Knowledge management is the process of recording and managing an organization’s mission-critical knowledge.

One way to use it is to mitigate the ill effects of turnover. How? First collect and categorize knowledge as either explicit (already documented) or tacit (only in employees’ heads).

To gather tacit knowledge, get employees’ buy-in, conduct interviews and use an intranet to facilitate online discussions.

With all this information, you can more quickly disseminate a departing employee’s know-how and more easily train new hires.

2018 marks the 15th consecutive, annual observation of October as Cyber Security Month, as sponsored by the Department of Homeland Security.

The goal of the campaign is to raise awareness about the importance of cyber security.

Did You Know:

1. Last year, employee errors were at the heart of 17% of breaches (including: failing to shred confidential information, sending an email to the wrong person, or misconfiguring a web server).

2. Ransomware, which initially appeared in 2013, is the top variety of malicious software prevalent today.

3. Statistically, about 22% of people click on phishing emails sent to them. Unfortunately, those who opt to click on phishing emails are highly likely to continue doing so.

Important Steps to Take:

1. Implement a Cyber Security Awareness Campaign within your organization.

2. Back up your data and verify the completeness and accuracy of individual and company backups.

3. Update your hardware and software with vendor-supplied updates on a timely basis.

HBK can assist you with any cyber security topics or questions. Please contact Matt Schiavone at mschiavone@hbkcpa.com, Bill Heaven at wheaven@hbkcpa.com, or Steve Franckhauser at sfranckhauser@hbkcpa.com for assistance.

Source of Statistics – 2018 Verizon Data Breach Investigations Report (DBIR)

Words have power. This is especially true when it comes to defining roles and responsibilities in an organization.

Therefore, it follows that up-to-date, accurate job descriptions form the foundation of every organization’s staffing efforts. Without clear, focused documentation of what each position entails and its corresponding expectations/objectives, you may struggle to hire and retain good employees. This may drastically undermine productivity.

The solution is relatively simple: Regularly review your job descriptions to ensure they are current and comprehensive. Check to see whether they list outdated procedures or other outmoded elements, such as software that you have since phased out.

If you do not already have written job descriptions for each position, you need not panic. Ask employees in those jobs to document their responsibilities and everyday duties. Each worker’s manager should then verify and, if necessary, help revise the description.

After you have updated your job descriptions, you can use them to increase organizational efficiency. Weed out the marginal duties from essential ones. Eliminate superfluous and redundant tasks, focusing each position on activities that generate revenue or eliminate expenses. You may be able to make improvements in other areas, too, such as:

Workload distribution: Are workloads properly distributed among employees? If not, rearrange them. You may find this necessary when job duties change.

Cross-training: Can your employees handle their co-workers’ responsibilities? In emergencies, and as a fraud-prevention measure, having workers who can handle each other’s jobs temporarily can serve an organization well.

Recruiting: Are you hiring people with the right skills? Up-to-date job descriptions provide a better road map for finding ideal candidates to fill your open positions.

Performance evaluations: Are employees doing their best? Detailed job descriptions allow managers to better determine whether workers are completing their assigned duties and if they’re meeting — or exceeding — expectations.

Get started soon
The longer you wait to review and rewrite job descriptions, the harder it will be to revise them. Once you’ve got them up to date, the task becomes much easier from year to year.

It’s easy to get frustrated when an employee is failing to produce the volume or quality of work a business owner expects. Sometimes leaders or managers of a company are tempted to play the blame game. However, pointing a finger at a struggling worker only exacerbates a bad situation.

In truth, performance improvement must be a two-way street. There’s no doubt that an under-achieving team member must step up and do better. But it is incumbent on an employer to provide information, tools and support to help his or her improvement efforts.

Map the Route

To get started, before addressing an employee, fully investigate the performance issue. This means first defining the nature and degree of the problem and then determining whether or not management has done the best job possible in helping the employee to be successful. For example, when and how well was the employee trained? Someone hired years ago may have been taught to do a job differently than it now needs to be done today.

Also, is the employee aware that his or her work is considered subpar? Has anyone discussed the problem with the employee or put it in writing? Staff members who aren’t sure whether they’re on the right track often wait for feedback, rather than proactively seeking guidance. That means a company leader may need to act at the first sign an employee isn’t meeting expectations, rather than hoping the situation will remedy itself.

Embark on the Journey

Once the issue has been established, the manager needs to meet with the employee, clearly and specifically stating performance concerns and informing him or her know that the objective is to work together to find a solution.

