The Importance of an Incentives Review Process

 
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by Minah Hall, Managing Director

Transparency, scrutiny, and compliance…these words have taken on increased importance in today’s business environment. In the incentives world, it is no different. Incentives reporting has become the focus of (potentially) two new accounting standards, and successfully “monetizing” negotiated incentives is becoming more and more important to companies of all sizes. CFOs and accounting team members may want to move incentives compliance up on their lists.

Increased Scrutiny

The Governmental Accounting Standards Board (GASB) finalized the new Tax Abatement Disclosures, Statement No. 77 in August 2015; this statement requires governmental bodies to disclose information about (1) a reporting government’s own tax abatement agreements and (2) those that are entered into by other governments that reduce the reporting government’s tax revenues. Similarly, the Financial Accounting Standards Board (FASB) jumped into the fray in November 2015 (comments were due in February 2016, but no final statements had been released at the time of this article). The FASB wants to use this as a tool to increase transparency related to “government assistance arrangements” including “(1) the types of arrangements, (2) the accounting for government assistance, and (3) their effect on an entity’s financial statements.” Bottom line? Federal regulatory agencies are looking more closely at the tax credits and incentives state governments award to companies.

The Importance of a Review Process

Incentives review and compliance has always been a vital part of monetizing the incentives a company negotiated during the site selection process. With the additional burdens placed on governmental agencies and possibly on companies through a potential FASB standard, it is now more important than ever to establish an incentives review process for all incentives awarded.

An effective incentives review process seeks to:

  • Review the company’s active incentives contracts;
  • Track the company’s progress toward incentives contract requirements; and
  • Monitor and comply with incentives contracts’ reporting requirements.

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