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Newsletters
The Monthly Blend
January 2007
Guidance Published on Applying APB 25
Submitted by: Amanda Langston Patton, MPA
Several companies have recently issued press releases announcing the restatement of their financial statements due to errors in their accounting for grants of stock options. Many other companies have announced that they are currently looking into their past practices related to the granting of stock options. In response to these announcements, on September 19, 2006 the Office of the Chief Accountant of the Securities and Exchange Commission (SEC) issued a letter summarizing the staff’s views regarding the application of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, (APB 25) to grants of stock options. (Most of the issues addressed in the letter relate to stock options which were granted prior to the effective date of FASB Statement No. 123R (revised 2004), Share-Based Payment.)
APB 25 defines the measurement date as “the first date on which are known both (1) the number of shares that an individual employee is entitled to receive and (2) the option or purchase price, if any”. Thus, the determination of the measurement date is based on the finality of the terms and recipients of stock option awards. The topics addressed in the letter largely relate to questions about whether a company’s determination of the measurement date of past stock option awards was appropriate. The letter discusses the accounting consequences under APB 25 under the following sections:
- Dating an option award to predate the actual award date;
- Option grants with administrative delays;
- Uncertainty as to the validity of prior grants;
- Uncertainty as to individual award recipients;
- An exercise price set by reference to a future market price;
- Grants prior to the commencement of employment;
- Documentation of option granting activities that is incomplete or cannot be located;
- Timing of option grants;
- Changes to option grants due to the release of new information; and
- Income tax benefits related to options.
The letter provides several illustrations of the appropriate application of APB 25. While the letter is directed toward public entities filing with the SEC, our Firm believes the letter provides useful guidance that should be followed by non-SEC entities as well.
The letter can be accessed in full at http://www.sec.gov/info/accountants/staffletters/fei_aicpa091906.htm.
Provided by the NA&A Insights dated Sept 21, 2006.
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Getting Prepared for Incurred Cost Submissions
Written by: Courtney Edmonson, Senior Consultant
If your fiscal year ended December 31, 2006, you should be aware that a cost presentation, known as the Incurred Cost Proposal, must be submitted to the Government no later than June 30, 2007.
This presentation is required for all Government contractors and subcontractors when, during fiscal year 2006, costs were incurred under flexibly-priced arrangements, and the Allowable Cost and Payment clause (52.216-7), or other contract verbiage with the same requirements, are included in those contracts/subcontracts.
We encourage all Government contractors to begin planning for that presentation early in 2007, to include the gathering of all contracts and related peripheral data required. Preparing the cost schedules and assembling all other financial, contracts, and organization information required can be an intimidating and time-consuming task. An early start in assembling this information will, if nothing else, reduce the stress by waiting until June 15 to begin working on this proposal.
Be aware that missing the June 30 deadline can result in suspension of direct billing privileges, suspension of invoiced costs, and in extreme cases, unilateral determination of final indirect rates.
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The Pension Protection Act of 2006
Submitted by: Stephanie King, CPA
The recently enacted Pension Protection Act of 2006 contains a package of provisions to help prevent abuse in the charitable sector and provide additional tax incentives for Americans to give more resources to the charitable community. Here is a brief overview of some of those provisions. The first two provisions are the ones that will affect every taxpayer who gives to charity.
- Contributions of clothing and household items. The new law prohibits deductions for contributions of clothing and household items unless they are in good used condition or better. In addition, IRS may deny a deduction for any item with minimal monetary value. These rules, which are effective for contributions made after August 17, 2006, don't apply to any contribution of a single item of clothing or a household item for which a deduction of more than $500 is claimed if the taxpayer includes with his return a qualified appraisal for the donated property.
- Charitable contribution back up. The new law requires that in the case of a charitable contribution of money, regardless of the amount, the donor must maintain a cancelled check, bank record or receipt from the donee organization showing the name of the donee organization, the date of the contribution, and the amount of the contribution. This is effective for contributions made in tax years beginning after August 17, 2006.
- Tax-free distributions from IRAs for charitable purposes. The Act permits taxpayers who have reached age 70-1/2, to exclude from gross income certain distributions of up to $100,000 from a traditional individual retirement account (IRA) or Roth IRA which would otherwise be included in income. The charitable distribution must be made to a tax-exempt organization to which deductible contributions can be made. The change is effective for two years through 2007.
- Basis adjustment to stock of S corporation contributing property. The Act provides that if an S corporation contributes property to a charity, an S corporation shareholder only has to reduce his basis in stock of the S corporation by his pro rata share of the adjusted basis of the contributed property, rather than by the amount of the charitable contribution that flows through to him. For example, if an S corporation with one individual shareholder makes a charitable contribution of stock with a basis of $200 and a fair market value of $500, the shareholder will be treated as having made a $500 charitable contribution and will reduce the basis of the S corporation stock by $200. The provision is effective for two years through 2007.
- Qualified conservation contributions. The new law raises the limit on deducting contributions of capital gain property by individuals—from 30% of adjusted gross income to 50%—for qualified conservation contributions. The charitable deduction limit is raised to 100% for qualified conservation contributions by individual and corporate farmers and ranchers, as long as the contribution includes a restriction that the land remain available for farming or ranching. Unused contributions can be carried forward for up to 15 years. The provision is effective for two years through 2007.
- Taxidermy property basis. The new law limits the basis for donated taxidermy property to the cost of preparing, stuffing and mounting an animal and provide that the value of the deduction is equal to the lesser of basis or fair market value.
- Recapture of charitable deduction. The new law requires the recapture of any tax benefit derived from the contribution of property with respect to which a fair market value deduction was claimed if the property is not used for an exempt purpose of the donee organization. The change is effective for contributions made after September 1, 2006.
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Coffee Talk 
Darryl Walker is scheduled to present FAR PART 31 Cost Principles to our clients on September 26, 2006 at Beason & Nalley.
Don Nalley presented Buying and Selling Your Business at the Business Expo 2006 held at the VBC.
Beason & Nalley participated in the SMDC (Space Missile & Defense Conference) exhibition held at the VBC in Huntsville on August 15, 16 and 17.
Beason & Nalley will host the Deltek GCS Premier® Time Collection class on September 6 and 7. Payroll and HR Processing classes will be held in October.
Stephanie Kingsford attended the 2006 Unending Changes, Some Good, Some Bad, Seminar presented in Birmingham by AmSouth Bank.
Don Nalley, Cindy Hill, Matthew Capone and Stephanie Kingsford attended the Barebones Tax Update sponsored by The Alabama Society of CPAs at the Huntsville Marriott.
Thanks to Denise Miles and Matt Capone for participating in the MDA fundraiser, they were both “arrested” for the cause, and together raised nearly $2000 in “bail money”.
Welcome to Casi Edwards who is joining the Audit Department as a Consultant.
Sympathies are extended to Mike Woeber and his family in the loss of his Mother, Claudia Woeber.
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