Bill: You once told me that persistence and resilience are themes for you. How have these themes carried over into your professional life, in the work that you do with your clients? 

Cesar: I’ve always believed that if you’re resilient and persistent, you achieve better fruits in the future. That applies directly to our professional role. Audit engagements, especially with public company clients, can be very difficult to get comfortable with from another perspective. But if we stay persistent, we can deliver results, meet deadlines, and get to the finish line. 

Bill: Let’s talk about how that relates to cannabis. When resilient companies in that space try to raise capital, what are some of the challenges you see? 

Cesar: Investors are cautious. When cannabis companies issue debt, investors often want more than just a high interest rate — they want warrants on top of that. But warrants come with complications. If holders have anti-dilution rights, then when the company raises more capital, those warrants can’t be diluted. That creates liabilities. We understand the derivative activity that results from these structures and how to address them from an accounting standpoint.  

Bill: Beyond financing, many cannabis companies are also growing quickly through acquisitions. They obviously have to be persistent, but what issues come up there?  

Cesar: Smaller operators often start with one or two dispensaries or a single greenhouse and then expand rapidly to 20 or more locations. That triggers business acquisitions. The question is…how do you account for those transactions? Do you observe inventory on day one? Some firms skip that, and it becomes a finding. We focus on doing things right every step of the way. 

Bill: You’ve also worked on some very complex biotech audits, including situations where larger firms struggled. Can you share one of those experiences? 

Cesar: Sure. We were referred to a situation with a larger biotech company that had been audited by a Big Four firm. The Big Four couldn’t trust management on certain foreign transactions. Every question went up to their national office, and it dragged on for weeks. Quarterly reviews stalled, the prior year audit wasn’t completed, and the current year audit was at risk. 

We came in and approached things differently. Instead of sending information up the chain, we sat down with management — CEO, CFO —and made phone calls in front of them, validated the information directly, and often resolved issues the same day. We pulled in legal, transactions, and accounting teams, connected the dots, and identified where the real issue was. 

Over three to four months, thousands of hours, we caught up on quarterly reviews, delivered the prior year audit, and positioned the company for the current year audit. We presented our findings to the audit committee, including material weaknesses and deficiencies, but we got to the finish line. And we did it without shying away from tough conversations. All while still keeping the audit on track. 

Bill: That’s exactly what stands out, Cesar. Whether it’s cannabis companies navigating capital raises and acquisitions, or biotech firms dealing with high-stakes audits, you and your team get results. 

In cannabis and biotech alike, persistence, technical depth, and a hands-on approach make the difference between stalled progress and a successful outcome. At MGO, we combine resilience with practical execution to help clients navigate complexity and move forward with confidence. Contact us to learn more.  

The post MGO Stories: From Cannabis Capital to Complex Biotech Audits appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• New EBITDA-based deduction rules may reduce your company’s taxable income significantly.

• Capital-intensive and IP-driven businesses stand to benefit the most from this tax change.

• Your tax strategy may need updates to maximize savings and follow new interest deduction rules.

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If your business carries significant debt and works in a capital-intensive or intellectual property (IP)-heavy industry, a long-anticipated tax law change could substantially lower your federal tax bill. The shift — part of recent legislation — reintroduces a more favorable formula for deducting business interest, allowing many mid-market companies to benefit — especially those in manufacturing, telecom, life sciences, and tech.

Background

As of July 2025, businesses can now calculate interest deductions using 30% of EBITDA (earnings before interest, taxes, depreciation, and amortization), rather than EBIT. This adjustment expands the deduction cap and directly benefits companies with heavy equipment investments or large intangible asset portfolios. The change could translate into millions in annual savings — freeing up cash flow for reinvestment, hiring, or expansion.

What’s Changed — And Why It Matters to You

Before this change, companies could only deduct interest up to 30% of EBIT — a narrower measure of income. This penalized firms with large depreciation and amortization expenses, reducing their ability to fully deduct interest on debt.

Now, with EBITDA back in the calculation, more of your interest expense is deductible. This especially benefits companies:

• Investing in equipment or facilities (high depreciation)

• Relying on patents, software, or brand value (high amortization)

• Backed by private equity or using debt to scale operations

While large companies drive headlines, middle-market firms with aggressive growth plans or recent capital investments are equally poised to benefit — if they act quickly.

How This Impacts Your Tax Strategy 

If you’re a CFO or tax executive, this isn’t just a policy footnote — it’s a planning opportunity. Here’s what you should assess right now:

1. Model Your EBITDA Versus Interest Exposure

Review your financials and calculate interest as a percentage of EBITDA. Even if you were under the earlier EBIT-based cap, rising interest rates may have brought you closer to the limit. With EBITDA, you could have new room to deduct more.

2. Re-Evaluate Capitalization and Asset Strategy

High depreciation and amortization are now helpful again. Consider whether capital expenditures or amortized IP assets (like patents or software licenses) can be timed or structured to further boost EBITDA.

3. Evaluate Foreign Income Impacts

Not all changes are favorable. The law also requires exclusion of certain foreign income and includes capitalized interest in deciding whether you’re over the cap. These nuances may reduce the benefit for some companies.

Which Industries Should Pay Close Attention?

This shift disproportionately benefits sectors where depreciation or amortization drives EBITDA higher, such as:

Manufacturing and Distribution

Heavy equipment investments often drive large depreciation. This change lets you deduct more interest related to equipment purchases, expansions, or upgrades. Explore our manufacturing solutions »

Life Sciences and Biotech

Drug and device companies with large IP portfolios now have more headroom to deduct interest — especially helpful if your company is scaling or recently completed an acquisition.

Technology

Amortizing intangibles like proprietary software and brand assets could boost EBITDA, giving you a wider deduction window — vital if your company used debt to fund growth.

Telecommunications

With substantial infrastructure depreciation, this rule is especially impactful. Businesses can now recapture deductions lost under EBIT rules.

What You Should Do Next

This is the time to:

• Re-model your tax position using EBITDA-based caps

• Reassess financing strategies considering increased deductibility

• Analyze carryforwards and future-year tax projections

• Revisit capitalization policies and M&A financing structures

Even if your interest expense is well below the cap today, this law creates a more favorable environment for future borrowing and investment.

How MGO Can Help

At MGO, we help mid-market companies translate complex tax changes into clear business advantages. Our tax professionals work with clients in manufacturing, life sciences, technology, cannabis, and other fast-evolving industries to build strategies that align with your capital structure and growth goals.

We go beyond compliance — helping you improve interest deductibility, forecast future liabilities, and stay ahead of shifting regulations. Let’s talk about how this change can strengthen your bottom line.

The post How Your Business Can Save Millions on Interest Deductions appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Accurate accounting helps startups attract investors, access credit, and make informed business decisions. 

