SingerLewak Newsletter - August 2012

ASSURANCE & ADVISORY____________________________________________________________

CFO Essentials Briefing: Qualitative Assessments of Impairment for Intangible Assets are Now Consistent with Goodwill

TAX____________________________________________________________

California R&D Tax Update

ENTERPRISE RISK

MANAGEMENT SERVICES____________________________________________________________

Technologies Changes the Way We Do Business - Which We Now Can’t Live Without

August 2012

From the Managing Partner

GOING FORTHE GOLD

Contents______________________________________________________________________________________________________________________________________________________

FROM THE MANAGING PARTNER2 GOING FOR THE GOLD

As I write this, the United States is ahead in the Olympic medal Race. To me, this is important. It is important to the athletes and it is important to us as a nation. There are those that claim that the number of medals that a nation’s athletes bring home is not important. They argue that the importance rests in the competition itself, the camaraderie and international goodwill that is generated from the games, and the personal satisfaction of the struggle itself.

______________________________________________________________________________________________________________________________________________________

ASSURANCE & ADVISORY4 CFO ESSENT IALS BRIEF ING:

QUALITAT IVE ASSESSMENTS OF IMPAIRMENT FOR INTANGIBLE ASSE TS ARE NOW CONSISTENT WITH GOODWILLThe FASB has issued ASU No. 2012-02 Intangibles — Goodwill and Others (Topic 350) — Testing Indefinite-Lived Intangible Assets for Impairment. The Standard amends the codification, allowing an option for companies to perform an initial assessment of qualitative factors in determining whether it is more likely than not that a non-goodwill indefinite-lived intangible is impaired.

______________________________________________________________________________________________________________________________________________________

TAX6 CALIFORNIA R&D TA X CREDIT UPDATE

The Federal Research and Development (“R&D”) tax credit under Internal Revenue Code (IRC) 41 has expired effective December 31, 2011. However, for California’s purposes, the R&D tax credit is still available for taxpayers conducting R&D within California that meet the qualifications under IRC section 41.

______________________________________________________________________________________________________________________________________________________

ENTERPRISE RISK MANAGEMENT SERVICES7 TECHNOLOGIES CHANGED THE WAY WE DO BUSINESS -

WHICH WE NOW CAN’ T L IVE WITHOUTRemember when you first saw the iPhone? The first release was originally dismissed as a small player in the enterprise, especially compared to the BlackBerry, at that time. Now, just about every corporate executive, not to mention pre-teen, has one in his or her pocket, sometimes even in addition to a BlackBerry.

August 2012

1 | SingerLewak August 2012

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

As I write this, the United States is ahead in the Olympic medal Race. To me, this is important. It is important to the athletes and it is important to us as a nation. There are those that claim that the number of medals that a na-tion’s athletes bring home is not important. They argue that the importance rests in the competi-tion itself, the camaraderie and international goodwill that is generated from the games, and the personal satisfaction of the struggle itself. But, if that is the case, why do the games mea-sure and score the events at all? Wouldn’t then, the completion of the event be its own reward?

WINNING IS IMPORTANT

The competition represents the struggle, the effort put into a challenging, even grueling endeavor to achieve something remarkable. This struggle and the overcoming of obstacles (both personal and event-related) may be the ultimate measure of a person’s heart, soul and effort, but without the scoring how do we know the results of this effort? Perhaps more importantly, how does the athlete understand the results of his or her efforts?

For others, it is no different. I once spoke to an author friend of mine about his love for writ-ing and the discipline it takes to write a novel. He told me that writing may be a reward unto itself and completing a work felt good, but there was nothing like getting the book published to infuse a little credibility to his efforts.

Medals are a way of defining suc-cess and “winning”—on an argu-ably objective level—like profits, or liquidity or market share. So, medaling isn’t just important in the Olympics. Winning if you will, is important in business and everything else in life. Like the Olympics, if your company isn’t winning, it will soon be forgot-ten, lost among the hundreds of other competitors that didn’t quite make it to the podium. And soon, like the athletes that

don’t quite make the cut, your business may be out of the game all together.

EFFORT, HEART AND STRATEGY

Effort and heart are as critical in business as they are in the Olym-pics. You cannot win, cannot, in the end, be successful without them. But effort and heart are not the only thing that deter-mines victory. Effort and heart without direction can result in little more than a whole lot of sweat and tears.

