Why Ifrs? The Benefits And Drawbacks Of Conversion From Gaap To Ifrs

Posted by admin on October 8, 2012 at 10:58 am

International Financial Reporting Standards, IFRS, are used by public companies in over 100 countries, so it is easy to see why the U.S. is following suit. The United States is currently using what is known as Generally Accepted Accounting Principles when filing their financial statements and records. Currently, the SEC is debating how to impose the change in the U.S. The choice is between making IFRS a gradual adaption and establishing a definite date that companies must be converted by. If there was a gradual adaptation, companies would be given the choice of switching to IFRS from GAAP. This is mostly dependent on the size of the companies. On the other side, companies may continue to use GAAP until a certain date which then will force them to file their financial statements according to IFRS standards. The quick change to IFRS would be beneficial to companies because it would allow them to adapt the new standards quickly and efficiently.

It is estimated that the United States should be converted to using IFRS by the year 2014. This is possible because there are many advantages to adopting the procedures and companies will be eager to take part in them. A quick and speedy change would be ideal for the conversion to IFRS from GAAP, however it is unlikely that the change will be smooth or quick because of the complexity and work behind switching systems. Smaller companies will most likely be the ones to suffer in changing their systems because of financial strains and lack of employees. Larger companies have a larger base and therefore would benefit more from switching. They are also more likely the companies that are being publically traded. Using IFRS will be extremely beneficial to them because they have the most to gain and they will have the easiest transition. Although they have possibly more companies, offices, and detailed financials, they are more likely to have the staff or means to hire staff to assist them in a smooth change. Regardless, both large and small companies can benefit from IFRS and with proper planning and motivation.

Conversion to IFRS offers many benefits to companies. The most obvious and beneficial aspect of adopting IFRS is consistency. As stated before, public companies in over 100 countries are using IFRS and Canada is on track to adopting the new system and it seems only logical that the United States do the same. Additionally, if a company has foreign operations, adapting IFRS would give them internally consistency as well. They would be able to make their reporting uniform which can reduce costs because all reporting will be done the same way. This will allow them to streamline their operations, reporting standards, auditing, training, development and company standards. Whether domestic or global, their offices could adapt similar standards and reporting techniques, giving them precise and consistent company records and reporting. If IFRS adaptation is ruled to be optional before a set date, a company can gain a large advantage if they were to adopt the reporting standards early because they would be giving themselves a head start on using and becoming familiar with the system. Also, they would be receiving all the before-mentioned benefits that IFRS has to offer. For first-time converters, there are many choices on how to run their initial application.

It goes without saying that along with benefits come drawbacks. Changing to IFRS from GAAP is not simply a change in accounting procedure. It needs to be a transformation by companies. They need to focus on developing an action plan as well as a clearly defined plan for their future as IFRS users. Since the benefits of using IFRS will allow them easier and better foreign management, there should be a plan involving using these circumstances to their full benefit. There needs to be a strategy for conversion that will allow it to go as smoothly as possible so they can keep interruptions to their daily performance at a minimum. Additionally, because IFRS is different from GAAP, it would be beneficial to companies to hire financial advisors and staff that are knowledgeable in IFRS that will be able to help guide the company through its conversion. Hiring this new staff will increase costs and also makes layoffs and staff cutbacks very possible. Companies will most likely also have to upgrade their technology and computer programs for the change from GAAP. All reports, financial documents, contracts and agreements will have to be revised since they were originally drawn up under GAAP standards. Finally, companies will incur additional costs from the previously mentioned activities as well as costs for the auditors and advisors needed for the initial conversion. These would most likely only be one-time expenses however. These expenses would be good for tax purposes however and could turn out to be helpful by reducing net income and therefore cutting down on taxes paid by the companies.

The eventual conversion from IFRS from GAAP is unavoidable. For companies to be sufficiently prepared for the change, they should plan ahead. It is a good idea for companies to begin their conversion with a plan and a timeline. It has been estimated that total conversion time will be about two years. As previously stated, it was projected that the US should be converted by 2014. That leaves approximately 4 years left for companies to be changed to IFRS. It is crucial that companies begin planning and changing their standards. Time is running out and the rest of the world does not have to file their records with any adaptation to GAAP. It is in their interest to start the change over so that they can be up to date and receiving the benefits that conversion has to offer as soon as possible. If companies start planning and acting now, it is entirely possible for the United States to have successfully converted itself to IFRS and be able to join the rest of the world in their accounting procedures.

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Basic Bank Accounts Failing the Basic Needs of Consumers

Posted by admin on June 10, 2012 at 3:53 pm

The lists of bank and savings accounts that are available to most people are bewildering. A quick look at a comparison site like Moneynet or Moneyfacts will reveal thousands of different products. Unfortunately many of these accounts are not accessible for anyone with either a poor or even no credit history.

Research carried out for the National Consumer Council (NCC) reveals “that the poor pay more, or get less, for essential goods and services… having a bank account can be a gateway to other products and services, such as affordable credit and insurance”. To help counteract this problem of financial exclusion, the government has tried to initiate the introduction of basic bank accounts for the least well off. The NCC has however warned that, “the current model of basic bank accounts, introduced by government in 2000 in an attempt to enable all low-income consumers to access banking services, is not delivering.”

The new basic bank accounts were introduced as part of a wider push towards ‘universal banking’ and corresponded with the introduction of direct payment of social security benefits to bank accounts as well as the Post Office Card Account (POCA). The plan was that these accounts would also help their users by letting them set up direct debits to pay their utility bills, and so keep better track of their finances from week to week.

The accounts were originally designed to let people save and withdraw money, but in an effort to prevent extending any existing debts and stopping the accounts from becoming overdrawn, they don’t offer cheque books, overdrafts or other credit facilities. The accounts were intended for those with no credit history who might not meet the banks’ criteria for opening a standard current account. The accounts features typically include the ability for payments, for example pensions and benefits, to be credited direct to the account, withdrawals by plastic card through cash machines and the facility to pay bills by direct debit.

The problems experienced seem to be partly because the accounts do not always help those with a small weekly income to deal with the unpredictable gaps which can occur in wages, benefits or spending. Automated monthly direct debit payments for goods and services can prove of little use to many on low weekly based incomes. Those paid on a week by week basis, expressed a preference for weekly cash based, rather than monthly direct debit, budgeting options and felt that bank accounts with direct debit facilities would not provide them any advantages. By using cash instead of a bank account, they found they could juggle payments easier, and avoid punitive additional bank charges if they did not have the funds to hand, to cover an outgoing debit payment.

Another problem experienced was that the holders of these basic accounts are also liable to be those on low incomes, with low (if any) savings and are more likely to be in arrears paying their household bills than those without them. This vulnerable group are less likely than most to be able to deal with unexpected additional expenditure, such as an unforeseen bill for home repairs, but without recourse to any credit facilities, they may be forced into resorting to high interest loans to cover temporary setbacks.

The NCC found that “people on low incomes who use accounts to manage their money are more likely to be in arrears with household bills. They are also more likely to have outstanding credit commitments, partly because they have wider access to credit”, than those without accounts.

The government has set a target of halving the number of households which do not have access to a bank account by 2006. The banks state that they currently face a lack of demand, however more than two million applications, in excess of the government’s expected take-up, for the POCAs have been made. The banks are claiming that reaching the targets will be difficult, as they are being impeded by various barriers to opening basic bank accounts, such as the identification requirements in money laundering rules. Some of those on low incomes may not possess either a full driving license or full passport, and so find difficulties setting up new financial accounts. The banking industry has also been widely criticised for failing to actively promote basic bank accounts and, sometimes, for actually discouraging people from opening them.

The NCC proposed that basic bank accounts need to be more flexible. Suggestions to make the bank accounts meet the needs of consumers included offering weekly, rather than monthly, direct debit facilities where payments are only triggered if the money is available in the account, occasional payment holidays, and small free ‘buffer zone’ overdrafts.

Whether the lack of interest is due to the banks, the government, or the product itself, something needs to be done if there is to be an increase in the take-up rates. Half of those surveyed by the NCC felt they do not really need an account. An even more damning indictment of the current basic bank accounts was that a similar proportion of account holders preferred to withdraw all their income, rather than leave it in the account, and then manage it as cash. An inclusion policy may be a laudable idea, but it is no use if people do not want to be included, and it should not disadvantage those it is meant to help.

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National Accounts — How Do You Create a Program That Really Works?

Posted by admin on July 17, 2010 at 10:13 am

This article is intended to help everyone gain a better understanding of National Accounts Programs.

including the motivation for creating one and the steps National Accounts toward a successful process. While it is not National Accounts intended to definitively answer every question regarding national accounts, it serves as a set of guiding principles for those in the National Accounts company who are responsible for the success of the program. It is written for salespeople, National Accounts branch managers and national account representatives, not the company’s executive management National Accounts team. However, keep in mind that executive management needs to be committed to the National Accounts program and would benefit by understanding the process and concepts.

Regain Power by Offering Competitive Advantage

National accounts, by definition, have National Accountssignificant size and buying power which provide leverage in demanding lower prices. In addition, because of their complexity National Accounts and demographics, they are often more difficult and expensive to service. Consequently National Accounts most national accounts are the least profitable.

