Timely financial reporting is key to making informed business decisions. Managers must know what’s in the pipeline to respond promptly and decisively. Unfortunately, preparing financial statements under U.S. Generally Accepted Accounting Principles (GAAP) typically takes several weeks. And many companies only produce GAAP financials at the end of the quarter or year. In the meantime, managers may turn their attention to simple “flash” reports.

There are no standards to follow when preparing financial flash reports. But they typically take less than an hour to prepare and rarely exceed one sheet of paper. The goal is to provide management with a snapshot of key financial figures, such as cash balances, accounts receivable aging, collections, and payroll, weekly. Some metrics might even be tracked daily — including sales, shipments, and deposits. This is especially critical during seasonal peaks or when a company has recently restructured.

Each company’s flash reports contain different information. For instance, billable hours might be more relevant to a law firm, and machine utilization rates more relevant to a manufacturer.

Flash reports hone in on what items matter most and how to draw management’s attention. Consider a restaurant, for example. Weekly revenues might be broken down by day of the week or between alcohol and food sales. Restaurateurs also keep close tabs on labor, food, and liquor costs, as well as gross margins.

Comparative flash reports identify trends and exceptions that may need corrective action. For example, you might compare the current numbers to the previous week, the same week in the previous year, or budgeted amounts.

When a company is starting up, aggressively expanding, or struggling, lenders and investors may request copies of flash reports — especially if management has previously failed to meet projections for growth and profitability. But sharing this information can be perilous if stakeholders don’t understand that flash reports are designed for internal purposes only.

Flash reports provide a rough performance measure and are seldom 100% accurate. Adjustments are often made when preparing GAAP financials. In addition, it’s normal for cash to ebb and flow throughout the month, depending on billing cycles.

Managers who rely on stale financial information may be blindsided by unexpected threats and miss out on time-sensitive opportunities. If you understand their limitations, financial flash reports can help bridge the timing gap between daily operations and receipt of GAAP statements. Contact us to help design a flash reporting format that meets your business’s current needs.

© 2023

The International Sustainability Standards Board (ISSB) issued its inaugural standards at the IFRS conference in London in late June (colloquially known as IFRS S1 and IFRS S2). For the first time, we now have a common accounting language for disclosing the impacts of industry-specific sustainability issues and climate-related risks and opportunities in capital markets worldwide. IFRS S1 and S2 are effective for annual reporting periods beginning on or after January 1, 2024.

In his remarks introducing the new ISSB standards, ISSB Chair Emmanuel Faber underscored a disconnect that has existed between nature and economics for more than 100 years; a growing gap he ultimately cited as a need for the harmonized IFRS standards. “We are reaching planetary boundaries where uncertainty is growing and hitting the financial and systemic stability of the markets,” Faber stated. “Economics do not recognize nature. The price we pay and what we account for in the financial statements is not what it took nature to create oil … we consider that for free.”

The global economic system, which has driven linear growth for the past century, has run up against the reality of life on a circular planet. Resources are finite and must be renewed to remain viable for future generations. Today’s global capital markets are inextricably intertwined and transparency in global accounting is more important now than ever.

Faber pointed to recent climate change-induced heat waves in Europe that crippled infrastructure for millions of people. This is evidence of the urgent need for global action. He also referenced the recent announcements by insurance giants State Farm and Allstate, both of which ceased issuing new property and casualty insurance policies for homeowners in California (the world’s fifth-largest economy) due to increased concern of wildfires.

To be clear, the new ISSB reporting and disclosure standards are not new; they were adapted over the past 18 months from foundational ESG frameworks such as SASB, TCFD, and CDSB.  Faber indicated we have “crossed the frontier” with the launch of S1 and S2, which represent a “consistent and comprehensive accounting language” that can be leveraged to measure the material ESG risks and opportunities across a company’s entire value chain. Let’s explore what that means vis-a-vis the new IFRS 1 and IFRS 2 reporting requirements.

IFRS S1 is the ISSB’s foundational document. It sets out general requirements for a company to disclose information about its sustainability-related risks and opportunities that are useful in making investment decisions. IFRS S1 states that the value a company creates for itself is inextricably linked to its broader business ecosystem (I.e., civil society, human capital, natural resources, climate risk, etc.).

To be able to manage for the long term, companies must consider how they are approaching those relationships and dependencies and the impacts they have. Any ESG-related risk or opportunity that is likely to be financially material should be reported. IFRS S1 is focused on driving connections to sustainability within general-purpose financial reporting and, as such, it:

IFRS S2 is designed to help investors measure potential financial risks and opportunities that climate change poses to a company’s future performance and prospects. It helps investors understand how the company is responding, including any relevant transition planning, for areas under the company’s direct control, as well as its associated value chain. As such, IFRS S2:

All of this is likely quite daunting for leaders of small-to-medium-size enterprises (SMEs), many of whom are struggling with myriad business issues during this challenging economic time. Sensiba has a number of ESG and sustainability services that can help SMEs integrate ESG reporting into their planning initiatives and move confidently in the direction of a greener future.

For companies that are just beginning their ESG journey, we offer a High-Level ESG Assessment designed to help them understand the material ESG issues, topics, and metrics specific to their organization and industry. This first-step assessment is critical for building awareness around key issues and identifying improvement opportunities and serves as a precursor to more robust ESG reporting.

For companies looking for an investor-grade ESG benchmark and assessment, we offer the industry’s most comprehensive ESG intelligence and reporting tool in Impakt IQ. The Impakt IQ framework is a systems-based process that maps seamlessly to IFRS S1 and S2 and is designed to sit alongside a company’s financial statements.

The Impakt IQ Tool Set and Impakt Score provide company executives with a customized investor grade ESG framework through a suite of ESG statements and dashboards, enabling insight into material risks, value creation opportunities, industry benchmarks, and more.

To learn more, reach out to our ESG professionals today!

Colorado has amended last year’s Retail Delivery Fee law to exempt qualified small businesses and to streamline the administrative requirements for companies that are not exempt from remitting the delivery fee.