After naming the specific performance issues, it is best to ask the employee how he or she feels the situation can be corrected, including offering predetermined suggestions. There may be issues a leader is not aware of, such as tools that are in disrepair or missing, or poor lighting in the employee’s workspace. It’s crucial for a manager to be open to such input. If the employee attributes the subpar performance to lack of clarity about expectations, the remedy might be as simple as weekly meetings with his or her manager to go over what needs to be accomplished. If the employee reports feeling overwhelmed and unable to prioritize tasks, additional training on organizational skills or better use of technology may be in order.

Arrive at the Destination

Work with the employee to create a performance improvement plan that includes specific goals and a timeline for achieving them. Then follow up regularly. If the goals and timeline are met, the benefits of having a more productive team member are tremendous. If they aren’t met, it is up to a company leader to consider what further action to take. Finally, it is important to date and document meetings and conversations regarding an employee’s performance as a standing practice.

Employee retention isn’t about only strong compensation packages and company-wide recognition. It’s also about making the effort to help struggling employees find success. When the person in question is, underneath it all, a good worker, it’s a trip well worth taking.

An Open Letter to Business Owners:

Are you thinking about selling your business? Regardless of your reasons or circumstance, my first question as a professional advisor looking to help you would be, “Why do you think you are ready to sell now?” Your answer to that one question will likely give me the information I need to provide a helpful response.

Here are a few answers I’ve heard over the years of working with clients getting ready to sell their businesses:

• I was approached by a competitor who offered me a lot of money.

• I was approached by a private equity group who said they buy businesses like mine.

• My industry is changing and I don’t think I want to spend the time and money to keep up.

• My spouse has decided it is time for us to retire and start doing some things we have put off for years.

• My spouse has become ill and I need to be around to help.

• My children have no interest in taking over the business.

• I thought I’d shut the doors and sell off the assets, but figured I would see if anyone would buy it first.

• I want to use the proceeds from the sale of this business to start another business I am more passionate about.

• I just think now is the right timing for us to get a great price.

• There’s so much more that can be done with this business to benefit our clients, employees and community, but we just don’t want to risk our capital to expand at this stage of our lives.

These are just some of the answers I’ve heard, and they all provide important information, the exact reason or reasons why someone believes they are ready to sell. The sale of a business is one of the most significant transactions I can be involved in as an adviser looking to help you navigate this challenging transaction.

So what critical information will I get from your answer? Your timeline is one very important piece. Are you already talking with a potential buyer, investment banker or business broker? Or perhaps at the beginning of a two-to-three year exit plan? Regardless of where you are in the process, one of the best things I can do for you is let you know that HBK Corporate Finance will provide a no-obligation analysis of your business and talk with you about how to prepare, market, present and sell your business in a manner that keeps you in the driver’s seat.

Most of the time business owners feel they have very few, if any, people they can talk to about selling a business. In nearly every case they do not want their competitors, their customers, their employees or their community – and in some cases, even family members – to know of their plans. On top of all the financial considerations, selling a business can be emotional. Having someone to talk to about what to expect and how to lay out and implement a thoughtful plan can provide you with much-needed peace of mind.

Feel free to call me at 239-482-5522 or reach out to me at kveres@hbkswealth.com

Investment advisory services are offered through HBK Sorce Advisory LLC, doing business as HBKS Wealth Advisors. NOT FDIC INSURED – NOT BANK GUARANTEED – MAY LOSE VALUE, INCLUDING LOSS OF PRINCIPAL – NOT INSURED BY ANY STATE OR FEDERAL AGENCY

Overview

The Tax Cuts and Jobs Act (the Act) created a new Business Interest Deduction limitation, effective for tax years starting after December 31, 2017. This new provision limits the deduction for business interest for all businesses, though an exception to the limitation applies for businesses who meet the gross receipts test, discussed below.

What is the Business Interest Deduction?

Businesses are allowed to deduct any interest paid or accrued on debt that is properly allocable to a trade or business, and is not considered investment income. Historically, this interest deduction has not been subject to many limitations.

Scope: Then and Now

Internal Revenue Code (IRC) Section 163(j) is the code section that provides for a limitation on the deduction for business interest. Prior to the Act, this provision had a limited application and only applied to U.S. corporations or U.S. branches of foreign corporations to prevent businesses from stripping earnings and avoiding U.S. taxation. The Act changed this code section to apply to all taxpayers and all debt, even if the debt arises from a related-party transaction.

