Geoff Christian

Managing Director, National State and Local Tax, CBIZ MHM and Regional Director, North America, Kreston Global Indirect Tax Group

www.cbiz.com

Geoff is a Senior Managing Director and the National State and Local Tax Practice Leader at CBIZ MHM.

He has been in his current role for 10 years and before that his experience includes several years within a Big 4 accounting firm and in industry in the retail/hospitality sector.

Geoff has been a participant in the VAT/indirect taxes group for a number of years, having presented to the group on US Sales Tax in Zurich in 2018. Since then, having raised awareness of catches for overseas businesses trading with the US he has developed many client relationships through European Kreston associates.

US sales tax nexus

July 11, 2024

Sales tax implications of providing services to US customers – part 1

US sales tax nexus is a peculiar feature of the American tax system, referring to the conditions that create an obligation to pay state and local sales tax. Unlike the consumption-based value-added taxes (“VAT”) commonly utilised worldwide, their American counterparts have some distinguishing features that often catch non-American businesses off guard. Companies are often unaware that they have a “nexus” or a filing obligation in a particular state. Therefore, it is important for companies selling into the United States to have an understanding of the following:

What types of activities create sales tax nexus;
How sales tax applies to certain transactions and services;
Applicable sales tax exemptions;
Which states tax all services as opposed to which states only tax certain enumerated services; and
The most common services that are subject to sales tax in many states.

In Part 1 of CBIZ ‘s eight-part series on sales and use tax, we look at ways in which a taxpayer will create a sales tax nexus with a state, which will require the taxpayer to register and collect and remit sales tax to that jurisdiction. Part Two will focus on a general overview of sales tax and how it applies to certain transactions as well as applicable exemptions from sales tax.

What is sales tax nexus?

Nexus is the connection or “minimum link” between a taxpayer and a state that requires the taxpayer to register, collect, and remit sales tax to the state. Two general types of nexus will require a taxpayer to collect and remit sales tax: physical presence nexus and economic nexus.

What is a physical presence nexus?

Historically, the physical presence standard was the long-standing principle of sales tax nexus in the United States for close to a half-century. The most common form of physical presence in a state is a brick-and-mortar location or retail store. However, a taxpayer may also have a physical presence in a state due to the following:

Owning/leasing real property in the state (i.e., retail store, warehouse, factory, office, manufacturing facility, etc.)
Owning/leasing tangible personal property in the state (i.e., machinery, equipment, products, etc.)
Having inventory in the state (for most states this includes goods owned by Fulfillment by Amazon merchants in the state in a warehouse owned or operated by Amazon)
Having employees/independent representatives in the state including remote employees
Attending trade shows in the state
Performing services in the state
Delivering merchandise in the state

Once a taxpayer engages in one or more of the activities described above in a state, the taxpayer establishes a physical presence nexus and must register to collect and remit sales tax in that state.

What is an economic nexus?

On June 21, 2018, the United States Supreme Court turned the sales tax world on its head and overturned more than 50 years of legal precedent that required a taxpayer to have a physical presence within a state before that state could assert sales tax nexus. The Court ruled in South Dakota v. Wayfair, 138 S. Ct. 208, that the long-held physical presence standard was an “unsound and incorrect” interpretation of the U.S. Constitution’s Commerce Clause in light of the current economic realities.

The Court, in rendering its decision, upheld a broader “economic nexus” standard based on sales volume and number of transactions in a state. The Court’s decision was based on the premise that an economic nexus standard would level the playing field between traditional brick-and-mortar retail operations and the growing eCommerce industry. It is important to note that the Wayfair decision did not eliminate the physical presence standard in determining whether a sales tax nexus exists. It merely added the broader economic nexus standard.

From a sales tax perspective, economic nexus, simply stated, requires sellers to collect sales tax in states where the seller’s sales exceed the state’s sales or transactional threshold. All states that have a statewide sales tax have adopted economic nexus rules for sales tax purposes. However, there is no uniformity among the states in terms of sales volume threshold, number of transactions, the type of sales that are included in the threshold, etc. Most states have taken the legislative position that a company has economic nexus for sales tax purposes if:

It has annual sales of goods or services into the state that surpass a dollar threshold, e.g., $100,000; or
It undertakes a specified number of sales transactions, e.g., 200 or more, into the state.

Some states have eliminated the number of transactions threshold and have enacted only a sales dollar threshold standard such as California and Texas, e.g., the company’s annual sales into California/Texas exceed $500,000.

In determining whether the sales threshold is met, the states utilise the following three types of sales:

gross sales which includes all sales including sales for resale, taxable, and exempt sales;
retail sales which do not include sales for resale;
taxable sales which excludes any nontaxable sales regardless of reason.

The majority of states utilise the “gross sales” threshold stated above which includes transactions that are not typically subject to sales tax, such as sales for resale, in determining whether the economic presence threshold has been met. Accordingly, a company that sells both goods via wholesale as well as sells goods directly to customers online may find its direct consumer sales are subject to a state’s sales tax even where the direct-to-consumer sales themselves do not exceed the established threshold amounts. For example, ABC company makes annual wholesale sales of books in Colorado for $50,001 and also makes annual sales of books directly to customers online in Colorado of $50,000. Since ABC’s company’s gross sales exceed $100,000 in Colorado ($50,001 wholesale sales + $50,000 direct-to-consumer online sales), ABC company will need to register and collect and remit Colorado sales tax on the $50,000 annual sales of books made directly to customers online.

It is important to note that the Wayfair economic nexus standard applies to all companies, including foreign companies with no presence in the United States such as online retailers and service companies. Accordingly, service companies that provide software as a service (SaaS), information services, data processing services, repairs and maintenance services, etc., are also subject to the Wayfair economic nexus rules and should review their sales in each state to determine whether economic nexus has been met and sales tax collection is required.

Conclusion

In recent years, states have become much more aggressive in pursuing sales tax audits even with foreign businesses. Therefore, it is important for all companies selling to the United States to be proactive in identifying where they have sales tax nexus and begin filing in those states, which could help reduce the imposition of tax, penalties and interest if they are selected for audit. Taxpayers who determine they have had sales tax nexus and corresponding exposure for several years should be proactive and take advantage of the states’ Voluntary Disclosure Programmes and/or Tax Amnesty programmes in order to reduce penalties and in some cases, interest as well.

If you need assistance evaluating whether your company has sales tax nexus or have any questions, please get in touch.

Canadian tariffs and exit strategies: A tax perspective

Kreston GTA in Canada is inviting colleagues across the Kreston network interested in Canadian tariffs and exit strategies to join the latest instalment of their tax seminar series, led by Bal Katlai, Tax Partner at Kreston GTA.

Kreston Global announces new East Caribbean firm

Kreston Global has welcomed a new East Caribbean firm in St Kitts & Nevis, called Kreston Eastern Caribbean, to the Kreston Global network.

CBIZ to acquire Marcum, strengthening market position

Kreston Global is pleased to announce that our U.S. member firm, CBIZ, has reached a definitive agreement to acquire Marcum LLP.

Herbert M. Chain

Shareholder, Mayer Hoffman McCann P.C, Deputy Technical Director, Global Audit Group, Kreston Global

www.mhmcpa.com

Herbert M. Chain is a highly experienced auditor and a financial expert with over 45 years of experience in business, accounting, and audit, having served as a Senior Audit Partner at Deloitte. He holds certifications from the National Association of Corporate Directors and the Private Directors Association, with knowledge of private company governance and effective risk management. He has extensive knowledge in the financial services sector, including asset management and insurance. Herbert sits on MHM’s Attest Methodology Group and is the Deputy Technical Director of the Kreston Global Audit Group.

PCAOB proposes replacing interim standard on substantive analytical procedures

June 17, 2024

On June 12, 2024, the U.S. PCAOB proposed replacing an interim standard on substantive analytical procedures in place since 1989 with a new standard, AS 2305, “Designing and Performing Substantive Analytical Procedures”. Public comments on the proposal are open until August 12, 2024.[1]

The proposed new standard on substantive analytical procedures

According to the PCAOB, the proposed standard covers:

Requirements for determining whether the relationship(s) to be used in the substantive analytical procedure is sufficiently plausible and predictable;
Requirements for dealing with differences between the auditor’s expectation and the company’s amount;
The persuasiveness of audit evidence obtained from a substantive analytical procedure; and
The elements of a substantive analytical procedure, including the distinction between substantive analytical procedures and other types of analytical procedures.

With this proposal and these objectives in mind, a discussion of substantive analytical procedures might be helpful, especially as technology and data analytics tools are increasingly being used to enhance the effectiveness and efficiency of audit procedures.

What are Substantive Analytical Procedures (“SAP”)?

