FASB Topic 832 is Coming: Is Your Organization Prepared?

What is FASB and Their Proposed Topic 832

 

The Financial Accounting Standards Board (FASB) is a private, non-profit organization whose ultimate goal is to establish and improve the Generally Accepted Accounting Principles (GAAP) within the United States (in the public’s interest). FASB has a very complex task in front of them to set account standards for the most dynamic economy in the world. FASB derives their authority from the U.S. Securities and Exchange Commission (SEC), and the standards set forth by FASB are also authoritatively recognized by The American Institute of Certified Public Accountants (AICPA). FASB has been tasked with the mission to improve and establish clear and detailed information to companies financial reporting of government assistance programs.

 

What is FASB Topic 832

 

FASB Topic 832 was specifically developed to address the increase in levels of monetary assistance provided by federal, state and local governments. This government assistance has been provided in a variety of forms including, but not limited to tax credits, tax incentives, and government grants. FASB Topic 832 was therefore established to supplement a lack of clear financial reporting guidance under the GAAP. There are currently no clear guidelines for reporting government assistance programs.

 

What is the difference between FASB vs. GAAP?

 

Some people may think that the Financial Accounting Standards Board (FASB) is a part of the Generally Accepted Accounting Principles (GAAP). But it is FASB that has been tasked with maintaining and improving the GAAP. FASB is a private, non-profit, standard-setting body, whereas the GAAP is the set of rules (or guidelines) that makes up accounting standards. These rules have substantial authoritative support and are the rules that businesses follow to create their financial statements, such as balance sheets and cash flow statements. The GAAP essentially provides a clear standard for all financial reporting so that when investors look at companies financial statements there is a standardized form and structure to all the financial data.

 

What is FASB Codification?

 

The Financial Accounting Standards Board (FASB) codification is the process of establishing financial reporting rules and guidelines and is currently the only source of the Generally Accepted Accounting Principles (GAAP). The GAAP is maintained and improved upon by the FASB.

 

Topic 832 is Inevitable, Being Prepared is Essential

 

Here’s the deal: The Financial Accounting Standards Board (FASB) Topic 832 is a pending regulation that establishes a new financial disclosure framework. With this new system in place, companies will have to disclose exactly how government assistance (like tax credits, for instance) impacts their corporate financial statements.

What’s the bottom line? While this soon-to-be-implemented FASB 832 disclosure framework does not yet have a start date, it’s on the horizon and fast-approaching. The upcoming transition will affect how corporate entities perform their financial reporting, including credit management, and your organization will need to comply.

If your organization is the beneficiary of government assistance, your company will also be impacted – which will require acute tax credit management to successfully fulfill the upcoming FASB regulations.

 

The reality is that FASB 832 is coming – so early preparation is critical.

 

Basics of The New Regulations

 

FASB Logo

 

You might be wondering: What’s the point of the new FASB 832 rules?

 

There are a wide array of financial assistance programs of which businesses all over the country take advantage, as governments frequently use tax credits and incentives to lure in businesses and encourage existing ones to expand their operations locally. From bond guarantees to tax rebates to qualified opportunity zones, local authorities want to entice organizations to set up shop and stick around. 

Before FASB 832, these government assistance programs have not been considered when it came time for financial disclosures. Generally Accepted Accounting Principles (GAAP) do not currently include the financial impact of government assistance – but this is set to change.

 

Why do businesses suddenly need to start disclosing information related to government assistance?

 

There are two main reasons: First, members of the investor community believe that government-backed financial arrangements like tax credits and loan guarantees should be included in GAAP standards. According to them, information regarding government assistance programs helps paint a fuller financial picture for any company that is on the receiving end. Consistent reporting on this topic will help those who must interpret companies’ financial results and potential for future cash flow in a more transparent fashion.

Second, the FASB 832 switch will bring US financial reporting protocol in line with International Financial Reporting Standards (IFRS).

 

So, how will this affect you?

 

What Does FASB 832 Mean For my Business?

 

To put it simply, the goal of FASB 832 is to make sure helpful data related to the impact of government assistance is reported. Businesses receiving assistance will need to disclose:

 

– The types of government-backed financial assistance they receive

Terms and period of each agreement

– The accounting method used for government assistance

– The impact of the assistance on financial statement totals

 

If your firm has been the recipient of any kind of business tax credits, tax incentives, grants, tax rebates, abatements, bond guarantees, loan guarantees, or any other sort of government-backed financial aid, then you will eventually need to cough up the related details.