I watched an interview with a gold medal winner in the hurdles last night. The Olympian had competed in previous Olympics without achieving gold. He had discussed how he had changed his starting stance only eight months earlier in order to address some shortcomings in his form. He went on to attribute his gold medal to this change and the tremendous effort it involved. He recognized that he needed to make changes in order to win, and he adapted his strategy ac-cordingly. If he had continued along without making the neces-sary changes, he may never have achieved the Gold medal.

August 2012 SingerLewak | 2

GOING FOR THE GOLDBY JIM PITRAT | MANAGING [email protected] | 310.477.3924

3 | SingerLewak August 2012

Our businesses are no different. That athlete could have contin-ued to compete and train hard in the same way he’d always done it. If he had, he probably would have achieved the same results and no one could have accused him of not working hard, putting

his heart into it. But, he wanted to win. And so, he adapted, much the same way as we have to adapt to our environment, if we want our businesses to be suc-cessful and win.

As we watch the Olympics wrap up and think about all the things that the athletes have done to achieve what they have, we should remember that these are successful competitors, people driven by the will to win, the will to be the best. They should be a model for us in our businesses as we approach the market place. We must always remember the importance of winning, how-ever that may be defined. And when things get tough, we get tougher—we focus on the Gold

and what it means to us and our businesses. And, when things aren’t working, we step back and carefully consider why they aren’t working. Then, we make the necessary changes to remain competitive and come on harder than ever.

JIM PITRAT CAN BE REACHED AT [email protected]

OR 310.477.3924

We must always remember the importance of winning, however that

may be defined. And when things get tough,

we get tougher—we focus on the Gold and what it means to us and our

businesses.

QUALITATIVE ASSESSMENTS OF IMPAIRMENT FOR INTANGIBLE ASSETS ARE NOW CONSISTENT WITH GOODWILLBY JIM PITRAT, CPA | MANAGING [email protected] | 310.477.3924

SUMMARY OF THE STANDARD:

The FASB has issued ASU No. 2012-02 Intangibles—Goodwill and Others (Topic 350) — Test-ing Indefinite-Lived Intangible Assets for Impairment. The Stan-dard amends the codification, allowing an option for companies to perform an initial assessment of qualitative factors in determin-ing whether it is more likely than not that a non-goodwill indefi-nite-lived intangible is impaired. Under the standard, if, after performing the qualitative test, it is more likely than not that an impairment has occurred, com-panies are required to perform the quantitative impairment test currently required (i.e., compar-ing the asset’s fair value with its carrying amount). The standard is intended to make intangible asset impairment guidance con-sistent with goodwill impairment testing.

ANALYSIS:

ASU No. 2012-02 has amended FASB ASC Section 350-30-35,

Intangibles—Goodwill and Oth-ers—General Intangibles Other than Goodwill—Subsequent Measurement, with the following modifications (Note: for purposes of this guidance, More Likely than Not means a probability of greater than 50%):

• For indefinite lived intangible assets, Companies are allowed to perform an initial qualita-tive assessment to determine whether it is more likely than not the asset is impaired.

• If an indefinite lived intan-gible asset is determined to be more likely than not the asset impaired, it is necessary to calculate the fair value of the asset and compare it with the asset’s carrying amount.

• A company may elect not to perform the qualitative assess-ment for any indefinite-lived intangible for any period. If such a choice is made, the company must proceed directly to the quantitative im-pairment test (In these cases, the company is still allowed to perform the qualitative assess-ment in respect of any such intangible in later periods).

• When making the qualitative assessment, companies must consider the “weight and sig-nificance of all relevant events and circumstances that could affect significant inputs used in determining the fair value” of an indefinite-lived intan-gible asset.

• This includes, (among others) the following items:

- Macroeconomic conditions:

∙ Economy

∙ Access to capital

∙ Foreign exchange rates

∙ Equity

∙ Credit markets

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

August 2012 SingerLewak | 4

5 | SingerLewak August 2012

- Industry and market condi-tions

∙ The environment in which the entity operates

∙ Competition

∙ Demand for the entity’s products or services

∙ Market-dependent mul-tiples

- Legal, regulatory, contrac-tual, political, business or other factors

- The costs of raw materials, labor, or other costs which may negatively impact earn-ings or cash flows

- Financial performance

- Other Company-specific events, such as:

∙ Changes in management

∙ Changes in key personnel

∙ Strategy changes

∙ Changes or loss of custom-ers

∙ Litigation or bankruptcy

Under the standard, these events do not necessarily represent standalone evidence that an indefinite-lived intangible is more likely than not to be impaired, and that therefore the quantita-tive test must be performed.

