WHY WAS THE COMMERCIAL PRINTING INDUSTRY SELECTED?
During the examination of printing companies in Georgia, a pattern of similar issues was noted. As a result, an information
gathering project was started to provide the Internal Revenue Service with an opportunity to gain knowledge of this
very large manufacturing industry, to identify common areas of non-compliance, and to develop techniques and procedures to
help promote compliance in the industry.
The issues most frequently encountered were in cost of sales, particularly work-in-process, IRC section 263A, and omission
of certain direct material items from inventory. Other issues included change in accounting method (from cash to accrual),
sales cutoffs, officer's compensation, and depreciation.
BACKGROUND AND PURPOSE
The purpose of this manual is to afford the examiner an opportunity to gain a better understanding of the commercial printing
industry, and to provide a specialized examination tool, by focusing on the printing processes and the accounting and records
flow associated with the business.
To accomplish this objective, information was gathered from local libraries, from publications issued by the National Association
of Printers and Lithographers (NAPL) and the Printers Industry Association (PIA), as well as from a regional graphic communications
and printing trade show attended by team members. Publications, such as "Printers Chart of Accounts" and "Forms For Managing
A Printing Business," and an executive compensation survey were secured to assist with issue identification and development.
The data from several of these publications was stratified by revenue range, geographic area, and product specialties,
which enabled the team to identify general characteristics of the industry, trade customs, methods used to establish production
standards and examples of the industry processes.
TABLE OF CONTENTS
- Chapter 1
- Introduction
- Why the Commercial Printing
- Industry Was Selected 1-1
- Background and Purpose 1-1
- Chapter 2
- Industry Attributes
- General Description 2-1
- Fragmentation 2-1
- Competition 2-2
- Changing Environment 2-2
- Chapter 3
- Basic Industry Operations
- Background 3-1
- Estimating Costs and Pricing 3-1
- Prepress 3-2
- Traditional Prepress Methods 3-2
- Current Prepress Methods 3-3
- Press Operations 3-6
- Offset Lithography 3-6
- Rotogravure 3-7
- Flexographic 3-7
- Letterpress 3-7
- Screen Printing 3-7
- Postpress 3-8
- Chapter 4
- Accounting Systems and Records
- Accounting and Record Flow 4-1
- Availability of Accounting Records 4-3
- Chapter 5
- Audit Techniques and Issues
- The Printing Industry Interview 5-1
- Tour of Operations 5-1
- Specific Observations 5-2
- Change in Accounting Method 5-3
- Computation of Change from Cash or
- Hybrid to Accrual 5-5
- Computation of Tax 5-5
- Authorization to Change 5-6
- Revenue Procedure 92-20 5-6
- Cost of Goods Sold 5-6
- Raw Materials Inventory 5-7
- Work in Process Inventory 5-10
- Uniform Capitalization, IRC section 263 5-15
- Officer's Compensation 5-17
- Definition of Reasonable Compensation 5-18
- Treatment of Escessive Compensation 5-19
- Audit Techniques 5-19
- Depreciation/Capitalization of Cost 5-22
- Capital Versus Repair Expense 5-22
- Class Life of Assets 5-23
- Automation Issues 5-24
- Audit Techniques for Automation Issues 5-27
- Other Issues 5-26
- Acquisitions/Dispositions 5-26
- Sales Recognition 5-26
- Rebates and Discounts 5-27
- Environmental Concerns 5-28
- Business Bad Debts 5-29
- Labor and Employment Tax
- Considerations 5-30
- Selected Bibliography B-1
- Glossary G-1