Substantive analytical procedures (“SAP”) and tests of details are substantive audit procedures. A substantive analytical procedure, also known as substantive analytical review, is an auditing procedure used to gain assurance about the financial statements by comparing recorded amounts or ratios derived from them to expectations developed by the auditor.[2]

They are designed to address the risks of material misstatement for relevant assertions for each account and disclosure. Depending on the account, the auditor may select which substantive procedure to perform to gain such assurance. (SAPs are more effective for some accounts than other. For example, they are often more effective for income statement accounts than balance sheet accounts.)

Developing an appropriate expectation is a key aspect of an effective SAP. The development includes the uses of internal and external data, and the determination of plausible relationships. The precision of the expectation then leads to the evaluation of differences between the expectation and the recorded amount and what must be performed based thereon.

Developing a precise expectation – the key to an effective standard analytical procedure

The auditor may develop an expectation for a specific account or disclosure based on:

Knowledge of the client: Understanding the drivers of the client’s operations (e.g., revenue streams) provides a basis for establishing plausible relationships and meaningful expectations.
Historical Data: Comparing current figures to previous periods’ financial statements, considering known changes like growth or acquisitions.
Industry Benchmarks: Benchmarking the client’s performance against industry averages to identify significant deviations.
Ratio Analysis: Calculating ratios using the client’s financial data to assess relationships between accounts and identify potential inconsistencies.
External Information: Considering relevant economic data, industry publications, or management forecasts.
Identifying key factors: Understanding factors that significantly affect the account, like changes in pricing, production volume, or economic conditions.
Using appropriate data level: Aggregating or disaggregating data depending on the level of detail needed for a meaningful comparison.

Data considerations

Auditors have a responsibility to ensure the underlying client data used to develop expectations is reliable, accurate, complete and relevant.

This involves considering:

Source of Data: Is it from a reliable internal system or an external source prone to manipulation?
Conditions of Data Gathering: Were proper controls in place to ensure data accuracy during collection?
Auditor’s Existing Knowledge: Does the auditor have prior knowledge suggesting potential data issues?
Understanding data gathering methods: Knowing how the data was collected and processed to ensure its accuracy and completeness

Auditors may perform additional procedures, like testing the accuracy and completeness of the data and testing the controls over financial reporting, to verify data integrity.

Analysis of results

Once the expectation has been developed, the auditor compares the recorded amount with the developed expectation. Significant differences (i.e., greater than a determined “threshold” of acceptance) require further investigation to determine if they represent a potential misstatement. Considerations may include:

Materiality: Determine if any identified differences between recorded amounts and expectations are significant enough to potentially affect the overall financial statements.
Plausible Explanations: Investigate potential reasons for any significant differences. These could be legitimate business developments or require further audit testing.
Risk Assessment: Consider how the identified differences relate to the assessed risks of material misstatement in the audit.

Conclusion

Substantive analytical procedures can be a valuable tool for auditors, if designed and executed appropriately. As a substantive audit procedure, it not only addresses the risk of material misstatement, but can enhance the auditor’s knowledge of the client and its operations – but only if the expectation is precise enough, is based on reliable, accurate, complete and relevant data, and differences are appropriately analysed.

[1] Both the International Auditing and Assurance Standards Board (ISA 520) and the Auditing Standards Board of the AICPA (AU-C Section 520) also have standards addressing substantive analytical procedures

[2] This differs from analytical reviews performed as a part of the planning and overall review stages.

According to the AICPA, in the planning stage, the purpose of analytical procedures is to assist in planning the nature, timing, and extent of auditing procedures that will be used to obtain audit evidence for specific account balances or classes of transactions. In the overall review stage, the objective of analytical procedures is to assist the auditor in assessing the conclusions reached and in evaluating the overall financial statement presentation. These do not provide audit assurance as substantive audit procedures.

If you would like to speak to one of our experts about standard analytical procedures in the United States, please get in touch.

Canadian tariffs and exit strategies: A tax perspective

Kreston GTA in Canada is inviting colleagues across the Kreston network interested in Canadian tariffs and exit strategies to join the latest instalment of their tax seminar series, led by Bal Katlai, Tax Partner at Kreston GTA.

Kreston Global announces new East Caribbean firm

Kreston Global has welcomed a new East Caribbean firm in St Kitts & Nevis, called Kreston Eastern Caribbean, to the Kreston Global network.

CBIZ to acquire Marcum, strengthening market position

Kreston Global is pleased to announce that our U.S. member firm, CBIZ, has reached a definitive agreement to acquire Marcum LLP.

Herbert M. Chain

Shareholder, Mayer Hoffman McCann P.C, Deputy Technical Director, Global Audit Group, Kreston Global

www.mhmcpa.com

Herbert M. Chain is a highly experienced auditor and a financial expert with over 45 years of experience in business, accounting, and audit, having served as a Senior Audit Partner at Deloitte. He holds certifications from the National Association of Corporate Directors and the Private Directors Association, with knowledge of private company governance and effective risk management. He has extensive knowledge in the financial services sector, including asset management and insurance. Herbert sits on MHM’s Attest Methodology Group and is the Deputy Technical Director of the Kreston Global Audit Group.

Enforcement actions and the quality imperative in auditing

May 13, 2024

Lessons from recent SEC Sanctions on US Audit firm

The past 12 months have seen a notable uptick in SEC and PCAOB enforcement actions against audit firms, their personnel, and their networks. As if to put an exclamation point to this statement, in May 2024, the SEC took a sledgehammer to a firm that audited a significant number of smaller and medium-sized registrants and those in the registration process. While this was clearly an egregious breach of professional responsibilities, and the actions related solely to the public company practice of the firm, there are important considerations for firms as they attempt to differentiate themselves from competitors.

What is the enforcement action about?

On May 3, 2024, the SEC announced settled enforcement proceedings against audit firm BF Borgers CPA PC (Borgers) and its owner, Benjamin F. Borgers, charging them with deliberate and systemic failures to comply with PCAOB standards in their audits of approximately 350 public companies and broker-dealers, which were incorporated in more than 2,000 SEC filings from January 2021 through June 2023 (the Order).[1]

The SEC imposed severe penalties, including a $12 million civil penalty against the firm and a $2 million civil penalty against its owner, in addition to permanent suspensions against both parties from appearing and practising as accountants before the agency, effective immediately. Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, noted that “… Borgers and his sham audit mill have been permanently shut down.” (emphasis added)

What are the charges?

The SEC found that BF Borgers failed to perform its audit and review engagements in accordance with PCAOB auditing standards, including by failing to adequately supervise the engagements, failing to obtain engagement quality reviews in connection with the engagements, failing to prepare and maintain sufficient audit documentation, and fabricating certain audit documentation.

Specifically, the SEC found that at Benjamin Borgers’s direction, Borgers’ staff simply “rolled forward” work papers from previous engagements, changing only the relevant dates, and passed them off as work papers for current period engagements. These work papers documented engagement planning meetings that did not occur and falsely represented that Benjamin Borgers and a separate engagement quality reviewer had reviewed and approved the work.

Additionally, the SEC found that electronic “sign-offs” on the firm’s engagement workpapers that were attributed to the engagement partner, engagement quality reviewer, and staff auditor were in fact all applied by a single staff person within seconds of one another, using usernames provided by Benjamin Borgers himself.

Finally, Borgers did not have the required engagement quality review (EQR) on approximately 75% of the SEC filings (annual and quarterly filings, registration statements, registered broker-dealer filings, and OTC company annual reports), failing to have an EQR performed in 1,625 out of 2175 filings, in violation of PCAOB standards.[2]

How are Borgers’ clients affected?

Because Borgers has been denied the privilege of appearing or practising before the SEC, issuers that have engaged Borgers to audit or review financial information to be included in any Exchange Act filings to be made on or after the date of the Order (May 3, 2024) will need to engage a new qualified, independent, PCAOB-registered public accountant. Additionally, broker-dealers, investment advisers subject to the custody rule, and even private companies that engaged Borgers as their independent auditor will presumably need to find a replacement auditor.[3]

Each impacted registrant will need to file Form 8-K with the SEC when BF Borgers resigns or is dismissed. Issuers that are currently in the registration process will need to file a pre-effective amendment with a new auditor before their registration statements can be declared effective.

Finding a replacement auditor may be difficult due to reputation spillovers from being associated with the firm and a possible classification as a “higher-risk audit”. Additionally, there will be higher audit costs (including potential reaudits of prior periods), a “cost of switching” and disruption, and timing issues if SEC filings are required in a short time frame.

What are the key takeaways?

Bad actors taint the profession, networks and firms … and the clients they serve.