In 2022, the state passed a mandatory 27-cent retail delivery fee, effective July 1, 2022, for any purchases of tangible personal property that are delivered by a motorized vehicle, including from out-of-state or by a third party, and are subject to state sales tax. Physical and online retailers must collect and remit the fee as part of their state sales tax filings.

The delivery fee is designed to raise funds to improve Colorado’s transportation infrastructure, create electric vehicle charging stations, promote mass transit, and reduce air pollution.

On May 4, 2023, the Retail Delivery Fee law was amended to exempt qualifying retailers with less than $500,000 in sales during the prior calendar year. The legislation amending the law to exempt small businesses cited the administrative costs associated with collecting and remitting the fee and said those costs should be borne by larger companies that could better afford them.

In another effort to streamline the administrative costs for companies that are not exempt from the Retail Delivery Fee, Colorado offers the option of remitting the fee for the required transactions without collecting the fee from specific customers.

This change was made in response to retailers’ concerns that, in many instances, their invoicing software would need to be updated to list the fees. In addition, collecting and remitting the fee for individual transactions could create significant administrative challenges.

Under the new law, companies can aggregate the number of delivery transactions and pay the total amount to the state.

For companies that are not exempt from the Retail Delivery Fee, the fee will increase to 28 cents on July 1, 2023.

The idea of imposing retail delivery fees expands to states outside Colorado, most recently Minnesota and New York.

In late May, Minnesota adopted a 50-cent retail delivery fee for transactions valued at $100 or higher that include a retail delivery in the state. The fee, which becomes effective July 1, 2024, will be imposed on each retailer or marketplace facilitator making deliveries of tangible personal property or clothing within Minnesota.

Minnesota exempts “small businesses,” which the law defines as retailers with less than $1 million in sales during the previous calendar year, or a marketplace provider that facilitated retail sales of less than $100,000 during the previous calendar year.

A retailer collecting the fee from purchasers must identify the state’s “road improvement and food delivery fee” separately on the transaction’s invoice or bill of sale.

Similarly, New York legislators have proposed delivery fees for retail delivery transactions statewide, and a separate proposal includes fees for online deliveries within New York City.

As more states enact or consider similar fees, retailers operating in multiple states must adjust their systems to account for a complex menu of varying fees and exemptions, in addition to sales and use tax, within certain jurisdictions.

Contact us to learn more about changes to the law and the implications for your business.

The term “carbon footprint” has been in the news, your online shopping shipping information, and even your company’s communications. From campaigns to using less plastic to eating less meat, it seems everyone is buzzing about ways to reduce their carbon footprint.

What is a carbon footprint? Why is it important? This article will unpack the term “carbon footprint” and some related terms as we dig into the elements of a carbon footprint and where to start measuring it.

A carbon footprint is the total amount of carbon dioxide and greenhouse gas (GHG) emissions caused, directly or indirectly, by an activity. Everything from the electricity to run your office, shipping gifts to grandma, the process of making an item, and even sending an email has a carbon footprint.

There are also natural sources of GHGs, including the respiration and decomposition of plants and oceans. The “size” of the carbon footprint depends on a few factors, but predominately it represents the amount of greenhouse gas emissions released into the atmosphere by an activity.

Excess greenhouse gases can cause a wide range of environmental and health implications. Our planet has a built-in system to clean greenhouse gases from the air. However, since the 1950s, we have produced more emissions than our planet’s natural system can handle.

Over time, the build-up of these gases has increased the planet’s temperature and thrown off the balance of its delicate ecosystem. These gases also contribute to:

Future temperature increases will bring more severe storms, increased drought, food shortages, and species loss. Kenya offers a current example of what can happen with a devastating drought. According to a Washington Post report, as of November 2022, animals are dying due to the drought, including 512 wildebeests, 430 zebras, 205 elephants, and 51 buffaloes. The photos are haunting and heartbreaking.

So far, the planet’s temperature has increased by 0.75˚ C since the start of the 20th century. Climate modeling predicts the global average temperature will increase an additional 4° C (7.2° F) during the 21st century if greenhouse gas levels continue to rise at present levels. The side effects of this global temperature rise are concerning and why so many are calling for change—lowering our collective carbon footprint.

Businesses have a corporate carbon footprint and, not surprisingly, the most significant footprint of all. In a 2017 report from the nonprofit Climate Disclosure Project (CDP) in collaboration with the Climate Accountability Institute, just 100 companies are responsible for more than 70% of the world’s emissions.

The global standard framework for measuring a carbon footprint is the Greenhouse Gas (GHG) Protocol. The GHG Protocol created accounting standards, tools, and training to help businesses measure and manage their carbon emissions. It also provides guidelines and requirements for organizations to inventory their greenhouse gas emissions, including calculating their corporate carbon footprint.

Greenhouse gas measurements are delineated between direct and indirect emission sources and are measured in three categories. Scope 1 is direct emissions from a company’s owned and controlled resources. This includes on-site energy like natural gas and fuel, emissions from boilers and furnaces, as well as emissions from fleet vehicles like trucks for a construction company or helicopters for a hospital. Scope 1 also covers emissions released during industrial processes and on-site manufacturing.

Scope 2 emissions are indirect emissions from purchased or acquired energy. For example, electricity purchased from a utility company or that runs your offsite company servers or website.

Scope 3 includes everything that doesn’t fit in Scopes 1 and 2. It includes all indirect emissions that occur in a company’s value chain (both upstream and downstream). The US Environmental Protection Agency (EPA) describes Scope 3 emissions as “the result of activities from assets not owned or controlled by the reporting organization, but that the organization indirectly impacts in its value chain.”

Reducing a company’s carbon footprint requires a multi-faceted approach. It involves combining tactics like looking at your energy efficiency, switching to renewable energy, moving to sustainable transportation, or establishing sustainable supply chain practices. You can engage your employees in the process.

One of the most effective strategies is increasing energy efficiency. Doing things like improving insulation, upgrading heating and cooling systems, and installing energy-efficient lighting is good not only for the planet, but also your bottom line. Currently, there are even federal tax rebates and credits for these upgrades for your business and home.

