CironeFriedberg Welcomes New Audit Manager

November 28, 2023 by Teri Pough

CironeFriedberg, LLP, is pleased to welcome Jack Kneisel, CPA, as Audit Manager. In this role, he will provide audit and accounting services to clients in many industries.

Jack brings 8 years of audit and accounting experience with a specialization in commercial real estate. He received his Bachelor of Science in Accounting from Elon University and is a Certified Public Accountant in the State of Connecticut. Prior to joining CironeFriedberg, Kneisel was Assurance Manager at a large global accounting firm, where he developed a strong foundation of audit and accounting skills.

Tony Cirone, CironeFriedberg’s managing partner, says “We are happy to welcome Jack to our team and look forward to his many contributions providing high level audit services to our clients.”

About CironeFriedberg

CironeFriedberg is a leading regional CPA firm serving middle market, closely held and family-owned businesses, high-net-worth individuals, and not-for-profit organizations in Fairfield and New Haven Counties, in Connecticut, and the neighboring New York counties of Duchess, Putnam, and Westchester. The firm provides a full range of tax, audit and accounting, and business advisory services from three offices in Bethel, Shelton and Darien Connecticut. CironeFriedberg offers clients unique access to national and international markets through our membership in CPAmerica, an association of independent accounting firms that maintain the highest practice standards. Learn more at https://cironefriedberg.com.

Read Jack’s Bio Here.

Exploring Agreed-Upon Procedures

September 28, 2023 by Patrick Dunleavey CPA

In the dynamic landscape of financial reporting and auditing, accounting professionals are constantly seeking innovative ways to provide assurance and insights to their clients. One approach that has gained prominence in recent years is Agreed-Upon Procedures (AUP) accounting engagements. AUP engagements offer a flexible and tailored approach to address specific financial and non-financial reporting issues, making them a valuable tool for a variety of stakeholders.

Agreed-Upon Procedures in accounting are a flexible and customizable tool that allows clients to obtain assurance on specific financial or operational aspects of their business without the full scope and cost associated with a traditional audit. These engagements are often used when clients have specific concerns, reporting requirements, or when third parties need assurance on certain information.

Understanding Agreed Upon Procedures Engagements

AUP engagements are a form of assurance engagement where the auditor performs specific procedures on financial or non-financial information and reports their findings without providing an overall conclusion. This is important because unlike a traditional audit, where the auditor expresses an opinion on the financial statements as a whole, AUP engagements focus on factual findings derived only from the agreed-upon procedures. The recipients of the report form their own conclusions from those findings. These procedures can be substantially less in scope than an audit or even a review. This is why it is very important that engaging parties, which could include management, investors, regulators, or other interested parties, agree exactly on what procedures will be performed up front.

Tailored Procedures for Specific Needs

One of the key advantages of AUP engagements is their flexibility. Organizations can engage auditors to perform procedures that target their specific concerns, risks, or objectives without spending time and money on areas that are not of concern. This customization allows businesses to allocate resources efficiently and address areas of higher risk or complexity. For instance, a company preparing for an acquisition might request AUP procedures to validate the accuracy of specific financial information provided by the target company. By tailoring procedures to match the transaction’s unique circumstances, the acquiring company gains valuable insights into the target without the additional burden of a full audit. Other examples of AUP engagements include performing procedures over specific internal controls, confirming inventory counts, verifying certain balances, and contract compliance such as lease or royalty agreements.

Navigating Complexities through Collaboration

While AUP engagements offer flexibility, they also come with some complexities. Determining the appropriate procedures requires a deep understanding of the organization’s operations, risks, and reporting requirements. It’s crucial for both the engaging party and the auditor to collaborate closely to define the scope of procedures accurately and ensure expectations are aligned and potential issues are addressed effectively.

While AUP reports do not include an overall opinion, they do present factual findings that can guide decision-making in an era where standard audit procedures may not fully address the unique challenges organizations face.

Since AUP engagements can address a client’s specific concerns, it is important to work with a CPA advisor who knows their business and the specific industry challenges they face. This paves the way for smooth collaboration that is necessary for a positive outcome.

To learn about the author of this article, Patrick Dunleavey, CPA, CLICK HERE.

Have questions?

If you need assistance or have any questions on the information in this article, please call your CironeFriedberg professional. You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Darien) or email us at info@cironefriedberg.com.

Navigating the Complexities of the New Lease Standard under ASC 842

August 28, 2023 by Nicholas DaPaz CPA

By now all organizations should have implemented Accounting Standards Codification 842, Leases (ASC 842), into their financial reporting practices under generally accepted accounting principles in the United States of America. The Financial Accounting Standards Board (FASB) introduced ASC 842 to address the longstanding concern of lease accounting transparency. ASC 842 aims to provide a comprehensive framework for reporting leases, mandating organizations to recognize right-of-use-assets (ROU assets) and lease liabilities on their balance sheets. While ASC 842 was introduced to enhance financial reporting accuracy and comparability, its adoption has proven to be a complex and challenging process for many businesses.