In response, you need to make a concentrated effort to National Accounts effectively rebalance the shift of power by offering significant competitive advantages that make your products and National Accounts services more critical to your national accounts. Without creating competitive advantage, you will be tied to the downward price spiral National Accounts that eats margin and effectively negates any understanding by your customers that “price is not the same as cost.” A structured national National Accounts accounts program with definitive guidelines is the first step toward National Accounts gaining competitive advantage.
There are four basic broad categories of added value National Accounts that create competitive advantage:

1. Processes that streamline your customers’ National Accounts productivity, improve quality, take transaction costs out of the supply chain and provide measurable National Accounts savings (unrelated to price).

2. Administrative and technical support that National Accounts can reduce your customers’ internal costs enough to affect bottom line operating costs.

3. Sales and marketing support that can increase National Accounts your customers’ top line.

4. Technology that is core to your customers’ National Accounts business results, yet is beyond their internal capabilities.
Your national accounts program should refocus your National Accounts efforts on all of these issues.

Four Fundamentals

The ultimate success of a national National Accounts accounts program depends on the hard work and team participation of all company employees involved in the National Accounts process.
There are four basic fundamentals of success in any national accounts program:

1. Knowledge – Study the National Accounts internal processes of your company and/or the internal workings of your national accounts program if you already have one in place.

2. Understanding – Research the business environment in which your company operates and the resulting defined objectives for a national accounts program.

3. Clarity – Identify the big picture of National Accounts market and customer demand and direction. This should be a true understanding of what your corporation is trying to National Accounts accomplish in total.

4. Commitment – Secure the commitment of your entire company.

Knowledge

It is essential to outline the objectives of your program, National Accounts the process involved, and the direction to take in order to receive help and support when necessary. If you have no National Accounts program in effect, it is critical to develop this process.

Second, activity measurement and open National Accounts communication (both up and down the chain of command) are absolutely critical for success. Accountability is an absolute necessity National Accounts and it must be clearly defined. Support from your company’s information management system can provide the fundamental elements National Accounts of success for the national accounts program. A weak information National Accounts system could leave dangerous voids or even misrepresent the true picture of the national accounts National Accounts program.

Understanding

Understanding brings the field view (external view) closer to corporate headquarters National Accounts.

An internal company survey may provide the National Accounts necessary clarity as to how a national accounts program is National Accounts perceived. Input from local account representatives and branch managers is very important. Your company needs to explore how National Accounts things are being done and how an existing program is perceived. Most National Accounts importantly, input from the field with recommendations is essential. If you currently have no program, the National Accounts survey is even more critical to the initial development stage of a new program.
Understanding actual needs of the national account is also critical to the success of your program. To get a better understanding, ask the following questions:

o What do national account types really value?

o What motivates our suppliers to negotiate special terms for these accounts?

o Do these accounts view our company as partners?

o What do we know about their business?

o Are we truly the primary source of supply?

o Can we create a win-win situation?

Clarity

Everyone must have a clear understanding of exactly what you are trying to accomplish. Recognizing the volatility of the environment is a valuable piece of the puzzle. Your company needs to catch up to the pace of change within the distribution industry to maintain competitive advantage. Remember, “Perceived value drives expectations” and “Performance value drives customer satisfaction.”

Raise your customers’ perceived value high enough and you create “competitive advantage” which is the first step towards rebalancing the shift of power inherent in any national accounts program.

While the knowledge aspect of the national accounts program is heavily weighted toward internal perspective, clarity needs to be weighted toward your external environment. You must be clearly aware of market dynamics, including technology and other external forces shaping your particular industry and driving behavior of the national accounts customers. You must evaluate events and trends using an anticipatory perspective in relationship to your competition. You need to ask yourself these questions:

o How is the industry different today regarding what is expected from a national accounts program?

o What will be considered by 2007?

o What are our competitors doing in serving national accounts?

o What technologies offer the most potential, both as products and tools?

o What actions are our competitors taking to gain advantage?

o How will our suppliers react to our strategy?

Commitment

A National Accounts Program cannot be treated like a member of the “flavor of the month” club. Everyone needs to take it seriously. Commitment is required by everyone. This is not something you dabble in. That is why it is important to put the time and attention into the planning process before getting wet. Understand your objectives.

The only reason a company should embark on a national accounts program.

is to obtain sales and market share that in total is profitable for the company and meets the criteria of corporate strategic objectives.

The corporate objectives of the national accounts program may be outlined as follows:

o Develop a national presence in the marketplace

o Enhance the company image and credibility

o Develop impressive client references

o Support growth with preferred vendors

o Create synergy with the corporate mission statement

o Rebalance the shift of power and profitability in the national account program

One of the core problems facing many national accounts programs is the need to overlay a centralized sales function on an established decentralized sales force. In the past, your processes and systems may not have enabled customers, prospects, or even your own field sales representatives to make informed, favorable decisions.

How Do We Get Started?

Step 1: Define the Players

Clearly define independent responsibilities of each player contributing to the success of the national accounts program.

Director of National Accounts

o Serves as liaison with national account at corporate level.

o Approves and helps establish “Rules of Engagement.”

o Provides support to local management.

o Monitors the activity between national account representatives and local branches.

o Determines qualification criteria. Reviews qualification process.

National Account Manager

o Supports/initiates implementation of national account program.

o Calls on national account corporate purchasing.

o Responds to issues and requests from the customer and company personnel.

o Meets and interacts with your customers’ top decision makers.

o Helps customers, even in areas unrelated to company products and service.
o Communicates effectively with local branch management and local account representatives.

Branch Manager

o Manages activity of local account representatives.

o Supports both corporate and local national account sales efforts

o Monitors national account activity, service level, and provides guidance to local account representative

o Reports progress.

o Interacts with Director of National Accounts on any and all national account issues.

Local Account Manager

o Manages consigned inventory

o Grows sales of non-contract items

o Interacts with national account manager

o Services account according to contract rules of engagement

o Provides Branch Manager with monthly status report.

Step 2: “The Tiger Team”

A tiger team is a select group of top-level employees, selected by executive management, who are committed to the objective of refining the development of the national accounts program. This team consists of the following personnel:

o Director of National Accounts

o Several national account representatives

o A regional manager

o Several local sales representatives

The tiger team should be split into two groups:

Group 1: Director of National Accounts

Several national account representatives

Group 2: Regional manager

Several local account representatives

With a two-day retreat as the setting, each group will separately establish the following during the first day: (This is a brainstorming session designed to cover any and all ideas.)

o Measurement criteria for individuals and accounts

o Priorities

o Action items

o Accountability

o Objectives

o Rules and responsibilities of all players

On the second day, the groups will merge and compare notes to establish a united refinement plan to go forward. This documented plan will be submitted to executive management for approval. Upon approval, it is highly recommended that the intent and objectives of the program be properly communicated to all employees. (E-mail rick@ceostrategist.com to get a sample national accounts program communication message.)
Then, a six-month audit should be conducted to follow-up on progress and action items. This should ensure the program is progressing and that objectives are met. (E-mail rick@ceostrategist.com if you would like a suggested listing of qualification procedures.)

Step 3: Communication

Establish communication processes and trust-building techniques for existing and prospective national accounts. Tips include:

o The sharing of relevant information will begin the trust building process. The company should take the lead.

o The beginning dialogue should focus on the long-term strategic initiatives of the respective companies. Understanding each other’s drivers, challenges and strategies will build the foundation for future communications.

o The customer needs analysis and account planning process are excellent vehicles to build trust and open communication.

o Customer and supplier executive interaction fosters trust and will have a cascading effect, driving both organizations toward more effective communication.

o The data and information to be shared should be identified in a cooperative environment. The focus should be on information that will lead to improvement and efficiencies for both the customer and the company.

o The capture, storage, retrieval and communication of information to be shared must be considered when building the infrastructure systems.

o The customer and your company’s national and local representation must develop the rollout plan jointly.

o Internal champions/coordinators of the rollout process must be identified and positioned by both the customer and the company.

o The plan should be developed and implemented using a team “project” approach. The ongoing monitoring and controlling activities should then be transitioned to others within the respective organizations.

o The rollout plan should address cultural, functional and training issues for both organizations.
The infrastructure system should have the ability to report information that is crucial to monitoring and controlling the ongoing application of these services.

Track the Process on the Web

It greatly enhances the communication process if national accounts programs are tracked on the web. As Akarin Weatherford, Chief Technology Officer of CEO Strategist LLC points out, this creates great opportunities to increase effectiveness within the organization:

o Communication channels widen as web application is leveraged to support the account management process. Collaborative tools allow managers, sales persons and account representatives to adequately share information between themselves about accounts.

o Managers can track and view the progress of sales persons and account representatives from anywhere with near 24×7 availability using a standard web browser from any PC or laptop connected to the Internet.

o A centralized web site to track the milestones within this process means that managers can capture a real-time picture of what is going on with the entire account management process and each individual account in order to make appropriate critical business decisions.

o Accountability and traceability for each manager and sales representative are established since all actions performed on a customer’s account are recorded by the web site.

Because of the distributed nature of national and local accounts, the best way to manage this process is through a web-based application. This means the following:

o No Need to Buy Special Computers or Software – Most managers, sales persons, and account representatives will already have what they need to participate: laptop/PC, web browser, and local internet service, meaning no long distance access charges (through AOL, Road Runner, AT&T, etc.).

o Information Technology Overhead Can be Cut – Maintain one software application at one location (on the server) rather than many software applications in many branch locations (on individual computers). If there are any updates to the web site, it occurs in one place and is automatically distributed to managers, sales persons, and account representatives the next time they connect to the site. You can shrink the IT staffing because the necessary support coverage is less.