Companies can reduce their carbon footprint by leveraging renewable energy sources such as solar or wind power. This can be achieved by installing solar panels on company facilities, purchasing renewable energy credits, or switching to renewable energy providers. Most utility companies offer renewable energy solutions for corporate and residential customers, but they must opt into these solutions. While renewable energy might cost a cent or two more per kilowatt, it is ultimately cheaper than purchasing offsets on the tail end for the same amount of energy.

Promoting sustainable transportation options like cycling, walking, or using electric vehicles can also help reduce your carbon footprint. Consider providing incentives for employees to use subsidized public transportation or bike-share programs. This is an excellent way to engage your employees in the process.

Sustainable supply chain practices can take more work. However, once your supply chain policies and procedures are set, your company can see a positive impact on the bottom line. Promoting sustainable practices throughout your supply chain, such as obtaining materials from sustainable sources, using less packaging, and reducing waste, can be highly beneficial. Even a step as small as switching from air to ground shipping can make a difference.

Carbon footprints vary widely depending on business practices, such as production methods, transportation, and facility choices. However, according to the Global Reporting Initiative, the average carbon footprint for a company in the industrial sector is approximately 400 metric tons of carbon dioxide equivalent per million dollars of revenue.

We can work side-by-side with you to help measure and benchmark your organization and help you develop goals that make sense for your business and industry. Then we’ll help you create a strategic plan for reducing your footprint and finding responsible offsets for things you cannot reduce. We can even help you describe your carbon footprint journey to your internal and external stakeholders in an authentic way to mitigate any risk.

Visit our Sustainability page to learn more.

Contrary to what you might imagine given the name, family offices are more subject to fraud and malfeasance than small- to medium-sized businesses. Why? Aren’t we all family? Don’t we treat everyone with care and respect?

To paraphrase Willie Sutton: “Because that is where the opportunity is.” Most family offices have few employees. Their staff may include team members who believe they are underpaid and on whom the principals rely on for a variety of tasks. Internal controls are usually lacking or not designed properly. Separation of duties relating to cash, for instance, is exceedingly difficult due to a lack of personnel.

Within family offices, several key areas present significant risks:

While challenging, there are prudent measures and straightforward solutions that can significantly mitigate the opportunity for embezzlement or financial misstatements. These include:

Require key employees to take a two- to three-week vacation every year. It is extremely difficult for an employee to maintain an embezzlement scheme if they are not there to monitor or hide it. Watch for employees who work excessive hours, especially when no one else is present.

Implement a robust oversight process for bank reconciliations. Use outside consultants if, as a principal, you do not think you can do an adequate job with this process. At a minimum, separate the employee who handles the cash from those who record the cash and reconcile the two activities on a timely basis. In today’s digital world of cash movement, electronic oversight of the reconciliations is critical.

Employ technology that requires someone other than the person creating the payments to approve the movement of cash. Approvals can take place on your mobile phone from anywhere in the world.

Review and approve your vendors periodically. Any new vendor should be approved contemporaneously and before being paid for the first time.

Perform technology assessments consistently, such as every year or, at most, two. Technology is moving so rapidly that significant opportunities to improve your technology environment may be available.

Obtain periodic third-party reviews of your internal control environment to establish and reinforce a robust, right-fit system of controls. This provides additional comfort regarding the completeness and accuracy of the data that underlies the financial reports. Internal control processes and procedures should be well-documented and tested periodically for compliance.

Set and approve budgets and report actual-to-budget variances to identify when activity differs from your expectations.

Conduct an in-depth review of the details that make up your net worth statement at least annually to avoid the unpleasant surprise of finding assets or liabilities you might not be aware of.

Malfeasance, embezzlement, and fraud can easily occur unless the family recognizes risks and takes the appropriate steps to mitigate them. If you would like to discuss your family office situation, our team would be more than pleased to visit with you and provide suggestions.

On June 5, 2023, Sensiba San Filippo LLP became Sensiba LLP—a new name and identity representing our steadfast commitment to our clients, our people, and the planet.

Our new identity reflects our growth as a firm, and aligns our appearance and voice to provide continuity within our expanded service lines and customer segments. We’ve updated how we present ourselves to better demonstrate our capabilities and, more importantly, our values as a firm.

Our new logo depicts three glass panels representing how we invest and evaluate strategies through the lenses of family, community, and firm. The transparency demonstrates our approach to how we serve clients and the overlapping panels highlight the connections between those areas.

Our new name is shorter, clearer, and reflects the way many team members and clients already refer to us. Instead of basing a firm name on initials, Sensiba reflects the personal engagement we bring to every interaction with clients, employees, recruits, and the organizations and causes we support. Our first core value states, “We’re people first,” and our name upholds that statement in a way initials couldn’t.

The rebranding process began nearly a year ago with input from clients and employees as we developed a modern brand to represent our values, align our people, and reinforce our approachable, people-first culture.

Rest assured that we’re the same firm, with the same ownership and the same commitment to working every day to solve complex problems while building a foundation for sustainable growth. We’ll continue to be steeped in our B Corp values, and to care about the clients we serve, our families, communities, and each other.

We invite you to read our rebranding news release, and to explore our new site!

Science-Based Targets (SBTs) are emissions reduction objectives aligned with latest climate science as well as the Paris Agreement’s goal of limiting global warming to well under 2 degrees Celsius above pre-industrial levels.

These targets are intended to help companies reduce their greenhouse gas emissions and support the transition to a low-carbon economy. Companies that set science-based targets demonstrate their commitment to sustainability and willingness to lead in addressing the climate crisis.

The Science Based Targets initiative (SBTi), is a collaboration between several organizations including:

The SBTi provides a framework for companies to set specific targets and independently verify their goals are consistent with the Paris Agreement objectives. It offers guidance, tools, and resources to help companies determine and achieve their emissions reduction targets.

The Paris Agreement is an international accord adopted by the United Nations Framework Convention on Climate Change (UNFCCC) in 2015 to address climate change. By bringing countries together to collaborate on a common goal and approach, the agreement has created a framework for collective action to address the impacts of climate change.