Networks and firms must thus differentiate themselves from other networks and firms by their commitment to quality throughout their organisation. While the Borgers matter is an egregious example, there is no doubt that clients will carefully scrutinise whom they engage to be their auditors and will ask the tough questions on a firm’s system of quality management: how it is designed, implemented and operating. Their culture of quality will be assessed. Boards and audit committees will wonder, and rightfully ask, “Could this happen to us based on our auditor selection?”. Their choice sends signals to stakeholders and the public.[4]

Now, more than ever, the audit industry must be associated with quality and consistency of service. Our stakeholders and clients demand it…and will increasingly require attention to quality and the assurance it brings them that a quality firm (and network) has effectively performed the audit. Their reputation is also on the line.

[1] The SEC’s order can be found here. It should be noted that the SEC’s order focused only on the firm’s public company audit and review engagements and did not address the firm’s work for private companies.

[2] PCAOB Auditing Standard 1220: Engagement Quality Review

[3] The SEC Division of Corporate Finance and Office of the Chief Accountant issued a “Staff Statement on Issuer Disclosure and Reporting Obligations in Light of Rule 102(e) Order against BF Borgers CPA PC” on May 3, 2024. It can be found here.

[4] Signaling theory suggests that firms and individuals send signals to the market to convey information about their quality or trustworthiness. In this case, being associated with a sanctioned auditor like Borgers sends a negative signal to investors and potential auditors, suggesting potential financial risks.

Canadian tariffs and exit strategies: A tax perspective

Kreston GTA in Canada is inviting colleagues across the Kreston network interested in Canadian tariffs and exit strategies to join the latest instalment of their tax seminar series, led by Bal Katlai, Tax Partner at Kreston GTA.

Kreston Global announces new East Caribbean firm

Kreston Global has welcomed a new East Caribbean firm in St Kitts & Nevis, called Kreston Eastern Caribbean, to the Kreston Global network.

CBIZ to acquire Marcum, strengthening market position

Kreston Global is pleased to announce that our U.S. member firm, CBIZ, has reached a definitive agreement to acquire Marcum LLP.

90 S. Cascade Avenue, Suite 200

May 8, 2024

CBIZ to acquire Marcum, strengthening market position

Kreston Global is pleased to announce that our U.S. member firm, CBIZ, has reached a definitive agreement to acquire Marcum LLP.

CBIZ launches AI-powered data analytics and automation service, D@taNEXUS

CBIZ has recently launched CBIZ D@taNEXUS, an innovative data analytics and automation service suite. This offering transforms complex information from multiple sources using artificial intelligence and predictive modelling into actionable insights, enabling business leaders to make informed decisions more efficiently.

Enforcement actions and the quality imperative in auditing

The past 12 months have seen a notable uptick in SEC and PCAOB enforcement actions against audit firms, their personnel, and their networks. Herbert M. Chain examines the impact on the profession.

409 W. Kieffer Road

CBIZ to acquire Marcum, strengthening market position

Kreston Global is pleased to announce that our U.S. member firm, CBIZ, has reached a definitive agreement to acquire Marcum LLP.

CBIZ launches AI-powered data analytics and automation service, D@taNEXUS

CBIZ has recently launched CBIZ D@taNEXUS, an innovative data analytics and automation service suite. This offering transforms complex information from multiple sources using artificial intelligence and predictive modelling into actionable insights, enabling business leaders to make informed decisions more efficiently.

Enforcement actions and the quality imperative in auditing

The past 12 months have seen a notable uptick in SEC and PCAOB enforcement actions against audit firms, their personnel, and their networks. Herbert M. Chain examines the impact on the profession.

7030 Pointe Inverness Way, Suite 120

CBIZ to acquire Marcum, strengthening market position

Kreston Global is pleased to announce that our U.S. member firm, CBIZ, has reached a definitive agreement to acquire Marcum LLP.

CBIZ launches AI-powered data analytics and automation service, D@taNEXUS

CBIZ has recently launched CBIZ D@taNEXUS, an innovative data analytics and automation service suite. This offering transforms complex information from multiple sources using artificial intelligence and predictive modelling into actionable insights, enabling business leaders to make informed decisions more efficiently.

Enforcement actions and the quality imperative in auditing

The past 12 months have seen a notable uptick in SEC and PCAOB enforcement actions against audit firms, their personnel, and their networks. Herbert M. Chain examines the impact on the profession.

3925 River Crossing Parkway, Suite 100

CBIZ to acquire Marcum, strengthening market position

Kreston Global is pleased to announce that our U.S. member firm, CBIZ, has reached a definitive agreement to acquire Marcum LLP.

CBIZ launches AI-powered data analytics and automation service, D@taNEXUS

CBIZ has recently launched CBIZ D@taNEXUS, an innovative data analytics and automation service suite. This offering transforms complex information from multiple sources using artificial intelligence and predictive modelling into actionable insights, enabling business leaders to make informed decisions more efficiently.

Enforcement actions and the quality imperative in auditing

The past 12 months have seen a notable uptick in SEC and PCAOB enforcement actions against audit firms, their personnel, and their networks. Herbert M. Chain examines the impact on the profession.

Herbert M. Chain

Shareholder, Mayer Hoffman McCann P.C, Deputy Technical Director, Global Audit Group, Kreston Global

Herbert M. Chain is a highly experienced auditor and is a financial expert with over 45 years of experience in business, accounting, and audit, having served as a Senior Audit Partner at Deloitte. He holds certifications from the National Association of Corporate Directors and the Private Directors Association, with knowledge of private company governance and effective risk management. He has extensive knowledge in the financial services sector, including asset management and insurance. Herb is a member of MHM’s Attest Methodology Group and serves as Deputy Technical Direct of Kreston Global’s Global Audit Group.

Auditing standards: Unpacking SAS 143 and SAS 145 updates

March 12, 2024

In his comprehensive overview, Herbert M. Chain from MHM explores the recent updates to SAS 143 and SAS 145, which signify significant milestones in auditing standards. Read the full article her e, or the summary below.

Overview of SAS 143 and SAS 145

The issuance of SAS No. 143, focusing on Auditing Accounting Estimates and Related Disclosures, and SAS No. 145, centered on Understanding the Entity and Its Environment and Assessing Risks of Material Misstatement, represents a significant advancement in auditing standards. These standards offer auditors extensive guidance for testing accounting estimates, particularly those involving fair value, and outline essential requirements for grasping the entity’s internal control system. This is crucial in navigating the complexities of the contemporary economic, technological, and regulatory accounting environment.

SAS 143: Auditing accounting estimates

Effective for audits of periods ending on or after Dec. 15, 2023, SAS 143 mandates a deeper examination of uncertainties in accounting estimates, focusing on potential management bias. This involves a thorough evaluation of assumptions, especially for significant judgments like fair value measurements. The standard necessitates a detailed risk assessment tailored for complexities in auditing accounting estimates, providing guidance on responsive audit procedures, including assessing the suitability of valuation models and data integrity for fair value estimates. SAS 143 aims to enhance transparency and accountability in fair value estimation, ultimately improving the quality and reliability of these estimates for increased stakeholder trust.

Key changes from SAS 143

Key changes to auditing standards in SAS 143 include a heightened emphasis on auditors addressing estimation uncertainty and exercising professional skepticism in evaluating fair value estimates. The standard mandates a more detailed risk assessment process tailored for complexities in auditing accounting estimates, particularly fair value estimates. Additionally, auditors must assess the reasonableness of accounting estimates within the financial reporting framework, ensuring compliance with permitted methods, assumptions, and data.

SAS 143 impacts

SAS 143 brings substantial changes to the audit process in assessing fair value estimates. The focus now shifts to understanding factors and assumptions behind estimates, demanding greater transparency and accountability from management. Auditors, in response, perform the following procedures:

Method Assessment: Evaluate if the method aligns with the financial reporting framework and remains consistent. Changes prompt scrutiny for potential bias.
Significant Assumptions: Ensure suitability of assumptions within the financial reporting framework, considering both positive and negative outcomes. Evaluate consistency with prior periods and other business activities, considering potential bias.
Data Evaluation: Assess data reliability, understanding sources and consistency with prior periods. Verify relevance in the context of the chosen method and assumptions, addressing potential bias.
Management’s Point Estimate: Scrutinise alternative outcomes and assumptions when management opts for a precise value (point estimate), evaluating potential bias.

Enhancing controls with SAS 145

SAS 145, also effective for audits for periods ending on or after Dec. 15, 2023, revises aspects of the risk assessment process, focusing on an entity’s internal control system. Notably, it enhances auditor responsibilities related to evaluating the design and implementation of controls, including IT general controls (ITGC). The standard recognises the increasing significance of an entity’s IT environment, requiring auditors to identify and assess ITGCs, categorised into four domains:

Security and Access: Controls ensuring appropriate user access, segregation of duties, and ongoing authorisation for IT applications and cloud providers.
Systems Change: Controls over designing, testing, and migrating changes into a production environment, with segregation of access to prevent unauthorised changes.
System Development: Controls over initial IT application acquisition, development, or implementation, including data conversion and creation of new reports.
Computer Operations: Controls monitoring financial reporting program execution, ensuring backups, and enabling timely data recovery in case of outages or cyberattacks.

