On My Soapbox About Regulations
Recent posts discussed new regulations and the unintended consequences that companies are, or will experience as a result. ASC 606, already in effect for public organizations, affects nonpublic companies for annual reporting periods beginning after December 2018. The South Dakota vs Wayfair ruling last year has impactful implications for businesses who qualify to pay sales tax. Together these regulations are like tsunamis that are overtaking public and private organizations.
These tsunamis can significantly impact your business large or small. Organizations tend to frequently hold off on systems upgrades and acquisition integration noting they cannot afford it. The combination of these regulatory tsunamis transitions the conversation and makes it imperative systems work seamlessly together. The organization cannot afford for that not to happen.
These tsunamis share common implications to you – in order to complete the analysis of how each will impact your organization and to implement the proper accounting, you must have good clean customer data in a system with strong month-end controls; and you must have the actual executed customer contracts – all of them. In my experience with organizations of all sizes, these requirements are problematic because they just don’t happen. What I find is that customer data is scattered throughout multiple databases and spreadsheets, month end processes end up being shoot-from-the-hip events and customer contracts are in various states of execution due to lack of strong contract administration.
These issues are even worse for organizations that have decided we are going to work “smarter,” – a buzz word I hear associated with the elimination of the administrative assistant position. The Ivory Tower people who have just deposited a one million dollar sign-on bonus in their bank account for a C-level position at a public company are going to have a press release and investor call where they talk about how we are going to work smarter, etc.; then the staffing cuts happen. I see the administrative positions go fast.
The administrative assistant is often the traffic controller of the organization. Read my post, Who is your Betty about this critical role. Critical because, once that position is eliminated, contracts and corporate documents are all over the building, saved on laptops that may or may not be backed up somewhere and are reimaged when the person leaves. In the past year, every single time I have been involved with collecting customer contracts for due diligence or some type of project, the C-level person I am working with has had to call the professional on the other side of at least one contract and ask if they have a fully executed copy. This is a HUGE and embarrassing issue occurring in companies, regardless of industry and profit-status.
Accurate contracts and clean customer data are required for any hope of achieving compliance with ASC 606 Revenue Recognition and the interstate sales tax impacts from South Dakota vs Wayfair.
Sales Tax – the Wayfair case is highly technical when you dig into the guts of it, and I wrote about some of those technicalities previously. Here are a few points to keep in mind as the impacts of this ruling become more concrete:
- The threshold for reporting Sales Tax is $100,000 OR 100 transactions. What about your college student making and selling hairbows cheerleaders around the country on Etsy to? They better not send 100 hairbows collectively to certain states unless they are prepared to collect and submit sales tax.
- State and governmental entities that are in charge of regulating this probably do not have a plan on how they are going to accomplish this. Are they going to stop every long haul truck coming into the state? Look in every mailbox? I am not sure how they are going to find you!
- Since the law is retroactive you may have a big liability out there that you do not know about. Why – because you cannot locate the contracts or analyze data because you have none that is clean. Instead, you may have to guess what states, how many transactions, how much it adds up to.
If your organization undergoes an audit or wants to pursue a capital raise or total sale – this can be a huge problem.
Respect your accountants and know they have a difficult job to maintain all of these controls. CPAs, in general, are not the best at standing up for themselves and making sure they have the right infrastructure. CEOs and Boards tend to hire in the Marketing and Sales areas and cut in the Accounting side. IT systems are not upgraded and maintained properly, which further complicates the job of maintaining clean data. Speak up – challenge the impact of short-sighted decisions.
Barker Associates helps small-to-large businesses, especially entrepreneurs, improve performance and increase financial stability. Contact Barker Associates at firstname.lastname@example.org.
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