The Paris Agreement sets an ambitious target to reduce global warming. Limiting warming to well below 2 degrees Celsius (with a further target of 1.5 degrees) is critical to preventing the worst effects of climate change. Some examples of climate change effects are rising sea levels, extreme weather events, and loss of biodiversity.

The agreement requires countries to report on their emissions and progress toward their targets, providing transparency and accountability for their actions. This reporting helps to ensure countries are taking meaningful action to address climate change and tracks progress toward meeting the agreement’s goals.

Financial and technological support is available to help developing countries transition to low-carbon and climate-resilient economies, as these countries are especially vulnerable to the impacts of climate change.

Companies adopting SBTs demonstrate their commitment to sustainability and addressing the climate crisis. Companies that set and achieve SBTs are seen as responsible and credible. This can enhance their reputation and build trust with stakeholders, including customers, investors, and employees.

SBTs can help companies stay ahead of regulations, reduce their exposure to compliance and policy risks, and benefit from new opportunities and technological advancements in the low-carbon economy.

There are several types of science-based targets that companies can set. A company’s specific targets will depend on its operations, emissions profile, and other factors.

Here are a few examples of science-based targets that organizations have set:

Setting science-based targets is a challenging yet rewarding process. Having a step-by-step plan and following it is critical for being able to hit those targets.

Your company needs to benchmark where it is in its sustainability journey to know where it wants or needs to go. Start by determining your company’s current emissions and establishing a baseline. This will serve as the starting point for measuring progress against your target.

Decide which parts of your operations and supply chain you want to include in your target. For example, you may choose to focus on direct emissions from your operations or on emissions from your entire value chain. Determine the reduction pathway you want to use to achieve your target. Several paths are available, including sector-specific and economy-wide reduction pathways.

Use the selected reduction pathway to calculate your science-based target. This will involve considering your company’s emissions profile, historical emissions trends, and future growth projections. Once you have set a target, you will need to implement a plan to achieve it. This may involve changing business processes, investing in new technologies, or engaging with suppliers and other stakeholders.

Regularly monitor your progress against your target and report on your emissions and other relevant data. This will help you identify areas for improvement and demonstrate your commitment to sustainability.

The Science Based Targets initiative provides a step-by-step guide with tools and resources to support the process. The SBTi also verifies companies’ targets to ensure they are aligned with the Paris Agreement.

There are over 4,500 companies worldwide with approved science-based targets. They span across various sectors such as energy, consumer goods, retail, finance, and more.

Some well-known companies include:

The Science-Based Targets initiative provides a publicly accessible database of companies with approved science-based targets. It can be searched by sector, company name, and country. This list is constantly expanding as more companies adopt SBTs, demonstrating the growing recognition of the importance of reducing emissions.

Science-based targets are crucial for companies to address the pressing issue of climate change, plan for a sustainable future, and enhance their reputation and competitiveness. The Sensiba Center for Sustainability can work side-by-side to guide you through this process. Starting from measuring and identifying your targets to implementing your plan and monitoring your progress. If you are considering setting science-based targets for your organization, contact us to learn more about how we can help!

The Research and Development tax credit is a great way for companies to reduce their tax liability and generate savings that can be reinvested in the businesses. Companies who claim the R&D tax credit must be prepared for a potential audit. Not being ready for an R&D tax credit audit could result in a reduction or complete loss of the credit, plus penalties and interest.

Audits are common for certain tax credits, and the R&D credit is usually on the IRS’s “Dirty Dozen” list. Here are some tips to keep in mind if the IRS or state tax officials select your claim for an audit:

Don’t enter your audit on the defensive or assume this will be an adversarial interaction. You should go in with a positive and collaborative attitude. The goal is to work with the auditor to demonstrate your claim’s validity.

The R&D tax credit was designed to support companies investing in their businesses. It helps to remember that auditors are doing their job to ensure the credit goes to the right companies.

You should provide accurate and complete information and be prepared to answer the auditor’s questions. Keep in mind that the IRS is looking for substance over form, so companies should ensure their R&D activities are well-documented and substantive.

You should ensure you are following the R&D tax credit regulations. This includes ensuring all claimed R&D activities meet the appropriate criteria and that you are recording their R&D expenses properly.

It is crucial to keep proper R&D documentation of all activities and expenses. This should include project descriptions, project timelines, employee time records, and invoices. The documentation should be well-organized, easily accessible, and up-to-date.

Using the wrong percentage for the alternative simplified method or improper use of the fixed base percentage are common mistakes. Similarly, completing the federal or state forms incorrectly is a red flag.

Adjustments to the base period methodology are not unusual as new guidance is released by the IRS or following tax court decisions, but yearly changes are another red flag for auditors. The fixed base percentage under start-up rules is intended to stabilize 11 years after a company’s start of qualified expenditures and revenue. Established companies, barring acquisitions or dispositions, will have a stable percentage starting by the 11^th year of eligibility.

Whoever compiles your credit should use engineers to evaluate and test the credit claim against the requirements, just as the IRS will do during an audit. In-depth interviews with key personnel help the team evaluate activities, making sure only eligible projects are included.

Time-tracking data is the preferred way to determine personnel percentage, but often this isn’t available. It can be tempting to apply a blanket percentage to employees or departments. Individually evaluating personnel is the only viable method. Interviews can help support this detailed approach.

Even if you’ve done an excellent job of segregating costs, entire GL accounts are rarely fully qualified. In many cases, items may be appropriately allocated to a certain cost center, although not all of the items are actually eligible for the R&D credit.

R&D credit audits are not uncommon. To be better prepared, you should keep proper documentation, perform a thorough study, be honest and transparent, and work with qualified professionals.

By following these recommendations, you can help ensure that you are properly claiming the credit and reduce the risk of an IRS or state audit reducing or denying the credit amount. Contact us today to learn more about how we can help your company be better prepared for an R&D tax credit audit.