The Limitation

The deduction is limited to the sum of business interest income, 30 percent of adjusted taxable income (ATI), and floor plan financing interest. ATI is generally taxable income, computed without regard to:

• activity that is not allocable to the trade or business;
• business interest expense or business interest income;
• depreciation, amortization, or depletion (for tax years beginning before January 1, 2022);
• net operating losses under Section 172; or
• the new 20% qualified business income deduction under Section 199A.

Floor plan financing interest is generally defined as interest paid or accrued on debt used to finance the acquisition of motor vehicles held for sale or lease, and which is secured by the inventory acquired.

If the limitation applies, the disallowed business interest will carry forward to the succeeding taxable year.

Gross Receipts Test Exemption – Small Businesses

There is an exemption from the limitation for small businesses with average annual gross receipts for the three taxable years ending prior to the taxable year at hand that is less than $25,000,000. However, taxpayers in controlled groups and partnerships may be required to aggregate gross receipts, so this should be considered when calculating whether or not the limitation should apply.

Carve Outs

Farming, real estate businesses, dealerships and certain public utility businesses successfully lobbied to avoid the application of this limitation. For dealerships, floor plan financing is fully deductible without limitation. However, these dealerships are excluded from 100% bonus depreciation on any of their assets.

Farming and real estate businesses may elect out of the new 30% limitation, but they will be required to use the Alternative Depreciation System (“ADS”) to depreciate their depreciable assets. Businesses using ADS are not eligible for 100% bonus depreciation. If the election is made, it is irrevocable, and ADS treatment will apply to all depreciable assets that are already owned or will be purchased in the future.

Real Property Business – Election Comparison

So, How does it Work?

Let’s use a hypothetical company, ABC Corporation, and assume it exceeds the small business exemption. ABC Corporation is in the business of residential rental property and, for illustration purposes, will not elect out of the business interest limitation. For the taxable year, ABC Corporation has the following income statement:

ABC Corporation can only deduct $30,000,000 of its $49,000,000 of net interest expense. The remaining $19,000,000 of disallowed interest expense will carry forward until used in a future year. The $19,000,000 disallowance is calculated as follows:

$50,000,000 interest expense – $1,000,000 interest income = $49,000,000 net interest expense

$49,000,000 net interest expense – $30,000,000 interest expense limitation = $19,000,000 disallowance

ABC Corporation will have taxable income of $45,500,000 if they do not elect out, but will have taxable income of $25,500,000 if they do elect out. Therefore, the election out is most beneficial in the current year where there is high business interest expense. However, electing out will likely decrease the depreciation deduction for the current year and future years, thus slightly increasing taxable income. The decision of whether or not an election out should be made should therefore take into account the impact on current and future depreciation.

Effect of Depreciation, Amortization, and Depletion on ATI and the Deduction

The larger the ATI, the larger the deduction. Starting in 2022, ATI will be reduced by depreciation, amortization, and depletion. Therefore, the deduction will likely decrease for many businesses at that point. Looking at our example above, if depreciation and amortization were included in the calculation of ATI, ABC corporation would have $52,150,000 of taxable income. The following shows this calculation:

ATI would be $74,500,000 because depreciation and amortization amount are not added back. ATI of $74,500,000 is then multiplied by 30%, which results in a limitation for business interest in the amount of $22,350,000. Taxable income ($74,500,000) is then reduced by the limitation amount ($22,350,000) to equal $52,150,000 of taxable income.

Conclusion

The new business interest expense limitation can be complicated, depending on the type of business and the business’s average gross receipts. For businesses that qualify to elect out of the limitation, it is important to compare the effects of the deduction limitation and the depreciation adjustments on overall taxable income for the current and future years. For businesses that will be subject to the limitation, planning should focus on the method of providing future financing since the limitation may restrict cash flow.

Please consult your tax advisor or a member of the HBK Tax Advisory Group to determine whether or not this limitation applies to your business.

A look at the Supreme Court case that could mean major taxation changes for many business owners.

History of the Case

In 1992, the Supreme Court made a decision that has, so far, stood the test of time and shaped how states impose sales tax on businesses. Quill v. North Dakota involved Quill Corp., a company distributing ads, catalogs, flyers, and floppy disks into North Dakota, and North Dakota’s attempt to impose sales tax on Quill Corp. for their “regular or systematic solicitation” of consumers within the state. The Supreme Court’s decision in Quill cemented what we now know as the “physical presence test,” which requires a physical presence, or a tangible connection, between a state and a business in order for that state to impose taxing obligations. For more than twenty years, states have modeled their taxing systems around the limitations imposed under Quill, and anyone engaged in e-commerce knows that understanding where their physical presence or “nexus” lies is critical in determining their tax collection and filing requirements within a state.

