The phrase “ignorance is no defense” was never more applicable than in the world of money, accounting, and accounting laws. Businesses, families, and accounting professionals are responsible for complex laws and rules that often change without fanfare or widespread publication. For example, a tax law that’s been the same for years could change with just a small footnote in the code.
The Cost of Failure to Stay Up to Date
Bad accounting practices represent the potential for significant business loss, but it’s not just the tax code, accounting laws, and fines that come into play. Accounting of any kind needs to be in-depth and provide statistics, numbers, and gauges on things like profit and loss. Without comprehensive books, a business can’t make the best decisions on purchasing, bids, and expansion.
Handling Accounting Without a Professional
Small business owners may try to handle accounting without the help of a professional, but without adequate training this habit can only be sustained for a few years before business growth and changing accounting rules require someone with experience. Equity method investments, qualitative impairment tests, and revenue recognition are just a few of the complex accounting concepts of standard financial reporting.
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IRS is Serious About Collections and Examination
In recent years, the IRS has been expanding upon the number of people it employs to examine tax documents and find accounting mistakes. In the last 8 years, the IRS has added nearly 20% more employees dedicated to enforcing the tax code for businesses and individuals. This hiring spree has allowed the IRS to collect billions of dollars in additional tax revenue.
Remembering State Accounting Laws
The federal government actively changes accounting laws every year, and it’s not uncommon for accounting professionals to read about the new changes from cover to cover. However, it’s also important to read about changes occurring at the state-level since each state has different rules from the federal government. Those rules are also just as likely to change on a yearly basis.
Accounting Laws and Getting Tax Breaks
Staying up-to-date on accounting laws isn’t just a matter of paying enough taxes. New laws that offer additional tax breaks and incentives are published each year by the government. Failure to take note of changes to the tax code or accounting rules means a business could miss out on a tax break that could save hundreds or even thousands of dollars. The government routinely provides opportunities to help businesses grow through tax breaks. New opportunities must be investigated every year.
Resources for Tax & Accounting Professionals
Professional organizations like the American Institute of CPAs (AICPA) take standards and accounting changes very seriously and have crafted several tool kits meant to help CPAs deal with the yearly changes to accounting standards like audits and financial reporting. However, it’s important to consider that these resources aren’t a substitute for continuing professional education (CPE) and actual study of new accounting laws.
Changes in accounting rules occur each year, and it’s best to remain aware of those changes when they arrive, rather than at tax time or when financial documents are due. Implementing change as early as possible to accommodate new accounting laws offers businesses and individuals opportunity to make changes to the budget to prevent future financial problems and avoid penalties or fees.