ASSURANCE & ADVISORY____________________________________________________________

CFO Essentials Briefing: Certain Proposed FASB Standards

TAX____________________________________________________________

Accounting Today Special Report:Amazon Law Held Unconstitutional

May 2012

From the Managing Partner

THE TIME IS RIGHT NOWTO BUY and SELL?

Contents

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FROM THE MANAGING PARTNER2 THE T IME IS RIGHT NOW - TO BUY AND SELL?

We are experiencing a spike in company buying / selling activity in recent weeks, hoping to complete the transaction during 2012. Should you consider? My answer is only IF that is your goal. Proposed Capital Gain income tax rate plus a potential Obama healthcare tax could cost sellers 8-9% if deals are not completed by December 31st.

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ASSURANCE & ADVISORY3 CFO ESSENT IALS BRIEF ING:

CERTAIN PROPOSED FASB STANDARDSThe FASB currently has numerous outstanding Exposure drafts, but there are two that potentially have a significant impact on our clients. These proposed standards have been continually discussed within the accounting profession, and in the business press.

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TAX6 ACCOUNT ING TODAY SPECIAL REPORT:

AMA ZON L AW HELD UNCONST I TUT IONALIn a decision that could have far-reaching impact, an Illinois state court judge has ruled that the state’s Amazon law, passed to tax online sales of in-state affiliates, is unconstitutional.

May 2012

1 | SingerLewak May 2012

F R O M T H E M A N A G I N G PA R T N E R

We are experiencing a spike in company buying / selling activ-ity in recent weeks, hoping to complete the transaction during 2012. Should you consider? My answer is only IF that is your goal. Proposed Capital Gain income tax rate plus a potential Obama healthcare tax could cost sellers 8-9% if deals are not com-pleted by December 31st.

On the other hand, is this rush to sell being fueled by investment bankers (who get paid on closing deals), private equity firms who have a lot of cash that needs to be put into play, or money manage-ment and life insurance profes-sionals who feed off of successful deals?

Entrepreneurial should carefully review the “why” and “why not’s” of doing a deal:

• Potentially a big pay day

• Passion for running the busi-ness – is it still there?

• Can you work for someone else during a transition?

• Can you just walk away and “retire”?

• Are you an entrepreneurial that will start something else (and something else you know less about and use up your payday?)

• Still create wealth by earnings vs. a big payday?

• Create something to pass on to your next generation (skills, responsibility, community in-volvement, sources of income, etc.)

• Continue to take advantage of a good life with a flexible calendar and enjoying the “perks” of business ownership.

If you do plan to sell (and even if you don’t), remember these points:

• Build a business that fosters talent in leadership, so as not to be dependent just on you.

• You can never plan too far in advance, to properly maximize value, tax planning and estate planning.

• Understanding the true value of your business, not just what you need for retirement.

• The highest bidder may not be the best offer. Cash vs. earn outs, due diligence wars, how your employees will be treat-ed, etc. are just a few things to consider.

• Using family as advisors is a mistake. You need profes-sionals with expertise in your business and advisors who will tell you what you need to hear, not necessarily what you want to hear.

• Never underestimate the emo-tional impact of this event. Plan for it – what will you do with your time, talent and experience for the rest of your life?

May 2012 SingerLewak | 2

THE TIME IS RIGHT NOW - TO BUY AND SELL?BY DAVID KRAJANOWSKI | CO-MANAGING PARTNERdkrajanowski@singerlewak.com | 949.261.8600

3 | SingerLewak May 2012

CFO ESSENTIALS BRIEFING: JOBS ACT EASES THE WAY FOR SMALL AND EMERGING COMPANIESBY JIM PITRAT, CPA | CO-MANAGING PARTNERjpitrat@singerlewak.com | 310.477.3924

The FASB currently has numer-ous outstanding Exposure drafts, but there are two that potentially have a significant impact on our clients. These proposed standards have been continually discussed within the accounting profession, and in the business press. These proposed standards are:

1. Leases

2. Revenue Recognition

All three proposals are considered “Convergence” standards and are being exposed in conjunction with IASB. All three proposed standards have been exposed for some time and have drawn a significant amount of comments and discussion on their drafts. The status of these three stan-dards and the primary provisions of each are as follows:

LEASES

The Proposed ASU on Leases, was issued in July 2010. The stan-dard would substantively elimi-nate the concept of an operating lease. The following summarized the primary provisions:

• A lessee would recognize an asset representing its right to use an underlying asset and a liability (at present value of the lease payments) to make lease payments. The asset would be amortized over the shorter of the expected lease term, or the useful life.

- A lessee would recognize interest expense would be recognized on the lease li-ability.

- At the end of each reporting period, a reassessment of the carrying amount of the lease liability may be required if there are significant changes

from the previous reporting period.

- In the event that there is a change to the lease term, both the liability and the asset are adjusted.

• A lessor would recognize an asset representing its right to receive lease payments and one of the following (depending on risks transferred and other considerations):

- Under the “performance-obligation” approach, recognize a lease liability and receivable and continue to recognize the underlying asset itself. or

- Under the “derecognition” approach, an asset repre-senting the right to receive lease payments is set up, the portion of the carrying amount representing the lessee’s right to use the asset during the term of the lease would be derecognized, and the remaining portion of the asset’s carrying amount representing the rights in

A S S U R A N C E & A DV I S O RY

the asset retained by the lessor would be reclassified as a residual asset. The right to receive lease payments is measured at amortized cost.

• In addition, there are certain rules applicable to short term leases.

• In a Sale-Leaseback Transac-tions the transferor would set up a right-of-use asset and li-ability to make lease payments if the transfer meets the condi-tions for a sale. If the transfer does not meet the conditions for a sale, the transferor would account for the transaction simply as a financing.

• Additionally, in a Sale-Leaseback Transactions, if

the transfer qualifies as a purchase, the transferee would account for the transaction as such. If the transfer does not qualify as a purchase, the transferee would not capitalize the asset and would recognize the amount paid as a receiv-able.

The FASB is expected to reissue exposure drafts based on com-ments received and discussions with the IASB during 2012.

REVENUE RECOGNITION

In November 2011, the FASB issued Proposed ASU No. 2011-230, Revenue Recognition. The exposure draft would create a comprehensive revenue recogni-tion model and would supersede most current revenue standards.

Recognition Principle:

The core principle of the stan-dard would be to account for the transfer of goods and services to customers in an amount reflect-ing the consideration which the

entity expects to receive in ex-change. Under the proposal, this requires the reporting entity to:

1. Identify the contract with a customer.

• Under the standard, a contract exists only if neither party could unilaterally terminate an unperformed contract without penalty, and

- The contract has commercial substance,

- The parties have approved the contract and are com-mitted to satisfying their respective obligations,

- The reporting entity is able to identify each party’s en-forceable rights, and

- The reporting entity can identify the terms and man-ner of payment.

2. Identify the separate perfor-mance obligations within a contract.

• If the promised goods or services underlying a separate

May 2012 SingerLewak | 4

The exposure draft would create a comprehensive

revenue recognition model and would supersede most current revenue standards

performance obligation are transferred to a customer over a period of time, a method that best measures the entity’s progress in satisfying the obligation would be applied to recognize revenue.

3. Determine the transaction price.

• When a performance obliga-tion is satisfied, revenue is recognized in the amount of the transaction price allocated to the performance obligation.

• If the consideration is variable, the amount of revenue rec-ognized could not exceed the amount the entity is reason-ably assured to be entitled.

• The reporting company would have to consider (1) the time value of money, (2) non-cash consideration received, and (3) consideration payable to the customer when determining transaction price

• Collectability would not affect the transaction price or the amount of revenue recognized.

4. Allocate the transaction price to the separate performance obligations.

• The transaction is allocated to all separate performance obli-gations relative to standalone selling price of the goods or services underlying each of the

performance obligations.