While it sounds somewhat easy on paper, the reality is complicated and stress-inducing – as businesses often receive a complex arrangement of financial help from the government. Conventional tax credit management hasn’t quite caught up yet.

 

Getting assistance from a leading tax credit software provider like The OIX is critical to correctly fulfilling the imminent FASB changes.

 

Utilizing Tax Credit Software to Prepare for FASB 832

 

Once the effective date for the new FASB regulations is made public, public organizations will likely have less than one year to implement and comply – with private companies likely to have less than two years to make the necessary switch.

That’s not a lot of time to realign your organization’s entire accounting procedures.

As the effective date for the updated FASB regulations looms on the immediate horizon, it’s crucial for both public and private organizations to take early steps in getting ready – and partnering up with a seasoned tax solutions provider is the smartest and most efficient way to make a smooth transition.

Not only is it absolutely critical for healthy companies to gain total control, transparency, and visibility of their government financial assistance from a fiscal perspective, it is equally as vital – and an urgent necessity – to pay attention as soon as possible.

 

Waiting until the last minute, particularly with the potential for lengthy closing cycles, could be detrimental.

 

Thankfully, the experts at The OIX have developed the ideal roadmap and best practices for tracking, managing and reporting on every type of government financial assistance. Tax credit companies, like The OIX, offer tax credit management solutions that are geared toward both public and private entities of all sizes. More importantly, their tax credit software can guarantee a seamless transition into the next era of FASB financial reporting – helping businesses everywhere gain an edge over their competitors.

With such a critical shake-up coming so quickly, US organizations need to get it together ASAP.

FASB 832 can’t be stopped, but it can be effectively embraced if action is taken early.

 

Are you ready?

 

Amazon HQ2 New York: Tax Incentives Misunderstood

Tax Incentives and Superb Fiscal Policy Exceptionally Misunderstood

 

The recent Amazon HQ2 turmoil in Long Island City (“LIC”) has left many scratching their heads and wondering:

 

– Where did so much misinformation come from?

– Was this a case of inexperienced public policy analysis?

– Where were the economists in the room?

– Was the policy condemned because certain aspects of negotiations were held in secret, and perhaps some constituents affected by the decision were not consulted?

– And now, as the dust settles, do opponents recognize the impact of losing out on what would have been an incredible generational win for LIC and the people of New York?

 

Many opponents of Amazon HQ2 LIC expansion and development project viewed the incentive package crafted by state and local officials as a nearly $3 billion-dollar handout from the government. However, a thorough examination of the details of the proposed initiative reveals a vastly different perspective. Did opponents truly believe that New York Governor Andrew Cuomo and New York City Mayor Bill de Blasio had an extra $3 billion to finance other public works projects? In truth, the reality is very, very different.

 

The Breakdown of the Amazon HQ2 Incentive Package

 

By offering Amazon a compelling tax incentive package, the State and City of New York proposed a transfer of value, if you will, in return for direct economic investment in the local community. Amongst other commitments, the company would have needed to:

 

– Employ 25,000 full-time, high-paying and quality jobs;

– Indirect support of an additional 82,000 jobs;

– Approximately $2.5 billion in direct investment;

– 4 million square feet of energy-efficient office space developed with an opportunity to expand to 8 million square feet;

– Incremental tax revenue estimated at more than $27 billion over the next 25 years. [1]

 

The OIX Amazon HQ2 Infographic

 

And like all recipients of negotiated incentive offerings, the company would have been required to agree to a checks-and-balances regimen (compliance) to ensure it was delivering on its end. Failure to comply at any point during the lifecycle of the proposed incentives (e.g. not hiring as many people as promised) could result in a clawback, recapture, or forfeiture of the tax incentives.

In losing out on the opportunity to become the next big tech hub in America, LIC also potentially lost tens of billions of dollars of ancillary and additional economic activity, property value increases, and vast improvements to public services to support the permanent infrastructure that would have been the benefactor of Amazon HQ2 Big Apple expansion.