• Implementing a scalable accounting system early supports growth and compliance. 

• Outsourcing accounting can save time, reduce risk, and provide strategic financial advice as your startup grows. 

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Starting a business is exciting, but it’s easy for accounting to fall to the bottom of the to-do list in the rush to develop products and build a customer base. 

Laying a strong financial foundation early on is crucial for long-term viability and growth. Whether your startup is bootstrapped or venture-backed, sound accounting practices help you track performance, attract investors, access credit, and comply with tax rules. 

Why Accounting for a Startup Company Is Necessary

Startups face a unique set of financial pressures. Many operate with limited resources while attempting to scale quickly. In these circumstances, accurate and timely financial reports are critical for making informed decisions, managing cash flow, and demonstrating fiscal responsibility to potential lenders or investors. 

Investors may require financial statements if you’re looking for venture capital or preparing for Series A and beyond. Investors want to see a clear picture of burn rate, runway, margins, and revenue growth. Banks and other lenders typically require financial statements to underwrite loans or lines of credit. 

Beyond external stakeholders, accounting helps internal teams understand what is working and what isn’t. It shows your true customer acquisition cost (CAC), identifies where you can improve margins, and helps uncover early signs of inefficiency and waste. 

How to Set Up Accounting for Your Startup

Follow these steps to establish a solid accounting foundation for your startup’s financial health:

Step 1: Choose an Accounting Method 

One of the first decisions you need to make is whether to use cash basis or accrual basis accounting. 

• Cash accounting records income when you receive cash and expenses when you pay them. This method is simple and often suitable for early-stage startups with minimal inventory or accounts receivable. However, it can give a misleading picture of profitability — especially if there are large timing differences between revenue and expenses. 

• Accrual accounting records income when you earn it and expenses when you incur them, regardless of when cash changes hands. This approach provides a more accurate view of financial performance, and investors generally prefer it. 

Many startups begin using cash basis accounting but switch to accrual accounting as they mature. Whichever method you choose, consistency supports comparability and compliance. 

Step 2: Open Business Bank Accounts 

One important yet often overlooked step in setting up an accounting system is opening separate business bank accounts and credit cards.  

Mixing business and personal transactions in the same account makes it tough to track income and expenses. Using a separate bank account simplifies bookkeeping and streamlines monthly reconciliations. 

Using a business bank account to pay vendors, receive payments, and manage cash flow conveys professionalism to clients, suppliers, and financial institutions. It also provides a clearer audit trail when getting audited financial statements for investors, lenders, and regulators. 

Similarly, a dedicated business credit card can help establish a credit history for your company, help you track expenses by category, and potentially earn rewards while keeping personal spending separate. 

Taking this step early lays the groundwork for organized and transparent financial management. 

Step 3: Use an Accounting System 

Implementing reliable accounting software early on helps you avoid costly errors and inefficiencies down the road. Your accounting software should support basic accounting tasks such as: 

• Recording financial transactions — including sales, purchases, payroll, etc. 

• Reconciling bank accounts 

• Paying bills 

• Managing accounts payable and receivable 

• Expense tracking by category or project 

• Generating financial reports — including a balance sheet, profit and loss (P&L) statement, and cash flow statement 

For most startups, cloud-based accounting software is the logical choice. Platforms such as QuickBooks Online, Xero, or Sage Intacct offer scalability, automation, and access for remote teams. They also integrate with other tools —, including payroll, customer relationship management (CRM) systems, inventory management, and e-commerce platforms. 

Also, consider who will be responsible for entering data, approving payments, and reviewing reconciliation and other financial reports. Even with automation, you need oversight to maintain accuracy and prevent fraud. 

Step 4: Plan for Tax Preparation 

Taxes are often an afterthought for startups, but early planning prevents surprises and supports smoother compliance. 

Here are a few areas to address early on: 

• Business structure: The choice between sole proprietorship, LLC, partnership, S corporation, or C corporation impacts how you pay taxes. It also affects eligibility for certain deductions and credits. 

• Sales tax nexus: Startups selling goods or services across state lines may have sales tax obligations in multiple jurisdictions. It’s crucial to understand where and when to collect and remit sales taxes. 

• Payroll taxes: Hiring employees triggers payroll tax filing and remittance requirements. Misclassifying employees as independent workers or missing deadlines can result in penalties. 

• Estimated taxes: You need to start making quarterly estimated tax payments as soon as the business starts generating profits. 

• Tax deductions and credits: Startups involved in product development may be eligible for incentives, such as the research and development (R&D) tax credit. This credit can offset federal and state income taxes and, in some cases, payroll tax liabilities. However, it’s important to document qualifying activities and costs to claim these benefits. 

Should Your Startups Outsource Accounting? 

While many business owners attempt to handle bookkeeping themselves in the early stages, outsourcing is a strategic decision that saves time and reduces risk. 

Outsourced accounting services range from recording transactions and preparing monthly reconciliations to controller or CFO-level oversight. For startups with limited staff, this approach provides access to financial guidance without the cost of building an in-house team. 

Outsourcing is especially valuable when: 

• Founders are unfamiliar with generally accepted accounting principles (GAAP) or financial reporting 

• The business has multiple revenue streams or international transactions 

• Investors or lenders require formal financial statements 

• Compliance and tax filing deadlines are approaching 

Before engaging an external accounting services provider, evaluate their process, technology stack, and service model. Look for a professional who is experienced with early-stage companies in your industry and one who can scale services as your needs evolve. 

How MGO Can Help 

Accounting is the foundation for making strategic decisions and building financial credibility. Startups that invest early in solid accounting practices are better equipped to manage growth, appeal to investors, and handle their tax obligations. 

MGO helps founders build a strong accounting foundation — from selecting an accounting method and accounting software to managing outsourced accounting functions and preparing for tax obligations. Our team understands the unique challenges startups face and provides practical, reliable support to help you reach your business goals. 

Reach out today to learn how we can support your business’s financial health from day one. 

The post Accounting Tips for Startups: Setting Up Financial Systems for Success  appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Review tax methods to boost deductions and defer income. Non-automatic changes need IRS Form 3115 by Dec. 31, 2024.

• Rev. Proc. 2024-34 allows short-year filers in 2022-23 to file automatic method changes. Missing Section 174 compliance may risk audits.

• Optimize deductions with bonus pay, prepaid expenses, and inventory write-offs. Bonus depreciation drops to 60% in 2024 — plan assets wisely.

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As a corporation or pass-through entity, you may have opportunities to improve your federal income tax position and, in turn, enhance your cash tax savings by strategically adopting or changing tax accounting methods.

If you want to reduce your current year tax liability — or create or increase your current year net operating loss (NOL) — you should consider accounting method changes that accelerate deductions and defer income recognition. On the other hand, for several reasons, such as using an existing NOL, you may choose to undertake accounting methods planning to accelerate income recognition and defer deductions.