Summary

The motivation and process for developing a national account program have now been outlined. As you go forward, remember these elements that will be critical to the program’s success:

o Gather All Input – A national accounts program involves many participants. It is not something you do to get customers. It is something you do with major national chains. The most successful national accounts programs have included executive and corporate input in combination with branch and local input. Most importantly, however, is the input of the customers themselves in the planning, implementation and measurement stage.

o Focus on the Process and Communicate Well – In a national accounts program the old cliché, “the plan is the sale” and “the sale is the plan” is clearly applicable. What is presented and sold to the national accounts are not only the results, but the process used to accomplish those results. Products, services, results, measurement and follow-up are individual elements in the national accounts program that guide and direct the process of the transactions and the relationship.

o Involve the Team – National accounts planning must be a team project. The program and the transactions it encompasses have to become the product of the company and each individual national account, including local account managers, branch managers and the national accounts team. Involvement of the executive staff is also critical to success.

o Build Measurement and Accountability into the Process – The measured results become benchmarks that are established in the plan. A national accounts program without measurement and accountability is deficient. Of course, two primary measurements are (1) profitability and (2) success in selling non-contract products. Other milestones may include geographic penetration, growth and National Accounts product replacement.

National Accounts

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What Retirement Accounts Are Available to You?

Posted by admin on June 10, 2010 at 7:16 pm

While looking at planning your retirement, you may have noticed there are a wide variety of retirement accounts available to choose form. This article will give a detailed breakdown and comparison of the different retirement accounts to help you decide which is the best choice based on your circumstances.
IRA

The IRA is a tax deductible defined contribution retirement account. This means that taxes are not paid that year for any money deposited in your IRA. Instead, withdrawals made from the account upon retirement are taxed as income.

Pros:

Tax deferred until withdrawal.
Individual, customized control of investments.
Tax deferral of investment growth

Cons:

Very low yearly contribution allowance of $5,000.
10% withdrawal penalty.
Lack of liquidity if the contributor needs the money for another purpose.

An IRA allows the account holder to make investments using the funds in their retirement account. This means they can allocate the funds across a variety of stocks, bonds, and mutual funds. The importance of this is that any growth in these investments is tax deferred until withdrawal along with all funds in the account.

The negative side of this tax deferral is that the growth of investments will be taxed at your income tax rate rather than capital gains which is 15%. For the tax advantage to really come through, the funds in an IRA must be allowed to have time for growth. In general, it is advantageous when the IRA is allowed to grow for more than 20 years before withdrawal for the tax deferral to be advantageous.

A disadvantage of the IRA is the low deposit limit of only $5,000 a year with a catch-up addition of $1,000 a year allowed for individuals 50 or older. Also, funds can be difficult to withdraw from an IRA before the designated age of 59 and 1/2 is reached. To see a more detailed analysis of an Individual Retirement Account (IRA), read our article about the IRA

When is a Roth IRA for me?

The Roth Individual Retirement Account (IRA) is an account that is not tax deferred; therefore taxes are paid on any money before it is deposited in the Roth Individual Retirement Account (IRA). This can be advantageous for individuals who expect to have a higher income upon retirement so would rather pay the current lower tax rate than a future expected higher tax rate.
When is a SEP IRA for me?

The Simplified Employee Pension Individual Retirement Account (SEP IRA) is an IRA specifically meant for self-employed individuals and their employees. The account is shared among all members involved and uses a profit-sharing model. The contribution limits for an SEP IRA are the lesser of 25% of income or $49,000 in 2009. All members of the SEP IRA are required to make the same contribution.

A SEP IRA can be advantageous to a business owner due to its higher contribution allowance. It is not really an option for individual retirees who do not own a business of their own. All contribution made to the SEP IRA are made by the employer and not by employees themselves. Thus, the business owner must evaluate whether the tax benefits of expensing these costs and the increased benefits to their employees are worth the cost of increasing their own retirement contributions.

Comparison of IRA to 401k

401k and IRA are similar in that they both are tax-deferred retirement accounts which can increase in value over time before funds are withdrawn and they both have restrictions on fund withdrawal. One difference is that the contribution limit is only $5,000 a year for an Individual Retirement Account (IRA) while it is $16,500. A 401k also has the possibility of employer contributions in addition to your personal contributions.

In general, it is a good idea to prefer your 401k plan over your Individual Retirement Account (IRA) due to the higher limits and employer contributions. Before using this as a hard and fast rule, it is best to review what types of investments are made within your employer sponsored plan and your Individual Retirement Account (IRA) and what type of contributions are made by your employer.

Comparison of IRA to Retirement Annuity

Both an IRA and a Retirement Annuity are tax deferred retirement accounts. Unlike an IRA which has a $5,000 contribution limit, a retirement annuity has no contribution limits. Both accounts have a 10% penalty for early withdrawal.

The main feature a retirement annuity has that an IRA does not is its variety of guarantees. These guarantees include a guarantee to receive a minimum income per year after retirement and guarantees that the accounts value will be at a minimum level in the future. But these features come at a cost of about 3% a year in fees.

It is generally a poor idea to invest in a retirement annuity rather than an Individual Retirement Account due to these high fees charged. If the benefits being offered are worth the 3% annual fee due to your circumstances, a retirement annuity would be something to consider looking into.

401K

A 401k is a retirement account sponsored by your employer. It is a defined contribution plan where you contribute a certain portion of your income into the account.

Pros:

Tax deferred until withdrawal
Possibility of additional contributions from employers
Tax deferral of investment growth

Cons:

Withdrawal penalties of 10% with certain exceptions.
Lack of liquidity if the contributor needs the money for another purpose.

401k and IRA have a variety of similarities. They are both tax deferred plans to taxes are only paid on withdrawals from the account, allowing a tax-free buildup of funds and investment returns. This tax deferred features of both retirement accounts is advantageous to retirees who expect a lower income upon retirement than the income they receive during their careers.

A very large advantage of a 401k retirement account is that your employers may have a benefit where they will add funds to your account or match funds you add to the account. This is the primary advantage that a 401k has over an IRA but is highly dependent on what your employer contributes.

As with the IRA, the 401k has a negative side if the account holder does not allow the account to be active for more than 20 years. This is due to the growth within the retirement account’s investments being taxed at your income rate upon withdrawal rather than the customary 15% capital gains tax on investments. The tax advantages on investment growth are only seen after a long period of time.

When is a Roth 401k for me?

A Roth 401k, unlike a standard 401k retirement account, is taxed before the funds are placed into the account and withdrawals are made tax free. As with a Roth Individual Retirement Account (IRA), the Roth 401k is advantageous to individuals who expect their income upon retirement to be higher than their career income, therefore the tax-deferral of a standard 401k can be a negative to them.

To find out more in-depth information about 401k retirement accounts, read our article about 401k.

Comparison of 401k to Individual Retirement Account (IRA)

401k and Individual Retirement Accounts (IRA) are similar in that they both are tax-deferred retirement accounts which can increase in value over time before funds are withdrawn and they both have restrictions on fund withdrawal. One difference is that the contribution limit is only $5,000 a year for an Individual Retirement Account (IRA) while it is $16,500. A 401k also has the possibility of employer contributions in addition to your personal contributions.

Comparison of 401k to Retirement Annuity

401k and Retirement Annuities are both tax-deferred accounts in which the funds are only taxed upon withdrawal. 401k retirement accounts have an annual limit of $16,500 while a retirement annuity has no annual limit.

The main feature a retirement annuity has that a 401k does not is its variety of guarantees. These guarantees include a guarantee to receive a minimum income per year after retirement and guarantees that the accounts value will be at a minimum level in the future. But these features come at a cost of about 3% a year in fees.

It is generally a poor idea to invest in a retirement annuity rather than 401k due to these high fees charged. If the benefits being offered are worth the 3% annual fee due to your circumstances, a retirement annuity would be something to consider looking into.

Retirement Annuity

A retirement annuity is a defined contribution retirement account sold exclusively by life insurance companies. The earnings within a retirement annuity are tax deferred until withdrawal. Insurance companies can offer a variety of guarantees with their retirement annuity products, but these benefits come with extremely high fees.

Pros:

Tax deferred growth within account
Guaranteed benefits
No limits like a 401k or IRA

Cons:

Extremely high fees
Lack of liquidity, 10% early withdrawal penalty

The main benefits of retirement annuities are the guarantees that life insurance companies provide. These can include a guarantee that you will receive a minimum income per year after retirement and guarantees that the accounts value will be at a certain level in the future. The income earned within an annuity is tax deferred upon withdrawal providing a tax shelter for potential investment growth.

These benefits come at a cost. The fees charged on annuities can be extremely large and are highly criticized in the financial world. The total amount of fees charged on an annuity are around 3% a year, a far cry from the 1% a year charged by mutual funds directly. To read a more in-depth breakdown of retirement annuities and the fees charged, read our article on Retirement Annuities.

Retirement Annuities become advantageous when an individual is willing to deal with the 3% fees to acquire the potential guarantees.

Comparison of Retirement Annuity to Individual Retirement Account (IRA)

Both an Individual Retirement Account (IRA) and a Retirement Annuity are tax deferred retirement accounts. Unlike an Individual Retirement Account (IRA) which has a $5,000 contribution limit, a retirement annuity has no contribution limits. Both accounts have a 10% penalty for early withdrawal.