Since Quill, many states have attempted to broaden their taxing authority while still meeting the requirements set forth under Quill’s physical presence test. Quill was decided before the boom of e-commerce and large internet retailers, in a time when mail order catalogs were often used for interstate sales. An e-commerce business without physical presence in a state cannot be required to charge sales tax on purchases within it since they lack sufficient nexus. Arguably, this has created a large deficit in a state’s taxing ability and the revenue that states are able to generate as e-commerce continues to grow and deepen in the marketplace. South Dakota, intent on challenging Quill, has now forced the Court’s hand into making a determination as to whether Quill should be overturned now that e-commerce is common.

In March of 2016, South Dakota passed S.B. 106, which imposed sales tax registration and collection obligations on sellers that lacked physical presence within a state if the seller in the current or previous calendar year had gross revenue from sales of tangible personal property (TPP) and services delivered within the state exceeding $100,000, or sold TPP and services for delivery into the state in 200 or more separate transactions. Following this bill, South Dakota sued four out-of-state retailers seeking to affirm the validity of S.B. 106. One of the retailers registered and chose to collect sales tax, and the remaining three moved for summary judgment, which was granted by the Supreme Court of South Dakota under the restrictions imposed by Quill. The U.S. Supreme Court granted certiorari of this case in January of 2017, agreeing to look at whether the precedent set under Quill should be called into question, or even potentially overturned.

South Dakota’s Argument

While it wouldn’t be unprecedented to see the Supreme Court overturn Quill, this is not an easy argument for South Dakota to win. Under the principle of stare decisis, overturning a prior precedent set by the Court requires a demonstration of “special justifications.” The Court will consider whether their prior decision is inconsistent with other decisions, and whether the holding in Quill was harmful, important, or detrimental to the doctrine at issue. The court will also determine whether Quill should be overturned due to a change in circumstance, and will analyze the distinguishing factors between Wayfair and Quill, focusing on any statutory or constitutional interpretations that may factor into the facts of these cases.

On Tuesday, April 17, 2018, the Supreme Court began hearing oral arguments in South Dakota v. Wayfair. Among some of the more frequent concerns raised by the Justices is the concern over the immense administrative burden that making such a “binary” decision to overturn Quill would have on both states and small businesses. Immediately, the Attorney General for South Dakota was met with questions from the Justices voicing these concerns. Justice Sonia Sotomayor, stating she was “concerned about the many unanswered questions that overturning precedents will create,” indicated that this would ensure an influx of lawsuits surrounding such a massive change. Justice Sotomayor also vocalized concerns over retroactive liability for sellers if the Court were to change the physical presence standard, which would only increase the administrative burden on small businesses.

While these administrative concerns are immense, South Dakota also has a strong argument that states could lose billions in revenue over the next decade if they are unable to fully tax retailers within the e-commerce marketplace. Chief Justice John Roberts noted that, as a country we may be past the point in our history where major e-commerce-based retailers are refusing to collect and remit sales tax. He noted that the major five players in this field already comply across the board (Amazon, for instance, has long charged sales tax appropriately throughout the country). His statements highlighted the fact that these large retailers are still successful, even while complying with varying state taxing liabilities. Chief Justice Roberts noted that large e-commerce retailers no longer refuse to collect sales tax in order to enjoy a price advantage over brick and mortar stores. He said, “…if it is, in fact, a problem that is diminishing rather than expanding, why doesn’t that suggest that there [is] greater significance to the arguments that we should leave Quill in place?” The Justices noted that these larger players in the marketplace that are not of any state’s primary concern at present nor will they will necessarily feel an increased burden if Quill is overturned. Rather, small businesses will feel the impact first.

Many of the arguments have come down to whether the Supreme Court should be deciding this issue, or whether action by Congress would be more appropriate. While South Dakota argued that Congress has had more than twenty years to act, thus allowing the Court to step in, the Justices were prompt to point out that “this is something [Congress is] going to leave the way it has been for, whatever it is, 25 years.” The Court also noted that “it would be very strange for [the Supreme Court] to tell Congress it ought to do something in any particular area.” Chief Justice Roberts brought up the possibility that this is an area that Congress has simply decided to avoid. On the other hand, Justice Elena Kagan cautioned that Congress’s inaction is reason enough to proceed carefully in overturning Quill. This inaction may have the effect of raising the bar as to what would be necessary to overturn another such monumental case.