The rules covering the ability to use or change certain accounting methods are often complex, and the procedure for changing a particular method depends on the mechanism for receiving IRS consent — i.e., whether the change is automatic or non-automatic. Many method changes require an application to be filed with the IRS prior to the end of the tax year for which the change is asked.

December 31 Deadline for Non-Automatic Method Changes 

Although the IRS allows many types of accounting method changes to be made using the automatic change procedures, some common method changes must still be filed under the non-automatic change procedures. A calendar year-end taxpayer that has shown a nonautomatic accounting method change that it needs or desires to make effective for the 2024 tax year must file the application on Form 3115 during 2024 (i.e., the year of change).

Notably, Rev. Proc. 2024-23, released on April 30, 2024, removed from the IRS list of permissible automatic method changes any change made to follow the Section 451 all-events test applicable for accrual method taxpayers. Effective for Forms 3115 filed on or after April 30, 2024, for a year of change ending on or after September 30, 2023, this method change may only be made using the non-automatic change procedures.

Among the other method changes that must be filed under the non-automatic change procedures are many changes to correct an impermissible method of recognizing liabilities under an accrual method (for example, using a reserve-type accrual), deferred compensation accruals, and long-term contract changes under Section 460. Additionally, taxpayers that do not qualify to use the automatic change procedures because they have made a change with respect to the same item within the past five tax years will need to file under the non-automatic change procedures to request their method change.

Generally, more information needs to be provided on Form 3115 for a non-automatic accounting method change, and the complexity of the issue and the taxpayer’s facts may increase the time needed to gather data and prepare the application. Therefore, taxpayers that wish to file non-automatic accounting method changes effective for 2024 should begin gathering the necessary information and prepare the application as soon as possible. 

IRS Releases Modified Procedural Guidance for Section 174 R&E Costs

On August 29, 2024, the IRS issued Rev. Proc. 2024-34, which offers modified procedural guidance allowing taxpayers with short taxable years in 2022 or 2023 to file an automatic accounting method change for a 2023 year for specified research or experimental expenditures (SREs) under Internal Revenue Code Section 174. The revised procedures are effective for Forms 3115 filed on or after August 29, 2024. 

Effective for tax years beginning in 2022, the Tax Cuts and Jobs Act requires taxpayers to capitalize SREs in the year the amounts are paid or incurred and amortize the amounts over five or 15 years. Due to this shift in treatment, taxpayers using a different method of accounting for Section 174 costs were needed to file a method change to follow the new rules for their first taxable year beginning after December 31, 2021. 

Rev. Proc. 2024-34 Provides Taxpayers Additional Flexibility 

Taxpayers may want or need to file successive accounting method changes to follow new technical guidance issued by the IRS or correct or otherwise deviate from the positions taken with the first method change. 

Prior to the issuance of Rev. Proc. 2024-34, taxpayers seeking to file successive automatic changes to follow the updated Section 174 rules could only do so for changes made for the first and second tax years (including short tax years) beginning after December 31, 2021. Thus, a taxpayer with two short taxable years in 2022 (for example, due to a transaction) that filed an automatic Section 174 method change for one or both of those years previously would not have been able to file another automatic Section 174 method change for its 2023 year. 

Rev. Proc. 2024-34 provides taxpayers with added flexibility to file an automatic Section 174 method change for any taxable year beginning in 2022 or 2023, regardless of whether the taxpayer has already made a change for the same item for a taxable year beginning in 2022 or 2023. Therefore, taxpayers that have not yet filed a federal income tax return for 2023 or have timely filed their 2023 return and are within the extension period for such return (even if no extension was filed), may be able to file an automatic change for SREs even if an accounting method change has been filed for a year beginning after December 31, 2021. 

Rev. Proc. 2024-34 also changes the existing procedural rules to allow taxpayers that are in the final year of their trade or business to use the automatic procedures to change to the required accounting method for SREs for any tax year beginning in 2022 or 2023. Under the prior guidance, taxpayers could only file an SRE method change in the final year of their trade or business for their first or second taxable year beginning after December 31, 2021. 

Audit Protection May Not Be Available 

Importantly, the updated guidance clarifies that if a taxpayer did not change its method of accounting to follow Section 174 for its first taxable year beginning after December 31, 2021, the taxpayer will not receive audit protection for a change made in any taxable year beginning in 2022 or 2023. With this revision, the IRS is effectively denying audit protection for all taxpayers (regardless of whether they had short periods or full 12-month years in 2022 and 2023) that did not originally file a change to comply with Section 174 with their first taxable year beginning after December 31, 2021, unless they defer filing a method change until a tax year beginning in 2024 or after. 

Claiming Abandonment and Casualty Losses 

A taxpayer may be able to claim a deduction for certain types of losses it sustains during a taxable year — including losses due to casualties or abandonment, among others — that are not compensated by insurance or otherwise. 

The loss is allowed as a deduction only for the taxable year in which it is sustained. Further, the loss can be claimed on an originally filed tax return or on an amended tax return. It is important for businesses to be aware of any potential loss that has occurred, or may occur, in a taxable year, and to make sure that documentation and actions are taken within the taxable year to support the loss deduction. 

Abandonment Losses 

To substantiate an abandonment loss, some act is needed to show a taxpayer’s intent to permanently discard or stop the use of an asset in its business. No deduction is allowed if a taxpayer holds and preserves an asset for potential future use or for its potential future value. Suspending operations or merely not using an asset is not sufficient to show an act of abandonment, nor is a decline in value of an asset sufficient to claim an abandonment loss. 

To prove abandonment of an asset, a taxpayer must show both written evidence of an intention to irrevocably abandon the asset and an affirmative act of abandonment. Although some guidance exists on when a tangible asset is considered abandoned, showing abandonment of intangibles can be more challenging, and little guidance exists related to current technologies such as software, internet, or website-related intangibles. 

Casualty Losses 

For a business taxpayer that needs to decide whether its gains or losses during the taxable year are treated as capital or ordinary under Section 1231, there is a special rule for involuntary conversions, which include casualties. An involuntary conversion, in relevant part, is the loss by fire, storm, shipwreck, or other casualty, or by theft, of property used in the taxpayer’s business or any capital asset that is held for more than one year. If losses from involuntarily converted property exceed gains from such property, Section 1231 does not apply to decide the character of the gain or loss. A net loss will be treated as an ordinary loss. If the taxpayer does not have losses from the involuntarily converted property, the general rules under Section 1231 must be followed.

A casualty loss results from a sudden, unexpected, or unusual event that causes damage to your property. Unlike gradual wear and tear, these losses stem from identifiable incidents that occur abruptly and are typically beyond your control.