While not all domains may be applicable annually, SAS 145 mandates evaluating design and implementation for relevant ITGCs within the applicable domain for each identified significant IT application. The standard also introduced the concept of a continuum of inherent risk as well as other changes.

If you are interested in doing business with Kreston Global, contact us here.

CBIZ to acquire Marcum, strengthening market position

Kreston Global is pleased to announce that our U.S. member firm, CBIZ, has reached a definitive agreement to acquire Marcum LLP.

CBIZ launches AI-powered data analytics and automation service, D@taNEXUS

CBIZ has recently launched CBIZ D@taNEXUS, an innovative data analytics and automation service suite. This offering transforms complex information from multiple sources using artificial intelligence and predictive modelling into actionable insights, enabling business leaders to make informed decisions more efficiently.

Enforcement actions and the quality imperative in auditing

The past 12 months have seen a notable uptick in SEC and PCAOB enforcement actions against audit firms, their personnel, and their networks. Herbert M. Chain examines the impact on the profession.

Gary Klintworth

Senior Managing Director, CBIZ ARC

www.cbiz.com

Gary Klintworth, a seasoned financial executive with 25+ years of experience in industry, accounting, leadership and business development, currently serves as Senior Managing Director at CBIZ ARC Consulting. In this role, he leads multiple engagement teams and provides technical expertise to pre-IPO and public companies across various industries.

How to prepare your company for the IPO window

February 9, 2024

The initial public offering (IPO) window offers a pivotal opportunity for companies aiming to go public. With the market showing signs of revival, businesses must ensure their financial foundations are robust and ready for the challenges and opportunities of going public. This guide, authored by Gary Klintworth, (a Senior Managing Director at CBIZ), has extensive experience in financial consulting and IPO preparation. This brief guide outlines essential steps to ensure your company is well-prepared for the IPO window.

What is an IPO window?

The IPO window refers to the period when market conditions are favourable for companies to go public. Investor optimism, stable economic conditions, and a receptive stock market characterise it. During this window, companies can achieve higher valuations and receive a warm welcome from investors. Timing the market correctly is crucial, as the window can close due to economic downturns, regulatory changes, or shifts in investor sentiment.

Preparing for the IPO window

Key steps to financial readiness

1. Assemble the right team early

Before embarking on the public path, it’s imperative to gather a team capable of managing the new demands of public company operations, including SEC filings, financial projections, and audits. In an inflationary environment, starting early with the right advisors can save costs and build a strong foundation for your public journey.

2. Enhance financial reporting and compliance

Transitioning to public company standards requires a rigorous approach to financial reporting. Closing the books with precision and preparing for SEC filings demand a level of accuracy and timeliness unfamiliar to most private companies. Implementing software tools and conducting dry runs of reporting processes can smooth the transition.

3. Secure accurate and timely data

For a company preparing to go public, the integrity of its data is paramount. Efficient systems and reliable APIs are crucial for managing the volume of post-IPO data and ensuring accurate forecasting and reporting to the market.

4. Communicate effectively with the market

A successful IPO is not just about the numbers; it’s about telling your company’s story compellingly. Aligning key metrics with the narrative of your business’s current and future success is essential for engaging investors and underwriters.

5. Explore strategic growth opportunities

The period leading up to an IPO is an ideal time to explore growth strategies and cost-saving measures. Balancing the pursuit of growth with the necessity of profitability and positive cash flow is vital in today’s cautious investment climate.

The importance of long-term strategy

“Preparing for an IPO isn’t just about getting it right for day one,” notes Bradley Coleman, underscoring the importance of strategic planning for the days following the IPO. A successful transition to a public entity involves a continuous commitment to strategic growth, operational excellence, and financial integrity.

Conclusion

As the IPO window reopens, the readiness of your company plays a critical role in seizing the opportunities ahead. By focusing on financial fundamentals, strategic planning, and effective communication, businesses can navigate the complexities of going public with confidence. Gary Klintworth’s insights provide a valuable roadmap for companies aiming to thrive in the public market.

For more insights and guidance on navigating the IPO process, get in touch.

Canadian tariffs and exit strategies: A tax perspective

Kreston GTA in Canada is inviting colleagues across the Kreston network interested in Canadian tariffs and exit strategies to join the latest instalment of their tax seminar series, led by Bal Katlai, Tax Partner at Kreston GTA.

Kreston Global announces new East Caribbean firm

Kreston Global has welcomed a new East Caribbean firm in St Kitts & Nevis, called Kreston Eastern Caribbean, to the Kreston Global network.

CBIZ to acquire Marcum, strengthening market position

Kreston Global is pleased to announce that our U.S. member firm, CBIZ, has reached a definitive agreement to acquire Marcum LLP.

Herbert M. Chain

Shareholder, Mayer Hoffman McCann. Deputy Technical Director, Global Audit Group, Kreston Global.

Herbert Chain is a highly experienced author is a financial expert with 40 years of experience in business, accounting, and audit, having served as a Senior Audit Partner at Deloitte. He holds certifications from the National Association of Corporate Directors and the Private Directors Association, with knowledge of private company governance and effective risk management. He has extensive knowledge in the financial services sector, including asset management and insurance, and experience with SPACs.

Contact Herb here

US issues final accounting standards for (certain) Crypto Assets

January 23, 2024

On December 13, 2023, the US issued the final accounting standards for Crypto Assets. The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-08, titled “Accounting for and Disclosure of Crypto Assets”, an amendment of FASB Codification Intangibles—Goodwill and Other— Crypto Assets (Subtopic 350-60), to address the accounting challenges posed by cryptocurrency. The ASU aims to enhance accounting procedures and disclosure requirements for certain crypto assets, providing a more transparent view for investors, creditors, and other users of financial statements prepared by organizations with holdings of crypto assets.

Cost less impairment

As desired by many users and preparers of such financial statements, the new standard departs from the historical “cost less impairment” accounting model for crypto assets, requiring entities to measure qualifying assets at fair value with changes recognized in net income. In the ASU, the FASB noted that “accounting for only the decreases, but not the increases, in the value of crypto assets in the financial statements until they are sold does not provide relevant information that reflects (1) the underlying economics of those assets and (2) an entity’s financial position.”

Crypto Asset disclosures

The ASU also mandates disclosures about significant crypto asset holdings, contractual sale restrictions, and reporting period fluctuations to provide investors with comprehensive insights. To be subject to these amendments, crypto assets must meet specific criteria, including meeting the definition of an intangible asset as defined by FASB, not providing the asset holder with enforceable rights to or claims on underlying goods, services, or other assets, being created or residing on a distributed ledger based on blockchain or similar technology, being fungible, secured through cryptography, and not created by the reporting entity.

Fair value measurement

There are certain implications on businesses’ operations and recordkeeping resulting from the pronouncement. Fair value measurement introduces the need to stay informed about market prices and markets, and to report the impact of price fluctuations on financial performance. The detailed disclosures now mandated will require organizations to maintain comprehensive records of crypto transactions, and real-time tracking and valuation systems will be necessary to meet reporting demands.

2024 deadline

Entities are expected to comply with the new standards for fiscal years starting after December 15, 2024, with early adoption permissible for yet-to-be-issued financial statements. The changes, if adopted in an interim period, must be retroactively applied from the start of the fiscal year.

For more advice on the recent update from the FASB, please get in touch.

CBIZ to acquire Marcum, strengthening market position

Kreston Global is pleased to announce that our U.S. member firm, CBIZ, has reached a definitive agreement to acquire Marcum LLP.

CBIZ launches AI-powered data analytics and automation service, D@taNEXUS

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Enforcement actions and the quality imperative in auditing

The past 12 months have seen a notable uptick in SEC and PCAOB enforcement actions against audit firms, their personnel, and their networks. Herbert M. Chain examines the impact on the profession.

Herbert M. Chain

Shareholder, Mayer Hoffman McCann P.C. Deputy Technical Director, Global Audit Group, Kreston Global

www.mhmcpa.com

Herbert M. Chain is a highly experienced auditor and is a financial expert with over 45 years of experience in business, accounting, and audit, having served as a Senior Audit Partner at Deloitte. He holds certifications from the National Association of Corporate Directors and the Private Directors Association, with knowledge of private company governance and effective risk management. He has extensive knowledge in the financial services sector, including asset management and insurance. Herb is a member of MHM’s Audit Methodology Steering Committee.