As service organizations prepare for SOC 2 examinations, understanding the roles of the Privacy and Confidentiality Trust Services Criteria (TSC) can help them manage risk more effectively and optimize the scope of SOC 2 audits.

Privacy and Confidentiality are two of the five TSCs that can be considered in a SOC 2 review. The Security criteria is mandatory, while Confidentiality and Privacy, along with Availability and Processing Integrity, are optional areas for review.

The Confidentiality and Privacy criteria, although similar in nature, have important differences that a service organization should consider as it decides which criteria should be included in an upcoming SOC 2 review.

It’s important for companies scoping a SOC 2 audit to understand the differences between the Confidentiality and Privacy criteria:

Confidentiality refers to a service organization’s ability to secure proprietary information from unauthorized access or disclosure. The types of data that need to be secured will vary among providers, but typically include:

Privacy refers to the service organization’s ability to collect, use, retain, dispose of, and disclose personally identifiable information (PII) in accordance with client agreements as well as any applicable laws or regulations. This will typically include:

Deciding whether to include one, the other, or both criteria depends on several factors, including the types of data the service organization handles on behalf of its clients and the sensitivity of that data.

For example, the Privacy TSC is important for providers that interact directly with individuals or process PII on behalf of their clients. In these instances, the service organization’s client (and their customers) will share data with the system and thus may also want to understand the steps the service organization follows to protect that sensitive data within the system.

The applicability of the Confidentiality TSC will likely vary among service organizations and their clients, but it often comes into scope when the provider is processing or using information it is contractually required to protect.

For instance, a service organization that provides purchasing software for its clients will need to secure the customers’ purchase history from unauthorized access, but with perhaps less technical rigor than it would apply to someone’s health insurance claim or personally identifiable data.

After classifying data and selecting the appropriate criteria, service organizations will need to design and implement appropriate controls to ensure compliance with the Privacy and Confidentiality TSCs.

Effective Privacy controls often include policies and procedures for:

Effective Confidentiality controls may vary, but often address:

Choosing the right TSC, or a combination of criteria, is important in mitigating risk while also developing an effective and cost-effective scope for a cloud service provider’s SOC 2 audit.

For more information about Privacy vs. Confidentiality or if you need help preparing for your SOC audit, contact our team.

The Intergovernmental Panel on Climate Change (IPCC) has released its Synthesis Report, which provides information on the physical science, impacts, and mitigation tactics addressing the climate crisis. The report confirms we have a brief window to avoid the most disastrous effects of climate change.

Acknowledging the contributions made by industry, the private sector has been mobilizing around corporate climate action, setting net-zero targets in accordance with the Paris Agreement goals adopted at the UN Climate Change Conference in 2015. The goal of net-zero emissions aligns with the scientific consensus that we must limit global warming to 1.5 degrees Celsius above pre-industrial levels.

Climate neutrality refers to mitigating greenhouse gas (GHG) emissions to achieve a net-zero carbon footprint. Becoming climate neutral involves reducing GHG emissions from your company’s operations to the extent possible and compensating for emissions that can’t be reduced. This compensation can take the form of carbon credits that help fund mitigation tactics to remove, offset, or avoid emissions.

Although carbon dioxide is the largest overall contributor to climate change, climate neutrality covers all GHGs including methane, nitrous oxide, and hydrofluorocarbons, which have much higher global warming potential. This means smaller amounts of emissions lead to more accelerated warming. Some companies are going beyond commitments to climate neutrality. They are aiming to become climate positive by removing additional emissions beyond the scope of their own carbon footprint.

Pursuing climate neutrality goals can provide environmental, economic, and social benefits. Mitigating emissions can help reduce negative impacts on both people and the planet in the face of the climate crisis. This includes reduced biodiversity and worsening climate events such as drought, fire, heatwaves, and hurricanes.

Additionally, the impacts of climate change are not distributed equitably. Marginalized communities bear the brunt of environmental injustice by industrial polluters as well as extreme weather events. The U.S. has been the largest contributor to date of carbon emissions. This is why it’s worthwhile to reflect on our role in the global community.

Economic benefits come into play when a company considers differentiation within their market. Today, customers are looking to align their purchases with their values. According to the Yale Program on Climate Change Communication, 53% of Americans are alarmed or concerned about global warming.

Results from IBM sustainability research indicate almost half of consumers say they’ve paid a premium for products branded as sustainable or socially responsible. Companies actively engaged in creative emission reductions can gain a competitive advantage through innovation as well as benefits in attracting and retaining talent.

The nonprofit leads a global movement of individuals and companies to eliminate carbon emissions. Their label, Climate Neutral Certified, is a trusted, independent standard that helps consumers identify brands that are leading on immediate climate action. Companies that get certified must reduce and compensate for all of their emissions resulting from the production and delivery of their products and services.

The first step begins with measuring your organization’s Scope 1, 2, and 3 GHG emissions to calculate your carbon footprint. Once you’ve accounted for your company’s emissions sources, you can examine that data to identify hotspots within your value chain. Then, you can target the largest contributors to your footprint.

Meaningful reduction action plans ensure employees across various departments become engaged with decarbonization efforts. This increases the organization’s likelihood of achieving success. By setting incremental goals and attaching metrics and KPIs on the way to climate neutrality, your company can start to track what’s working and what isn’t.

Reducing emissions takes time. Developing an offset strategy is the final part of mitigating the emissions your company has already created.

For many organizations, reducing emissions 50% by 2030 and achieving net zero by 2050 is the minimum target. Some companies are setting accelerated goals under The Climate Pledge, which is the goal of reaching net zero by 2040.

The U.S. public sector has also started to join the private sector in climate action. For example, the Inflation Reduction Act provides incentives to make adopting renewable energy easier and more cost-effective.

Recognizing that climate and social justice must be centered in all action taken, the Justice 40 initiative is promoting a transition away from a fossil-fuel dependent infrastructure in the U.S. by setting a goal that 40% of the benefits reach underserved communities.

With the looming SEC proposal requiring large public companies to disclose their emissions and the Corporate Sustainability Reporting Directive in Europe, the global regulatory environment continues to evolve.

