – the owner must list all items contributing to profit and loss and the net income when accounting for the profit and loss factors. This includes revenue, tax payments, and financing totaling up to the comprehensive income.

Statement of Changes in Equity – this statement shows the comprehensive income and other changes in equity, such as investments by the owners, dividends and withdrawals of capital. This statement is optional if there is no change in owner investment or any of the other changes in equity.

Cash Flow Statement – A cash flow statement is an accounting document that specifically assesses the amount of cash that is handled by a business and the ultimate destination of the infusion of cash. Cash flow statements are usually needed for financing to prove to lenders that companies have adequate cash flow to satisfy repayment demands. Cash flow statements are also released to shareholders and potential investors do that they may judge the short and long term financial health and flexibility of the company.

Accounts Payable: Your Quick Guide

Introduction

Accounts payable is a business record of amounts owed to other entities for goods and services already received or utilized. Account payable services are critical for most companies as it expedites the delivery of items while waiting for payment options to process. Most Americans receive accounts payable service every day, usually in the form of utilities where a bill is sent for usage after their usage of the good has been determined and quantified.

How does accounts payable work for businesses?

The key to accounts payable is the cash conversion cycle that determines how long it will take for the business entity to receive payment for products and services. A company that suffers from poor cash flow will lose flexibility in inventory management, paying and maintaining relationships with suppliers and delivering more products to other potential clients. To ensure the continued flow of cash, organized accounts payable is necessary to ensure that accounts are settled with suppliers through the expedited payment of invoices. Accounts payable will work in conjunction with accounts receivable to ensure that company cash flow remains stable and flexible and that excessive debts are not outstanding or uncollected.

Among the important functions of accounts payable is invoice processing. After the accounts payable department determines that the invoice is legitimate and matches a purchase order, it is forwarded to the employee in charge of invoices of the same type. In large entities, this may be an entire department in accounts payable devoted to sorting invoices of specific types or vendors. If there is no verification system in place to determine if the invoice is legitimate, then the invoice is typically passed to the person that orders the goods or service who must then match the item to a purchase order. After this is fulfilled, the invoice is returned to accounts payable, where payment to the vendor will be arranged, usually through a prior approved system.

What are the responsibilities of accounts payable personnel?

In especially large enterprises, controls to prevent fraud are often lacking. As such, many of these entities may be bilked by vendors or subject to other fraudulent actions. Accounts payable personnel but by able to prevent accidental reimbursement for expenses submitted by employees and vendors alike. In other cases, accounts payable personnel must also be aware of fraudulent invoices or invoice-like documents designed to trick the commercial entities into reimbursing expenses that do not exist. For this reason, even the most modern accounts payable automation systems will require human supervision and investigation to prevent double payment, exploitation or fraudulent payments.

How do business entities use accounts payable software?

Accounts payable software automates some functions of typical accounts payable work by organizing items such as invoices, packing slips and purchase orders to ensure each item is accounted for and the debt is paid. The accounts payable software organizes these accounts, which minimizes the potential for lost documents or other human errors. Modern accounts payable software can scan documents and recognize words and phrases that will then match the invoice to a purchase order. This saves on time as it prevents the manual scanning of documents and the need to forward the invoice to the purchaser for verification.

Understanding Accounting Principles

What are the principles of accounting?

The principles of accounting have varied in the past few decades, with several organizations having the final say on proper accounting standards. Current accounting standards for state and local governments are set by the Governmental Accounting Standards Board. The GAAP accounting standards are determined by the Financial Accounting Standards Board. These standards are not law, but regulatory agencies mandate that this form be used for the sake of convenience and ease of interpretation. Although the United States currently abides by the Generally Accepted Accounting Principles (GAAP), the US has begun to change accepted accounting principles and standards to the International Accounting Standards Board, in order to standardize its accounting principles with the principles used by the rest of the world. If completed on schedule, this change will happen in 2014. Principles of accounting must be standardized to provide the best possible information for potential investors as well as allowing for the finances of two companies to be compared.

What are the principles of accounting for the federal government?

Federal Accounting Standards Advisory Board publishes handbooks to advice federal agencies and entities that receive federal money. These handbooks are lengthy with important listings such as proper terms to use when composing financial statements and listing of proper abbreviations. There are also a number of procedures based on specific functions of federal agencies and expenses common to federal entities.