• Companies should also consider the following factors when determining if it is more

likely than not that an impair-ment has occurred:

- Positive and mitigating cir-cumstances and events

- The difference between fair value and the intangible as-set’s carrying amount based on a recent fair value calcu-lation

- Any actual changes in the asset’s carrying amount

• The existence of these poten-tial positive factors does not represent a rebuttable pre-sumption that the fair value of the asset should not be calcu-lated.

• If it is determined that it is more likely than not that the intangible asset is impaired, the company must determine if there is an impairment loss by calculating the asset’s fair

value and comparing it with the asset’s carrying amount.

• If it is not more likely than not that the intangible asset is impaired, then calculation of the asset’s fair value is not necessary.

• An indefinite-lived intangible should be tested for impair-ment annually.

- Indefinite lived intangible assets must be tested more frequently if events or changes in circumstances indicate potential impair-ment.

Additionally guidance has been amended to exempt nonpublic entities from the requirement to disclose quantitative information about significant unobservable inputs used in measuring the fair value of a Level 3 indefinite-lived intangible asset (subsequent to initial implementation).

EFFECTIVE DATE

The standard is applicable to both public and nonpublic enti-ties. It is effective for annual and interim impairment tests per-formed for fiscal years beginning after September 15, 2012. Early adoption permitted.

JIM PITRAT CAN BE REACHED AT [email protected]

OR 310.477.3924

Under the standard, these events do not necessarily

represent standalone evidence that an indefinite-

lived intangible is more likely than not to be

impaired, and that therefore the quantitative test must be

performed

August 2012 SingerLewak | 6

CALIFORNIA R&D TAX CREDIT UPDATETA X

The Federal Research and De-velopment (“R&D”) tax credit under Internal Revenue Code (IRC) 41 has expired effective December 31, 2011. However, for California’s purposes, the R&D tax credit is still available for taxpayers conducting R&D within California that meet the qualifications under IRC section 41. This brief provides a sum-mary of recent guidance on CA’s R&D tax credit and also outlines some of the differences between the federal and California R&D credit that taxpayers should be aware of.

NEW GUIDANCE

Generally the California R&D tax credit criteria follow the federal criteria with some differ-ences. In 2011, the FTB issued

Legal Division Guidance 2011-06-01 which stated that for R&D purposes, California does not conform to the federal defini-tion of “gross receipts” under IRC section 41(c)(7) and that service companies cannot claim the California R&D credit.

On March 16, 2012, the FTB issued Legal Division Guidance 2012-03-01 (“Guidance”) which supersedes Legal Division Guid-ance 2011-06-01. The Guidance reaffirmed the FTB’s prior posi-tion on California’s definition of “gross receipts” which excludes all receipts other than those that are “from the sale of property held primarily for sale to custom-ers in the ordinary course of the taxpayer’s trade or business that is delivered or shipped to a pur-chaser within this state.” Accord-

ingly, throwback sales, as well as receipts from services, rents, operating leases and interest are excluded.

In addition, the Guidance also changed its position on the ability of service companies to claim the California R&D credit. Specifically, for taxable years 2000 and later, taxpayers with no “gross receipts” for purposes of the R&D credit can take a credit equal to 7.5 percent of the qualified research expense for the credit year.

FEDERAL AND CALIFORNIA DIFFERENCES

The following table summarizes the modifications or differences between the federal and Califor-nia R&D credit that taxpayers should be aware of.

The California R&D credit is available to taxpayers who con-duct research within California. However, certain adjustments and modifications must be made for

California purposes. Please consult with one of our tax professionals to make sure the proper adjustments have been made or if you should have any additional questions.

QUESTIONS? CONTACT OUR TAX DEPARTMENT BY CALLING

877.754.4557

FEDER AL CALIFORNIACREDI T AVA IL ABLE Expired as of 12/31/2011 No Expiration

CREDI T ME THOD Regular & Alternative Simplified Regular Only

CREDI T R ATE 20% Regular or 14% (ASC) 15%

CREDI T UT IL IZ AT ION/E XPIR AT ION

Carryback 1 and carryforward 20 years Carryforward indefinite

GROSS RECE IP TS DEF INI T ION

All inclusiveExcludes throwback sales, receipts from

services, rents, operating leases, and interest

BASIC RESE ARCH CREDI T Yes - 20% Yes - 24%

E N T E R P R I S E R I S K M A N AG E M E N T S E R V I C E S

Remember when you first saw the iPhone? The first release was originally dismissed as a small player in the enterprise, especially compared to the BlackBerry, at that time. Now, just about every corporate executive, not to men-tion pre-teen, has one in his or her pocket, sometimes even in addition to a BlackBerry.

