Piercy Bowler Taylor & Kern
Take the Team Approach to Wealth Management

Never underestimate the combined impact of a team of estate planning professionals when it comes to accomplishing your retirement and wealth management goals. Your accountant, financial advisor and estate attorney should be communicating at least semi-annually, and more often if there are upcoming transactions, philanthropic desires, financial needs or changes to your estate plan.

In healthcare, one patient may have many doctors and nurses working together on a common purpose – keeping their patient healthy. When different specialists collaborate, communicate often and share resources, the best decision is made for the patient. When doctors and nurses work independently and isolated, there may be missing information that can lead to a critical but preventable error.

The same goes for wealth management: there is true value in the combined knowledge of a unified team of professionals. When your accountant, financial advisor, and estate attorney all work together, the end result is better for everyone. Knowing the details of your plan will help each expert make the best recommendation possible and will result in lower tax rates and improved cash flow.

The CPAs at PBTK are constantly communicating with attorneys and financial advisors about the clients’ estimated tax exposure for their philanthropic intent, investments and estate plan. We reach out to the other parties to finalize appropriate game plan. This teamwork style is more conducive to open lines of communication and thorough planning.

On the flip side, when clients don’t involve all the members of the team, the client may have told part of the story to the attorney and not passed on the information to the others. When they close on a transaction or make significant decisions without giving the accountant a chance to coordinate the tax liability, there could be an unexpected impact on the tax forecast for the year. If you don’t communicate regularly in the planning phase, the results are like cement. Once it’s dry, it requires more coordination to fix it or it may even be irreparable.

Connect your all your advisors today so they can begin to communicate within the current tax year. Using this team approach, they can look to the future and make adjustments to your plan, including adding consistent philanthropic efforts with charitable gifting and qualified charitable distributions. These contributions not only better our local community but are a strategic part of a healthy tax plan. As mentioned in previous PBS Planned Giving Council articles, often the philanthropic effort adds an unexpected tax saving and both helps the community and your own well-being in the process.

Scott Taylor, CPA is on the Vegas PBS Advisory Board and is a Shareholder with Piercy Bowler Taylor & Kern, the largest locally-owned accounting firm in Las Vegas, now with offices in Reno and Salt Lake City. Although he is a BYU grad, he cheers for his hometown Runnin’ Rebels and has had season tickets for the past 40 years. Contact Scott at staylor@pbtk.com with any questions about tax planning or preparation strategies.

News on Updated Cash Flow Reporting Guidance

Cash flow statement reporting is a leading cause of company financial restatements. Do you know how to categorize items on your statement of cash flows? Accounting Standards Update (ASU) No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, attempts to minimize diversity in cash flow reporting practices.

Eight Issues

Accounting Standards Codification Topic 230, Statement of Cash Flows, provides guidance on classifying and presenting cash receipts and payments as operating, investing or financing activities. Critics say the existing guidance is confusing and, at times, even contradictory.

The Financial Accounting Standards Board (FASB) began its work on improving the statement of cash flows in April 2014. The cash flow project was a large undertaking. It wasn’t until August 2016 that the FASB launched the first part of its cash flow project by providing clarity on the following eight issues:

  1. Debt prepayment and debt extinguishment costs (penalties paid by borrowers to settle debts early) should be classified as cash outflows for financing activities.
  2. Cash payments attributable to accreted interest on zero-coupon bonds (a type of debt security that is issued or traded at significant discounts) should be classified as a cash outflow for operating activities. The portion of cash payments attributable to principal should be classified as a cash outflow for financing activities.
  3. Cash payments for the settlement of a contingent consideration liability made by a business after it buys another business should be separated from the purchase price and classified as cash outflows for either financing activities or operating activities. (Contingent consideration is typically an obligation to transfer additional assets or equity interests to the former owners of the acquired business if certain conditions are met.) Cash payments up to the amount of the contingent consideration liability recognized at the acquisition date should be classified as financing activities. Any excess should be classified as operating activities.
  4. The proceeds from the settlement of insurance claims should be classified based on the type of insurance coverage and the type of loss. For example, a claim to cover destruction of a building would be classified as an investing activity, while a claim to cover loss of inventory would be classified as an operating activity.
  5. Proceeds businesses receive from corporate-owned life insurance (the insurance policies they take out on employees) should be classified as investing activities.
  6. Distributions received from equity method investees should be presumed to be returns on the investment and classified as cash inflows from operating activities, unless the investor’s cumulative distributions received (less distributions received in prior periods that were determined to be returns of investment) exceed cumulative equity in earnings recognized by the investor. When such an excess occurs, the current-period distribution up to this excess should be classified as cash inflows from investing activities. No solution was provided for equity method investment measured using the fair value option, however.
  7. For beneficial interests in securitization transactions, the updated guidance proposes two changes: 1) Disclosure of a transferor’s beneficial interest obtained in a securitization of financial assets must be classified as a noncash activity, and 2) cash receipts from payments on the transferor’s beneficial interests in securitized trade receivables should be classified as cash inflows from investing activities. These types of transactions are common for financial companies, large retailers and credit card companies.
  8. Topic 230 acknowledges that it’s not always clear how cash flows should be classified, especially when cash receipts and payments have characteristics of more than one type of activity. The updated guidance clarifies that the business should look at the activity that’s likely to be the “predominant” source of cash flows for the item.

Coming Soon

For public companies, the amendments go into effect for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted. Contact Bill Nelson, CPA for more information.