What are the International Financial Reporting Standards?

The International Financial Reporting Standards are a set of accounting principles that provide guidelines for the proper reporting of financial data. The standards of the IFRS are set by the Board of International Accounting Standards Committee in London, United Kingdom. The standardization of the principles of accounting ensures the transferability of financial reporting standards between countries as the lack of such standards would mean that financial data would not be accurate and readily understood by a company or investor in a different jurisdiction or country that the reporting company is located at.

What are the general obligations of accountants under principles of accounting?

Regardless of the principles of accounting the accountant abides by, there are usually commonalities among these guidelines. Basic accounting principles generally obligate the accountant to act in good faith and engage in full disclosure of all potential issues with the entity’s finances. Accountants must offer the most realistic view of the company finances rounding figures down and anticipating potential losses. Under no circumstances should an accountant that follows conventional accounting principles overreport income or underreport expenses. Doing so will cause a financial liability for the entity that anticipated greater gains or fewer losses based on conclusions gleaned from financial statements released by the accountant.

In additions to rules on disclosure and good faith, the accountant is generally obligated under accounting principles to remain consistent on the time periods that the financial reports assess and keep the monetary amounts consistent, without accounting for inflation that would make the item or expense worth more or less at present day.

Sole Proprietor vs LLC

There are a number of reasons to choose either a sole proprietorship or LLC not the least of which is distinctions in terms of taxation. Your decision in the matter is not final as a Sole Proprietorship can eventually become an LLC.

Sole Proprietorship

A sole proprietorship is a simple arrangement where the individual and business are one. The owner is responsible for all debts and assets and there are no distinctions between the entities. The owner is taxed for the business as a part of his or her individual assets. Since the owner has full ownership of the business assets and debts, excessive debts also imperil the personal assets of the owner, as there is not distinction under the law. A sole proprietorship is a good idea for those that do not require financing of immediate capital, do not intend to have many employees, can ensure continuity if the owner is deceased. One should be careful to make distinctions between business and personal assets in this arrangement and organize the two to ensure the protection of personal assets in the event of issues with the business.

LLC

An LLC is considered a flow-through entity when the income is not taxed as the income goes directly to the partners who are in turn, taxed on their income. This differs from a sole proprietorship in that the business assets are accounted for separately on an IRS K-1 form, yet still taxed from the owner’s personal income. An LLC benefits the owner by distinguishing business assets, which will give creditors better assurance that sufficient protection is in place to extend lines of credit to the business. A personal guarantee to repay is no longer necessary and LLCs allow for the addition of other partners that can leverage assets and split liabilities to help expand the business. Unlike a sole proprietorship, records of the business must be kept separate from personal finances, which provide better transparency for employees and potential investors.

LLCs can chose their classification for taxation, either as a partnership, corporation or separate entity, each subject to their own taxation laws. In terms of sole proprietorship vs LLC, this is a highly flexible benefit of LLCs, although sole proprietors will have a simplified tax structure as well, only requiring a self-employment tax form.

Sole Proprietorship vs LLC

The decision to choose either a sole proprietorship vs LLC depends on the needs of the owner. Those requiring complex payrolls systems and have a need to expand their business while attracting investment will want the legal legitimacy afforded by an LLC. Those that also seek to add partners and spread liability will certainly need an LLC. Tax benefits increase marginally as more individuals join an LLC and choose the appropriate method of taxation. Those that intend to remain small while avoiding payroll taxes and do not have a need for expansion or investment can remain a sole proprietorship. Those that do so accept the possibility of liabilities extending from the business and the potential for personal assets to mix with business assets.

General Partnership FAQS

General partnership

A general partnership is an unincorporated business relationship among two or more persons that share equal liability and debts accrued by the company. It is a non-taxable entity but all partners must report their share of the income to the IRS and account for said income on their personal tax forms.

What are the disadvantages of a general partnership?

Liability for all parts of the company, including debts is shared by the partners. Therefore, in the event of bankruptcy, all partners, even non founding partners are liable to have assets seized to pay debts. Liability is a factor in a general partnership as all partners share liability for both their and the actions of the other partners. Additionally, partners can also be held liable for the actions of employees. Personal liability is unlimited in a general partnership, but damages committed while doing personal actions and not business related actions places sole liability on the partner. Actions committed by the partner while performing a function for the partnership would hold all partners liable, regardless of their contribution or input on the event.