Climate neutrality is achieved by measuring your company’s carbon footprint, understanding significant sources of emissions, and creating strategies to mitigate those emissions. Many corporate climate claims and sustainability initiatives lack immediacy and often omit Scope 3 value chain emissions. Becoming Climate Neutral Certified is an important step toward increased transparency, consumer trust, and accountability.

As a Climate Neutral Open Certification consulting partner, the Sensiba Center for Sustainability has expertise in GHG accounting, developing reduction strategies, setting science-aligned targets, and advising on verifiable carbon credits. Reach out to learn more about how you can take immediate action toward your emissions reduction goals.

As mid-market companies evaluate software solutions to improve the efficiency of their financial close, the final choice is often between BlackLine and FloQast. Both solutions help finance teams improve monthly and quarterly closes by managing tasks and tracking certifications of account reconciliations. However, depending on your organization’s needs, one may be the more suitable option.

As with any software platform, the best choice for your company depends on a variety of factors including your:

Not all software is the same and understanding these considerations in relation to your organization can help you choose a solution that solves your immediate challenges and meets your long-term needs.

Both solutions offer tools that improve the visibility of the financial close process but differ in their approaches and the degree of automation they offer.

FloQast’s approach to account reconciliations centers around maintaining the current Microsoft Excel-based process and adding workflow tracking along with alerts about pending and past due dates, tasks, and items ready for review. The software offers light workflow capabilities but focuses primarily on increasing the visibility of the account reconciliation process. FloQast helps accounting teams quickly organize a previously disparate reconciliation process.

BlackLine’s platform approach is built on unifying, orchestrating, and automating the reconciliation process, end-to-end, with advanced workflow capabilities that can be configured based on user needs. It can automate reconciliation processes from data feeds and matching transactions to the auto-reconciliation of accounts. BlackLine reports customers have automated up to 98% of their reconciliations.

Advanced user controls within the platform increase process accuracy and assure SOX compliance. BlackLine offers task management and real-time dashboards so accounting teams can easily manage the process and check the status of reconciliations at any time.

BlackLine extends beyond reconciliations and provides solutions to dependent processes, including journal entries. Users can manually or automatically create and post journal entries from BlackLine into their corresponding ERP. This is especially convenient when preparing an adjustment during the reconciliation process.

Watch the video below to learn more about how BlackLine can enhance your internal controls.

FloQast and BlackLine integrate with a company’s ERP and other systems to bring in relevant general ledger, subledger, and other balance and transactional data. However, BlackLine offers greater control for organizations with the ability to lock down and limit access to financial data, reducing the potential for unauthorized access. BlackLine’s user access and control features reduce a company’s audit and misstatement risk.

FloQast, on the other hand, highlights that their strategy allows finance teams to retain their existing close process, primarily through spreadsheets. Their software allows teams to centralize work and add visibility to the process.

BlackLine’s centralized cloud-based approach focuses on adding rigor and automation to manual processes to limit work performed in a spreadsheet. This approach enables organizations to streamline their accounting processes while establishing a foundation for an organization to optimize processes as they grow.

BlackLine’s advanced functionality helps finance teams free capacity to perform more value-added work, such as financial analysis, to help management better understand the company’s financial performance and to identify growth and market opportunities.

FloQast points out the speed at which their software can be implemented. This is an advantage for companies that must purchase and be up and running within a few days. This approach is supported because FloQast aims to maintain a spreadsheet-based process with light workflow and reporting capabilities that increase transparency.

BlackLine’s implementation typically takes a few weeks, with minimal IT effort needed. It’s helpful to consider BlackLine’s approach includes capabilities that modernize end-to-end accounting processes with more capabilities that drive process rigor and automation.

Overall, the choice between FloQast and BlackLine depends on your company’s financial reporting needs and transaction volume.

For a company interested in basic workflow improvements, FloQast offers a good introduction to using technology to enhance the financial close. If you need a short-term solution, or are looking to make the process incrementally better, FloQast may be the right choice.

For a company seeking long-term process improvement, and sustainable, finance transformation, we believe BlackLine tends to be the better choice. In our experience, BlackLine offers more opportunities to automate and streamline processes, better insights into financial data, and a broader set of financial reporting and management capabilities. More importantly, we’ve seen BlackLine’s capability to grow with an organization to any size, from a small startup to a Fortune 100 firm.

Interested in learning more about BlackLine vs. FloQast? Reach out for a demo and see how BlackLine can help automate and transform your organization’s financial close.

Biodiversity is the variety of life on Earth, including species, ecosystems, and genetic diversity within species. It encompasses the diversity of plants, animals, and microorganisms, as well as the ecosystems they form and the variety of interactions between species.

Biodiversity is essential for our planet’s ability to function and provide resources that are important for human well-being. These resources range from food, fuel, and medicines to water purification and climate regulation.

The loss of biodiversity is a pressing global issue with significant impacts on the sustainability of our planet’s ecosystems. Human activities, including habitat destruction, over-exploitation, pollution, and climate change, pose significant threats to biodiversity. Consequently, many species face the risk of mass extinction. Additionally, ecosystems are being degraded because of these activities.

The business sector has a key responsibility to contribute towards preserving biodiversity. This article will explain how different human activities are harming our planet’s biodiversity and how companies can play a role in saving it.

Habitat destruction is a significant driver of biodiversity loss, as it fragments and reduces the amount of land available for wildlife and disrupts the delicate balance of species interactions. This destruction occurs when natural habitats, such as forests, wetlands, and grasslands, are cleared or degraded for human purposes. Some common causes of habitat destruction include activities such as agriculture, urbanization, or resource extraction.

As habitats shrink or disappear, many species are left without food, water, shelter, and other resources they need to survive. This can lead to declines in population sizes and an increased risk of extinction. Habitat destruction also increases the likelihood of genetic isolation, inbreeding, and loss of genetic diversity as small and fragmented populations may struggle to exchange genes.

In addition, habitat destruction often leads to changes in the physical and biological conditions of the remaining habitat, such as increased erosion, altered hydrology, and the introduction of non-native species. These changes can significantly impact an ecosystem’s biodiversity, altering the structure and function of communities and their services.