The main feature a retirement annuity has that an Individual Retirement Account (IRA) does not is its variety of guarantees. These guarantees include a guarantee to receive a minimum income per year after retirement and guarantees that the accounts value will be at a minimum level in the future. But these features come at a cost of about 3% a year in fees.

Comparison of Retirement Annuity to 401k

Retirement Accounts Conclusions

Overall 401k retirement accounts provide the best variety of features for retirement. Individual Retirement Accounts (IRAs) are very similar to 401ks but lack the benefits of employer contributions and have lower contribution limits. It is best to deposit all funds available into your 401k until the limit is reached and if your income allows it, contribute the remainder into your Individual Retirement Account (IRA).

Retirement annuities are widely criticized and rightfully so. They provide a few features that may entice individuals to contribute but those features come at a very hefty price that isn’t associated with any other type of account. Retirement annuities should only be used if your individual life circumstances make the features they provide a worthwhile sacrifice of 3% in fees every year.

In addition, each type of 401k and Individual Retirement Account (IRA) is different based on who is providing the account. This would be either your employer for a 401k or a financial institution for your Individual Retirement Account (IRA). They all provide different ways in which to manage the investments within the fund itself.

Only general recommendations can be given about which of these three main types of retirement accounts are best for individuals. Decisions must be made in an informed way while taking into account very specific circumstances of the individuals planning their retirement and deciding which retirement accounts are right for them.

Archived under Accounting Comments (607)

Perks of Being an Accountant

Posted by admin on June 8, 2010 at 3:50 pm

Majoring in accounting can open many doors for your future. Students entering the accounting field has grown in the past couple years. So why do people become accountants and why are accountants so successful? Accounting firms are looking for young accounting majors, they are recruiting and offering scholarships and signing bonuses to college graduates. Josee Rose from the Wall Street Journal said that “According to the National Association of Colleges and Employer’s 2008 job-outlook survey, accounting is the No. 1 bachelor’s degree in demand by employers.” Even with the economy in its place right now there is still demand for new accountants.

Accounting is considered the language of business and accounting shows how businesses are doing and what needs help. There are many different positions that an accountant can hold. They can become a public accountant, who provide auditing, tax, accounting and consulting services to businesses and individuals, public accountants can be in a firm or by working for themselves. Areas in public accounting include auditing which is the most important function of being a CPA, a large percentage of time in firms is spent auditing. Accounting and review services consist of maintaining accounting records to performing compilation. CPA firms do numerous of the taxes for many companies and individual clients. They prepare and review tax returns, tax planning and tax litigation. CPAs also do management services; which consists of consulting or management advisory services. This can include computer systems, management information systems, marketing, executive recruiting, personal financial planning, and budgeting techniques. There are so many jobs within accounting and so many different options for accounting majors.

Accountants can also be private industry accountants. In private accounting you work for one company and learn and work for that company only. They prepare all the financial information and budgets for that company. Accountants can also receive the Certificate in Management Accounting; all though it is not required it is respected and gives you high credentials. There is the Certified Internal Auditor which includes a 14 hour exam. Also you can go into government and non-for-profit accounting; government accountants monitor the appropriation of funds and awarding of contracts to private agencies that must follow governmental regulations.

Accounting can include a regular day at the office or it can be traveling to different companies to audit or even seven day weeks. Duties of an accountant can include, analyzing company budget, expenses and revenue, overseeing bookkeeping and payroll, figuring company benefits, auditing, managing bank accounts and investments, preparing profit and loss statements, compiling and analyzing financial information, explaining billing invoices and accounting policies, and supervising the input and handling of financial data and reports. Since accounting information is very time sensitive it needs to be processed in a timely fashion. Accountants may work by themselves or in groups. Accounting is constantly changing due to technology, recently accounting was all computerized and now is easier to understand and report.

Accounting and Finance professionals are taking a more prominent role in driving the direction of business practices of the companies and facilities they work for. They are increasingly being viewed as business partners. They are needed to analyze the conversions of their company’s technologies, establish practices that will increase cost efficiency and point managers in the direction of making decisions that will enhance profits and reduce losses.

The CPA title is the biggest credential for accounting professionals, having a CPA accreditation is a common prerequisite for positions. Companies are looking for professionals with experience and are familiar with general accounting principles like general ledger, account reconciliation, financial statement preparation and financial analysis. Also having knowledge about new technologies and knowing how to work new programs is the key to getting hired.. Managers are looking everywhere for qualified individuals for the right job. These managers are also trying to find the perfect match for their company and are investing a lot into the hiring process.

Accounting trends have recently changed dramatically with the computerization of accounting techniques. Accountants now need to be able to work with and understand new computer programs and new ways of doing their work within the practices. Firms need accounting professionals who can understand both the financial and information technology aspects of different business improvement initiatives. The new changes have brought more attention to staffing and experience shortages making companies step up their hiring efforts and recruiting the best of the best. More colleges are starting to react to this need for professionals in certain fields like accounting, and are opening more classes to accommodate these students. The market needs are driving the courses on college campuses all over the nation.

The growth in this field is increasing at a huge rate and becoming more and more competitive. Even though the economy is suffering right now there are still positions open for new accountants.

Archived under Accounting Comments (120)

Pursuing a Career in Accounting? Opportunities Are Yours For the Taking

Posted by admin on June 5, 2010 at 3:37 pm

If you’re interested in pursuing a career in accounting or auditing, the opportunities may be yours for the taking. According to the Bureau of Labor Statistics’ Occupational Outlook Handbook, 2008-09 Edition, the accounting profession will experience strong job growth over the period from 2006 to 2016. Accounting jobs are expected to grow by 18 percent between 2006 and 2016. This growth is faster than the average for all occupations. It is projected that almost 226,000 accounting jobs will be created during the ten year period. The strong growth in accounting and auditing jobs is expected to result from economic expansion, changes to financial laws, and stricter corporate governance. Accounting career opportunities will also be created by changes to financial reporting standards, business investments, mergers and acquisitions, and other events that are expected to lead to greater scrutiny of accounting practices and company finances. Growth in accounting jobs will also be driven by the desire to make government agencies more accountable. According to the Handbook, candidates with a master’s degree, who obtain certification or licensure, or who are skilled at using accounting and auditing computer software will have the best career opportunities.

What jobs do accountants and auditors do? The role of accountants and auditors is quite broad. Generally speaking, accountants and auditors prepare, analyze, verify and communicate financial information for clients that may include corporations, governments, non-profit organizations, or individuals. But the specific job descriptions of accountants and auditors vary depending on the type of accounting and auditing job.

What types of accounting career opportunities are there? There are four major fields of accounting and auditing: public, management, government accounting, and internal auditing.

Public accounting jobs: Public Accountants provide a wide range of consulting services relating to accounting, auditing, tax, and other financial activities. A career in a public accounting involves providing services such giving advice to companies or individuals to help them get certain tax advantages and preparing and filing income tax returns. External auditors are responsible for auditing financial statements for companies to ensure that they have been prepared properly. Many public accountants have the professional designation Certified Public Accountant (CPA) and they may work on their own or in public accounting firms.

Management accounting jobs: Management accountants prepare and analyze the financial information of the companies for which they work. If you pursued a career in management accounting, you would be responsible for maintaining budgets, managing expenses, analyzing financial information, preparing financial reports and managing company assets.

Government accounting jobs: A career in government accounting means you would be employed by a Federal, State, or local government agency. Government accountants are responsible for maintaining and analyzing the financial records of these agencies. They may also be responsible for auditing private businesses and individuals. For example, accountants for the Internal Revenue Service are employed by the federal government to review taxes received by businesses and individuals. In addition, they are tasked with the responsibility of ensuring that the various government agencies are making expenditures in accordance with applicable laws and regulations.

Internal auditing jobs: Internal auditors are responsible for ensuring that the financial records of a company or individual are accurate. They check for fraud or non-compliance with laws, and they help to prevent financial loss. Other responsibilities of an internal auditor may include reporting on audits, advising on or recommending changes to a company’s operations an/or financial activities, reviewing data regarding a company’s assets, liabilities, stock, income and expenditures, preparing reports and financial statements, and reviewing compliance with corporate policies and government regulations.

What are the educational requirements for a career in accounting or auditing? Your duties as an accountant will vary according to what type of accounting you decide to specialize in or what kind of accounting job you want to pursue. Accordingly, if you are pursuing career opportunities in accounting or auditing, the education and training requirements can vary depending on your role. Most accounting jobs require at least a bachelor’s degree in accounting or a related field but some employers will only consider job applicants with a master’s degree in accounting, or a master’s degree in business administration with a concentration in accounting.

Licensure and certification for accounting jobs: Only a Certified Public Accountant is permitted to file reports with the Securities and Exchange Commission (SEC). Accordingly, if you’re interested in a career working for a public company that’s registered with the SEC, you need to be licensed as a CPA by your State Board of Accountancy. Most States require CPA candidates to be college graduates and to have some accounting experience. To become a CPA, you must pass a four-part examination prepared by the American Institute of Certified Public Accountants (AICPA). This is required by all States.

Things that can help increase your accounting career opportunities:
o Previous experience in accounting or auditing, such as experience gained in summer or part-time internship programs, will help your chances of getting an accounting job.
o Knowledge of computers and financial software applications will make you a stronger candidate for an accounting job.