One of the primary challenges faced by organizations adopting ASC 842 is the complexity of implementation for new or existing leases. The standard requires organizations to reassess their lease portfolios, identify embedded leases, and calculate lease liabilities and ROU assets. This process demands a thorough review of existing or new lease contracts and an understanding of complex lease terms, which can be intimidating whether you are an organization with a large and diverse lease portfolio or an organization with only one lease. In most instances, each lease presents a unique challenge with implementing the provisions of ASC 842.

Specifically, determining the lease term has been a challenge for organizations. Part of the confusion is when to include renewal options as part of the lease term. ASC 842 indicates that if the organization is reasonably certain to exercise the renewal option, then the renewal option should be included as part of the lease term. In practice this has led to much subjectivity in interpreting the standard as various factors such as economic incentives or site-specific reasons are evaluated. Including renewal options as part of the lease term will increase the ROU assets and lease liabilities recorded by organizations. The lease term also has a significant impact on the classification of the lease as either operating or finance under ASC 842, which impacts the accounting treatment. In both instances, ROU assets and lease liabilities are recorded on the balance sheet, however differences arise for accounting in the income statement. Under operating leases an organization will record straight-line lease expense in the income statement, whereas under finance leases an organization will record straight-line amortization and interest expense.

ASC 842 also requires changes in financial reporting processes. Lease contracts must be reassessed whenever significant modifications occur, leading to continuous monitoring of lease agreements to ensure accuracy and consistency in financial reporting. Maintaining compliance with the standard’s requirements for reporting, disclosures, and the tracking of lease modifications adds to the administrative burden and requires a robust system to ensure accurate and timely reporting.

The adoption of ASC 842 has and will continue to have a significant impact on organizations’ financial reporting processes. Many organizations have struggled with implementing ASC 842 based on the complexities of the standard. If your organization is experiencing difficulties with the implementation of the standard or the ongoing monitoring required related to changes for contract modifications, we would welcome the opportunity to discuss your specific needs and how our services can facilitate a seamless ASC 842 implementation process. Please feel free to contact one of our specialists to schedule a consultation or to inquire about our services.

Have questions?

401(k) Plans: Know the Rules

August 29, 2022 by Sandra Callanan CPA

If you offer a 401(k) plan — in any of its various flavors — to your employees, everyone should know the tax rules that govern them. Although the details can get very technical, you can learn the basics. To start with, many companies find that since a 401(k) plan is much prized by employees, it’s a good idea to not only offer one but also to match contributions. You even get encouragement to do so: Employer contributions are deductible on the employer’s federal income tax return. However, for tax-favored status, a plan must be operated in accordance with applicable rules. To qualify for the tax benefits, your plan must contain language that meets certain requirements of the tax law and be operated in accordance with the plan’s provisions. Employers make matching contributions based on employees’ elective deferrals. There are several types of 401(k) plans available to employers:

Traditional 401(k): This allows eligible employees to make pretax elective deferrals through payroll deductions. Any employer contributions can be subject to a vesting schedule. The employer must perform annual tests, known as the Actual Deferral Percentage and the Actual Contribution Percentage tests, to verify that deferred wages and employer matching contributions do not discriminate in favor of highly compensated employees.
Safe harbor 401(k): This must provide for employer contributions that are fully vested when made. The safe harbor 401(k) plan is not subject to the complex annual nondiscrimination tests that apply to traditional 401(k) plans.
SIMPLE 401(k) plans: This was created so that small businesses could have an effective, cost-efficient way to offer retirement benefits to their employees. A SIMPLE 401(k) plan is not subject to the annual nondiscrimination tests, and the employer is required to make employer contributions that are fully vested.

A plan that allows for vesting may require completion of a specific number of years of service for vesting. For instance, a plan may require an employee to complete two years for a 20% vested interest in employer contributions and additional years of service for increases in the vested percentage. If a traditional plan is top-heavy — has significant participation from owners or officers — the employer may be required to make minimum contributions on behalf of certain employees. The rules relating to the determination of whether a plan is top-heavy are complex. A plan is considered top-heavy when 60% or more of the assets in the plan are owned by key employees:

Anyone who owns 5% or more of the company sponsoring the plan.
Anyone who owns 1% or more of the company sponsoring the plan and who also earns more than $150,000 annually from the company.
Anyone who holds an officer position at the company sponsoring the plan and earns more than $185,000 from the company.