Conserving and restoring habitats is essential for many species’ long-term survival and for maintaining healthy ecosystems. These can be done by reducing the rate of habitat destruction and protecting and restoring areas of high biodiversity value. Organizations can help by promoting sustainable practices to conserve habitats while supporting human livelihoods.

Over-exploitation involves the excessive harvesting of species and the degradation of ecosystems. This can occur when species are hunted, fished, or collected at rates that exceed their ability to reproduce and maintain stable populations. Over-exploitation can also occur when forests are cleared for timber or wetlands are drained for agriculture.

The consequences of over-exploitation can be severe, as it can lead to declines in population sizes, increased risk of extinction, and alterations to the structure and function of ecosystems. It can also have cascading effects, as species declines disrupting the balance of species interactions, leading to further reductions and loss of biodiversity.

Overfishing decreases the abundance of certain species, which can alter the food web and reduce the overall biodiversity of an ecosystem. It was reported that Vaquita dolphins are down to a mere 10 individuals left in the ocean and threatened with extinction.

It is crucial to sustainably manage and conserve species and ecosystems to protect biodiversity and ecosystems’ resources. This involves setting limits on the harvest of species, protecting critical habitats, promoting sustainable practices, and reducing the drivers of over-exploitation, such as poverty and unsustainable consumer demand.

Pollution has harmful impacts on individual species’ health and entire ecosystems. Damage can come from many sources, including chemical pollutants, such as pesticides and heavy metals, and physical pollutants, such as plastic waste and noise.

Chemical pollutants can have toxic effects on individual organisms, leading to declines in population sizes and an increased risk of extinction. For example, pesticides can kill off predators, allowing pests to proliferate and reducing species diversity within an ecosystem. Heavy metals can accumulate in the tissues of organisms and cause reproductive failure, impaired immune function, and other health problems.

Physical pollutants can have severe consequences for biodiversity. Marine life, such as sea turtles and seabirds, can be harmed by ocean waste, while other species, including fish and corals, experience a decline in environmental quality. For example, non-biodegradable plastic can entangle and suffocate wildlife, causing injury or death.

Reducing pollution and promoting sustainable practices are critical for protecting biodiversity and maintaining healthy ecosystems. These involve reducing the release of pollutants, improving waste management practices, and promoting the use of alternatives to harmful chemicals.

As temperatures rise and weather patterns change, ecosystems are altered, disrupting the delicate balance of species interactions. Many species struggle to adapt to these changes and are at risk of extinction as their habitats shrink or shift.

Rising temperatures are changing seasonal events, like the flowering of plants and the migration of animals, leading to mismatches between species that rely on each other for food or pollination. Warmer oceans are also causing coral reefs to bleach and die, which has cascading effects on the many species that depend on these ecosystems for food and shelter.

Climate change worsens problems like habitat destruction and over-exploitation. This is because it leads to frequent and severe droughts, hurricanes, and other natural disasters that can further reduce biodiversity.

Conserving biodiversity and mitigating the impacts of climate change is critical for our planet’s long-term health and its inhabitants’ well-being. This requires reducing greenhouse gas (GHG) emissions, protecting and restoring habitats, and promoting sustainable practices.

Businesses can play an essential role in conserving biodiversity through their direct impacts on the environment, and their influence on consumer behavior and public policies. Some of the ways businesses can support biodiversity include:

Preserving biodiversity represents a pressing challenge of great significance. By incorporating biodiversity conservation into business strategies, companies can contribute to preserving ecosystems and species while improving their reputation, reducing risks, and enhancing their long-term competitiveness.

Achieving effective biodiversity conservation requires collaboration and coordination among all stakeholders. This includes businesses, governments, communities, and individuals, ensuring that benefits are shared, and conservation goals are achievable. By taking a comprehensive and integrated approach to conserving biodiversity, we can protect and restore ecosystems, preserve species, and ensure our planet’s long-term health and well-being.

Now that your company has transitioned to the ASC 842 Lease Accounting standard, what comes next? What do you do when the lease arrangement changes, or the facts and circumstances change after your initial adoption?

It’s important to remember the ASC 842 adoption process doesn’t represent an end goal. Instead, it is a new approach for monitoring and managing the company’s lease agreements. Companies must ensure they have accurate and complete data on all their leases, including the terms, payments, and options. They also should ensure that any changes to lease terms or conditions are accounted for and whether any leases need to be reassessed or remeasured to account for the remaining lease term accurately.

Common situations where a lease requires reassessment or remeasurement include:

As part of their review, companies must evaluate how to disclose lease changes to stakeholders such as investors, lenders, and auditors.

Lease modifications are often easy for lessees to identify because they require changing their contract with the lessor. In contrast, other events during the lease term can require the lessee to remeasure the lease liability and the associated right-of-use asset.

Reassessments are required when an event does not involve renegotiating the lease terms and conditions, but when facts, assumptions, or other circumstances change. For example, a lessee may change their decision about exercising an option within a lease.

How often companies should review their existing lease agreements depends on the number of leases they have and their complexity. In most instances, companies should review their lease agreements annually to ensure that they continue to comply with ASC 842 and any changes have been identified and accounted for properly. If a company has many leases, or complex leases, they may need to review their agreements more frequently.

If a lease is modified or reassessed, the underlying liability and right-of-use asset must be remeasured to account for the change. In some cases, the changes result in a gain or loss for the company.

Calculating these changes manually can be cumbersome if the finance teams rely on spreadsheets. In addition, having to copy or re-enter data manually can lead to errors and misjudgment.

Software tools such as LeaseCrunch can perform lease reassessments and calculate the journal entries and amortization schedules for the resulting right-of-use asset and lease liability remeasurements. This can help teams avoid errors and misjudgment caused by manual calculations.

LeaseCrunch offers a step-by-step workflow for entering the necessary data for the lease revision. It is flexible enough to manage changes in lease terms, payment streams, purchase options, early terminations, and incentives received.