The IRS defines casualty losses broadly, encompassing events such as:

• Earthquakes
• Fires
• Floods
• Government-ordered demolitions or relocations of property believed unsafe by reason of disasters
• Mine cave-ins
• Shipwrecks
• Sonic booms
• Storms (including hurricanes and tornadoes)
• Terrorist attacks
• Vandalism
• Volcanic eruptions 

Note: For individuals that experience a casualty event between 2018 through 2025, casualty losses are deductible only to the extent they are attributable to a federally declared disaster.

Federally declared disasters. Generally, casualty losses are deducted only in the year in which the casualty event occurs. However, if the casualty loss is attributable to a federally declared disaster, a taxpayer may elect to take the deduction in the prior tax year. Disaster declarations are published in the Federal Emergency Management Agency (FEMA) website. The IRS typically publishes notifications in the Internal Revenue Bulletin shortly after a declaration.

Tax Rules for Calculating Percentage of Completion Revenue

The percentage of completion method (PCM) for long-term contracts, governed by Section 460 of the Internal Revenue Code, is often misapplied by taxpayers as a method of tax accounting. Taxpayers with qualifying construction or manufacturing contracts often follow their book methodologies with minimal, if any, adjustments for tax purposes; however, the rules governing PCM under Section 460 differ significantly from those governing over-time recognition under GAAP.

Further, PCM method changes are typically non-automatic; thus, calendar-year taxpayers seeking to change their method for long term contracts must file a Form 3115 by December 31, 2024, to implement the change for their 2024 tax year. 

For more information see MGO’s article: Disasters and Your Taxes. What you need to know. 

Defining Long-Term Contracts — Eligibility for PCM 

Qualification as a PCM-eligible long-term contract is found on a contract-by-contract basis and has two broad requirements: 

1. the contract must be for a qualifying activity (either construction or manufacturing), and 
2. the contract must qualify as long-term.

What Is a Construction Qualifying Activity? 

Construction is considered a qualifying activity if one of the following occurs to satisfy the taxpayer’s contractual obligations: 

• The building, construction, reconstruction, or rehabilitation of real property (i.e., land, buildings, and inherently permanent structures as defined in Treas. Reg. §1.263A-8(c)(3)) 

• The installation of an integral part to real property (property not produced at the site of the real property but intended to be permanently affixed to the real property) 

• The improvement of real property. 

Manufacturing will satisfy the activity requirement if the item being produced: 

1. normally requires more than 12 calendar months to produce (regardless of the actual time from contract to delivery); or
2. is “unique.” In this context, unique means far more than mere customization. 

The Section 460 regulations provide several safe harbors to aid taxpayers with deciding whether the item being manufactured is unique. 

To be considered long-term under the PCM rules, a contract must begin and end in two different taxable years. Therefore, in theory, even a two-day contract from December 31 to January 1 could qualify as a long-term contract. 

PCM Calculation 

For tax purposes, the taxpayer’s inception-to-date contract revenue corresponds to the ratio of inception-to-date contract costs incurred to total estimated contract costs. Regarding expense recognition, Section 460 mandates the accrual method for contract costs, such that deduction generally occurs in the same year the costs are considered in the PCM ratio’s numerator. As previously noted, the tax rules governing PCM likely deviate from the book treatment of income/expenses in several aspects. 

For instance, under Section 460, taxpayers must follow how to decide the types and amounts of costs that are considered in the project completion rule. Further, there are specific rules pertaining to the treatment of pre-contracting costs (e.g., bidding and proposal costs), as well as look-back rules, which require a taxpayer, after the completion of a long-term contract, to perform a hypothetical recalculation of its prior years’ income using the actual total contract price and actual total contract costs, rather than the estimated total contract price and estimated total contract costs used for its prior year returns. 

Interplay with Section 174 

Many taxpayers with long-term contracts may be changed by the requirement to capitalize Section 174 R&E expenditures. Taxpayers with significant contract-specific R&E expenditures may see some opportunity to defer the recognition of income in line with the deferral of R&E expense based on the IRS’s requirements for including R&E costs within the numerator and denominator of the completion percentage formula. 

Notice 2023-63 has clarified that the numerator of the completion percentage formula holds only the amortization of the capitalized R&E costs, not the gross amount of the year’s R&E expenditures. More recent guidance (Rev. Proc. 2024-09, released on December 22, 2023) provides some limited flexibility concerning the inclusion of Section 174 costs in the denominator. 

Tax Accounting Considerations for Sales of IRA Tax Credits 

Taxpayers either buying or selling certain federal income tax credits under the Inflation Reduction Act of 2022 (IRA) should be aware of specific tax accounting rules governing the treatment of amounts paid or received for those credits. These special rules are provided in Section 6418 of the Internal Revenue Code, as well as in final Treasury regulations published in the Federal Register on April 30, 2024. 

Taxpayers unaware of the new rules might overlook them and mistakenly apply the more familiar general rules instead, potentially resulting in sellers overstating their taxable income and purchasers claiming impermissible deductions. 

The special tax accounting rules apply in preparing federal income tax returns of taxpayers engaging in qualifying transfers of eligible credits in 2023 or later years. 

The new tax accounting rules apply to qualifying sales of the following tax credits: 

• Alternative Fuel Vehicle Refueling Property (§30C, §38(b)) 
• Renewable Electricity Production (§45(a)) 
• Carbon Oxide Sequestration (§45Q(a)) 
• Zero-Emission Nuclear Power Production (§45U(a)) 
• Clean Hydrogen Production (§45V(a)) 
• Advanced Manufacturing Production (§45X(a)) 
• Clean Electricity Production (§45Y(a)) 
• Clean Fuel Production (§45Z(a)) 
• Energy Credit (§48) 
• Advanced Energy Project Credit (§48C) 
• Clean Electricity Investment Credit (§48E) 

Section 6418 allows taxpayers to pick to transfer eligible credits an unrelated person (but an eligible credit can only be transferred one time). Specific requirements and procedures apply in making such an election. 

Special Tax Accounting Requirements 

Qualifying transfers of eligible credits are subject to specific tax accounting rules that differ from tax accounting principles generally applicable to the sale or exchange of property. Section 6418(b) provides that with respect to consideration paid for the transfer of an eligible credit, that amount: 

• Must be “paid in cash”; 

• Is not includible in the seller’s gross income; and 

• It is not deductible by the purchaser of the eligible credit. 

In the case of eligible credits determined with respect to any facility or property held directly by a partnership or S corporation, if the partnership or S corporation makes a qualifying election to transfer an eligible credit: 

• Any amount received as consideration for the transfer of the credit is treated as tax-exempt income for purposes of Section 705 (dealing with the basis of a partner’s interest in a partnership) and Section 1366 (dealing with pass-through of items to S corporation shareholders); and 

• A partner’s distributive share of the tax-exempt income must be based on the partner’s distributive share of the otherwise eligible credit for each taxable year. 