What skills do you need to succeed in an accounting career? If you’re interested in accounting career opportunities, you must:
o be proficient in math and you must have excellent analytical skills
o communicate effectively
o be good at working with people
o have basic accounting knowledge
o be familiar with accounting software

If you’re seriously thinking about accounting or auditing career opportunities, information is available from the following organizations:

o AACSB International
o American Institute of Certified Public Accountants
o National Association of State Boards of Accountancy
o Institute of Management Accountants
o Accreditation Council for Accountancy and Taxation
o The Institute of Internal Auditors
o ISACA
o Association of Government Accountants.

Archived under Accounting Comments (760)

Faster Than Average Growth of Accountant and Auditor Jobs

Posted by admin on June 5, 2010 at 3:34 pm

Accounting jobs are poised to undergo significant growth in the coming decade. Both large and small businesses depend on accountants and auditors to keep track of expenses and fine-tune budgets. Also, businesses especially turn to these workers to prepare tax returns. What’s more, businesses need accountants to interpret new accounting legislation, which directly arose in response to Enron and other accounting scandals.

Despite their different names, accountants and auditors generally share the same job responsibilities. First of all, they input company expenses and returns on a daily basis. They also examine monthly expense accounts, staying attuned to any operations that are costing the company too much money. Furthermore, during tax season, they fill out state and federal tax returns. They also consult with other managers on company expenses and outline new cost-cutting budget plans.

However, only in small businesses are accounting jobs referred to as simply “accountants” or “auditors.” Larger businesses usually employ various subcategories of auditor and accounting jobs. Firstly, they employ public accountants who work with company databases to audit company expenses. Public accountants also consult with corporate managers on budget plans, and may recommend budget cuts in the form of employee lay-offs. Most public accountants are Certified Public Accountants (CPAs), and a good number of them concentrate on corporate tax returns. If they do specialize in tax accounting, they advise company managers on how certain financial decisions may influence their tax returns. Additional duties of public accountants include developing benefits packages, such as retirement plans and insurance programs. In this case, they may be known as payroll accountants.

Other accountants include management or cost accountants. These accountants present regular financial reports to leading company managers, so these managers can be well-informed before making important decisions. Because these accountants focus on the cost of operations, they advise management on the budget cuts that may best benefit the company without sacrificing the company’s efficacy. As such, they often do performance evaluation on company operations. For instance, an industrial cost manager may observe a company’s manufacturing operations and prepare a report highlighting which operations are wasteful. These accountants usually work side-by-side with project and operations managers for large corporations, keeping these managers informed on their financial situations.

Other types of accounting jobs include federal accounting jobs. These accountants may be Internal Revenue Service (IRS) agents. The federal government also hires accountants to develop budgets for various government departments and agencies. Nevertheless, even local governments employ accountants to create local budgets and manage governmental assets. These accountants, moreover, are fully aware of government regulations concerning accounting. Therefore, they make sure every individual and company within their government’s jurisdiction sends regular tax returns. If they notice any non-participating party, or a party that has provided suspicious financial information, they visit that party’s home or office to do auditing.

The final major type of accountant is an internal-control auditor, also called a forensic accountant. This is the most recent type of accountant because it arose in response to corporate accounting scandals, such as money-laundering operations. Forensic accountants monitor and implement the internal controls of accounting software used by their company. They advise management on financial transactions that may potentially constitute infractions of state and federal accounting laws. Therefore, they are knowledgeable about both accounting software and government regulations.

Besides security, internal-control auditors also perform waste control by “cleaning up” their company’s database system. Like management accountants, they pay close attention to company operations and pinpoint jobs or expenses that are overloading the budget. When reviewing operations, they also monitor compliance with state laws, federal laws, and corporate policies. Because these accountants take on so many different roles, they may also be called information technology auditors or compliance auditors.

All auditor and accountant jobs require deep familiarity with accounting software. This software has now completely replaced ledgers as record-keeping “books.” Accountants are generally most familiar with Microsoft Excel and Intuit QuickBooks. When working with this software, accountants enable internal controls and perform accounting analysis. They refer to this software whenever they prepare reports for management or government authorities.

All profitable accountant jobs require the CPA licensure. This licensure is conferred by each state’s board of accountancy, though the CPA examination itself is uniform and computer-based. This licensure requires a bachelor’s degree in accounting, with each state usually specifying about 150 total semester hours split between accounting and business courses. Some states also require accounting experience, which students can easily fulfill through internships or summer accounting jobs.

Without taking the CPA exam, accountants and auditors will find it hard to advance in their jobs. In fact, any accountant that files a report to the Securities and Exchange Commission (SEC) is required to have a CPA. The CPA exam tests knowledge of Generally Accepted Accounting Procedures (GAAP), business administration, tax accounting, federal regulation, accounting analysis, asset management, and so forth. The CPA exam takes a total of 14 hours to complete, with each of its four parts taking 4.5 hours to complete. This exam is so comprehensive that only half of its takers pass it per year. Once they have passed their CPA, accountants are legally bound to renew it at state-mandated internals. Accountants usually renew their CPA by attending professional-association courses.

As long as the economy continues to grow, accountants and auditors will have little trouble locating accounting job listings. In order to stay competitive, they must keep up-to-date on accounting legislation so they can provide sound guidance to the managers that hire them. They may also want to gain a master’s degree in accounting or business administration, and get as much certification as possible from accounting associations. Furthermore, they should hone their internal-controls skills so they can spot potential errors before they inflate into full-blown accounting scandals.

Archived under Accounting Comments (487)

Health Savings Accounts – An American Innovation in Health Insurance

Posted by admin on June 5, 2010 at 3:28 pm

INTRODUCTON – The term “health insurance” is commonly used in the United States to describe any program that helps pay for medical expenses, whether through privately purchased insurance, social insurance or a non-insurance social welfare program funded by the government. Synonyms for this usage include “health coverage,” “health care coverage” and “health benefits” and “medical insurance.” In a more technical sense, the term is used to describe any form of insurance that provides protection against injury or illness.

In America, the health insurance industry has changed rapidly during the last few decades. In the 1970′s most people who had health insurance had indemnity insurance. Indemnity insurance is often called fee-forservice. It is the traditional health insurance in which the medical provider (usually a doctor or hospital) is paid a fee for each service provided to the patient covered under the policy. An important category associated with the indemnity plans is that of consumer driven health care (CDHC). Consumer-directed health plans allow individuals and families to have greater control over their health care, including when and how they access care, what types of care they receive and how much they spend on health care services.

These plans are however associated with higher deductibles that the insured have to pay from their pocket before they can claim insurance money. Consumer driven health care plans include Health Reimbursement Plans (HRAs), Flexible Spending Accounts (FSAs), high deductible health plans (HDHps), Archer Medical Savings Accounts (MSAs) and Health Savings Accounts (HSAs). Of these, the Health Savings Accounts are the most recent and they have witnessed rapid growth during the last decade.

WHAT IS A HEALTH SAVINGS ACCOUNT?

A Health Savings Account (HSA) is a tax-advantaged medical savings account available to taxpayers in the United States. The funds contributed to the account are not subject to federal income tax at the time of deposit. These may be used to pay for qualified medical expenses at any time without federal tax liability.

Another feature is that the funds contributed to Health Savings Account roll over and accumulate year over year if not spent. These can be withdrawn by the employees at the time of retirement without any tax liabilities. Withdrawals for qualified expenses and interest earned are also not subject to federal income taxes. According to the U.S. Treasury Office, ‘A Health Savings Account is an alternative to traditional health insurance; it is a savings product that offers a different way for consumers to pay for their health care.

HSA’s enable you to pay for current health expenses and save for future qualified medical and retiree health expenses on a tax-free basis.’ Thus the Health Savings Account is an effort to increase the efficiency of the American health care system and to encourage people to be more responsible and prudent towards their health care needs. It falls in the category of consumer driven health care plans.

Origin of Health Savings Account

The Health Savings Account was established under the Medicare Prescription Drug, Improvement, and Modernization Act passed by the U.S. Congress in June 2003, by the Senate in July 2003 and signed by President Bush on December 8, 2003.

Eligibility -

The following individuals are eligible to open a Health Savings Account -

- Those who are covered by a High Deductible Health Plan (HDHP).
- Those not covered by other health insurance plans.
- Those not enrolled in Medicare4.

Also there are no income limits on who may contribute to an HAS and there is no requirement of having earned income to contribute to an HAS. However HAS’s can’t be set up by those who are dependent on someone else’s tax return. Also HSA’s cannot be set up independently by children.

What is a High Deductible Health plan (HDHP)?

Enrollment in a High Deductible Health Plan (HDHP) is a necessary qualification for anyone wishing to open a Health Savings Account. In fact the HDHPs got a boost by the Medicare Modernization Act which introduced the HSAs. A High Deductible Health Plan is a health insurance plan which has a certain deductible threshold. This limit must be crossed before the insured person can claim insurance money. It does not cover first dollar medical expenses. So an individual has to himself pay the initial expenses that are called out-of-pocket costs.

In a number of HDHPs costs of immunization and preventive health care are excluded from the deductible which means that the individual is reimbursed for them. HDHPs can be taken both by individuals (self employed as well as employed) and employers. In 2008, HDHPs are being offered by insurance companies in America with deductibles ranging from a minimum of $1,100 for Self and $2,200 for Self and Family coverage. The maximum amount out-of-pocket limits for HDHPs is $5,600 for self and $11,200 for Self and Family enrollment. These deductible limits are called IRS limits as they are set by the Internal Revenue Service (IRS). In HDHPs the relation between the deductibles and the premium paid by the insured is inversely propotional i.e. higher the deductible, lower the premium and vice versa. The major purported advantages of HDHPs are that they will a) lower health care costs by causing patients to be more cost-conscious, and b) make insurance premiums more affordable for the uninsured. The logic is that when the patients are fully covered (i.e. have health plans with low deductibles), they tend to be less health conscious and also less cost conscious when going for treatment.