Decision Expected this Summer

While it is unclear what the fate of Quill and Wayfair will be, it is certain that no decision from this Court will be entered into lightly. The Justices are rightly concerned with the practical impact that such a massive decision would have on small retailers, specifically the increased procedural burden e-commerce vendors would face if states were permitted to impose tax on businesses lacking physical presence. Many states are struggling to increase revenue and balance their budgets, especially after the passage of the Tax Cuts and Jobs Act (TCJA). The impact of TCJA makes it clear why South Dakota is attempting to broaden its taxing authority. However, it is wise to keep in mind what overturning Quill could mean for all sides. We are in an age where the law and technology are in a constant race against each other. If Quill remains, the Wayfair case could spark a flood of new laws from states attempting to define and re-define what digital touches to a state are consistent with Quill.

A decision from this case is expected around the end of June. HBK will continue to monitor this case and its potential affect on our clients, associates and colleagues. Please contact Cassandra Baubie at cbaubie@hbkcpa.com or 330-758-8613 with any questions.

The Internal Revenue Service (“IRS”) and the Department of the Treasury (“Treasury”) issued final regulations on December 13, 2016 for the Internal Revenue Code (“IRC”) Sections 6038A and 7701. These regulations take effect for tax years beginning after January 1, 2017 and make way for additional filing requirements for domestic disregarded entities (DREs) that are wholly owned by foreign persons.

Under the new rules, foreign-owned Disregarded Entities (DREs) are required to file Form 5472, Information Return of a 25 percent Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. For many foreign-owned DREs, this new requirement has added implications. In order to file Form 5472, these entities are now required to obtain an Employer Identification Number (EIN) if they have not yet established one. When applying for an EIN, the foreign-owned DRE must identify the owner or name of a responsible party. If the foreign owner or responsible party does not have a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN) potential complications can arise.

Another nuance under these regulations is a requirement for foreign-owned DREs to maintain books and records that would allow them to accurately file Form 5472 and follow US tax treatment with respect to reportable transactions. Reportable transactions under these regulations include sales, assignments, leases, licenses, loans, advances or any other transfer that constitutes a right to use property or money in addition to the performance of any services for the benefit of or on behalf of another taxpayer. In addition, contributions and distributions are also considered reportable transactions under IRC 6038A.

To facilitate compliance with the additional requirements of Section 6038A and the required reporting under Form 5472, a foreign-owned DRE that has a U.S. filing requirement is required to have the same taxable year as the foreign owner; and similarly, if the foreign owner has no U.S. filing requirement, the taxable year of the entity is the calendar year unless otherwise indicated.

The penalties for failure to file are steep. Not filing Form 5472 could cost a taxpayer $10,000. This penalty can also be assessed for failure to maintain proper records. In fact, filing a substantially incomplete Form 5472 would constitute a failure to file Form 5472 and the $10,000 penalty can be assessed. However, there is no guidance provided by the IRS or any other regulatory agency as to what constitutes filing a substantially incomplete Form 5472. Criminal penalties may also apply for failure to submit information or for filing false or fraudulent information. Lastly, foreign-owned DREs cannot electronically file Form 5472.

If you have any questions regarding the new filing requirements, please reach out to a member of the Tax Advisory Group (TAG) at HBK.

As we enter the income tax filing season, the HBK Dealership Industry Group would like to remind dealers, owners/operators of dealerships and their employees to be on the lookout for tax scams in 2018.

Cybercriminals use various techniques such as email phishing schemes (deceptive emails) and phone scams to obtain private information. This activity is typically at its peak at the beginning of the year. The purpose of these scams is to obtain and access personal information so as to have the ability to file income tax returns and fraudulently claim refunds using the victim’s identity. Often, the criminals try to intimidate a taxpayer by claiming they are government employees and asserting that a taxpayer owes the government tax money that must be paid immediately.

If you are aware of these potential scams and are vigilant in protecting against them, you are less likely to fall victim to cybercriminals. Please remember that both the IRS and state departments of revenue initiate all communication with you via the U.S. postal service. Accordingly, please be aware of these red flags if someone claiming to work for the government:

1. Initiates a phone call or email asking for personal information;
2. Threatens to immediately bring in local police to have you arrested;
3. Calls or emails you to demand immediate payment using a specific payment method;
4. Demands that taxes be paid without giving you an opportunity to question or appeal the amount owed; or
5. Asks for your credit or debit card numbers over the phone.