Just as the seller would not have realized income had it used the eligible credit to reduce its own federal tax liability rather than selling the credit, the final regulations provide a step-in-the-shoes rule for the eligible credit’s purchaser. The purchaser will not realize income upon its use of the credit to reduce its federal tax liability, even if the tax savings exceed the consideration paid to get the eligible credit. 

For any eligible credit (or part of an eligible credit) that the taxpayer chooses to transfer per Section 6418, the purchaser takes the credit into account in its first taxable year ending with, or after, the seller’s taxable year with respect to which the credit was decided. 

Basis Adjustment Rules 

Under Section 6418 and the final regulations, if a Section 48 energy credit, Section 48C qualifying advanced energy project credit, or a Section 48E clean electricity investment credit is transferred, the basis reduction rules of Section 50(c) apply to the applicable investment credit property as if the transferred eligible credit was allowed to the seller, rather than to the purchaser. Section 50(c) generally provides that if a credit is decided with respect to any property, the basis of the property is reduced by the amount of the credit (subject to certain recapture rules). 

The basis adjustment will affect the computation of the seller’s available cost recovery deductions for the investment property with respect to which the transferred credits arose and so must be considered in preparing the returns of taxpayers engaged in the sale of eligible credits. 

Applicability Dates 

Section 6418 applies to taxable years beginning after December 31, 2022. Sellers must choose to transfer all or a part of an eligible credit on the seller’s original return for the taxable year for which the credit is decided by the due date of that return (including extensions), but not earlier than February 13, 2023. 

The final regulations are applicable for taxable years ending on or after April 30, 2024. Taxpayers may apply the final regulations to taxable years ending prior to that date but must apply them in their entirety if they choose to do so. 

Year-End Opportunities to Accelerate Common Deductions and Losses 

Heading into year-end tax planning season, companies may be able to take some relatively simple steps to accelerate certain deductions into 2024 or, if more helpful, defer certain deductions to one or more later years. The key reminder for all the following year-end “clean-up” items is that the taxpayer must make the necessary revisions or take the necessary actions before the end of the 2024 taxable year. (Unless otherwise showed, the following items discuss planning relevant to an accrual basis taxpayer.) 

Deduction of Accrued Bonuses

In most circumstances, a taxpayer will want to deduct bonuses in the year they are earned (the service year), rather than the year the amounts are paid to the recipient employees. To carry out this, taxpayers may wish to: 

• Review bonus plans before year end and consider changing the terms to drop any contingencies that can cause the bonus liability not to meet the Section 461 “all events test” as of the last day of the taxable year. Taxpayers may be able to implement strategies that allow for an accelerated deduction for tax purposes while keeping the employment requirement on the bonus payment date. These may include using: 
  • a “bonus pool” with a mechanism for reallocating lost bonuses back into the pool; or 
  • a “minimum bonus” strategy that allows some flexibility for the employer to keep a specified number of forfeited bonuses. 

It is important that the bonus pool amount is fixed through a binding corporate action (e.g., board resolution) taken prior to year end that specifies the pool amount, or through a formula that is fixed before the end of the tax year, taking into account financial data as of the end of the tax year. A change in the bonus plan would be considered a change in underlying facts, which would allow the taxpayer to prospectively adopt a new method of accounting without filing a Form 3115. 

• Schedule bonus payments to recipients to be made no later than 2.5 months after the tax year end to meet the requirements of Section 404 for deduction in the service year. 

Deductions of Prepaid Expenses 

For federal income tax purposes, companies may have an opportunity to take a current deduction for some of the expenses they prepay, rather than capitalizing and amortizing the amounts over the term of the underlying agreement or taking a deduction at the time services are made. Under the so-called “12-month rule,” taxpayers can deduct prepaid expenses in the year the amounts are paid (rather than having to capitalize and amortize the amounts over a future period) if the right/benefit associated with the prepayment does not extend beyond the earlier of: 

1. 12 months after the first date on which the taxpayer realizes the right/benefit, or 
2. the end of the taxable year following the year of payment. Note that accrual method taxpayers must first have an incurred liability under Section 461 to accelerate a prepayment under the 12-month rule. 

The rule offers some valuable options for accelerated deduction of prepaids for accrual basis companies — for example, insurance, taxes, government licensing fees, software maintenance contracts, and warranty-type service contracts. Showing prepaids eligible for accelerated deduction under the tax rules can prove a worthwhile exercise by helping companies strategize whether to make prepayments before year end, which may require a change in accounting method for the eligible prepaids. 

Inventory Write Offs

Often companies carry inventory that is obsolete, unsalable, damaged, defective, or no longer needed. While for financial reporting inventory is generally reduced by reserves, for tax purposes a business normally must dispose of inventories to recognize a loss, unless an exception applies. Thus, a recommended approach for tax purposes to accelerate losses related to inventory is to dispose of or scrap the inventory by year end. 

An important exception to this rule is the treatment of “subnormal goods,” which are defined as goods that are unsaleable at normal prices or unusable in the normal way due to damage, imperfections, shop wear, changes of style, odd or broken lots, or other similar reasons. For these types of items, companies may be able to write down the cost of inventory to the actual offering price within 30 days after year end, less any selling costs, even if the inventory is not sold or disposed of by year end. 

Continued Phase-Out of Bonus Depreciation

For eligible property placed in service during 2024, the applicable bonus percentage is 60%. As such, year-end tax planning for fixed assets emphasizes cash tax savings through scrubbing fixed asset accounts for costs that can be deducted currently under Section 162 (e.g., as repairs and maintenance costs) rather than being capitalized and recovered through depreciation, assessing eligibility for immediate Section 179 expensing, and reducing the depreciation recovery periods of capital costs where possible. 

CCA Provides Insight into Treatment of Transferable Incentives 

CCA 202304009 addresses whether a pharmaceutical or biotechnology company must capitalize costs incurred to buy from a third party a priority review voucher (PRV) issued by the U.S. Food & Drug Administration (FDA). 

A PRV is a voucher entitling its holder to prioritized FDA review of a new medical treatment the applicant looks to offer to the public. PRVs are considered valuable assets because their use can significantly reduce the time it would otherwise take to bring a new drug to market. A PRV can be held for use with a future FDA drug application or sold without restriction to another company for their use. PRVs have no end date and can be transferred an unlimited number of times. 

In CCA 2023040009, the IRS concluded that a taxpayer must capitalize the amount spent to buy a PRV either as a cost incurred to ease obtaining a franchise right or as a cost incurred to buy a new intangible asset, depending on the intended use of the voucher. The IRS also provided guidance on how the capitalized costs should be recovered. 

While CCA 202304009 discusses costs to buy PRVs, the guidance might help forecast the tax accounting treatment of various other non-tax government incentives as well. 