Opening a Health Savings Account

An individual can sign up for HSAs with banks, credit unions, insurance companies and other approved companies. However not all insurance companies offer HSAqualified health insurance plans so it is important to use an insurance company that offers this type of qualified insurance plan. The employer may also set up a plan for the employees. However, the account is always owned by the individual. Direct online enrollment in HSA-qualified health insurance is available in all states except Hawaii, Massachusetts, Minnesota, New Jersey, New York, Rhode Island, Vermont and Washington.

Contributions to the Health Savings Account

Contributions to HSAs can be made by an individual who owns the account, by an employer or by any other person. When made by the employer, the contribution is not included in the income of the employee. When made by an employee, it is treated as exempted from federal tax. For 2008, the maximum amount that can be contributed (and deducted) to an HSA from all sources is:
$2,900 (self-only coverage)
$5,800 (family coverage)

These limits are set by the U.S. Congress through statutes and they are indexed annually for inflation. For individuals above 55 years of age, there is a special catch up provision that allows them to deposit additional $800 for 2008 and $900 for 2009. The actual maximum amount an individual can contribute also depends on the number of months he is covered by an HDHP (pro-rated basis) as of the first day of a month. For eg If you have family HDHP coverage from January 1,2008 until June 30, 2008, then cease having HDHP coverage, you are allowed an HSA contribution of 6/12 of $5,800, or $2,900 for 2008. If you have family HDHP coverage from January 1,2008 until June 30, 2008, and have self-only HDHP coverage from July 1, 2008 to December 31, 2008, you are allowed an HSA contribution of 6/12 x $5,800 plus 6/12 of $2,900, or $4,350 for 2008. If an individual opens an HDHP on the first day of a month, then he can contribute to HSA on the first day itself. However, if he/she opens an account on any other day than the first, then he can contribute to the HSA from the next month onwards. Contributions can be made as late as April 15 of the following year. Contributions to the HSA in excess of the contribution limits must be withdrawn by the individual or be subject to an excise tax. The individual must pay income tax on the excess withdrawn amount.

Contributions by the Employer

The employer can make contributions to the employee’s HAS account under a salary reduction plan known as Section 125 plan. It is also called a cafeteria plan. The contributions made under the cafeteria plan are made on a pre-tax basis i.e. they are excluded from the employee’s income. The employer must make the contribution on a comparable basis. Comparable contributions are contributions to all HSAs of an employer which are 1) the same amount or 2) the same percentage of the annual deductible. However, part time employees who work for less than 30 hours a week can be treated separately. The employer can also categorize employees into those who opt for self coverage only and those who opt for a family coverage. The employer can automatically make contributions to the HSAs on the behalf of the employee unless the employee specifically chooses not to have such contributions by the employer.

Withdrawals from the HSAs

The HSA is owned by the employee and he/she can make qualified expenses from it whenever required. He/She also decides how much to contribute to it, how much to withdraw for qualified expenses, which company will hold the account and what type of investments will be made to grow the account. Another feature is that the funds remain in the account and role over from year to year. There are no use it or lose it rules. The HSA participants do not have to obtain advance approval from their HSA trustee or their medical insurer to withdraw funds, and the funds are not subject to income taxation if made for ‘qualified medical expenses’. Qualified medical expenses include costs for services and items covered by the health plan but subject to cost sharing such as a deductible and coinsurance, or co-payments, as well as many other expenses not covered under medical plans, such as dental, vision and chiropractic care; durable medical equipment such as eyeglasses and hearing aids; and transportation expenses related to medical care. Nonprescription, over-the-counter medications are also eligible. However, qualified medical expense must be incurred on or after the HSA was established.

Tax free distributions can be taken from the HSA for the qualified medical expenses of the person covered by the HDHP, the spouse (even if not covered) of the individual and any dependent (even if not covered) of the individual.12 The HSA account can also be used to pay previous year’s qualified expenses subject to the condition that those expenses were incurred after the HSA was set up. The individual must preserve the receipts for expenses met from the HSA as they may be needed to prove that the withdrawals from the HSA were made for qualified medical expenses and not otherwise used. Also the individual may have to produce the receipts before the insurance company to prove that the deductible limit was met. If a withdrawal is made for unqualified medical expenses, then the amount withdrawn is considered taxable (it is added to the individuals income) and is also subject to an additional 10 percent penalty. Normally the money also cannot be used for paying medical insurance premiums. However, in certain circumstances, exceptions are allowed.

These are -

1) to pay for any health plan coverage while receiving federal or state unemployment benefits.
2) COBRA continuation coverage after leaving employment with a company that offers health insurance coverage.
3) Qualified long-term care insurance.
4) Medicare premiums and out-of-pocket expenses, including deductibles, co-pays, and coinsurance for: Part A (hospital and inpatient services), Part B (physician and outpatient services), Part C (Medicare HMO and PPO plans) and Part D (prescription drugs).

However, if an individual dies, becomes disabled or reaches the age of 65, then withdrawals from the Health Savings Account are considered exempted from income tax and additional 10 percent penalty irrespective of the purpose for which those withdrawals are made. There are different methods through which funds can be withdrawn from the HSAs. Some HSAs provide account holders with debit cards, some with cheques and some have options for a reimbursement process similar to medical insurance.

Growth of HSAs

Ever since the Health Savings Accounts came into being in January 2004, there has been a phenomenal growth in their numbers. From around 1 million enrollees in March 2005, the number has grown to 6.1 million enrollees in January 2008.14 This represents an increase of 1.6 million since January 2007, 2.9 million since January 2006 and 5.1 million since March 2005. This growth has been visible across all segments. However, the growth in large groups and small groups has been much higher than in the individual category. According to the projections made by the U.S. Treasury Department, the number of HSA policy holders will increase to 14 million by 2010. These 14 million policies will provide cover to 25 to 30 million U.S. citizens.

In the Individual Market, 1.5 million people were covered by HSA/HDHPs purchased as on January 2008. Based on the number of covered lives, 27 percent of newly purchased individual policies (defined as those purchased during the most recent full month or quarter) were enrolled in HSA/HDHP coverage. In the small group market, enrollment stood at 1.8 million as of January 2008. In this group 31 percent of all new enrollments were in the HSA/HDHP category. The large group category had the largest enrollment with 2.8 million enrollees as of January 2008. In this category, six percent of all new enrollments were in the HSA/HDHP category.

Benefits of HSAs

The proponents of HSAs envisage a number of benefits from them. First and foremost it is believed that as they have a high deductible threshold, the insured will be more health conscious. Also they will be more cost conscious. The high deductibles will encourage people to be more careful about their health and health care expenses and will make them shop for bargains and be more vigilant against excesses in the health care industry. This, it is believed, will reduce the growing cost of health care and increase the efficiency of the health care system in the United States. HSA-eligible plans typically provide enrollee decision support tools that include, to some extent, information on the cost of health care services and the quality of health care providers. Experts suggest that reliable information about the cost of particular health care services and the quality of specific health care providers would help enrollees become more actively engaged in making health care purchasing decisions. These tools may be provided by health insurance carriers to all health insurance plan enrollees, but are likely to be more important to enrollees of HSA-eligible plans who have a greater financial incentive to make informed decisions about the quality and costs of health care providers and services.

It is believed that lower premiums associated with HSAs/HDHPs will enable more people to enroll for medical insurance. This will mean that lower income groups who do not have access to medicare will be able to open HSAs. No doubt higher deductibles are associated with HSA eligible HDHPs, but it is estimated that tax savings under HSAs and lower premiums will make them less expensive than other insurance plans. The funds put in the HSA can be rolled over from year to year. There are no use it or lose it rules. This leads to a growth in savings of the account holder. The funds can be accumulated tax free for future medical expenses if the holder so desires. Also the savings in the HSA can be grown through investments.

The nature of such investments is decided by the insured. The earnings on savings in the HSA are also exempt from income tax. The holder can withdraw his savings in the HSA after turning 65 years old without paying any taxes or penalties. The account holder has complete control over his/her account. He/She is the owner of the account right from its inception. A person can withdraw money as and when required without any gatekeeper. Also the owner decides how much to put in his/her account, how much to spend and how much to save for the future. The HSAs are portable in nature. This means that if the holder changes his/her job, becomes unemployed or moves to another location, he/she can still retain the account.

Also if the account holder so desires he can transfer his Health Saving Account from one managing agency to another. Thus portability is an advantage of HSAs. Another advantage is that most HSA plans provide first-dollar coverage for preventive care. This is true of virtually all HSA plans offered by large employers and over 95% of the plans offered by small employers. It was also true of over half (59%) of the plans which were purchased by individuals.

All of the plans offering first-dollar preventive care benefits included annual physicals, immunizations, well-baby and wellchild care, mammograms and Pap tests; 90% included prostate cancer screenings and 80% included colon cancer screenings. Some analysts believe that HSAs are more beneficial for the young and healthy as they do not have to pay frequent out of pocket costs. On the other hand, they have to pay lower premiums for HDHPs which help them meet unforeseen contingencies.

