Tax, Audit, Firm and Regulatory News

Today’s Accounting and Audit Topic (March 30, 2018)

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Learn the warning signs of earnings “spin”

Management wants to paint the rosiest possible picture of a company’s financial performance. But aggressive earnings management, or “spin,” can mislead investors and lenders. Here are some ways U.S. Generally Accepted Accounting Principles (GAAP) can be manipulated to obscure the truth.

Creative accounting vs. cooking the books

Earnings management usually starts out small, but it can become increasingly aggressive and eventually cross the line into fraud if it goes unchecked. An external audit may help detect the red flags of earnings management, including:

Premature revenue recognition. Some companies recognize revenue early to make the income statement temporarily appear more attractive. This ploy is common when a company is applying for bank financing or up for sale.

Miscellaneous “cookie jar” reserves. Management can create a hidden reserve of funds during good times. Then the reserves can be tapped into to nourish earnings in lean times.

“Big bath” restructuring changes. Some companies overstate the costs associated with restructuring. This enables them to clean up their balance sheets and create reserves for a rainy day.

Immediate acquisition write-offs. Acquired companies may classify a portion of the purchase price as “in process research and development,” which they immediately write off. This reduces the amortization of the purchase price to future earnings.

Overreliance on EBITDA. Earnings before interest, taxes, depreciation and amortization (EBITDA) and other non-GAAP metrics have become popular ways to evaluate a company’s performance. But they aren’t usually audited, and they may be calculated differently from company to company.

EBITDA is generally intended to resemble cash flow. But this metric can obscure problems for start-up companies with major debt. Although their EBITDAs give these start-ups appeal, their debt service may mean they won’t be profitable for many years.

Too good to be true?

Pay attention when reviewing financial statements and corporate press releases — the opportunity and pressure to spin earnings is everywhere. Contact us for more information on how to identify when a business may have engaged in “creative” accounting practices to improve their financial picture.

IRS raises the standard mileage rates for the second half of 2026

Sep 22, 2026

The IRS raised the standard mileage rates for the second half of 2026, effective July 1, with the business rate increasing from 72.5 cents to 76 cents per mile. Taxpayers who use their vehicle for business, medical, or qualifying moving purposes will need to track mileage separately for each half of the year. Learn what the new rates mean for your deductions, reimbursement policies, and recordkeeping.

Form 990 filing mistakes that can undermine your nonprofit’s credibility

Sep 15, 2026

Form 990 is more than a tax return; it’s a public document that donors, grantmakers, and regulators use to evaluate your nonprofit. Common mistakes in filing, reconciliation, and narrative disclosures can raise questions about financial stewardship or put your tax-exempt status at risk. This article outlines the key errors to avoid and how to build a more reliable year-over-year filing process.

Divorce and your tax return: what the settlement may not resolve

Sep 9, 2026

A divorce settlement divides assets and establishes legal rights, but it does not resolve every tax question that follows. Filing status, child-related benefits, property basis, retirement transfers, and prior joint return liability all require a separate tax review. Understanding where the settlement ends and tax law begins can help you avoid costly surprises after the divorce is final.