Contact Herb here

Guillermo Narvaez

Tax Partner at Kreston Mexico City Office, Kreston FLS

www.krestonfls.com

Guillermo Narvaez is a Tax Partner at Kreston FLS Mexico City Office and the Technical Tax Director, Global Tax Group, Kreston Global and member of the International Fiscal Association (IFA). Guillermo is a tax expert on international taxation, corporate taxes, transfer pricing, mergers and acquisitions, corporate reorganisations and litigation.

Within international taxation, Guillermo specialises in the analysis and interpretation of treaties to avoid double taxation applied to international transactions.

Contact Guillermo here.

Global cryptocurrency accounting and tax standards

September 8, 2023

In a recent article exploring global cryptocurrency accounting and tax standards in Bloomberg Tax, Herbert M. Chain, Deputy Technical Director of Kreston Global Audit Group and Shareholder, Mayer Hoffman McCann P.C., and Guillermo Narvaez, Technical Tax Director at Kreston Global Tax Group and Tax Partner, Kreston FLS, delve into the difficulties of codifying digital assets within the scope of existing accounting standards. You can read the full article on Bloomberg Tax, or read the summary below.

Cryptocurrency accounting and tax standards in the United States

On September 6 2023, the Financial Accounting Standards Board (FASB) approved new rules for accounting for cryptocurrencies. The standard requires crypto assets to be measured at fair value each reporting period, while also requiring enhanced disclosures for annual and interim reports. The rules will be effective for 2025 annual reports, but may be adopted for earlier periods. The FASB expects to formally issue the standard by year-end. On the taxation front, crypto assets are considered personal property, subject to capital gains tax. The U.S. Internal Revenue Service recently proposed new regulations set to come into effect in 2026, with a focus on simplifying tax filings and curbing evasion.

Global accounting and tax standards for cryptocurrency

The authors highlight that there is currently no unified global framework to govern cryptocurrencies due to the divergence in local criteria, with China, Japan, Canada and the EU offering no classification. The tax treatment varies from jurisdiction to jurisdiction, often classifying crypto as personal property, intangibles, or other asset classes for tax purposes. The lack of consensus extends to valuation models, though countries like the U.S., UK, and Australia propose fair value accounting.

Cryptocurrency regulatory challenges

When it comes to regulation, the global scene is diverse and regulators worldwide find themselves in a difficult position. Guidelines must be robust enough to address the inherent risks of this fast-evolving sector, without curbing its innovative potential. The urgency of these efforts has been underscored by recent setbacks in the crypto space, including the collapse of the FTX digital currency exchange platform. Such incidents have heightened concerns and accelerated regulatory initiatives.

In the United States, the government has released “The Administration’s Roadmap to Mitigate Cryptocurrencies’ Risks,” a comprehensive guide addressing issues surrounding protection and enforcement. Meanwhile, the European Union has made strides in creating a unified regulatory framework through its recently adopted Markets in Crypto Assets (MiCA) rules. Not to be left behind, Canada has also stepped into the regulatory arena by issuing its first set of federal guidelines.

As nations continue to take individualistic or collective strides, the onus remains on stakeholders to remain updated and adaptable, ensuring compliance while optimising opportunities.

Double taxation challenge for cross-border activity

Cross-border transactions of crypto assets also present unique tax implications. With no uniform classification of digital assets as currencies, existing double taxation treaties play a pivotal role in determining tax liability.

Navigating the maze of global tax and accounting rules for cryptocurrencies is not straightforward, but Double Tax Treaties (DTAs) offer some guidance. These treaties, modelled on a global standard, contain Articles 7 and 12, which help determine whether income from selling a crypto asset counts as a “business profit” or a “royalty.”

Establishing the application of Article 7 and Article 12

Article 7 applies when you Are making money from ongoing operations in another country, but only if you have a stable, permanent business there. Article 12 comes into play when you get paid for allowing, among others, the use of an intangible asset like a cryptocurrency.

Countries often hold back some tax right at the source when a royalty payment is involved. So, figuring out whether your crypto sale is a business profit or a royalty is crucial. Business profits are usually taxed in your home country unless you have a permanent operation in a foreign country. Royalties, on the other hand, can be taxed right where the payment originates.

Considering cryptos under Article 12

Cryptos are intangible, just like a piece of copyrighted software. However, there is debate around whether just using the software counts as “use of copyright,” which is what traditionally triggers a royalty tax. Typically, you would need to have in-depth control or rights over the software for it to be considered a royalty.

Think of it like this: If you buy off-the-shelf software, you are paying for the use of the software itself, not the underlying algorithms or any other intellectual property. Therefore, this payment is not considered a royalty. Likewise, if you are simply buying or selling cryptocurrencies, and not tapping into its underlying algorithm for further financial gains, it may not count as a royalty either.

What is the practical impact? If your crypto income is not a royalty, you might escape withholding tax in the other jurisdiction, as per Article 7. This is especially significant given crypto assets’ growing market capitalisation, which currently hovers around $1.2 trillion.

As cryptocurrencies continue to disrupt traditional financial systems and gain economic relevance, the regulatory landscape is ever-changing. Whether it is accounting standards or tax treatments, differences exist across countries—from complete bans to open-armed acceptance. It is crucial, then, to consult experts to understand how each jurisdiction treats crypto assets, as global policies are far from settled.

Conclusion

Boasting a global market cap nearing $1.2 trillion as of July 2023 (Rashi Maheshwari, Why Is the Crypto Market Rising Today?, Forbes Advisor), the crypto asset sector has entrenched itself as a mainstay in the financial landscape. This is even though it is still short of its 2021 zenith of nearly $3 trillion (Davis Chu and Victoria Schumacher, A Deep Dive Into Crypto Valuation, S&P Global). The crypto world is undeniably impactful but is still in a phase where policies and frameworks are very much a work in progress.

As the regulatory landscape for crypto assets is still developing, with very different positions being taken across jurisdictions. Accordingly, seeking expert advice from accounting and/or tax advisors is vital.

If you have questions about crypto assets, accounting and taxation challenges and would like to speak to an expert, please get in touch.

Canadian tariffs and exit strategies: A tax perspective

Kreston GTA in Canada is inviting colleagues across the Kreston network interested in Canadian tariffs and exit strategies to join the latest instalment of their tax seminar series, led by Bal Katlai, Tax Partner at Kreston GTA.

Kreston Global announces new East Caribbean firm

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Kreston FLS announces Corporate Finance Consulting services

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Kreston BSG to host webinar on U.S. market expansion for Latino entrepreneurs

August 30, 2023

Kreston BSG is hosting a webinar on U.S. Market expansion for Latino entrepreneurs with guest speaker Veronica Quintana, Leader of the Latin-Owned Business Practice at CBIZ MHM. The webinar is on 7 September 2023 at 16:30 (Mexico Central Time) and will be held in Spanish.

Register here >

Latino business in the US market

Latinos own nearly 5 million businesses in the U.S. and account for over $800 billion in revenue. If you’ve ever thought about taking your business across borders and stepping into the lucrative U.S. market, now is the perfect opportunity. Kreston BSG is thrilled to partner with CBIZ in the United States for a webinar aimed at guiding entrepreneurs through the tax and legal implications of starting or expanding a business in North America.

Event Details:

Date: September 7
Time: 16:30 pm (Mexico Central Time)
Language: Spanish
Audience: Open to the general public, clients, and collaborators of Kreston Global and CBIZ
Registration: Click here to register (It’s FREE!)

Meet the Experts

Veronica Quintana

Leader of the Latino-Owned Business Practice at CBIZ & MHM, Veronica Quintana brings a wealth of knowledge and experience in navigating the U.S. market.

Francisco Bracamonte

Legal-tax partner from Kreston BSG Mexico, Francisco Bracamonte, will serve as the moderator, steering the discussions towards actionable insights.

Key Takeaways

Understanding the U.S Tax system: Navigating the complex U.S tax landscape
Legal requirements: What are the do’s and don’ts when expanding or starting a business in the U.S?
Cultural considerations: Unpack the nuances of doing business in a diverse market.

Why Should You Attend?

Informative: The comprehensive coverage of the tax and legal aspects will equip you with the right tools to set up your business successfully in the U.S.
Networking: Opportunity to interact with experts and like-minded entrepreneurs.
Free of charge: Knowledge, insights, and an array of business benefits, all at zero cost to you.

Mid-market outlook in Latin America

The fifth edition of Going Global is now available, spotlighting the mid-market outlook in Latin America.

Kreston FLS announces Corporate Finance Consulting services

Kreston FLS announces Corporate Finance Consulting services added to their portfolio, lead by CPA José Luis Madariaga Cervantes.

CBIZ to acquire Marcum, strengthening market position

Kreston Global is pleased to announce that our U.S. member firm, CBIZ, has reached a definitive agreement to acquire Marcum LLP.