How MGO Can Help

Our tax professionals can guide your business through accounting method changes, Section 174 compliance, and year-end tax strategies to increase deductions and defer income. Reach out to our Tax team today to see how MGO can support your tax strategy.

The post Year-End Tax Planning: Key Accounting Method Changes, Deductions, and Compliance Updates for 2024 appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Robust financial reporting is crucial for companies seeking investment.
• Common fundraising challenges for growth companies and startups include disorganized records, unrecognized tax exposure, and inability to produce timely and accurate financial reports for investors.
• To prepare for fundraising, companies should clean up their books, implement proper financial and operational processes, address industry-specific accounting challenges, develop internal controls, and prepare investor-ready reports.

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Raising capital powers your growth and innovation. However, all your time and efforts can be derailed without clear and accurate financial reporting.

Investors want to see clean books, accurate forecasts, and explanations for variances before they commit capital. By improving your accounting and financial reporting processes now, you will avoid delays or, worse, an inability to close the round.

Navigating Common Fundraising Challenges

Many growth companies — particularly startups — find themselves in a common predicament when it’s time to raise funds:

• Incomplete or disorganized financial records
• Lack of U.S. GAAP (Generally Accepted Accounting Principles) compliance
• Inability to produce timely, accurate reports for potential investors
• Unrecognized tax exposure and failure to optimize tax structure and credits

If this sounds familiar, you are not alone. Companies often reach out for help only after investors have requested data or raised issues they cannot address. Don’t put yourself in this position — get ahead of investor and diligence requests with proactive preparation.

Key Financial Information Investors Seek

When assessing companies, investors typically look for information such as:

• Historical and forecasted revenue run rate
• Customer acquisition costs
• Margins
• Key performance indicators (KPIs) specific to your business model/industry
• Cash burn rate and runway
• Accurate and up-to-date cap tables
• Proper revenue recognition
• Understanding tax exposures and structure

Without solid financial reporting processes in place, providing this information accurately and promptly can be challenging.

Steps to Improve Your Financial Reporting for Fundraising

Here are some key areas to focus on as you prepare your company for fundraising:

1. Clean Up Your Books

Before you can present compelling financials to investors, you need to get your books in order. Many early-stage companies operate with messy accounting records, often due to a lack of in-house expertise or resources. However, this can severely hinder your fundraising efforts.

Start by conducting a thorough review of your financial records. Look for inconsistencies, errors, or gaps in your data. You may need to recode transactions, reconcile accounts, or even restate past financial reports. While this process can be time-consuming, it is essential for creating a solid financial foundation.

2. Implement Proper Processes

Establish best practices for key financial processes, such as:

• Bill pay — Establish clear policies and define approval levels, responsibilities, and authorization.
• Payroll — Handle payroll efficiently and accurately, reflecting all compensations and deductions correctly. Partner only with cloud-based payroll providers that offer an annual SOX (Sarbanes-Oxley) compliance report. Review this report annually and confirm that recommended user controls are implemented to protect sensitive payroll data.
• Invoicing — Use integrated accounting software to centralize invoicing to reduce manual errors and automate routine tasks. Set clear timelines for invoice creation, approval, and delivery to clients to maintain a consistent revenue cycle.
• Key account reconciliations — Regularly reconcile key accounts such as cash, accounts receivable, and revenue to identify discrepancies and keep accurate records.
• Segregation of duties — Put controls in place to reduce fraud risk, such as having different people write checks and reconciling bank accounts.
• Periodic reviews of tax exposure — Conduct regular reviews to assess the impact of changes in customer demographics, employee locations, and business models on tax exposure.

3. Address Specific Accounting Challenges

Depending on your focus and business model, growth companies often face unique accounting issues that require special attention. For example, compliance with ASC 606 for revenue recognition — which can be complex. If you have raised a portion of your capital with simple agreements for future equity (SAFEs), make sure you have properly classified the funds.

For software companies, correctly capitalizing software development costs is crucial. These issues can impact your financial statements and valuation.

4. Develop Robust Internal Controls

Implementing strong internal controls improves the accuracy of your financial reporting and gives investors confidence in your data.

Establish clear segregation of duties in financial processes to prevent fraud. Implement regular review and reconciliation procedures to catch errors early. Document all your policies and procedures, creating a clear trail for auditors and demonstrating to investors that you have a well-managed financial operation.

5. Prepare Investor-Ready Reports

Investors want to see more than just your financial statements. They’re interested in metrics that provide insight into your company’s growth trajectory and operations.

Include detailed cash flow projections to show how you’re managing your runway. Develop realistic revenue forecasts based on historical data and market analysis. Create KPI dashboards that highlight the metrics most relevant to your business model. Prepare detailed expense breakdowns to demonstrate your understanding of your cost structure and ability to manage expenses effectively.

How MGO Can Help

With extensive experience working with growth companies and startups, our knowledgeable advisors can identify areas for improvement in your financial and tax processes and data, help you implement changes, and even assist in creating investor data rooms and presentations.

Reach out to our team today to get the support you need to fund your future growth and innovation.

The post Streamline Your Fundraising with Stronger Financial Reporting appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Build investor trust through financial transparency, strong leadership, and solid internal controls to overcome the “first-time fundraising roadblock” in biotech.
• Showcase your product’s potential with a compelling pitch and clear value proposition, backed by data and a talented research team.
• Leverage your professional network and industry connections to get noticed by the right investors in the biotech space.

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The biotech landscape is currently divided into the “haves” and “have-nots” when it comes to fundraising. Those who have successfully brought products to market or secured previous funding rounds have a substantial advantage. They possess the track record, relationships, and trust investors crave.

But what if you don’t have that? If your biotech company is preparing to raise capital for the first time, not to worry — you can still stand out and secure funding. Here are five key strategies to help you get around the first-time fundraising roadblock and gain the attention of investors.

1. Build Trust with Financial Transparency

Investors need to trust your company is financially sound. Without a track record, demonstrating your fiscal responsibility is essential. Start by having a quality audit of your financial statements, conducted by a reputable auditor with experience in the biotech space. Accurate, clear financial reporting builds investor confidence, showing you are serious about managing capital effectively.

If you have already raised seed funding or received a grant, highlight how you have used those resources responsibly. A grant audit, for example, can showcase you have maximized the value of previous funds—something investors will look for as they evaluate your business.

2. Strengthen Your Leadership and Team

Investors are not just funding an idea; they are funding the people behind it. If you lack in-house knowledge or experience, consider hiring or partnering with experienced professionals. A strong chief financial officer (CFO) — even an outsourced one — can make a significant difference. Outsourced accounting support allows you to tap into the knowledge of seasoned professionals without the full-time cost. A skilled CFO will strengthen your financial reporting and operations, further enhancing trust with investors.