Contrary to what opponents of this once-in-a-lifetime opportunity may believe, this deal had the makings of a truly sound economic development policy. Perhaps the location of the next Silicon Valley and vital tech-hub will be in another American city, but there is no guarantee of that. The competition for high-value jobs and good corporate citizens like Amazon is global in nature and incentives have been cropping up around the world to woo them. The only thing we know for sure at this moment is that it will not be in Long Island City.

 

Amazon’s HQ2 Long Island City Expansion Plans and the Severe Cost to the State, City and the People of New York

 

It should be added, the negative impact on New York will not be limited to this one event. How many corporations seeking to invest billions in new facilities and jobs will be willing to risk entering a good-faith negotiation with New York state and local officials only to have it fall apart in a PR nightmare at the last minute?

Not only is the damage from this event potentially long-lasting, but the opponents’ hypocritical nature is also quite interesting. For example, consider the fact that Amazon’s HQ2 package paled in comparison to that of the expansive real estate development project about to open on Manhattan’s West Side known as Hudson Yards.

To attract investors to this development initiative – which will include luxury retailers, major corporate headquarters, and residential buildings (with one-bedroom apartments renting for $5,000+ a month to penthouse condos selling for over $30 million) – incentive packages have reached over $6 billion according to public records (and a study by the New School), all without the outrage bestowed upon Amazon’s HQ2. Where is the opposition to this project? Would a project like Hudson Yards happen in the future, once investors reflect upon the turmoil to which Amazon HQ2 was subjected?

Capital will flow where it is well-treated, and the Amazon executives were balancing their fiduciary duty to maximize value for their shareholders while also seeking to create long-term, multi-billion-dollar investments as a good corporate citizen.

Contrary to beliefs by opponents, New Yorkers are not $3 billion ‘richer’ due to HQ2’s failure to launch. Quite the contrary. The people of New York and particularly, the people of LIC and the surrounding areas, will never realize the potential benefit of billions of dollars additional tax dollars and increased economic activity flowing into their local economy.

One of the interesting outcomes of the HQ2 story is that it will create a controlled economic experiment of sorts. Because there were to be two new headquarters, one in LIC and one in Crystal City, Virginia, it will be fascinating to observe the changes in economic wellbeing in say, five years, between LIC and Crystal City. Particularly, it will be interesting to look at the change in tax dollars generated from 2019 to some point in the future. It’s a fair bet to say tax dollar growth in Crystal City will far outpace LIC.

 

Leveraging the Economic Advantage of Tax Credits and Incentives

 

Despite our belief that smart economic incentives are an inevitable fact of life in today’s technologically wired world and that they can present great outcomes for all involved, skepticism surrounding the checkered past of these types of arrangements is not misplaced.

Critics can point to numerous circumstances where the government didn’t get what it bargained for. The reasons for this vary, from lack of oversight, lax regulation, improper cost-benefit analysis, and sadly, also due to greed and corruption among policymakers and certain recipients.

That said, governments have an increasingly difficult time mandating certain economic behavior from companies and thus are having to find ways to entice desired behavior. This shift in the business/government balance of power is directly attributable to the proliferation of modern information technology.

In today’s wired world, organizations large and small can efficiently manage assets and employees wherever they’re best treated and effortlessly conduct business through integrated information technology.

 

Bottom line: companies no longer need to have one physical ‘home base’ but rather operations can be managed from anywhere on the globe and at any given moment.

 

Therefore, government at all levels must be smarter about working with businesses, and progressive legislative policy in the form of tax incentive packages are the best tools they have at their disposal to stimulate and encourage investment and compete in a global economy.

 

Why? Because they work.

 

Tax credits and incentives are simply a necessity in today’s economy so the real question is how can they do it best? The answer is technology and transparency.

 

Can FASB 832 and Modern Tax Technology Dispel the Negativity around Tax Incentive Policy?

 

We at The OIX believe that in this pivotal moment of regulatory evolution – with the approaching implementation of FASB 832, the logical descendant of GASB 77 – government at every level has a fantastic and consequential opportunity to embrace and improve tax credit and incentive policy.

Through proper technology – coupled with a regulatory mandate to force best practices – businesses and policymakers alike can weigh the economic benefits, both direct and ancillary, which for the latter will result in legislating successful programs for the collective benefit of all its citizens and improving critical investment decisions by the former.