How is a general partnership taxed?

A general partnership is considered a flow-through entity when the income is not taxed as the income goes directly to the partners who are in turn, taxed on their income. Taxing a partnership that serves as a flow through entity would constitute double taxation and therefore would be a non-taxable entity. Information about partnerships is reported but not taxed through the IRS K-1 form that accounts for each share of the partnership accrued by the partners. A general partnership does not need to be an equal partnership and profits can differ by partner. For this reason, each partner accounts for and pays taxes on their particular share of the profits, rather than having the general partnership entities taxed.

How are the rights in a general partnership determined?

The rights in a general partnership are determined by prior agreements made by the partners. There are no laws defining partnership functions such as voting and decision making rights. It is generally assumed that all have equal voting rights as partners, unless there is an agreement to the contrary that staggers voting rights on contributions to the partnership, or other related factors. Members of a partnership are expected to work in the interest of the partnership and inform other members of the partnership when pursuing an arrangement for one’s personal gain. Otherwise, members of a partnership are obligated to work for the benefit of the other partners, unless allowed otherwise by prior agreement.

Is a lawyer necessary for a general partnership?

A lawyer can serve a valuable function in a general partnership by helping to create comprehensive agreements that determine the contributions and rights of each partner and provisions for the addition of new partners. There should also be provisions in case the partnership is dissolved or a partner decides to leave the partnership. These provisions will determine the distribution of assets, shares and other property owned by the partnership.

Understanding LLC Taxes

What are LLC taxes?

Individuals may form an LLC, not just for liability purposes, but also for simplified taxation. LLC taxes offer a number of taxation benefits over standard arrangements. The IRS does not consider an LLC as a taxation classification, but LCC taxes will vary depending on how the entity decides to be taxed. This means that they can be taxed as a corporation as well as a partnership or disregarded as separate entity with only one owner. The separate entity will tax the owner rather than the LLC and the income and deductions will be filed on the individual’s tax forms. Multiple member LLCs are taxed either as a partnership or corporation. Single member LLC’s are either disregarded and individually reported, or taxed as a corporation.

How are LLC taxes determined by default?

Without an effort to change LLC taxes classification by the LLC owners, that LLC is treated as a partnership and a partnership tax return will be filled out. Each stakeholder in the LLC files a K-1 form that reflects their income and deductions from the partnership. Single owner LLCs are treated as a sole proprietorship by default and multiple owners are considered a partnership by default.

What is a K-1 Form?

A Schedule K-1 is Form 1065 that determines LLC taxes in terms of the individual owners. The form is a short two pages and the individual discloses information about the partnership, shares of profit, loss and capital and other income generated by the partnership. LLCs filing as corporations must first file the appropriate forms to be considered for corporation taxation, then file Form 1120, the US Corporation Income Tax Return. The purpose of a K-1 form is to account for each partner’s shares, which is used in conjunction with a typical 1040 form to ensure the proper taxation is assessed.

How can an LLC be taxed as a corporation?

One merely has to file IRS Form 8832, widely available online, to elect to be taxed as a corporation. The form is short, at seven pages, with only three pages that need to be filed out by the individual electing to change the designation of the LLC. These forms are processed at locations in Cincinnati, Ohio for Eastern LLCs and Ogden, Utah for Western LLCs. Foreign entities must indicate the country where the LLC was formed in. There is a list of foreign business classifications that are equivalent to an American LLC on page 7 of Form 8832.

What is a flow-through entity?

An LLC is considered a flow-through entity when the income is not taxed as the income goes directly to the partners who are in turn, taxed on their income. Taxing an LCC that serves as a flow through entity would constitute double taxation and therefore would be a non-taxable entity. LLCs that file taxes as corporations are not “flow-through” entities and will be taxed as other corporations would, upon filing their Form 1120 tax return. The only exceptions are LLCs that are classified as “S corporations” under US tax law.

Finding a Free Government Grant

Free government grants are awards given by the federal government to support the public interest. This can be as broad as student loans guaranteed by the federal government, to specific benefits to foundations and charities that work in public interest. The government expects no direct benefit from the disbursement of free government grants. Arrangements where the government would expect specific good and services would constitute a contract, but grants generally have broad range in what they may be used to fund or procure.

