Post on 26-Aug-2018
transcript
Financial Reporting:What is Your Responsibility?Tina Kettle, United Technologies Corporation
Doug Stewart, AircraftLogs
Monday, Jan 16, 3:30 – 5:00
Agenda
• Session Objective
– Understanding the impact of data
– Getting the most out of your system
– Help to plan improvements
• Operational Reporting
– Impact of Data
– Types of Operational Reports
– Understanding Reporting Needs/Requirements
• Financial Reporting
– SEC Reporting
– IRS SIFL Income
– IRS Expense Disallowance
• Internal Accounting/Reporting
– ISBAO
– Time Share / Dry Lease / Wet Lease
– Establish a relationship with your Finance Dept.
– Explore your software
• Questions
Session Objectives
• Understand the impact of data on Operational Reporting
– Budgeting
– Cost Reporting
– Performance Metrics
• Identify critical data elements which support Financial Reporting
– IRS reporting for the company and the passengers
– SEC reporting for investors
• Be aware of specialized Internal Accounting your company may need totrack:
– Time Share & Dry Leases
– IS-BAO
• Summary: Be prepared to help others in your company with reporting tosupport your flight department.
Operational Reporting
Impact of Data
• Aids Flight Department with budgeting and forecasting.
• Monitor monthly/yearly goals (metrics).
• Generated directly from data entered by Dispatch Office after acompleted trip.
• Accuracy of data input is critical to producing error free reports.
• Reports reviewed by Senior Executives, Tax Department,Compensation Department and Flight Department personnel.
• When Flight Departments have a Financial Manager within theirorganization, that individual is generally the liaison between theCorporate Office and the Flight Department for all Financial andOperational Reports.
Types of Operational Reports - Monthly
Flight Hour Reports
Hour Plan by Aircraft
Hours Flown by Authorizer
International Hours Flown
Budget Tracking
Hour/Budget Comparison
Monthly Budget Status (by cost center and by aircraft)
Fuel Reports (dollars & gallons)
Maintenance
Dispatch Reliability
Aircraft Availability
Corporate Executives
Flight Justifications
Aircraft Chargebacks
SIFL Calculations
SEC Valuation
Operational Reporting
Understand Reporting Needs & Requirements
• Knowing what type of data to track for reporting is essential.
• Talk to your Finance/Tax departments to get a better understanding ofwhat the company needs and requirements are.
• Work with your software provider to make capturing data easier for yourdepartment. There are usually ways to customize fields for inputting datarequired for specific reports.
Financial ReportingIRS – SIFL Reporting for Passengers
IRS – Corporate Expense Disallowance
SEC – Annual Reporting to Investors
New Challenges Facing Corporate Flight Departments
• Greater Demand, More Corporate “Users” of Aviation Data
– Corporate Jet “crackdown” creates compliance challenges
– IRS & SEC Compliance More Challenging than FAA Compliance
– Corporate executives expect greater visibility and performance metrics
• Internal Processes have not evolved as Aviation Reporting requirements haveincreased
– New compliance requirements create complex business processes
– Incomplete data captured and stored
– Lack of accounting, reconciliation and “close the books” capabilities
• Scheduling systems are being stretched
– Scheduling systems and process designed for airplanes and pilots; not to manage processesabove
– System architecture restricts information sharing outside the flight department
Flight Request &Approval
SchedulingFlight
PostingManagement
Reporting
Board of Directors
FlightPlanning
Internal Accounting
Tax Accounting
Compliance Reporting
External Reporting
Executives
Exec. Assistants
Maintenance
IRS & SEC - Becoming Harder than the FAA?
Primary Reporting Elements:
1. Aircraft Expense Disallowances (IRS)
2. SIFL / Fringe Benefits (IRS)
3. Proxy Reporting / Executive Compensation (SEC)
4. Related-Party Transactions (SEC)
5. Federal Excise Tax (IRS)
6. Internal Chargebacks
7. FAS109/FIN48 (GAAP)
Compliance Requirements
1. ISBAO (IBAC)
2. Pilot & Crew Training & Experience (FAA)
3. Aircraft Maintenance Status (FAA)
4. Corporate Quality Processes
U.S. Securitiesand ExchangeCommission
SIFL Overview = SIFL is a GREAT DEAL
• “Standard Industry Fare Level” -- mileage rates & terminal charges
• Company-provided use of an aircraft is viewed as Compensation by theIRS
• Imputed Income = The IRS requires the value of this compensation be“imputed” to the employee’s income. Generally, you can use one of twomethods
– SIFL rates set by the IRS each year
– Charter Rate Method (market prices)
– Included in Your W-2 or 1099
• Control Employees Imputed 10X Higher than Non-ControlEmployees!