Herbert M. Chain

Shareholder, Mayer Hoffman McCann P.C. Deputy Technical Director, Global Audit Group, Kreston Global

www.mhmcpa.com

Herbert M. Chain is a highly experienced auditor and is a financial expert with over 45 years of experience in business, accounting, and audit, having served as a Senior Audit Partner at Deloitte. He holds certifications from the National Association of Corporate Directors and the Private Directors Association, with knowledge of private company governance and effective risk management. He has extensive knowledge in the financial services sector, including asset management and insurance.

Contact Herbert here

How audit companies can support staff to better detect financial fraud

August 18, 2023

Recently, Herbert M Chain, Deputy Technical Director at Kreston Global Audit Group and Shareholder at Mayer Hoffman McCann P.C. spoke to Bloomberg Tax about a holistic approach audit companies must employ to support staff to identify financial fraud effectively. Read the full article or the summary below.

Increasing risk in the audit process

Recent data from the Public Company Accounting Oversight Board in the U.S underscores the correlation between firm culture and audit quality. The study highlights an alarming increase in audit deficiencies, set to climb for a second consecutive year. A significant 40% of these deficiencies in 2022 are linked to cultural aspects such as leadership’s commitment to superior audits, compliance, and staff churn.

At its essence, the culture of a firm serves as an unseen guiding hand, setting the tone for behavioural norms, professional duties, and interpersonal interactions. A perfect alignment of culture, values, processes, and training is imperative to empower auditors to address potential fraud risks.

In the world of auditing, ensuring that professionals are adept at pinpointing and addressing financial fraud is multifaceted. At its core, each auditor works within a framework of professional standards, controls, and strategies tailored to spot and react to fraudulent financial statements. This system—rooted in the culture of the auditing firm—is a cornerstone of the company’s quality control mechanism.

Auditor toolkit to reduce deficiencies

Scepticism as a daily practice

For auditors, embracing professional scepticism is non-negotiable. It emphasises a probing mindset and a scrupulous assessment of audit evidence—key to recognizing and countering potential fraud risks. Auditors, in every step of the process, are expected by regulators, stakeholders, and the public to apply this scepticism.

Auditors with sharp scepticism are not just passive observers. They actively hunt for signs of fraud and methodically inspect every piece of evidence. Their scepticism also helps in assessing managerial responses, ensuring they are not only rational but also evidence-backed. Both intrinsic scepticism and context-driven scepticism shape an auditor’s approach.

Elevating this sense of scepticism through training, awareness programs, and supervision can significantly enhance the trustworthiness of financial audit reports.

Financial Auditing vs. Forensic Auditing

Drawing a line between financial statement auditing and forensic auditing is imperative. While the former is designed to offer an unbiased opinion on the authenticity of financial records, the latter digs deep into suspicions of fraud for legal documentation.

Auditors in financial audits maintain impartiality, while forensic auditors operate under a presumption of potential misconduct. It’s a delicate act for auditors to maintain objectivity, yet remain alert to discrepancies.

Nurturing staff expertise

“Due care” is a revered principle in auditing, defining the expertise and diligence auditors should bring to the table. For auditors to be effective, they need expertise, awareness, and adequate oversight—this means entrusting complex evaluations to seasoned professionals rather than novices.

Cultivating a culture that champions learning is vital for auditors to counter financial fraud risks. Academic research supports the idea that well-trained auditors, equipped with fraud detection knowledge, are more sceptical, employ advanced methods, and stand a higher chance of identifying deceit.

When developing training programs, audit firms should:

Promote scepticism and analytical thought: Cultivate a culture that values scepticism and analytical thought. Train auditors to challenge assumptions and view evidence with a discerning eye. Offer guidance on how to scrutinize managerial claims and navigate potential biases.
Raise fraud awareness: Educate auditors about different fraud tactics, warning signals, and potential indicators.
Impart forensic accounting skills: Introduce staff to specialized fraud detection and prevention tools and techniques.
Teach control assessment: Instruct auditors on how to spot control vulnerabilities that may elevate fraud risks.
Enhance interview and enquiry skills: Train staff to extract vital details during fraud discussions and guide them on the intricacies of fraud investigations.
Encourage continued learning: Push for ongoing learning in fraud detection and encourage acquiring certifications, attending seminars, or workshops related to fraud.

Embracing Technological Advances

With technology evolving rapidly, auditors can no longer afford to be on the sidelines. Forensic data tools are increasingly finding their place in the auditor’s arsenal, especially in cases with high fraud concerns. Similarly, AI-powered systems, like expansive language models, are being harnessed to spot and analyze potential fraud.

Turning a blind eye to these developments is perilous. It’s imperative for firms to integrate these tools into their strategy and train their team accordingly.

Mastering data analytics is crucial. By scrutinizing transactional data, algorithms can pinpoint anomalies like unforeseen revenue fluctuations or dubious transactions. Alongside this, auditors need a grasp on data visualization, statistical techniques, and data mining.

The power of AI can’t be ignored. AI can process vast data amounts, spot patterns, and offer invaluable insights. It’s essential for auditors to have a robust understanding of AI technologies. But, it’s also vital to be aware of its limitations, ensuring AI is used judiciously and its outcomes critically examined.

Get in touch

If you would like to talk to an Audit expert about Audit, please get in touch.

Contact us

Canadian tariffs and exit strategies: A tax perspective

Kreston GTA in Canada is inviting colleagues across the Kreston network interested in Canadian tariffs and exit strategies to join the latest instalment of their tax seminar series, led by Bal Katlai, Tax Partner at Kreston GTA.

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US tax incentives

July 11, 2023

Process

The US tax incentives process includes four main components: Pre-Proposal Planning, Incentives Proposal, Tax Incentive Application and Multiyear Compliance Process.

Pre-Proposal Planning is the process of determining what the company’s expansion looks like. Will the facility be heavy with capital investment or hire lots of employees? If so, how much investment and how many employees? Or will the US expansion by remote in nature and have a virtual office? The states are looking for a central facility from which the employees and investment will be based. So if the plan is to have minimal office space and for employees to work remotely from across the US, then there would be little if any tax incentives available. So, the company should determine “what are the most important drivers for this expansion?”

Incentives Proposal is where the company’s representative connects with the state tax authorities in the state or states that are under consideration for the project. The states will request fairly extension information from the company about the company’s background and the facts of the project. This negotiation process can take some time, from 2 weeks to 1 year depending on the project.

Tax Incentives Applications is the process after the acceptance of the Incentives Proposal where the company formally applies for participation in the various tax incentive programs.

Multiyear Compliance Process – some companies believe that the states will handle all of the compliance processes for them and just “send the company a check.” This is not the case. These incentive programs can have monthly, quarterly and/or annual compliance reports associated with them. If you miss a report or a deadline, the incentives programs are in jeopardy of being forfeited.

Types of State Tax Incentives

Tax incentives vary widely by state. Some states have very few incentives and some states have very compelling incentive programs. The following is a partial list of incentive programs that may be available:

State income tax credits
Payroll tax rebates or refunds
Training grants
Sales tax exemptions
Property tax abatements
Utility cost reduction
Forgiveable loans

Depending on the company facts, a combination of these incentives can offset the expansion costs of a project by as much as 30%.

Qualifiers
- Targeted industries
  - Manufacturing
  - Professional / Financial Services
  - Engineering / Architecture
  - Technology
  - Biomedical / Research
  - Headquarters (regardless of industry)
  - Businesses that generate greater than 50% of their revenue from outside the state
- Non-Eligible – retail, non-profits- casinos, religious or government organizations
- High wages
- New jobs
- Capital investment, and/or
- Geographic location

Timing – the earlier the better

Devils in the Details
- It’s Never Too Early but Often Too Late
- Performance Based
- Knowing what is a true incentive

ESG and Tax Incentives

Some tax incentive programs now require hiring a certain percentage of minorities, providing internships, or other charitiable or serviced based activities.

Impact of Remote Work

State and local governments want to incent companies that will make investments in their communities, provide job opportunities for its population, pay higher than average wages and are quality members of the community. With the post-COVID tendency of remote work, this has caused some companies to have a model that doesn’t establish a connection with a particular community, instead having their employees work from home across the US. In the remote worker scenario, there are often few tax incentive opportunities, and if there are, the benefits aren’t typically worth the effort.

If you would like more information on tax incentives in the US, please get in touch.

Canadian tariffs and exit strategies: A tax perspective

Kreston GTA in Canada is inviting colleagues across the Kreston network interested in Canadian tariffs and exit strategies to join the latest instalment of their tax seminar series, led by Bal Katlai, Tax Partner at Kreston GTA.

