Cohen CPE: Cyber Security, R&D Credits, Affordable Care Act and More– December 01, 2014 by Tracy Monroe

This fall’s Cohen Client CPE seminar delivered fantastic insights as usual. Our speakers shared their expertise on many great topics that will help our CFOs and their financial staff make important decisions for their businesses. Below is an overview of the day, or you can download the complete presentation here or contact us for more information.

Cyber (In)Security

According to Damon Hacker of Vestige, there are only two types of companies: those who have been attacked and those who have and don’t know it yet. Hacker gave a realistic view of cyber security, what we’re doing wrong and how to mitigate risk. He relayed some tough facts: more than 63,000 security incidents occurred and more than 822 million records were compromised in 2013 alone — and those are just the ones that have been reported. These attacks have cost individual businesses on average $3.5 million per occurrence; and cyber villains (and there are hundreds of them out there) have the tools to crack 3 million passwords per second. Everyone connected to internet is a target, regardless of the type of information your organization may or may not possess. Some of the top security threats include social networks, search engine “poisoning,” targeted Botnets and mobile devices. Hacker advised companies to find a balance between convenience and security. A few pieces of advice he gave attendees included performing regular system maintenance, including updating security patches as they become available; and making sure passwords expire and have a minimum amount of time they must be used.

Global Economic Outlook

Donald Laubacher, CFP®, CPA, of Sequoia Financial Group, LLC focused on global economic and investment trends. He reported that while the global economy continues to be sluggish, particularly in the Eurozone and Japan, the U.S. economy is outperforming the rest of the world. The Federal Reserve has flooded the U.S. with money in the last five years through Quantitative Easing and lending conditions are now the loosest they’ve been in 20 years (excluding the mortgage market). And while the unemployment rate is still higher than the historical average, and interest rates may go up in 2015 or 2016, inflation remains at 1.5% and the U.S. treasury yield curve shows sign of an imminent recession. Global domestic growth (GDP) is expected to be at 3% growth this year. On the contrary, the 17 countries that make up the Eurozone are experiencing a low GDP (0.2%), low consumption rates and high unemployment (12%) and could be headed toward another recession. Japan has significantly increased its money supply and is experimenting with a two-phase sales tax increase, although the country has seen negative growth in its last two quarters. Contrarily, the emerging markets, such as China, Africa, Russia, etc., are showing promising growth potential for the long term.

From an investment standpoint, the resulting asset allocation recommendations include a mix of equity, fixed income and alternative strategies (real estate, hedge funds, etc.). Laubacher and the team at Sequoia recommend a mix of equities and international markets.

Mitigating Retirement Plan Fiduciary Risk

Stan Milovancev, CPA, QKA, also of Sequoia Financial Group, LLC spoke on mitigating the risk corporate retirement plan sponsors/fiduciaries face, emphasizing the personal liability that comes with the role. Employers with fiduciary responsibility over these plans face an overwhelming number of decisions — which vendors and products/services to choose, how to comply with regulatory requirements, how to avoid potential litigation, etc. Milovancev pointed out that any and all decisions must be made in the best interest of plan participants. To accomplish this, and to be in compliance with strict ERISA rules, fiduciaries must become experts in the retirement plan area, whether they are ready for it or not. He also noted that while historically most plan sponsors support the plans themselves, today approximately 75% of sponsors have some sort of third-party assistance in the form of consultants, advisors, brokers, record keepers, etc. Milovancev cautions that agents, brokers, record keepers, etc. can provide education, but they are not the final decision makers and that final decisions and liability fall on the plan sponsors. Bringing on an investment advisor to stand behind a plan and its sponsors can help share in the risk, including everything from choosing a vendor and products to providing best practices to keeping the plan in compliance.

Loan Agreements

Thomas Ostrowsky, J.D., and Jeffrey Fickes, J.D., of Tucker Ellis discussed how CFOs and their financial staff can help the deal team during an acquisition transaction. Their message: identify what your company needs from the start. Conduct due diligence early on to help the deal team more effectively negotiate financing terms. What are your company’s credit needs? What types of requirements or guarantees will accompany the loan? What is the current credit climate, and how will that impact your deal?

Among their in-depth comments, Ostrowsky and Fickes recommended understanding the loan facility structure, including ownership structure; borrower versus guarantor; whether it’s an asset-based or cash-flow deal; and not to be afraid to push for the type of structure you are looking for. They also discussed negative covenants related to company needs (an impactful area of the deal), financial covenants (comparing apples to apples), and ensuring GAAP is “your GAAP” (as it relates to your business). A final piece of advice offered was not to limit your conversations to your own bank(s). Ostrowsky and Fickes suggest talking with banks other than your own a couple times a year to see what other terms may be available and to keep up on market trends.