What other technology, gad-gets and enterprise services have changed business in such a dra-matic way? For most IT leaders, there’s a good chance a CRM tool or even a seemingly minor tool has. Here’s a list to think about:

The LAMP Stack - Linux, Apache, MySQL, and PHP - is a bundle of free open source tools for Web development and de-ployment that was groundbreak-ing because of its low deployment costs. Before LAMP, companies would have to hire a disparate group of engineers, many of them using the .NET Framework, and license technology from Oracle and Microsoft.

Salesforce.com had some serious competition when it debuted in

1999 from existing CRM sys-tems running in on-premises data centers. In Q4 of 2011 alone, the site processed 45 billion customer transactions. There are now more than 100,000 customers world-wide. What’s the secret? The Cloud Rules...

Adobe PDF is taken for granted. There are now about 150 mil-lion PDF docs on the Web today, according to Adobe. They work on just about every computing platform and mobile device, and recent advances in e-signatures—namely, typing a password to protect documents—have made the standard viable in the bank-ing and finance sectors.

The LAMP Stack is a bundle of free open source tools for Web development and deployment that was groundbreaking because of its low deployment costs.

TECHNOLOGIES CHANGED THE WAY WE DO BUSINESS - WHICH WE NOW CAN’T LIVE WITHOUTBY RICK MARK | SERVICE AREA [email protected]

7 | SingerLewak August 2012

Bluetooth might even move into the financial

sector. Intuit, for example, now makes a credit card reader that connects to your smartphone over

Bluetooth.

Bluetooth has made a big impact across many industries and is still growing. Recent improvements, such as a low-power version that works with heart monitors and better audio quality in Bluetooth 4.0, mean this short-range wire-less signal will be around for a while. The new trend - Bluetooth might even move into the finan-cial sector. Intuit, for example, now makes a credit card reader that connects to your smartphone over Bluetooth.

Wi-Fi and VPN are two of the most important enterprise in-novations of the past 20 years. Mobile users can now work remotely from anywhere, use Internet telephones, tap into wireless printers and, thanks to the emerging 802.11ac standard,

exchange files over a network at Gigabit speeds.

The virtual private network is now a fixture of every data cen-ter. In the early days of comput-ing, enterprise workers would tap in using unsecure lines from

home. Then the corporate world started using firewalls to protect against criminal hacking. The biggest advantages are lower travel costs, more freedom to work at home, and even a way to have smaller corporate offices.

If you need help making deci-sions on strategic technology to move your company further along in these trying times, you need to email us at [email protected].

August 2012 SingerLewak | 8

Mobile users can now work remotely from

anywhere, use Internet telephones, tap into

wireless printers and, thanks to the emerging

802.11ac standard, exchange files over a

network at Gigabit speeds RICK MARK CAN BE REACHED AT [email protected]

OR 818.251.1323

SEPTEMBER 20SILICON VALLEY

SEPTEMBER 27LOS ANGELES

As part of our CFO Essentials Roundtable series, please join us for a spirited panel discussion focused on what it takes to get solid information systems in

place - why it’s important and how to build systems that deliver ROI and provide a competitive advantage.

PRESENTERS:Seth Fineberg, Technology Editor, Accounting Today

Bill Sutman, CFO, formerly with Relativity MediaMark Linden, CFO, Intacct Software

Jim Hart, Manager - Software Selection Expert, SingerLewakBob Green, CPA.CITP, Partner and Practice Leader, SingerLewak ERMS - Moderator

For more information, please visit www.SingerLewak.com/news.

TO SIGN UP FOR NE WSLE T TERS, PLE ASE V IS I T S INGERLE WAK .COM/CONTACT

THE SKILLS YOU NEED. THE SERVICE YOU EXPECT.

SINGERLEWAKNEWSLETTER

NONPROFIT

CFOESSENTIALS

TAX BRIEF

ENTREPRENEUR & FAMILY-OWNED BUSINESSES

AIR NEWSLETTER

OUR NEWSLETTERS

W W W.SINGERLE WAK .COM | 877.754.4557

DAV ID KR A JANOWSKI [email protected] | 949.261.8600

GLENN CARNIELLO [email protected] | 949.261.8600

J IM PI TR AT [email protected] | 310.477.3924

HARMEE T SINGH [email protected] | 310.477.3924

DAVE FREE [email protected] | 310.477.3924

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.

THE SKILLS YOU NEED. THE SERVICE YOU EXPECT.

OUR FIRM