These new regulations and the accompanying emphasis on disclosures and reporting are critical if incentives are to remain in the Government’s tool chest. With transparency and supporting data, taxpayers, and voters will for the first time be able to formulate an informed perspective so as not to thwart a once-in-a-generation opportunity like AMZN HQ2 LIC.

Now is the time to be smarter about dealing with the reality that companies use information technology to think and expand globally. With each passing year, an ever-increasing amount of global wealth is created. And with it comes growth in economic power, while political power remains relatively static and is generally limited to the local geography.

So, when a local government and a business from afar make an agreement that promises the creation of new jobs and investment in a community:

 

– How does the government confirm that specified conditions, job creation, and investment pledges (mandated to receive the incentive and tax-advantaged treatment), actually happen?

– How do they know what’s occurring in real time?

– How do they measure the results of those new jobs and other economic impacts?

– Did those additional jobs increase or decrease taxable revenues to the jurisdiction?

– With respect to the subject at hand, how might the City and State of New York have been able to monitor what Amazon HQ2 promised to deliver and share that information with taxpayers (proponents and opponents alike), and the very administration who drove the policy?

 

The answer is quite simple: through modern technology and tax credit and incentive reporting and analytic solutions.

 

What’s next for the Tax Credits and Incentives Landscape After Amazon HQ2

 

While FASB 832 and GASB 77 were great first steps, the next logical bridge is the smart application of existing tax technology and specialized software designed to measure credits and incentives on every level. As this measurement requires transparency, the implementation of technical and reporting standards will allow companies to report compliance in real-time, which in turn will allow the government to analyze results and ensure end-to-end compliance.

 

We may be biased… but cue The OIX.

 

The OIX is a Tax Credits and Incentives Management company, which is specifically architected to address government incentives, provides a layer of technology that helps companies manage their responsibilities and compliance needs related to maximizing their tax credits and conforming with regulation.  From the other side, this technology offers the government a solution for monitoring a real timeline of deliverables and making those findings public.

 

Learn more about why the world is taking notice of The OIX.

 

References

[1] Amazon selects New York City and Northern Virginia for new headquarters; New York Needs Amazon

The OIX Integrates With CCH IntelliConnect

The OIX Integrates 3,500+ Statutory Tax Credit Programs Into Its Credit and Incentive Software

 

The integration with CCH’s IntelliConnect And Business Incentives Navigator Product Suite delivers updated information on thousands of statutory programs in a timely manner.

 

Commerce Clearing House (CCH) is a provider of best-in-class software solutions for tax, accounting and audit workers. The OIX and CCH recently announced the integration of CCH’s IntelliConnect and Business Incentives Navigator Product Suite into The OIX Credits and Incentives (C&I) discovery platform.

This new combination will provide The OIX customers with detailed information on available economic development programs at the federal, state and local level. In addition, as the database is maintained by CCH in real-time, customers will receive legislative updates (on both existing and new programs enacted) to help them identify and take full advantage of available C&I programs.

The new product enhancement offers OIX customers the ability to identify available incentives through precise and granular filtering based on contemplated investments.

The result is a strategic planning and roadmap tool for optimizing the decision making the process and maximizing the profitability of C&I assets, improving your firm’s tax credit management. Danny Bigel, founder of The OIX stated:

 

“The importance of properly managing a C&I portfolio cannot be overstated. Maintaining compliance, regulations, filing requirements and rules and regulation amendments are all essential factors in ensuring the optimal financial impact is achieved and for avoiding problems such as slippage, recapture claw back, or in the worst case forfeiture. Integrating CCH’s “IntelliConnect and Business Incentives Navigator Product Suite” into our tax credit software provides OIX customers with enhanced research capabilities. This is only the latest example of our relentless drive to constantly improve our platform and remain the innovation and value creation leader. ”  

 

Mr. Bigel added:

 

“In the coming months, our incentive program database will continue to grow as we add expanded international Credits and Incentives (C&I) program coverage as well as advanced modules that will compute, compare, calculate and analyze available incentives. Our sole mission at The OIX is to deliver technology that allows our customers to use the full potential of every applicable C&I program to escalate profitability and create game-changing margin expansion, all while advancing good corporate citizenship and helping improve local communities.”

 

Stay tuned for more!