R&D Credits: What Qualifies?

Teri Grumski, CPA, of Cohen & Company offered an in-depth look at the R&D credit. The credit, which expired at the end of 2013, is expected to be extended for the 2014 tax year. There are two ways to calculate the credit. With both you receive a non-refundable credit equal to a percentage of the excess of any qualified research expenditures (QREs) for the tax year over the base amount. QREs include wages, supplies and 65% of outside services incurred on qualified activities. Qualified activities focus on new or improved business components, such as products, processes or techniques. Grumski highlighted that manufacturers aren’t the only ones benefitting from the credit. Real estate companies also often qualify, such as when they design a green building or test unique materials that fit the credit’s criteria.

She noted that documentation is critical, and businesses should keep contemporaneous detail for at least three years, including items such as blue prints, emails, testing results, etc. And if you think you’ve missed your window to claim the R&D credit, think again. Opportunities exist to amend returns; carry back the credit one-year (or carry forward 20 years) or optimize state R&D credits. Grumski also advised attendees to consider a R&D study, especially for those heavily engaged in R&D, to help determine if there are opportunities to take the credit.

A&A Update

Jami Blake, CPA, of Cohen & Company focused on updates to generally accepted accounting principles (GAAP) made by the Financial Accounting Standards Board (FASB) and alternatives for private companies. Specifically, the following ASUs, issued in 2013, and are now in effect for 2014 financial statements:

  • ASU 2013-02: Comprehensive Income relates to the presentation of financial statements and improves the reporting of reclassifications out of accumulated other comprehensive income.
  • ASU 2013-07: Presentation of Financial Statements: Liquidation Basis of Accounting requires the liquidation basis to be used when liquidation is imminent.

Blake also covered alternatives to GAAP reporting for private companies to consider as year-end approaches. Alternatives include accounting for goodwill, accounting for interest rate swaps and applying variable interest entity (VIE) guidance to common control leasing arrangements. For those considering adopting one of these alternative accounting methods, Blake noted the following:

  • Your reports may look different, but only slightly. The emphasis of matter paragraph will be added for audits, potentially for reviews or compilations if material to the financial statements.
  • Make it clear in financial statement footnotes if using an alternative accounting method.
  • Consider if your entity may become a public company in the future.
  • Understand all implications of adopting the alternative before taking the plunge.
  • Be sure that your bank will accept the new alternative reporting method. Since the methods mentioned above are GAAP, you can use them and still be in accordance with GAAP.

Blake also covered in detail new standards not yet in effect but on the horizon, including: Accounting for identifiable intangible assets in a business combination; Development stage entities; Revenue from contracts with customers; Presentation of financial statements: Going Concern; and SSARS 21.

Affordable Care Act (ACA) Update

Stephanie Daniels, MT, and Maura Corrigan, CPA, MT, of Cohen & Company helped employers understand their requirements under the ACA. They covered requirements under the individual and employer mandates for health insurance coverage as well as health insurance exchange options for small business employers. In particular, Daniels discussed the advanced premium tax credit — how to calculate it and who can get it. She also discussed cost sharing reduction (subsidy) plans; information reporting requirements for self-insured employers, which begins with 2014 tax filings; and the importance of reviewing health reimbursement accounts (HRAs) and flexible spending accounts (FSAs) to ensure compliance with the ACA, to name a few areas.

Maura Corrigan offered insights into the employer mandate of the ACA. She said the first thing for employers to do is determine whether or not they are a large employer as defined by the ACA (on average, at least 50 full time employees including full time equivalents). If so, employers must offer at least 95% of the full time employees and their dependents the opportunity to enroll in minimal essential coverage that is affordable and provides minimum value, or face monetary non tax-deductible penalties. The question becomes which option makes the most sense for the company: pay the penalties or offer insurance? The answer is, it depends. Corrigan recommends doing a cost analysis to help make the decision. For “small employers” who don’t offer coverage, the Small Business Health Options Program (SHOP) provides an opportunity for them to find insurance policies that are price competitive with larger employers and would allow their employees to gain coverage through state or federal exchanges. The IRS will manage compliance and the collection of penalties.


Cohen & Company is not rendering legal, accounting or other professional advice. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts and circumstances.