Health Savings Accounts are also advantageous for the employers. The benefits of choosing a health Savings Account over a traditional health insurance plan can directly affect the bottom line of an employer’s benefit budget. For instance Health Savings Accounts are dependent on a high deductible insurance policy, which lowers the premiums of the employee’s plan. Also all contributions to the Health Savings Account are pre-tax, thus lowering the gross payroll and reducing the amount of taxes the employer must pay.

Criticism of HSAs

The opponents of Health Savings Accounts contend that they would do more harm than good to America’s health insurance system. Some consumer organizations, such as Consumers Union, and many medical organizations, such as the American Public Health Association, have rejected HSAs because, in their opinion, they benefit only healthy, younger people and make the health care system more expensive for everyone else. According to Stanford economist Victor Fuchs, “The main effect of putting more of it on the consumer is to reduce the social redistributive element of insurance.

Some others believe that HSAs remove healthy people from the insurance pool and it makes premiums rise for everyone left. HSAs encourage people to look out for themselves more and spread the risk around less. Another concern is that the money people save in HSAs will be inadequate. Some people believe that HSAs do not allow for enough savings to cover costs. Even the person who contributes the maximum and never takes any money out would not be able to cover health care costs in retirement if inflation continues in the health care industry.

Opponents of HSAs, also include distinguished figures like state Insurance Commissioner John Garamendi, who called them a “dangerous prescription” that will destabilize the health insurance marketplace and make things even worse for the uninsured. Another criticism is that they benefit the rich more than the poor. Those who earn more will be able to get bigger tax breaks than those who earn less. Critics point out that higher deductibles along with insurance premiums will take away a large share of the earnings of the low income groups. Also lower income groups will not benefit substantially from tax breaks as they are already paying little or no taxes. On the other hand tax breaks on savings in HSAs and on further income from those HSA savings will cost billions of dollars of tax money to the exchequer.

The Treasury Department has estimated HSAs would cost the government $156 billion over a decade. Critics say that this could rise substantially. Several surveys have been conducted regarding the efficacy of the HSAs and some have found that the account holders are not particularly satisfied with the HSA scheme and many are even ignorant about the working of the HSAs. One such survey conducted in 2007 of American employees by the human resources consulting firm Towers Perrin showed satisfaction with account based health plans (ABHPs) was low. People were not happy with them in general compared with people with more traditional health care. Respondants said they were not comfortable with the risk and did not understand how it works.

According to the Commonwealth Fund, early experience with HAS eligible high-deductible health plans reveals low satisfaction, high out of- pocket costs, and cost-related access problems. Another survey conducted with the Employee Benefits Research Institute found that people enrolled in HSA-eligible high-deductible health plans were much less satisfied with many aspects of their health care than adults in more comprehensive plans People in these plans allocate substantial amounts of income to their health care, especially those who have poorer health or lower incomes. The survey also found that adults in high-deductible health plans are far more likely to delay or avoid getting needed care, or to skip medications, because of the cost. Problems are particularly pronounced among those with poorer health or lower incomes.

Political leaders have also been vocal about their criticism of the HSAs. Congressman John Conyers, Jr. issued the following statement criticizing the HSAs “The President’s health care plan is not about covering the uninsured, making health insurance affordable, or even driving down the cost of health care. Its real purpose is to make it easier for businesses to dump their health insurance burden onto workers, give tax breaks to the wealthy, and boost the profits of banks and financial brokers. The health care policies concocted at the behest of special interests do nothing to help the average American. In many cases, they can make health care even more inaccessible.” In fact a report of the U.S. governments Accountability office, published on April 1, 2008 says that the rate of enrollment in the HSAs is greater for higher income individuals than for lower income ones.

A study titled “Health Savings Accounts and High Deductible Health Plans: Are They an Option for Low-Income Families? By Catherine Hoffman and Jennifer Tolbert which was sponsored by the Kaiser Family Foundation reported the following key findings regarding the HSAs:

a) Premiums for HSA-qualified health plans may be lower than for traditional insurance, but these plans shift more of the financial risk to individuals and families through higher deductibles.
b) Premiums and out-of-pocket costs for HSA-qualified health plans would consume a substantial portion of a low-income family’s budget.
c) Most low-income individuals and families do not face high enough tax liability to benefit in a significant way from tax deductions associated with HSAs.
d) People with chronic conditions, disabilities, and others with high cost medical needs may face even greater out-of-pocket costs under HSA-qualified health plans.
e) Cost-sharing reduces the use of health care, especially primary and preventive services, and low-income individuals and those who are sicker are particularly sensitive to cost-sharing increases.
f) Health savings accounts and high deductible plans are unlikely to substantially increase health insurance coverage among the uninsured.

Archived under Accounting Comments (523)

Glossary of Common Accounting Terms

Posted by admin on June 5, 2010 at 3:21 pm

Bling Lingo made simple

Today…again…I was scratching my head over an accounting mess, for which the owner had paid a bookkeeper many dollars over many years. How did it happen? If you don’t know the basics, you are a sitting duck, my friend. You know, accountants do it on purpose. They use weird words to make you think that they are smarter than you are. To keep you in the dark. Or, the less nasty ones just don’t know better.

Good accountants and bookkeepers want you to learn the lingo. They want to help you make the bling, baby! So, read and learn. Keep this glossary handy as you work with your professional money managers. Use it to begin your journey to financial literacy!

Bling Lingo – Glossary of common Accounting Terms…

ACCOUNTING EQUATION: The Balance Sheet is based on the basic accounting equation. That is:

Assets = Equities.

Equity of the company can be held by someone other than the owner. That is called a liability. Because we usually have some liabilities, the accounting equation is usually written…

Assets = Liabilities + Owner’s Equity.

ACCOUNTS: Business activities cause increases and decreases in your assets, liabilities and equity. Your accounting system records these activities in accounts. A number of accounts are needed to summarize the increases and decreases in each asset, liability and owner’s equity account on the Balance Sheet and of each revenue and expense that appears on the Income Statement. You can have a few accounts or hundreds, depending on the kind of detailed information you need to run your business.

ACCOUNTS PAYABLE: Also called A/P. These are bills that your business owes to the government or your suppliers. If you have ‘bought’ it, but haven’t paid for it yet (like when you buy ‘on account’) you create an account payable. These are found in the liability section of the Balance Sheet.

ACCOUNTS RECEIVABLE: Also called A/R. When you sell something to someone, and they don’t pay you that minute, you create an account receivable. This is the amount of money your customers owe you for products and services that they bought from you…but haven’t paid for yet. Accounts receivable are found in the current assets section of the Balance Sheet.

ACCRUAL BASIS ACCOUNTING: With accrual basis accounting, you ‘account for’ expenses and sales at the time the transaction occurs. This is the most accurate way of accounting for your business activities. If you sell something to Mrs. Fernwicky today, you would record the sale as of today, even if she plans on paying you in two months. If you buy some paint today, you account for it today, even if you will pay for it next month when the supply house statement comes. Cash basis accounting records the sale when the cash is received and the expense when the check goes out. Not as accurate a picture of what is happening at you company.

ASSETS: The ‘stuff’ the company owns. Anything of value – cash, accounts receivable, trucks, inventory, land. Current assets are those that could be converted into cash easily. (Officially, within a year’s time.) The most current of current assets is cash, of course. Accounts receivable will be converted to cash as soon as the customer pays, hopefully within a month. So, accounts receivable are current assets. So is inventory.

Fixed assets are those things that you wouldn’t want to convert into cash for operating money. For instance, you don’t want to sell your building to cover the supply house bill. Assets are listed, in order of liquidity (how close it is to cash) on the Balance Sheet.

BALANCE SHEET: The Balance Sheet reflects the financial condition of the company on a specific date. The basic accounting formula is the basis for the Balance Sheet:

Assets = Liabilities + Owner’s Equity

The Balance Sheet doesn’t start over. It is the cumulative score from day one of the business to the time the report is created.

CASH FLOW: The movement and timing of money, in and out of the business. In addition to the Balance Sheet and the Income Statement, you may want to report the flow of cash through your business. Your company could be profitable but ‘cash poor’ and unable to pay your bills. Not good!

A cash flow statement helps keep you aware of how much cash came and went for any period of time. A cash flow projection would be an educated guess at what the cash flow situation will be for the future.

Suppose you want to buy a new truck with cash. But that purchase will empty the bank account and leave you without any cash for payroll! For cash flow reasons, you might choose to buy a truck on payments instead.

CHART OF ACCOUNTS: A complete listing of every account in your accounting system. Every transaction in your business needs to be recorded, so that you can keep track of things. Think of the chart of accounts as the peg board on which you hang the business activities.

CREDIT: A credit is used in Double-Entry accounting to increase a liability or an equity account. A credit will decrease an asset account. For every credit there is a debit. These are the two balancing components of every journal entry. Credits and debits keep the basic accounting equation (Assets = Liabilities + Owner’s Equity) in balance as you record business activities.

DEBIT: A debit is used in Double-Entry accounting to increase an asset account. A debit will decrease a liability or an equity account. For every debit there is a credit.

DIRECT COSTS: Also called cost of goods sold, cost of sales or job site expenses. These are expenses that include labor costs and materials. These expenses can be directly tracked to a specific job. If the job didn’t happen, the direct costs wouldn’t have been incurred. (Compare direct cost with indirect costs to get a better understanding of the term.) Direct costs are found on the Income Statement, right below the income accounts.