5. Recognize revenue when, and as, each performance obliga-tion (i.e., each promise speci-

fied in the contract to transfer goods or services) is satisfied.

Other Items discussed in the pro-posed standard:

• If a performance obligation to be satisfied over a period lon-ger than one year is “onerous”, a liability, and corresponding

expense, is established.

- A performance obligation is onerous if the lowest cost of settling it exceeds the amount of the transaction price allocated to it.

• Costs incurred in fulfilling a contract would be capitalized if the costs relate directly to a contract or a specific anticipat-ed contract, generate resources that will be used in satisfying performance obligations and are expected to be recovered.

- An asset far capitalized costs are amortized on a system-atic basis consistent with the pattern of transfer of the goods or services to which they relate.

- An impairment loss is rec-ognized if the asset’s carry-ing amount is greater than the remaining amount of consideration to which the entity expects to be entitled.

Currently no date has been set by the FASB for issuance of a re-vised exposure draft or standard.

Private entities would be allowed to raise capital

from a large pool of small investors without adding to the count of

shareholders that would trigger the requirement to

file with the SEC

5 | SingerLewak May 2012

May 2012 SingerLewak | 6

ACCOUNTING TODAY SPECIAL REPORT:AMAZON LAW HELD UNCONSTITUTIONAL

TA X

In a decision that could have far-reaching impact, an Illinois state court judge has ruled that the state’s Amazon law, passed to tax online sales of in-state affiliates, is unconstitutional.

The affiliates, who publish Web site content, are compensated by purchases made by “click-through” advertising. The de-cision found that the affiliate relationship did not constitute substantial nexus, and therefore violated the Commerce Clause of the Constitution.

“We were surprised, not that the court ruled in our favor, but that the decision was made so quickly,” said Rebecca Madi-

gan, executive director of the Performance Marketing Associa-tion, the trade organization that brought the suit.

“Our goal is to allow the 9000 Internet affiliate marketers to get back into business as quickly as possible.”

Madigan estimates that about a third of the affiliates moved out of state when the law restrict-ing their income was passed. “You can’t stay in business when you’re losing half your revenue,” she said. “By our estimates they earned $740 million in 2010, the year before the law passed, and paid $22 million in state income tax.”

The Illinois Department of Revenue is expected to appeal the decision.

An Illinois state court judge has ruled that

the state’s Amazon law, passed to tax online sales of in-state affiliates, is

unconstitutionalMadigan estimates

that about a third of the affiliates moved out of state when the law

restricting their income was passed. “You can’t stay

in business when you’re losing half your revenue,”

she said.

7 | SingerLewak May 2012W W W.SINGERLE WAK .COM | 877.754.4557

DAV ID KR A JANOWSKI dkrajanowski@singerlewak.com | 949.261.8600

J IM PI TR AT jpitrat@singerlewak.com | 310.477.3924

DAVE FREE dfree@singerlewak.com | 310.477.3924

HARMEE T SINGH hsingh@singerlewak.com | 310.477.3924

GLENN CARNIELLO gcarniello@singerlewak.com | 949.261.8600

SingerLewak is a leading regional accounting services firm in California with offices in Los Angeles, Orange County, Wood-land Hills, Monterey Park, San Diego, Silicon Valley and San Francisco. Serving California since 1959, SingerLewak has established a reputation for excellence as professionals with unparalleled expertise in the Accounting and Management Consulting industry. Providing the services of a large firm with a blended environment of practices, industry specializations and particular attention to hands-on service, SingerLewak continues to demonstrate leadership and industry growth year-over-year. Our client relationship approach and industry excellence is renowned.

We are nationally recognized as active community and profes-sional services partners, working among many sectors of the business world. Our core services deliver results whether it’s auditing, accounting, entrepreneurial business services, tax preparation, business management, SEC filings, transactions, enterprise risk management, forensic accounting, business valuation, litigation support, or consulting.

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