A round trip in a Gulfstream between Los Angeles and New Yorkgenerates only $3,600 per pax in SIFL income to the executive; but if
improperly calculated, the IRS could impose the charter rate method,skyrocketing taxable income to roughly $50,000 per trip.
Aircraft Expense Disallowance
• American Jobs Creation Act of 2004 (“AJCA”) requires companies todisallow the cost of personal entertainment flights provided to “specifiedindividuals”.
– This calculation becomes a percentage of your aircraft use
– IRS Notice 2005-45 explained “how” to disallow – and severelyimpacted the deductibility of corporate aircraft.
• Many companies still unaware and fail to disallow.
– Often its caused by a process breakdown
– Critical data never gets from the flight department to the reportingteam or tax staff.
What Are We Disallowing?
• Preventing a portion of your overall aviation expenses from beingdeductible on the company tax return
– Could be millions - Makes the flight department look very expensive
• Four Methods of Calculation – but each deal with occupied seats
– Before AJCA, only the business purpose of the flight mattered
– Now, the business purpose of every passenger matters
• Example: Chairman on business trip, family rides along for pleasure
– Before AJCA – 100% deductible – NO PROBLEM
– After AJCA – spouse & two children – 75% of flight is NON-DEDUCTIBLE
• Your Data Matters! Your Flight Patterns Matter!
– Example: $2 Million operating budget and $5 Million of depreciation
– Disallowing only 30% could cost the company $840,000 (40% of 30% of
$7MM)
SEC – Annual Reporting to Shareholders
• What’s a Proxy Statement?
– Published annually for shareholder votes (same timing as annual reports)
– Many disclosures required about “NEO’s” (Named Executive Officers)
• Must Disclose the “Value” of Aircraft Personal Use for each NEO
– If the value of personal use exceeds $10,000 it must be disclosed in thecompany’s proxy statement
– If it exceeds $25,000, it gets its own footnote
• Value = “Incremental Cost” (there are no guidelines)
• Other Considerations
– SIFL is often disclosed for informational purposes, but cannot beused in lieu of incremental cost
– Time-sharing agreements, if in place, must be settled to avoid “loans toofficers”
corporate can jet trigger SEC reporting requirements.”
“Just one round-trip between Los Angeles and New York in a
corporate can jet trigger SEC reporting requirements.”
Departmental Chargebacks
• General Description: Allocation of costs back to internal departments of acompany, often designed to manage the use of the aircraft by thosedepartments (or cost centers, divisions, etc.)
• More common in larger companies with widespread use of their aircraft
• Typically charged via an hourly rate; occasionally flight miles or othermethods are used
• Common methods used for allocation, depending upon companyaccounting goals:
– Charge individual flights to department of the “lead passenger”
– Charge flights “pro rata” to the “home departments” of each passenger
– Charge flight department costs across all departments (whether theyfly or not) as company overhead
• Benefit: May generate a more accurate view of which departments utilizebusiness aviation, while also ensuring those departments recognize thecost.
Time Share Arrangements
• Under Part 91.501(c)(1), a time-sharing agreement allows an aircraftoperator to be reimbursed for a limited set of costs for a flight.
• Corporate flight departments often provide time-sharing arrangements,allowing an executive to reimburse the company for personal use of theaircraft. These arrangements require specific tracking of ten eligible costson each flight:
1. Fuel, oil, lubricants, and other additives.
2. Travel expenses of the crew
3. Hangar and tie-down costs away from home base)
4. Insurance for a specific flight
5. Landing fees, airport taxes, and similar assessments.
6. Flight-specific customs, foreign permits, and similar fees
7. In-flight food and beverages.
8. Passenger ground transportation.
9. Flight planning and weather contract services.
10. An additional charge equal to 100 percent of the expenses listed in item 1 (fuel)
• Time-sharing arrangement typically also trigger excise tax
Executive-Owned Aircraft
• Often, an executive may own an aircraft, and lease it back to his/heremployer.
• This will create further internal accounting needs, depending on the natureof the arrangement:
– Dry leases
– Time shares
– Etc.
• For both Executive-Owned Aircraft and Time-Sharing Arrangements, theexecutives involved and the company will need to “settle up” periodically(who owes who). The data provided by the flight department will directlyaffect these calculations.
• Settlements will often occur quarterly, in order to be finalized for SECreporting purposes (see next page for example)
Closing Comments
• Most companies have reporting needs which aredirectly impacted by the flight department
• The data you need is passing through yourhands…Capture it!
• Most companies use 30% of their software capabilities
• Tip: The NBAA Tax Class is Two Days Long
Don’t know who your tax people are? You mayhave trouble!