Kreston Global announces new East Caribbean firm

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CBIZ to acquire Marcum, strengthening market position

Kreston Global is pleased to announce that our U.S. member firm, CBIZ, has reached a definitive agreement to acquire Marcum LLP.

CBIZ launches Latino-Owned Business Service Team

CBIZ has recently unveiled the Latino-owned Business Service Team, launched to meet the demand for Spanish-speaking accounting services that is driven by a sizeable Latino business community in the United States.

Veronica Quintana, a Director and experienced Certified Public Accountant with a 27-year career in CBIZ’s Oxnard office in California, played a pivotal role in the development and launch of the Latino-Owned Business Service Team, which was held in Hollywood in May this year. Recognising the challenges faced by Latino entrepreneurs, Veronica developed the concept to bridge the gap in accounting services and empower the Latino business community. She said of her new venture,

“A lot of the Latino community is under-served. That is what I’ve noticed from the referrals I’ve received. They are used to working with a tax preparer who is not a CPA and maybe that was fine in the beginning when they first started, but then they grow.

What triggered my plans to develop this service is that I realised I was the only Latina in my office over a number of years, but now we see more Spanish speakers entering the accounting profession, so we’ve had more Latino staff available.

There is so much work out there one person can’t do it all, so this change meant we could expand. My main objective is being able to service them and do a good job.”

Spanish-speaking accountants

Veronica aims to tap into the substantial market potential, expand its reach beyond the borders of California, and empower Latino entrepreneurs by offering them access to qualified accountants fluent in both Spanish and English.

Veronica explained the structure behind the initiative, stating,
“We have identified CBIZ professionals nationally that speak both Spanish and English and across all the typical services as a business would need, such as audit, forensic accounting, and insurance valuation.
So now, when the need arises, when we have a client that is more comfortable speaking in Spanish we have a bilingual team which puts clients more at ease, rather than working with translators where some issues or nuances can be missed.

This way we can more effectively provide a service that they might need to grow their business. It has always been my goal to ensure every business client of mine is successful. If you are successful I feel like I’ve done something right. I’ve been the right partner for you.”

International plans

While the initial focus of the Latino-Owned Business Service Team is Southern California, Veronica’s vision extends far beyond regional boundaries. Together with Francisco Bracamonte, Kreston Global Board Director for Latin America and Partner at Kreston BSG in Mexico, and other members of Kreston Global, Veronica aims to support Latin American clients seeking expansion opportunities in the United States and beyond. This strategic collaboration not only enriches the resources available to Latino entrepreneurs but also facilitates cross-border business growth and strengthens economic ties between Latin America and the United States.

Veronica is really excited about this development, ” I had the pleasure of speaking to Francisco Bracamonte. He invited me to their quarterly meetings with other Latin American countries, which was my first exposure to the Kreston network in Latin America. Everyone was very gracious, and I had the opportunity to share a little bit about what I do.

As a result, Francisco has now invited me to the Kreston LatAm conference in Peru. I will be presenting on the services we offer, as we have numerous Latin American clients. There is a whole world beyond the United States, as some clients prefer to do business in their own countries or have connections there and want to expand into the US market.”

The launch of the Latino-Owned Business Service Team comes at a time when the entrepreneurial spirit within the Latino community is thriving. Latino business owners often possess a strong drive for success and are frequently involved in multiple business ventures simultaneously. Veronica highlighted this characteristic, stating,

“Latinos are entrepreneurs. They love to create new businesses, sometimes they’re just not satisfied with one!”

Thriving community

According to a study by the Stanford Business School, the United States is home to over 62.5 million Latinos, with an impressive economic output of $2.8 trillion. The entrepreneurial spirit within the Latino community has fuelled the establishment of nearly 5 million businesses, generating over $800 billion in annual revenue, highlighting the significant economic activity and potential within the Latino business sector.

The data from the Stanford Business School emphasises the importance of recognising and supporting Latino entrepreneurs. By acknowledging their contributions and understanding the unique challenges they face, initiatives like CBIZ’s Latino-Owned Business Service Team are crucial in supporting Latino business owners to achieve economic success.

While CBIZ has long been a trusted name in the financial services industry, Veronica’s dedication to serving the Latino business community has allowed her to establish strong connections and a loyal client base of Latino business owners.

Success stories exemplify the transformative impact of the Latino-Owned Business Service Team. One notable example is a client who began with a produce company and expanded into real estate investments. Recently, the client completed an event centre. Through comprehensive services such as tax advice, cost segregation studies, and succession planning guidance, Veronica supported her client to navigate the complexities of business expansion, maximizing the entrepreneurial potential of the business which was on the brink of collapse when he walked into her office.

Future plans

Looking ahead, Veronica sees significant growth for the Latino-Owned Business Service Team. Her strategic vision involves expanding the team geographically to cover more regions across the United States. By collaborating extensively with Kreston firms and industry professionals, CBIZ aims to serve as a catalyst for the success and prosperity of Latino-owned businesses throughout the United States and beyond.

If you are looking for a Spanish-speaking professional accountant, get in touch.

Canadian tariffs and exit strategies: A tax perspective

Kreston GTA in Canada is inviting colleagues across the Kreston network interested in Canadian tariffs and exit strategies to join the latest instalment of their tax seminar series, led by Bal Katlai, Tax Partner at Kreston GTA.

Kreston Global announces new East Caribbean firm

Kreston Global has welcomed a new East Caribbean firm in St Kitts & Nevis, called Kreston Eastern Caribbean, to the Kreston Global network.

CBIZ to acquire Marcum, strengthening market position

Kreston Global is pleased to announce that our U.S. member firm, CBIZ, has reached a definitive agreement to acquire Marcum LLP.

Investing in the United States

With the promise of access to a large, open market, many businesses from around the world are interested in investing in the United States. And while global economic shocks in the last few years have certainly taken their toll, that interest has continued.

Investing in the United States still attractive

In 2023, the US ranked number one on the Kearney foreign direct investment (FDI) index for the 11th year in a row. Against a backdrop of global economic instability, the country’s market offers relative safety to cautious investors. As such, it’s seen a steady flow of investment and business expansion in the last few years, with FDI rates now 30% higher than they were pre-pandemic.

Tax specialists at CBIZ MHM, a top 10 US accounting and advisory firm, have noted the continued interest from overseas businesses in setting up in the US.

“I see a fair amount of inbound US investment and expansion from around the world in all different businesses, and all different industries. [In the last 12 months], I’ve seen that continuing,” says Don Reiser, an international tax specialist at CBIZ.

“I haven’t seen a significant slowdown. Obviously, with a slowing economy, you’re seeing maybe fewer M&A transactions. That’s not necessarily a reflection of the US; that’s a reflection of just transactions globally, affected by interest rates and other factors.”

Incentives for investing in the US

Another possible reason for the continued expansion to the US may be the recent introduction of government incentives for investment, through legislation like the Inflation Reduction Act and the Bipartisan Infrastructure Law. Many states also have economic development incentives available to growing companies.

For businesses looking to capitalise on those advantages, there are some important decisions to make early on, including location, structure, business type, and plans for the future.

Tax incentives themselves are rarely the main driver for these choices. Rather, they need to be weighed up carefully in the context of other factors.

“When we look at incentives, I’ve had some clients ask, ‘what’s the best state?’ Well, it depends on the facts, so it’s really important for the client to have at least an idea of the geographic area in the United States that they’d like to locate to,” says Chris Baltimore, managing director of tax incentives at CBIZ.

“This might be based upon workforce or customer access, logistics or a number of things. But it’s really about understanding what kind of capital investment the client’s going to make and what their headcount growth looks like, because those are the two real driving factors of any incentive program.

“You have to look at the entire picture because every state has its own specific tax structure, and there are multiple types of taxes. For instance, Texas is popular because they don’t have a true state income tax; but the property taxes in Texas are high, and so while you save in one pocket, you have additional costs in another category.”

Determining your structure

Kathy Rhodes, international tax specialist at CBIZ, says her number one recommendation for businesses setting up in the US is to understand the structure they want and how they plan to get money out: do you plan on reinvesting the money, getting dividends, or having management fees or royalties, for example?

These questions lead into considerations about another major consideration – transfer pricing. The US has a heavy focus on the rules around transactions within multinational companies, and, as such, Rhodes says this is one of the biggest issues businesses starting in the US run into.

“I always tell people, countries expect to have their fair share of the profits. So, if the company’s in the UK and now they’re opening up a sales branch in the US, then the US would expect that sales branch to generate a profit, whereas the UK company would like to drain all the profit off because it was taxed at 19% previously, while the corporate tax rate in the US is 21%.

“So you might want to save tax by getting a management fee or similar to the UK. But transfer pricing says no, you can’t do that: there ought to be a certain amount of profit based on what you do and the risks that each of you assume.”