Does the government have the legal authority to disburse free government grants?

The provisions that allow for persons to receive a free government grant are in Title 31, Section 6304 of the US Code. It specifically states that the US Government may transfer things of value to local governments or other entities to benefit the public interest, without much involvement from the government in the use of these funds.

How does a free government grant benefit the average individual?

Receiving free government grants can be a windfall for private individuals that would otherwise have to fund their activities with private loans. Disbursed grants are not repaid to the government and there is the guarantee that offers recipients a significant degree of freedom in determining how it is spent. They should of course, spend it according to the conditions under which they applied for it. A college education, private residence or small business can be funded with free government grants, so long as sufficient need is established by the applicant.

What are types of free government grants?

Block grants – these grants are disbursed to state and local governments and not individuals. The disbursements of these grants from the government are determined by formula and these grants are spent at the discretion of the state.

Housing grants – these grants are intended to help potential homeowners buy, renovate or invest in homes. Sufficient need must be established as these grants are generally for low income families. Federal Housing Administration insurance is a type of grant that insures private lenders when lending to low income families that would ordinarily not receive credit.

Small business grants – in keeping with the belief that small businesses stimulate local economies and employ local residents, there are free government grants for small businesses to expand, make capital investments and hire more employees.

College grants – Pell grants of up to $1,500 are offered to exceptional college students to help them pay for college expenses. This free government grant is not a loan and will not have to be repaid by the student. In addition to Pell grants, several government subsidized loans exist that have fixed interest rates and favorable rates for students.

Should I trust organizations that claim to help me find free government grants?

No. Generally, these organizations research free government grants that are already public knowledge and sell this knowledge to unsuspecting consumers. You are best served researching free government grants yourself and many federal agencies will have clear guidelines on how to apply for free government grants for education, business and housing. Do not pay for information on receiving free government grants.

Martha Stewart Back in Court Again

On Tuesday, the home decorating and banking icon appeared before the New York State Supreme court to defend her choice to sign a contract with J.C. Penney even though she struck up a similar deal with rival department store Macy’s.

“We thought, and I hope correctly so that we were allowed to engage in such an activity,” said Stewart, dressed in a brown skirt and matching dress.

When asked whether the public really buys or needs to purchase two enamel casserole dishes at both the rival department stores, Stewart said: “Maybe they have two houses and need two enamel casserole dishes.”

J.C. Penney and Macy’s are fighting in court over whether they can both feature Martha Stewart-branded home appliances and goods in their respective department stores.

The feud dates back to December of 2011, when J.C. Penney purchased a 16.6 percent stake in the Martha Stewart Living line. The transaction was meant to establish mini Martha Stewart stores, within J.C. Penney locations throughout the United States. As part of the agreement, J.C. Penney agreed to pay $38.5 million for its stake.

However, Macy’s already had an agreement with Martha Stewart Living to produce, market and sell the line. As a result of their established agreement, Macy’s struck back by filing suits against both companies. Macy’s claimed its 2006 agreement with the Martha Stewart line gave it an exclusive license to sell and manufacture certain Stewart products, including dinnerware and bedding.

“Our company has invested significant sums, taken risks and endured disappointing results to rebuild the Martha Stewart brand and grow it in several product categories,” said Macy’s spokesman Jim Sluzewski. “J.C. Penney is attempting to harvest the field that was already planted and cultivated by Macy’s.”

Macy’s CEO Terry Lundgren took to the stand early last week to say that he was baffled when he found out that Stewart signed a deal with one of its chief rivals. “I was sick to my stomach,” he told the court.

Although the hurt between Lundgren and Stewart is real, the Macy’s CEO said that the department store has no plans to remove Stewart’s brand in stores.

Eight years ago, Martha Stewart severed five months in prison after being convicted on criminal charges of lying and obstructing justice to federal investigators during an insider trading probe for her role in the sale into the sale of ImClone Systems stock she owned.

Meanwhile, J.C. Penney CEO Ron Johnson is busy attempting to turn J.C. Penney around; the strategies haven’t gone so well thus far as shares have plummeted nearly 50% over the past three years.