Additionally, if you don’t have an executive with capital-raising experience, bring in someone who does. Investors are more likely to bet on a team with a proven track record in biotech, especially when that person has a Rolodex of contacts and a history of success. Just remember: there is no silver bullet. Even bringing in a seasoned executive won’t move the needle if the fundamentals aren’t in place. Investors will see through any attempts to paper over weaknesses.

3. Demonstrate Your Product’s Potential

At the core of any capital raise is the product you are developing. Investors want to know your biotech solution has potential. Your value proposition should be clear, well-researched, and backed by data. Whether you are creating a novel drug or pioneering a new treatment technology, demonstrate the market need, potential impact, and your path to commercialization. A strong, well-articulated product concept, supported by a talented research team, will help you stand out. 

This is where you must focus on having a polished pitch deck and elevator pitch. If you do secure a meeting with potential investors, being prepared with a compelling and concise presentation can make or break the deal. Your pitch should clearly communicate your company’s vision, market potential, and how their investment will drive growth.

4. Establish Strong Internal Controls

Investors not only want to see financial transparency and a strong product, they also want to know your business is structured for long-term success. Demonstrating you have solid internal controls — related to compliance with regulations like the Sarbanes-Oxley Act (SOX) — shows you are prepared to scale responsibly.

An internal controls evaluation can identify areas for improvement and help strengthen your company’s operational documentation, efficiency, and security. This is a crucial step in building investor trust and positioning yourself as a mature, trustworthy business.

5. Leverage Your External Network

Building your company is just one part of the equation. The next step is expanding your personal network so you are speaking to the right investors. Start by identifying the key players in your biotech niche. Look at competitors and peers who have successfully raised capital and find out who their investors were. This will help you target the right people and increase your chances of getting noticed.

Once you have a list of potential investors, begin outreach. Attend industry events, schedule informal meetings, and use every opportunity to introduce yourself and your business. This is where your external network can become an invaluable resource. Don’t hesitate to tap into your legal, financial, and banking partners for introductions to investors. These professionals often have established relationships with investors and can open doors you would not be able to access on your own. If you don’t have all these partners in place, one can often connect you with the others. For example, at MGO, we can refer you to trusted legal and banking partners to help you get the full support you need.

Breaking Down Barriers to Secure First-Time Funding

Raising capital for the first time is undoubtedly challenging, but it’s far from impossible. By focusing on building a strong company, demonstrating your value, and strategically expanding your network, you can bridge the gap between the “haves” and “have-nots” of biotech fundraising — securing that essential first round of funding.

How MGO Can Help

Navigating your first capital raise can be daunting, but you don’t have to go it alone. We’re here to help you build the strong foundation you need to attract investors and take your groundbreaking ideas to the next level.

Our experienced biotech practice offers a range of services tailored to meet your specific needs, including:

• Audit and assurance services to validate your financial statements
• Outsourced CFO services to strengthen your financial operations
• Internal control evaluations to enhance your operational efficiency
• Strategic advisory services to help you navigate the fundraising landscape

Don’t let being a first-time fundraiser hold you back. Reach out to our team today to learn how we can support your journey from promising startup to funded success story.

The post Unlocking Capital: 5 Key Strategies for First-Time Biotech Fundraising appeared first on MGO CPA | Tax, Audit, and Consulting Services.

This is why it is essential to work with an assurance provider with specific knowledge of the biotech/life science landscape. In the video below, we detail how our specialized guidance focuses on risk assessment, control evaluation, and regulatory adherence to safeguard your projects and funding.

The post Federal Award Audits: Biotech Best Practices appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Orphan drug credits offer a significant tax incentive to encourage pharmaceutical companies to develop treatments for rare diseases.
• The tax credit is worth up to 25% of qualified clinical testing expenses.
• It is possible for companies to claim both R&D and orphan drug credits in the same tax year, maximizing support for a broad range of medical research.

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Developing new pharmaceuticals and bringing them to market is an expensive endeavor. Uncommon diseases and conditions, often called “orphan diseases,” affect small populations in the United States. Given the high costs of research and development (R&D), this limited patient base can make treatment development less economically attractive for pharmaceutical companies.

Congress passed the Orphan Drug Credit (IRC Section 45C) to address this challenge and encourage the development of treatments for less profitable drug therapies.

What Is the Orphan Drug Tax Credit?

The Orphan Drug Credit is a federal tax credit designed to encourage pharmaceutical companies to invest in the research and development of treatments, cures, and preventive measures for rare diseases or conditions.

Before the Orphan Drug Act was enacted in 1983, life sciences companies often hesitated to invest in development costs for rare diseases because the small populations of potential patients made it difficult to recover development costs.

If your testing qualifies, the nonrefundable tax credit equals 25% of qualified clinical testing expenses (QCTEs) for the current taxable year.

In general, you can claim the credit between the date the U.S. Food and Drug Administration (FDA) grants the orphan drug designation and the date it approves the drug for patients.

Orphan Drug Tax Credit Eligibility Criteria

To qualify for the Orphan Drug Credit, you must first receive an orphan drug designation from the FDA. This designation is granted to drugs intended for the treatment, diagnosis, or prevention of diseases or conditions that affect fewer than 200,000 people in the United States or that affect more than 200,000 people but are not expected to recover the costs of developing and marketing a treatment drug.

Once receiving the orphan designation, you can deduct 25% of qualified clinical testing expenses incurred in the U.S.

Eligible expenses are similar to those that qualify as research and experimental expenditures for the R&D credit. Some examples include:

• Wages paid to employees performing clinical testing
• Costs incurred for supplies used directly in conducting clinical testing
• Payments made to another party for computer hosting and leasing pertaining to clinical testing activities
• Payments made for qualified research undertaken by contractors

Research activities funded by a government entity or another entity other than the taxpayer do not qualify for the tax credit.

Orphan Drug Tax Credits Versus R&D Tax Credits

The Orphan Drug Credit and the R&D credit (IRC Section 41) offer substantial financial incentives to spur U.S.-based research. However, the Orphan Drug Credit provides a greater incentive than the R&D credit.

If you are researching non-orphan diseases, you can claim the standard R&D credit, which on average results in an overall credit benefit of roughly 10% of the qualified expenses.

Other benefits of the Orphan Drug Credit include claiming 100% of qualified contract research expenses, compared to 65% under the R&D credit, and claiming the credit on foreign clinical testing expenses provided the testing meets certain criteria. The criteria include:

1. The testing is conducted outside the United States because there is an insufficient testing population within the U.S., and
2. The testing is conducted by a person inside the United States or any other person not related to the taxpayer to whom the designation under Section 529 of the Food, Drug and Cosmetic Act applies.

Ideally, you can claim the Orphan Drug credit on qualified clinical testing expenses until the FDA approves your drug for patients, then claim the R&D credit for any ongoing qualified research expenses post-FDA approval.