Also, be aware that these criminals often alter their phone numbers in order to manipulate the caller ID system and/or use false email addresses to make it look like a governmental entity is contacting you. Although a scammer may look or sound official, be careful not to fall for a scheme.

If you suspect that you have been contacted by a scammer, you should immediately hang up on the caller or delete the email. If you have a concern, please contact a member of the HBK Dealership Industry Group at 317-886-1624 or rcollins@hbkcpa.com, the System and Organization Controls (SOC) team at 724-934-5300 or mschiavone@hbkcpa.com or the Cyber Security Team at 614-228-4000 or sfranckhauser@hbkcpa.com.

Earlier this year, the Financial Accounting Standards Board (FASB) issued a revised lease accounting standard. The new standard – Accounting Standards Update (ASU) No. 2016-02, “Leases (Topic 842)” – may impact many contractors that lease vehicles, equipment or buildings.

FASB standards apply to all contractors that must maintain financial statements that comply with generally accepted accounting principles (GAAP). GAAP-compliant statements are required by lenders and bonding companies for most privately held contractors and public contractors, as well. The new financial reporting and accounting procedures are likely to affect some of the financial ratios stipulated in various types of loan covenants and surety agreements. Now is a good time to proactively plan in order to try to pre-empt potential problems.

The Changes

Under existing accounting rules, operating leases generally do not appear on a company’s balance sheet. This applies to all types of operating leases, including leases for vehicles, equipment, office machines, and office or warehouse space.

Under the new standard, you will be required to record the present value of the scheduled lease payments as a liability on the balance sheet. This liability would be balanced by recording the “right-of-use” value of the property or equipment as an asset. (There could be minor additional adjustments to the asset to reflect broker’s fees or other direct costs.)

The new standard allows an exception for short-term leases or those lasting less than 12 months that do not include a renewal option the lessee is “reasonably certain” to exercise. This means even short-term leases must appear on the balance sheet if they include extension options that meet these criteria.

The Impact

The most significant effect of the new lease accounting rules for most contractors will be their impact on commonly used financial metrics, particularly the working capital ratio and the debt-to-equity ratio. Many loan agreements and surety contracts require contractors to maintain these ratios at specified levels and to submit financial statements that demonstrate compliance. As a result, many contractors could find themselves out of compliance because of lease obligations that drive up their current liabilities and total liabilities.

Operating Leases v. Finance Leases

The existing standard makes a distinction between operating leases and capital leases, such as those that offer a bargain purchase option at the end of the lease. Because capital leases are generally regarded as a form of financing, they are already recorded on the balance sheet as a liability.

Under the new standard, this distinction is less important, since all leases over 12 months in duration will now appear on the balance sheet. The interest and amortization expenses for the two types of leases are handled differently, but these distinctions will not affect most contractors significantly. The new standard also changes the terminology somewhat, referring to finance leases instead of capital leases.

Other Related Matters

Many leases in the construction industry involve company owners who purchase property and lease it back to their businesses. The new lease accounting rules apply to such related party leases the same as third party leases, based on the “legally enforceable” terms of the lease agreement.

How to Prepare

For publicly traded companies, the new lease accounting standard will take effect for reporting periods beginning after Dec. 15, 2018. For privately held companies, the new standard goes into effect for reporting periods beginning after Dec. 15, 2019. Companies can begin applying the standard sooner if they choose.

Although the effective date seems to be far in the future, implementation of this standard will generally be overlapping with the implementation of FASB’s new revenue recognition standard. Because of this, companies should begin responding to this new standard sooner rather than later through the following methodology:

1. Understand the new standard and monitor changes in interpretation that are naturally expected to occur.

2. Create a cross-functional implementation team (e.g. finance, legal, operations, human resources, I.T.) and plan to implement the new standard.

3. Identify and communicate with stakeholders regarding the potential impacts to financial metrics, covenants, and other agreements (e.g. compensation).

4. Populate lease data and establish required judgments, estimates and accounting policy elections.

How HBK Can Help

HBK’s multidisciplinary team of accounting, tax and valuation professionals are available to assist in assessing how the new leases standard will impact you. Existing attest clients will receive training services on the technical aspects of the new standard as well as advice on project management and planning. Further assessment and implementation services are available to non-attest clients.