Income – Direct Costs = Gross Margin.

DOUBLE-ENTRY ACCOUNTING: An accounting system used to keep track of business activities. Double-Entry accounting maintains the Balance Sheet: Assets = Liabilities + Owner’s Equity. When dollars are recorded in one account, they must be accounted for in another account in such a way that the activity is well documented and the Balance Sheet stays in balance.

You may not need to be an expert in Double-Entry accounting, but the person who is responsible for creating the financial statements better get pretty good at it. If that is you, go back through the book and focus on the ‘gray’ sheets. Study the examples and see how the Double-Entry method acts as a check and balance of your books.

Remember the law of the universe…what goes around, comes around. This is the essence of Double-Entry accounting.

EQUITY: Funds that have been supplied to the company to get the ‘stuff’. Equities show ownership of the assets or claims against the assets. If someone other than the owner has claims on the assets, it is called a liability.

Total Assets – Total Liabilities = Net Equity

This is another way of stating the basic accounting equation that emphasizes how much of the assets you own. Net equity is also called net worth.

EXPENSE: Also called costs. Expenses are decreases in equity. These are dollars paid out to suppliers, vendors, Uncle Sam, employees, charities, etc. Remember to pay bills thankfully, because it takes money to make money. Expenses are listed on the Income Statement. They should be split into two categories, direct costs and indirect costs. The basic equation for the Income Statement is:

Revenues – Expenses = Profit

(You’ll see a profit if there are more revenues than expenses!…or a loss, if expenses are more than revenues.)

Remember, all costs need to be included in your selling price. The customer pays for everything. In exchange, you give the customer your services. What a deal!

FINANCIAL STATEMENTS: refer to the Balance Sheet and the Income Statement. The Balance Sheet is a report that shows the financial condition of the company. The Income Statement (also called the Profit and Loss statement or the ‘P&L’) is the profit performance summary.

Financial Statements can include the supporting documents like cash flow reports, accounts receivable reports, transaction register, etc. Any report that measures the movement of money in your company.

Financial Statements are what the bank wants to see before it loans you money. The IRS insists that you share the score with them, and asks for your Financial Statements every year.

GENERAL LEDGER: Once upon a time, accounting systems were kept in a book that listed the increases and decreases in all the accounts of the company. That book was called the general ledger. Today, you probably have a computerized accounting system. Still, the general ledger is a collection of all Balance Sheet and Income Statement accounts…all the assets, liabilities and equity. It is the report that shows ALL the activity in the company. Often this listing is called a detail trial balance on the report menu of your accounting program. The detail trial balance is my favorite report when I am trying to find a mistake, or make sure that we have entered information in the right accounts.

GROSS PROFIT: This is how much money you have left after you have subtracted the direct costs from the selling price.

Income – Direct Costs = Gross Profit. When this is expressed as a percentage, it is call Gross Margin.

This is a good number to scrutinize each month, and to track in terms of percentage to total sales over the course of time. The higher the better with gross margin! You need to have enough money left at this point to pay all your indirect costs and still end up with a profit.

INCOME STATEMENT: also called the Profit and Loss Statement, or P&L, or Statement of Operations. This is a report that shows the changes in the equity of the company as a result of business operations. It lists the income (or revenues, or sales), subtracts the expenses and shows you the profit J! (Or loss L.) This report covers a period of time and summarizes the money in and the money out.

The Income Statement is like a magnifying glass that shows the detail of activities that cause changes in the equity section of the Balance Sheet.

INDIRECT COST: Also called overhead or operating expenses. These expenses are indirectly related to the services you provide to customers. Indirect costs include office salaries, rent, advertising, telephone, utilities…costs to keep a ‘roof overhead’. Every cost that is not a direct cost is an indirect cost. Indirect costs do not go away when sales drop off.

INVENTORY: Also called stock. These are materials that you purchase with the intent to sell, but you haven’t sold them yet. Inventory is found on the balance sheet under assets. It is considered a current asset because you will convert it into cash as soon as you sell it. Beware of turning cash into inventory. You may run out of cash. Work with your suppliers to keep inventory SMALL.

JOURNAL: This is the diary of your business. It keeps track of business activities chronologically. Each business activity is recorded as a journal entry. The Double-Entry will list the debit account and the credit account for each transaction on the day that it occurred. In your reports menu in your accounting system, the journal entries are listed in the transaction register.

LIABILITIES: Like equities, these are sources of assets – how you got the ‘stuff’. These are claims against assets by someone other than the owner. This is what the company owes! Notes payable, taxes payable and loans are liabilities. Liabilities are categorized as current liabilities (need to pay off within a year’s time, like payroll taxes) or long term liabilities (pay-back time is more than a year, like your building mortgage).

MONEY: Also called moola, scratch, gold, coins, cash, change, chicken feed, green stuff, BLING, etc. Money is the form we use to exchange energy, goods and services for other energy, goods and services. Used to buy things that you need or want. Beats trading for chickens in the global marketplace.

Money in and of itself is neither good or bad. I want you to make lots of it, and do great things with it!

NET INCOME: Also called net profit, net earnings, current earnings or bottom line. (No wonder accounting is confusing – look at all those words that mean the same thing!)

After you have subtracted ALL expenses (including taxes) from revenues, you are left with net income. The word net means basic, fundamental. This is a very important item on the income statement because it tells you how much money is left after business operations. Think of net income like the score of a single basketball game in a series. Net income tells you if you won or lost, and by how much, for a given period of time.

By the way, if net income is a negative number, it’s called a loss. You want to avoid those. The net income is reflected on the Balance Sheet in the equity section, under current earnings (or net profit). Net income results in an increase in owner’s equity. A loss results in a decrease in owner’s equity.

RETAINED EARNINGS: The amount of net income earned and retained by the business. If net income is like the score after a single basketball game, retained earnings is the lifetime statistic. Retained earnings is found in the equity section of the Balance Sheet. It keeps track of how much of the total owner’s equity was earned and retained by the business versus how much capital has been invested from the owners (paid-in capital).

Each month, the net profits are reflected in the Balance Sheet as current earnings. At the end of the year, current earnings are added to the retained earnings account.

Archived under Accounting Comments (233)

Accountancy Career – Qualifications and Regulation

Posted by admin on June 5, 2010 at 3:16 pm

If you are planning to get into Accountancy Career then it is very important to understand all the rules and regulations to practice as an accountant in different countries. In some countries accountant has to be certified and financial expert. Just like other professionals every country has their own training and certification which maintain the quality of accountant in their jurisdictions.

Qualifications and Regulation

Before getting in accountancy career you need to understand the qualification and regulation depending upon the country you need to practice.

Accountants may be licensed by a variety of organizations and are recognized by titles such as Charter Certified Accountant, Charted Accountant (term used in British Common wealth countries and Ireland for a person who work in all fields of business and finance), Certified Public Accountant (term used for qualified accountants in the United States who have passed the Uniform Certified Public Accountant Examination and met other state education and experience), Certified Management Accountant (This is offered in Australia, Canada and United States), Certified General Accountant (designation representing members of the Certified General Accountants Association of Canada), Certified Practicing Accountant (one of three professional accounting bodies in Australia). Many countries recognize two or more accounting bodies.

Australia

If you want to start your accountancy career in Australia then there are four main local professional accountancy bodies
Certified Practicing Accountants
Professional National Accountants
Member of National Institute of Accountants
Chartered Accountants

Austria

If you want to start your accountancy career in Austria then the accountancy profession is regulated by the Bilanzbuchhaltungsgesetz 2006

Canada

If you want to start your accountancy career in Canada then there are three recognized bodies
Canadian Institute of Chartered Accountants and the provincial and territorial Institutes
Certified General Accountants Association of Canada
Society of Management Accountants of Canada (Certified Management Accountants)

Hong Kong

If you want to start your accountancy career in Hong Kong then the accountancy industry is regulated by the Hong Kong Institute of Certified Public Accountants under the Professional Accountants Ordinance.

New Zealand

If you want to start your accountancy career in New Zealand then there is only one local accountancy body
New Zealand Institute of Chartered Accountants

United Kingdom

If you want to start your accountancy career in the United Kingdom then there are no license requirements for an individual to practice as an accountant but certain titles requires membership from appropriate professional bodies.
Chartered Certified Accountant must be member of the Association of Charted Certified Accountants.
Chartered Accountants must be member of one of the following Institute of Chartered Accountants in England and Wales or Institute of Chartered Accountants of Scotland or Institute of Chartered Accountants in Ireland or recognized equivalent body from another Commonwealth country like Canada.
Chartered Management Accountant must be a member of the Chartered Institute of Management Accountants.
Chartered Public Finance Accountant must be a member of the Chartered Institute of Public Finance and Accountancy.
International Accountant must be a member of the Association of International Accountants.

United States of America

If you want to start your accountancy career in the United States then legally practicing accountants are Certified Public Accountants, and other non-statutory accountants are Certified Internal Auditors, Certified Management Accountants and Accredited Business Accountants.

Accounting process

Accounting is the process of identifying, measuring and communicating economic information so a user of the information may make informed economic judgments and decisions based on it.

Archived under Accounting Comments (248)

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This article is intended to help everyone gain a better understanding of National Accounts Programs.

Understanding brings the field view (external view) closer to corporate headquarters National Accounts.

The only reason a company should embark on a national accounts program.

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