For more information about our lease accounting services or lease reassessment and remeasurement, contact our team.

You have choices when it comes to reporting inventory costs. One popular technique — the last-in, first-out (LIFO) method — assumes that merchandise is sold in the reverse order it was acquired or produced. That is, it allocates the most recent costs to the cost of sales. Although this method is often preferred for tax purposes, internal accounting personnel may be hesitant to use it for various reasons.

Assuming your inventory costs generally increase over time, LIFO offers a definite tax advantage over other inventory reporting methods. By allocating the most recent — and, therefore, higher — costs first, LIFO maximizes your cost of goods sold, which minimizes your taxable income.

In contrast, the first-in, first-out (FIFO) method assumes that merchandise is sold in the order it was acquired or produced. Thus, the cost of goods sold is based on older — and often lower — prices.

Before you jump headfirst into using LIFO, it’s important to recognize that it’s not permitted under International Financial Reporting Standards (IFRS). The approach also involves sophisticated record keeping and calculations.

For example, the “LIFO conformity rule” generally requires you to use the same inventory accounting method for tax and financial statement purposes. Switching to LIFO may reduce your tax bill, but it could also depress your current earnings and reduce the value of inventories on your balance sheet, thus giving the appearance of a weaker financial position.

LIFO also can create a problem if your inventory levels are declining. As higher inventory costs are used up, you’ll need to start dipping into lower-cost “layers” of inventory, triggering taxes on “phantom income” that the LIFO method previously has allowed you to defer which is referred to as LIFO liquidation.

Moreover, if a C corporation elects S corporation status, the business must include a “LIFO recapture amount” in income for the C corporation’s last tax year. The recapture amount is the excess of your inventory’s value using FIFO over its value using LIFO. Fortunately, you can spread out the tax payments over four years in equal, interest-free installments.

One of the biggest challenges in using LIFO is the need to measure changes in inventory costs. If you currently use LIFO, you may be able to enjoy additional savings by electing to use the inventory price index computation method. It may enable you to reduce administrative costs — and it might even generate greater tax benefits — if you rely on government indexes to calculate LIFO values rather than developing an internal index.

If you’re interested in learning more about the issues and challenges retailers using the last-in, first-out method may face, check out our article: What Retailers Using Last In First Out (LIFO) Need to Know. It provides a comprehensive overview of what retailers need to know when using LIFO, which can help you decide whether it’s the proper inventory reporting method for your business. For any other questions, please don’t hesitate to contact us.

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As California’s Department of Tax and Fee Administration (CDTFA) begins phasing out Limited Access Codes and Express Logins on April 1, 2023, taxpayers will only be able to file timely returns with the CDTFA if they have a valid online CDTFA account login set up with a username and password. Additionally, return preparers who are not owners or officers will need their own CDTFA account login credentials and must separately request access to those accounts for which they prepare CDTFA returns if they haven’t already.

The change affects the following taxes:

Taxpayers will receive a mailed letter from the State of California before their Limited Access Codes are removed. This letter will include a taxpayer-specific account access code that will enable one of the two access options listed below:

PLEASE NOTE: The only way for someone other than an owner or officer listed as a “responsible party” for CDTFA purposes to obtain an access code is to request access online. Once requested, the CDTFA will then mail a physical letter to the business address on file. If multiple CDTFA account logins need access, a separate request for each account will need to be submitted online. It is important to note that the access code provided in the letter will only be able to connect to the CDTFA account login that requested the access code.

The chart below shows that any taxpayers with a username and password login already connected to the business account will have limited access codes phased out on April 1, 2023, regardless of filing frequency. For businesses that lack a username and password connected to the business’ CDTFA account, Limited Access Codes will be phased out on the removal date shown for each associated filing frequency listed on the right.

Taxpayers using Limited Access Codes should review the scenarios described below and follow the instructions that best fit their situation.

If you have questions about the California sales tax Limited Access Code phasing out or would like help with your account, don’t hesitate to contact our SALT team.

Under tax law, businesses can generally deduct advertising and marketing expenses that help keep existing customers and bring in new ones. This valuable tax deduction can help businesses cut their taxes.

However, in order to be deductible, advertising and marketing expenses must be “ordinary and necessary.” As one taxpayer recently learned in U.S. Tax Court, not all expenses are eligible. An ordinary expense is one that’s common and accepted in the industry. And a necessary expense is one that’s helpful and appropriate for the business.

According to the IRS, here are some advertising expenses that are usually deductible:

An attorney deducted his car-racing expenses and claimed they were advertising for his personal injury law practice. He contended that his racing expenses, totaling over $303,000 for six tax years, were deductible as advertising because the car he raced was sponsored by his law firm.

The IRS denied the deductions and argued that the attorney’s car racing wasn’t an ordinary and necessary expense paid or incurred while carrying on his business of practicing law. The Tax Court agreed with the IRS.

When making an ordinary and necessary determination for an expense, most courts look to the taxpayer’s primary motive for incurring the expense and whether there’s a “proximate” relationship between the expense and the taxpayer’s occupation. In this case, the taxpayer’s car-racing advertising and marketing expenses were neither necessary nor common for a law practice, so there was no “proximate” relationship between the expense and the taxpayer’s occupation. And, while the taxpayer said his primary motive for incurring the expense was to advertise his law business, he never raced in the state where his primary law practice was located and he never actually got any legal business from his car-racing activity.

The court noted that the car “sat in his garage” after he returned to the area where his law practice was located. The court added that even if the taxpayer raced in that area, “we would not find his expenses to be legitimate advertising expenses. His name and a decal for his law firm appeared in relatively small print” on his car.

This form of “signage,” the court stated, “is at the opposite end of the spectrum from (say) a billboard or a newspaper ad. Indeed, every driver’s name typically appeared on his or her racing car.” (TC Memo 2023-18)

There are no deductions allowed for personal expenses or hobbies. But as explained above, you can deduct ordinary and necessary advertising and marketing expenses in a bona fide business. The key to protecting your deductions is to keep meticulous records to substantiate them. Contact us with questions about your situation.

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