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Fall 2013 |
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Construction and Real Estate Industry
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Because Harding, Shymanski & Company, P.S.C. is committed to providing quality service to our construction and real estate clients, we have selected a team of dedicated professionals to serve as your industry's consultants. These individuals understand the language and key issues unique to your industry and possess the drive and determination to help you manage your company on a proactive basis.
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New Financial Reporting Option Helps Small Companies |
Many privately held businesses in the United States do not need GAAP-based financial statements and may currently be using a special purpose framework, such as the income tax or cash basis of accounting, for their financial reporting. However, Main Street businesses and users of their financial information looking for comprehensive and consistent financial statements may want to explore the Financial Reporting Framework for Small- and Medium-Sized Entities (FRF for SMEsTM) accounting option. The American Institute of CPAs has created this financial reporting option that provides useful, relevant information to owners of private companies and other stakeholders in a consistent, simplified, cost-effective way. Our firm is pleased to provide this new reporting option which we believe will help Main Street businesses.
How Does It Work?
The newly released FRF for SMEs is a great choice for owner-managers who need financial statements that reliably report what they own, what they owe and cash flows. The FRF for SMEs is simple yet grounded on solid principles; consistent yet flexible; and is not unnecessarily complex yet provides financial statement users with the information they truly need.
Here are some highlights of the FRF for SMEs:
- The FRF for SMEs was designed to deliver financial statements that provide useful, relevant information in a consistent, simplified way.
- While many small businesses today use cash or tax-basis special purpose frameworks as an alternative to GAAP (and can continue to do so), the FRF for SMEs is an option providing comprehensive information that closely aligns with how businesses are run.
- FRF for SMEs has been subject to professional scrutiny and input from the public.
- FRF for SMEs is made up of traditional accounting principles blended with accrual income tax accounting methods, offering a reliable framework that can be consistently applied.
- FRF for SMEs will be a stable framework, revised only as needed to incorporate significant developments in financial reporting.
- As a result of all these factors, it will be easier for small and medium sized companies - and the users of their financial statements - to familiarize themselves with the FRF for SMEs.
The CPA profession is working to raise awareness of the new framework among banks and other lenders, sureties, venture capitalists and other financial statement users, to ensure they are educated on the value and benefits of the FRF for SMEs. Our firm has informational materials on the FRF for SMEs available for our clients and colleagues in the business community. We are happy to share these resources with your stakeholders and to answer any questions regarding the framework.
Please contact us for more information about FRF for SMEs and to discuss how it may work in your business, review sample financial statements and answer questions you may have.
For more information, contact Greg Elpers, CPA at 800.880.7800 ext. 1352 or email gelpers@hsccpa.com.
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| How Do You Compare to Construction's Best in Class? | |
Benchmarking is an important tool to help you identify your company's strengths, discover where you have opportunities for improvement, and understand where you are in your industry relative to your competition. The Construction Financial Management Association (CFMA) recently released its Construction Industry Annual Financial Survey. The survey allows you to benchmark your financial information, as well as business practices and strategies, with your peers in the industry.
In this latest survey, contractors are expressing more optimism with respect to anticipated revenue growth with 54 percent of companies now expecting volume to increase compared to 47% in 2011. Only 17 percent expect volume decreases as compared to 27 percent in 2011. However, as noted below, contractors continue to list "sources of future work" as one of the top challenges they are facing.
According to the survey results, margins continue to remain thin even as there are gradual improvements in construction volume. The average net margin before income taxes was down from 3.2% in 2011 to 2.3% in 2012. At the same time, return on assets declined from 7.4% to 5.5%, and return on equity fell from 20.3% to 15.2%.
Contract backlog decreased 12% from $99.5 million in 2011 to $87.1 million in 2012. Although 2012 backlog fell short of the 2011 mark, it exceeds the 5-year average of $77.3 million. The following graph depicts average reported backlog for the past five years.
CFMA's 2012 Construction Industry Annual Financial Survey, page 3.
When benchmarking your company, not only do you want to compare yourself against your peers, but specifically you want to compare yourself against the most successful companies in your industry. The 2012 CFMA Survey recognized the Best in Class contractors for their strong financial performance as the top 25 percent in profitability of their peer group.
Best in Class status is calculated using the following five key indicators of financial health. The following chart shows how the Best in Class performed compared to the 470 total participants.
CFMA's 2012 Construction Industry Annual Financial Survey, page 23.
This is just a sample of the data available through the survey. Once you've completed your analysis of the benchmarking data, don't stop there. It's important to take that next step and use the information to develop objectives and create a specific action plan that can serve as the blueprint to achieve your desired results.
If you have questions or would like additional information, please contact Andrea Strange, CPA at astrange@hsccpa.com.
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| Medical Loss Ratio Rebates |
The Affordable Care Act, commonly known as health care reform, requires that health insurers spend a percentage of each premium dollar received to pay claims, clinical services or activities that improve quality care. This percentage is known as the minimum Medical Loss Ratio (MLR). The MLR provision is intended to ensure that members are getting the most value for their health care dollars. This provision is only applicable to fully-insured health plans.
If the health insurer fails to meet the MLR requirement, the insurer is required by law to issue rebates to employer groups and members. If a company receives a rebate check, their insurance carrier did not meet the minimum MLR (80% for small groups and 85% for large groups). The rebates being issued by August 1, 2013 are based on premiums insurers received in calendar year 2012.
Under the ERISA fiduciary rules, if any portion of the rebate is considered to be a plan asset, the proceeds must be used for the exclusive benefit of participants and beneficiaries. Generally, the portion of the rebate attributable to participant (employee) contributions will be considered plan assets and therefore must be used for the benefit of the plan participants. The portion of the rebate must be applied for the benefit of participants within three months or it must be held in trust.
For ERISA plans, the employee portion of the rebate is not required to be applied exactly in proportion to the premium activities of participants. There is some latitude in the permissible methods of distribution:
- Rebates can be used for the benefit of current versus former participants;
- Rebates can be used to reduce future premiums;
- Rebates can be used to enhance benefits for participants; or
- Rebates can be distributed to participants in cash.
If an employer contributed 100% of the premiums related to a fully-insured group health plan, then the employer can retain 100% of the rebate related to the plan. However, because the premium was tax deductible as a business expense, then the rebate would be taxable as business income.
Based on IRS guidance for distribution of the rebates, rebates may either be distributed to employees that participated in a group health plan both in the year employees paid premiums being rebated (2012) and the year rebates are being paid (2013); or they may be paid to all employees participating in the plan during 2013, regardless of whether they participated during 2012. If the cost of tracking former participants is unreasonably high, employers do not have to provide rebates to them.
To learn more about the medical loss ratio rebates including the potential tax consequences of these rebates to the employer and employee and acceptable methods for calculating the employee rebates, please contact Mike Vogel, CPA at mvogel@hsccpa.com or Michele Graham, CPA at mgraham@hsccpa.com.
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Disclaimer
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The information contained in this email is for general guidance on matters of interest only. The publication does not, and is not intended to provide legal, tax or accounting advice.
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Harding, Shymanski & Company, P.S.C. provides accounting, tax, and consulting services to our clients from offices in Evansville, Indiana, and Louisville, Kentucky.
Call us today! 800.880.7800
www.hsccpa.com
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