These limits may be adjusted from year to year. If you own more than one business, these rules apply to anyone who has an ownership stake in any of the related companies. The point here is you don’t want most of the plan money at the top of the company belonging to the key company leaders instead of the rest of the employee base. This is also applicable to the family of owners, so that any owners’ spouses and other immediate family members will count as key employees if they participate in the plan. The IRS requires top-heavy tests to make sure that no plan disproportionately benefits the key employees of your company. If top-heavy, you can bring your plan back into balance by making contributions to all regular employees. You also could add a safe harbor to the plan, for instance, offering a 3% automatic contribution regardless of whether employees want to contribute. This ensures that the plan treats all employees equitably, and this will satisfy any contribution requirements of the IRS. You report elective deferrals on the participant’s W-2 Form. Though the amounts aren’t treated as current income for federal tax purposes, they are included as wages subject to Social Security or FICA, Medicare and federal unemployment taxes. This is just a summary of a complex series of rules. Be sure to work closely with qualified professionals to make sure you are in full compliance at all times.

Financial Transparency and Nonprofit Audits

June 10, 2022 by Sandra Callanan CPA

You want to demonstrate your commitment to financial transparency. By publishing an independent audit report on your website and providing the report to anyone who requests it, you’ll be assuring your donors and the public that your financial practices meet accepted standards — for handling contributions, for instance.

Many public and private foundations — and funders — require charitable nonprofits to submit audited financial statements to be eligible for funding. Budgets and cash-flow statements predict your nonprofit organization’s financial future, but you need a review of each year’s annual income and expenses in your financial statement, which tells the story of your organization’s past.

Preparing and interpreting your financial statements is a special area of expertise. An audit involves a formal study of your policies and systems for managing your finances, a review of financial statements and commentary about the accuracy of those statements.

Such charity watchdogs as CharityWatch, Charities Review Council and Charity Navigator take into consideration whether a charitable organization has an annual independent audit when they do their ratings. To exercise their due diligence, your top management committee or board of directors may want the assurance offered by an independent audit that the financial statements are free of material misstatements.

In an audit, the CPA expresses an opinion as to the accuracy and completeness of financial statements, based upon test procedures and an evaluation of your internal controls. Analytical procedures coupled with inquiries of management allow the CPA to attest that no material modifications are needed for the financial statements to be in accordance with generally accepted accounting principles (GAAP) — the common set of accounting principles, standards and procedures used to present financial statements.

Getting Started

A first step, then, is to decide who in the organization will oversee the audit process. Typically, the audit is overseen by an audit committee or the Executive Committee. That committee should oversee the selection of the audit firm.

In selecting the audit firm, it makes sense to choose one that has expertise and knowledge in performing an audit for charitable organizations. Before meeting with the candidates, develop goals and objectives to help narrow your search.

Auditors should present the results of their audit to management and the audit committee/executive committee. This presentation should include any recommendations to improve internal controls, which should be followed by a corrective action plan by management to correct any weaknesses in the systems of internal control.

For more information on this topic, read our article, Does Your Nonprofit Need an Independent Audit?

When You Need an Audit for Financing

May 8, 2022 by Sandra Callanan CPA

Many business owners think that as long as their companies remain private, they don’t have to get a financial statement audit. However, when it’s time to get financing from a bank, they may find that an audit is recommended, and even required. The following insight into audits may help you better understand why they can be helpful for you and your business.

First, according to a study cited in “Entrepreneur” magazine, companies that provide banks with audited financial statements generally can expect lower interest rates than companies that don’t have their statements audited. Of course, not all banks require an audit. A review provides less assurance, but for some banks that may be enough, and it’s a much less expensive proposition.

Most experts agree that it’s not sufficient to simply rely on your banker’s interpretation of your QuickBooks files. The Bplans entrepreneurial site (run by Palo Alto Software) notes that some level of assurance is a good idea, and quite possibly a requirement at any lending institution. Ask if the bank requires or recommends an audit — it may be worth the thousands of dollars you’ll have to spend. A bigger business may already have audited statements that were done for other purposes, but smaller businesses may not. Your CironeFriedberg CPA can advise you if and when a review may be sufficient for your particular situation.

Getting Venture Capital Funding

A common question is whether there’s a need for audited statements when you’re seeking cash from venture capital firms. The answer is generally yes. A lot may depend on what stage the company is in. An early-stage company may not need an audit or review, because the venture capital firms are more concerned with potential. However, if it’s a more established company, and it’s relying on its history as an important basis for seeking funding, then it may have to show audited statements.

No matter what the VC firm requires upfront, however, you can expect that it will require audits going forward as part of the terms of its investment.

Similarly, if you’re at a later stage in your company’s life — for example, seeking to be acquired as part of a retirement plan — you may need to have audited financial statements to show any potential suitors, even if you’re privately held.

Do you need an audit or a review in your situation? Give us a call, and we’ll go over your situation and financing needs, and help you make the right decision.

CironeFriedberg Welcomes New Audit Manager

Exploring Agreed-Upon Procedures

Have questions?

Navigating the Complexities of the New Lease Standard under ASC 842

Have questions?

401(k) Plans: Know the Rules

Financial Transparency and Nonprofit Audits

When You Need an Audit for Financing

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