Is it Possible to Claim Both the R&D Credit and the Orphan Drug Tax Credit in the Same Tax Year?

Yes, you can claim both credits in the same tax year, provided you meet the eligibility criteria for each. However, the expenses used to claim the Orphan Drug Credit cannot also be used to claim the R&D credit. The return on investment is greater under the ODC, so a company with an eligible orphan drug designation would likely pursue the ODC credit pertaining to those expenses. A company may have expenses pertaining to a non-ODC program, or expenses incurred prior and post the ODC eligible timelines, that would benefit under the R&D credit.

How MGO Can Help

The Orphan Drug Credit provides significant incentives for pharmaceutical companies developing treatments for rare diseases, making these endeavors more financially viable.

As with any tax credit, the qualifications for claiming the Orphan Drug Credit are nuanced, and it’s critical to have the necessary documentation to calculate and substantiate your claim.

If you need help determining which expenses qualify, calculating your credit, or determining how it works in tandem with the R&D credit, call or contact MGO online today. We’re happy to help you identify potential qualified expenses and maximize the tax benefits of bringing these new drugs to market to treat rare diseases.

The post Orphan Drug Credits: What Your Biotech Company Needs to Know About This Tax Incentive appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Federal awards fuel innovation and growth in the biotechnology and life sciences sector, but they require stringent adherence to regulations and the terms of the award.
• The risks of non-compliance include financial penalties, loss of funding, and even legal action.
• An experienced federal award audit provider can improve performance by mitigating risk, adhering to complex regulations, and delivering additional operational and financial insight.

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The path to groundbreaking biotech and life science innovations is paved with both opportunities and regulatory challenges. Federal awards and grants support the biotech sector’s quest for advancement. However, navigating the maze of compliance requirements demands expertise, precision, and a proactive approach.

Most federal awards require stringent adherence to federal regulations and the terms of the award. The result of non-compliance is severe, and may include financial penalties, the loss of funding, reputational damage, and in the worst circumstances, potential legal action from funding agencies and/or stakeholders.

This is why it is essential to work with an assurance provider with specific knowledge of the biotech/life science landscape. Your audit provider must provide specialized guidance for the sector’s dynamic nature, focusing on risk assessment, control evaluation, and regulatory adherence to safeguard your projects and funding.

Why Program-Specific Audits Matter

In the detail-oriented and highly regulated biotech industry, a generic approach to auditing cannot uncover or address the nuanced complexities of federal funding compliance. Every federal award program has unique regulatory and reporting requirements. A one-size-fits-all approach is likely to miss key details of your specific requirements and may waste essential time and resources on irrelevant matters.

 The benefits of a well-run audit by a seasoned provider should include:

1. Compliance with Regulations: Support adhering to the terms of the federal award will help reduce the risk of penalties and funding termination.
2. Improved Financial Management: An objective, independent review of financial management practices can help make sure funds are used for their intended purposes and are properly accounted for.
3. Added Transparency: A clear view into operations and financials – validated by a trusted auditor – will help build trust with both funding agencies and stakeholders.
4. Superior Risk Management: Reduce and mitigate risks related to financial management, compliance, reporting, and potential fraud.
5. Performance Improvement: Identify areas for improvement in financial management practices, internal controls, and compliance processes.

Optimal Federal Award Audit Approach

Conducting a federal award audit for a biotechnology company involves several key steps to ensure compliance with federal regulations and the terms of the award. Our audit process is differentiated by its collaborative, transparent, and client-focused methodology. We start with an in-depth evaluation of your unique needs and the specifics of your programs to craft a tailored strategy. Throughout the audit journey, we provide open communication, delivering insights and updates to keep you informed and engaged. Our final deliverable is a comprehensive report that addresses compliance, empowers strategic decision-making, and program enhancement.

The following is our outline of the process:

1. Analysis of Award Terms: Review of the terms and conditions of the federal award to understand the requirements related to financial management, reporting, and compliance.
2. Collect Documentation: Assemble all relevant documentation, including financial records, invoices, receipts, and others.
3. Financial Record Review: Examination of your company’s financial records to confirm that expenses are properly documented and allocated.
4. Compliance Assessment: Evaluation of your company’s compliance with the federal award requirements, including allowable costs, cost-sharing, reporting, and other terms in the award agreement.
5. Perform Testing: Select a sample of transactions and expenses to test for compliance with federal regulations and the award terms. This may include testing for allowability, allocability, and reasonableness of costs.
6. Document Findings: Document the results of the audit, including any findings of non-compliance or areas for improvement.
7. Prepare Audit Report: Prepare a formal audit report summarizing the audit findings, conclusions, and recommendations for corrective action, if necessary.
8. Communicate Results: Discuss the audit findings with the company’s management and provide them with an opportunity to respond and address any issues identified during the audit.
9. Follow-Up: Monitor the company’s corrective actions and follow up to identify and resolve issues in a timely manner.
10. Federal Agency Report: Submit the audit report to the appropriate federal agency responsible for overseeing the award, along with any recommendations for further action.

Benefits of an Experienced Biotechnology Audit Provider

When selecting a federal audit provider, it is important to identify a firm with a dedicated biotechnology and life sciences practice with professionals actively serving the industry. Your provider should bring a wealth of experience and a multidisciplinary team that specializes in the financial intricacies and regulatory frameworks governing the biotech industry.

At MGO, our professionals are not only auditors but also advisors versed in the nuances of biotech funding and federal award compliance. We understand the operational, financial, and compliance pressures you face and offer bespoke auditing solutions that reflect the latest regulatory standards and industry best practices.

We can provide support in a number of areas:

• Compliance Assurance: Leveraging our deep understanding of federal regulations and the biotech landscape, we can guide your organization through all compliance requirements, protecting you from potential penalties and financial discrepancies.
• Risk Management: Our targeted audits help identify and address risks specific to your federal awards, enhancing the efficiency and impact of your funded programs.
• Strategic Guidance: We go beyond compliance, offering insights and strategies to optimize the management and performance of your federally funded projects, aligning them with your mission and federal objectives.

Let’s Get to Work

In the biotech sector, where federal awards catalyze innovation, MGO is uncommonly positioned to guide organizations through the complexities of program-specific audits for federal awards, determining compliance, and the strategic allocation and utilization of federal funds. MGO can help you optimize the management and performance of your federally funded projects, leading to greater efficiency, impact, and innovation.

Discover how MGO’s specialized auditing services can empower your biotech organization to achieve compliance, efficiency, and innovation. Contact us today to explore how we can support the success and compliance of your federally funded programs, allowing you to focus on advancing biotechnology’s boundaries.

The post Optimal Audit Approach for Federal Awards in Biotech and Lifesciences appeared first on MGO CPA | Tax, Audit, and Consulting Services.