Source: CNN

Berkshire and 3G Capital Purchase Heinz for $23 Billion

Buffet, the CEO of Berkshire Hathaway, announced on Thursday that it plans to purchase the food giant for roughly $23 billion, adding Heinz Ketchup to the conglomerate’s stable of respected brands.

The proposed purchase, which comes fast on the heels of a $24 billion buyout of computer giant Dell, points to a possible reemergence of the merger market. In addition to these two mammoth transactions, a number of smaller deals and the prices being paid for said companies mark a far cry from the exorbitant heights of the financial boom throughout the early and mid-2000’s. That said, an improving stock market, mounting piles of cash held by private equity firms and corporations, and growing confidence among the industry’s top players, point to a return of widespread deal-making.

Berkshire Hathaway is partnering with 3G Capital Management–a Brazilian investment firm that owns a majority stake in Burger King.

Under the terms of the transaction, 3G and Berkshire will pay $72.50 a share or roughly 20 percent above Heinz’s closing price on Wednesday. Including the company’s debt, the transaction is valued at approximately $28 billion.

Mr. Buffet, when talking to CNBC on Thursday morning claimed the deal and partner involved were “ideal.” Buffet praised Heinz as a company with fantastic brands and long-term stability.

Heinz fits Buffet’s deal criteria in several ways; the company has widespread brand recognition and long-term stability. Moreover, the company has performed well over the last year, rising nearly 17%.

Buffet told CNBC that he had been tracking Heinz since 1980; however, the genesis of the deal was pushed by 3G, an investment firm backed by numerous wealth Brazilian families.

One of the firm’s primary backers, Jorge Pablo Leman, brought the idea of purchasing Heinz to Berkshire two months ago. The proposal was well received as the two sides approached Heinz’s CEO, William R. Johnson, concerning the proposed purchase of the company.

3G and Berkshire will each contribute approximately $4 billion in cash to pay for the company, with Berkshire contributing an additional $8 billion for preferred shares. The rest of the cost will be covered through debt financing efforts by Wells Fargo and JP Morgan Chase.

The company’s headquarters will remain in Pittsburgh, PA where Heinz has called home for over 120 years. Heinz’s stock, in reaction to the news, rose nearly 20 percent in morning trading.

Google Launches Touchscreen Chromebook

Google on Thursday introduced a high-resolution Chrome OS portable computer equipped with a touchscreen. The new gadget, called Pixel, represents a shift that blurs the boundaries between the traditional key-board oriented laptops and the touch-oriented tablets. Moreover, the invention also distorts the company’s Web-centric operating system and its mobile Android platform.

Fulfilling statements made last years, Google Senior Vice President of apps and Chrome, Sundar Pichai, demonstrated the Chromebook Pixel, the first Chrome operating system device to power users at a media event in San Francisco on Thursday.

Mr. Pichai described the new invention as both a reference device to exhibit Google’s hardware partners as to how a Chrome touch device can work and to boast the company’s new engineered product.

The Chromebook Pixel features a 239 PPI screen and an Intel Core i5 processor. Mr. Pichai claims the screen is the highest resolution screen that’s even been featured on a laptop. For sake of comparison, Apple’s MacBook Pro possesses a retina display of 220 pi.

Mr. Pichai also highlighted the device’s blazing speed, “It’s an incredibly fast machine,” he said. “In my experience, this is the fastest laptop I’ve ever used.”
At roughly 3 and a half pounds, the Chromebook Pixel is a pound heavier than the MacBook Air, which appears to be the Pixel’s main competition, at least with regards to price. Despite its weight, the Pixel is a beautifully designed piece of equipment, one that includes a number of custom-design components. Mr. Pichai insists the Pixel compares favorably with Apple’s notebook.

Google has partnered with Verizon to provide LTE wireless service to the Pixel. This partnership offers one TB of Google Drive storage at no cost for up to three years. This much storage space would typically cost consumers $600 a year.

The Wi-FI capable version (32 GB) of the Pixel is available for $1,299. This version can be ordered through the Google Play Store, with shipping taking roughly one week. The LTE version (64 GB) of the Pixel costs $1,499 with shipping planned for April. Best Buy will begin taking orders for the Chromebook Pixel this Friday, the 22nd.