The complex set of rules that govern these transactions can be a barrier to entry for some international businesses, with costly transfer internal pricing studies required to avoid problems or IRS penalties down the line. This becomes more important the more established the US arm of your business becomes, but it’s a good idea to consider it from the start.

Navigating the tax system

Another major challenge for businesses new to the states is the complexity of the US tax system itself.

“The US presents unique challenges due to its federal and state tax systems,” says Reiser. “Many countries only deal with their federal tax systems, but in the US, we have to navigate both federal and state taxes. Each state has its own tax rules, and companies need to comply with them. Understanding state tax rules adds complexity to the overall process.”

For instance, while a European company might be used to applying VAT rules – and perhaps dealing with cross-border transactions and international tax treaties – many are unfamiliar with the US sales tax system and the way it applies across different states.

To handle this complexity, Reiser notes that businesses’ best course of action is to rely on the expertise of professionals in this area.

“I think you really need, in advance, to engage your accountants and your lawyers to talk through the business and structuring so that when you enter, you have a pretty good handle on what you’re facing,” he says. “Then you can sort out the issues among your advisors. To me, that’s the lesson.”

Nationwide expertise

With over 50 offices across the US, CBIZ MHM has a specialist team to support international investors to make the right decisions for their business. With 6,500 personnel, they are confident they can support with a national level of expertise, as Kathy can attest,

“In our office, we are organised into different industry teams, and specialisms— software developers make up a significant portion of my clientele. However, I also have clients in the retail and wholesale sectors. If we lack expertise in a particular area, we have colleagues located throughout the United States and various offices who can provide the necessary knowledge and support to help navigate the state regulations and get the best outcome for the client.”

If you are interested in investing in the United States, please get in touch.

Canadian tariffs and exit strategies: A tax perspective

Kreston GTA in Canada is inviting colleagues across the Kreston network interested in Canadian tariffs and exit strategies to join the latest instalment of their tax seminar series, led by Bal Katlai, Tax Partner at Kreston GTA.

Kreston Global announces new East Caribbean firm

Kreston Global has welcomed a new East Caribbean firm in St Kitts & Nevis, called Kreston Eastern Caribbean, to the Kreston Global network.

CBIZ to acquire Marcum, strengthening market position

Kreston Global is pleased to announce that our U.S. member firm, CBIZ, has reached a definitive agreement to acquire Marcum LLP.

Leveraging data, automation and AI for efficiency in business

Leveraging data, automation and AI has emerged as a transformative tool that can provide a competitive edge. A self-described land of opportunity, the US often tops the lists as the most attractive country to invest in. As the largest economy in the world, over 25% larger than China, the US is home to 33 million businesses, with an attrition rate of one business in every five failing in the first year. In such a bustling market, a clear competitive edge is crucial.

Leveraging data, automation and AI to develop accounting services

Kreston Global’s firm in the US, CBIZ MHM, ranked the 10th largest firm in the US by International Accounting Bulletin, is rising to the challenges of economic uncertainty, supply chain issues, and rapid technological advancements. They are at the front of the pack in the race to develop AI and data-driven client services.

We wanted to find out more and spoke to CBIZ’s Chief Innovation Officer, Rob McGillen, and National Leader of Advisory Practice, Thomas Bonney, CPA, about this exciting development. Technology’s importance will accelerate. The future of business within the US is undeniably tied to data gathering and digital transformation and as the use cases and applications increase in complexity, the implementation track is increasing in simplicity and is more available to the middle market than it has ever been.

Just as you’ve heard and probably experienced, American small businesses have weathered “cascading economic storms over the past five years,” to quote the US Chamber of Commerce. These storms have included supply chain disruptions, staffing shortages, inflation, and of course, Covid-19.

Nevertheless, amidst these challenges, businesses have used technology to improve efficiency, reach customers, and gain deep and comprehensive insights from a wealth of data. To compete, and indeed to survive, companies of all sizes need to accelerate their adoption of technology and integrate the technology into all business processes, particularly in the US

Leading the pack on data, automation, and AI services

Thomas Bonney, National Advisory Lead at CBIZ MHM, regularly shares his 30 years of experience in strategy, business transformation, and investment with the broader business community, predicting future trends and advising clients on where to focus efforts. Tom gave us his view,

“CBIZ is at the forefront of innovation, particularly at the intersection of data, automation, and AI. Rob McGillen’s focus on establishing a centre of excellence for digital data services as an advisory practice aligns closely with our vision. We are actively collaborating to develop client-centred solutions and use cases that leverage these advancements.”

Rob McGillen, Chief Innovation Officer at CBIZ, emphasises how businesses can use artificial intelligence (AI) to improve their operations, likening it to a “lightning bolt”.

“As part of our digital transformation strategy, we have successfully upskilled 200 data specialists in the past year. The investment in upskilling and data analytics tools has yielded significant returns, with a return on investment of 10x to 15x per person. The math is simple, and the value proposition is clear, not only to CBIZ as a service provider, but also to our clients as we share this knowledge to improve their business processes.”

Harnessing efficiencies

In the coming decades, organisations that effectively combine data and AI to transform customer and employee experiences will not only survive but thrive. The future success of businesses hinges on their ability to gather insights from data with tools, including AI technologies.

Rob describes a recent instance when his team used AI to complete a financial analysis of a client that would have taken “three people three weeks to do”. The result? An analysis “equal to or better than” the work of a “20-year veteran” in just a minute and a half. This compresses weeks’ worth of work into just a few minutes, showcasing the power of automation and AI.

“However, for firms still reliant on traditional billing models based on hourly rates, this rapid transformation presents an existential crisis. As the effort required to deliver services diminishes from hours to seconds, new economic models and billing strategies must be adopted for continued viability.”

Adapting to change

Adaptation and evolution are essential for long-term success in the changing landscape of business. AI can do a lot for businesses, from automating certain financial tasks and analysing data for trends to handling customer inquiries and creating forecasts. These are things that humans can do, but the beauty of AI lies in how quickly it can process data, allowing you to focus on your core business.

But you can also use AI to simplify aspects of business you may never have considered before, such as recruitment. Rob shared an experiment he did, where he used ChatGPT to create a job description and some auto-generated CVs.

He then asked the generative AI to evaluate the candidates and create five topics that should be on an interviewer’s list of key things to discuss. “It was spot on. It was like ‘the candidate demonstrates the following characteristics that align well”. So, think outside the box to see where AI and technology more generally can help you streamline your processes.

Human advice remains integral to success

While AI can offer valuable insights and streamline processes, it should not entirely replace human financial advisers. After all, business finance involves complex emotions, nuanced decision-making, and unique circumstances that require human empathy and understanding — all of which are needed during the tough times of 2023 and beyond.

Tom Bonney has an urgent plea for clients, “In the next 24 months, it will be crucial for companies to have advisors and access to information that can assist them in making optimal decisions despite imperfect and ever-evolving circumstances; the AI driven answers are only as valuable as the quality of the source data and the context into which the data is used to drive change.

He sees a future where data, AI and a collection of professional advisors will provide the optimal odds that business executives get the big decisions right, over time.

“There are nuances to doing business in the US and your advisors, understanding the corporate goals and working with the clients and their data can get to an optimal solution.”
“By making informed choices, businesses will gain institutional confidence and a clear direction for investment in the period spanning from 2025 to 2030.”

Shaking up data processes with AI

Starting a business in the US is an exciting idea, but one packed with challenges. However, the future of doing business in the US looks bright, with the use of technology ramping up and the regulatory environment remaining stable.

Artificial Intelligence, a lightning bolt in this digital age, continues to redefine traditional processes, offering unprecedented opportunities for efficiency, insight, and transformation.

While Tom, Rob and the teams they are setting up at CBIZ across the country remain excited at the potential of the support they can give clients navigating this ever-evolving landscape, there is still room left for good instinct, great advice and solid planning, Rob explains,

“Our technology focus at CBIZ Financial Services is shifting quickly from ‘same’ to ‘transform’ as our clients are facing economic headwinds and seeking efficiencies in their own business. Technology is the wheel on which business turns, accelerating every season, and our clients are themselves continuously considering new ways to find value with tech-enabled solutions

We have set corporate policies now to manage the risks and missteps and learning each week new ways to leverage. What will be fascinating over the next 12 months will be the adoption rate and embrace of Generative A.I. in commercial products we all leverage (including Microsoft and other tax and audit solutions).

My best advice to those entering the market is to consider how you want to navigate the shifting US economic conditions and seek a combined view from experts. There is never a perfect time to expand, and approaching the opportunity with a partner which offers innovative ways of serving a multi-national client is a great step forward!”

If you would like to learn more about using data, AI and automation to give your business competitive edge, get in touch.

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