ALABAMA CPA MAGAZINE NOVEMBER 2014
practice Management Issue
The Alabama CPA MAGAZINE Alabama Society of Certified Public Accountants P.O. Box 242987 Montgomery, Alabama 36124-2987 1-800-227-1711 334-834-7650 www.ascpa.org Officers Don McCleod, Chair Dr. Lowell Broom, Chair-Elect Renee Hubbard, Past Chair Board of Directors James R. L. Carroll Caitlin F. Glass Kate J. Ham Paul Marcus Hamilton M. Buddy Johnsey Jason L. Miller Michael C. Reibling Gregory E. Sellers Dennis E. Sherrin Rachel M. Taylor AICPA Council Members Don McCleod E. Lamar Reeves John P. Shank Jimmy L. Williamson, Past Chair, AICPA
Message from the Chair... I can still remember the first day I began in public accounting. It was January 4, 1999 and one of the coldest days of the year. Nevertheless, my heart was warmed by the giant smile I wore on my face; I was finally on my way to becoming a certified public accountant! I was led to a tiny cubicle, where several other would-be CPAs or “associates”, as we were called, welcomed me to the firm. After some polite exchanges, they quickly made their way back to their desks to complete the work which they had been assigned. I remember fondly how much I loved learning the structure of the firm and how I enjoyed, even as a new associate, observing management of human capital that worked so impressively. I remember how the most senior partner would take great care to work through each engagement, knowing that it was just one of a thousand seeds he planted towards his eventual succession from the firm. I remember the anxiety on the faces of many in the firm when the realities of increased regulations and external competitive forces caused them to question if they would ever practice the same way again. I also remember how those same faces turned to smiles when the firm’s leadership announced a new strategic direction to minimize those existing threats, while maximizing the firm’s many opportunities. When I look back on those beginning years, it is so evident to me how much the practice management process was critical for the success of the firm. Today, as both a CPA firm owner and as the chairman of the Alabama Society of CPAs, I understand how important it is that the right practice management resources exist to ensure the success of our members and their firms. It does not matter if it is a sole practitioner in a small town or a G100 firm in the biggest city, the ASCPA understands that providing the right resources is critical. We are all collectively working with the same basic goal in mind: to make the lives of our clients and our profession better. Whether it involves marketing the CPA in public practice, retaining top clients for life, building a remote consulting practice, combining the right workflow and document management system, or ensuring that legislative changes don’t invite unwanted anxieties, the ASCPA is helping to assure that practicing CPAs and their firms experience success in their practice management efforts. Finally, to every ASCPA stakeholder, member and friend who understands that a prudent practice management process not only ensures their individual success, but also advances our core principles of integrity, objectivity and responsibility to our clients, I humbly say to you, thank you for all that you do.
Don
The Alabama CPA Magazine is published by Alabama Society of Certified Public Accountants as a membership service to Society members. Views and opinions appearing in this publication are not necessarily endorsed by the ASCPA. The deadline for submitting materials for publication is the first of the month preceding issue date.
Jeannine P. Birmingham, CPA, CAE, CGMA President and CEO Diane L. Christy, Editor Rodney Hawkins, Jr. participated in the Young CPA Board of Directors Retreat in September. He is with Himmelwright, Huguley and Boles in Opelika.
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Don McCleod spoke at the September Montgomery Chapter meeting. Pictured with him are (from left) chapter officers Amanda Bensen, Jessica Thompson, and William Tucker, Jr. The Alabama CPA MAGAZINE
Wednesday, December 3
Thursday, December 4
8:00 am - 8:45 am Breakfast and Registration
8:00 am - 8:30 am Breakfast
8:45 am - 9:00 am
Opening Remarks
8:30 am - 8:45 am
9:00 am -10:30 am
GASB Update
8:45 am -10:15 am New Independence Threats and Safeguards
10:30 am -12:00 pm Economic Update 12:00 pm -1:00 pm Luncheon and Association Recap 1:30 pm - 3:00 pm Legal Issues and Cases of the Alabama Department of Revenue 3:00 pm - 4:30 pm Risk, Danger and the Auditor
Opening Remarks
10:30 am -12:00 pm Making a Difference in Government: A Conversation with Inspector General Theresa Grafenstine. 12:00 pm -1:00 pm
Luncheon
1:15 pm - 2:45 pm OMB Super Circular 3:00 pm - 4:30 pm Legal Compliance Audits
Register by November 15th to save an additional $50 off the registration fee. ASCPA, GFOAA, and AGA member rate: $350 ($300 if registered by November 15th).� Non-members: $400 ($350 if registered by November 15th).
Stay and Play! Book your stay at the Birmingham Marriott with a rate of $123.95 per night. But hurry, because this special rate expires November 28th.
The Alabama CPA MAGAZINE
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DOING IT BETTER
By Allison M. Henry, CPA
Peer Review: A Pillar of Protecting Public Interest Fall 2014
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ignificant challenges are confronting AICPA’s peer review program that raise questions regarding the profession’s ability to continue its self-regulation. Ultimately, improvements need to be made in audit quality, and, due to significant regulatory pressures, the status quo is untenable. A variety of changes are being explored that could dramatically transform the current peer review program to a more rigorous practice monitoring system. AICPA’s peer review program began as a voluntary practice monitoring program in 1977, and it became a requirement in 1988 after it was approved by AICPA membership. Today, more than 28,000 firms are enrolled in the program, and state boards of accountancy in at least 52 licensing jurisdictions require firms with an accounting and auditing practice to undergo a peer review as a condition for licensure. Certain regulatory agencies, such as the Government Accountability Office, require peer review as a condition for performing audits of entities subject to their regulatory oversight. Heightened regulatory scrutiny underscores the importance of a rigorous peer review program. Ian Dingwall, chief accountant of the Employee Benefit Security Administration (EBSA), recently made comments at the National Association of State Boards of Accountancy (NASBA) Executive Directors conference that made clear that audit quality remains a concern. He noted that EBSA “has referred more than 800 cases of the most egregious work to the AICPA and about 200 to the state boards of accountancy when the firms were not AICPA members.” Many regulatory inspectors also refer cases to the AICPA or the state boards of accountancy. The referrals to the AICPA lead to ethics investigations that can result in a number of remedial or disciplinary actions. The state boards have the ability to impact an individual’s license to practice. A challenge to the profession’s peer review program is emerging. It is one that suggests PCAOB-registered firms are higher quality firms. Generally, only auditors of publicly traded entities and securities brokers are required to be registered with the PCAOB (via Sarbanes-Oxley legislation), but other organizations are beginning to require their auditors to be PCAOB-registered, including certain federal and state regulators, the federal office of personnel manage-
One of the biggest concerns for the peer review program is the difference between the errors identified by the regulators and those identified by peer reviewers. ment, and the Commodity Futures Trading Commission (CFTC). To become PCAOB-registered, firms need only pay a fee; and not all PCAOB-registered firms are inspected by the PCAOB. It is imperative that the profession counteract the misperception of higher quality among PCAOB registrants by demonstrating the rigor of the AICPA peer review program. Only the commitment of high-quality CPA firms who have a vested interest in retaining this self-regulatory program can fight this inaccuracy.
Key Issues
One of the biggest concerns for the peer review program is the difference between the errors identified by the regulators and those identified by peer reviewers. For example, in a 2007 GAO National Statistical Sample Project conducted by the audit committee of the President’s Council on Integrity and Efficiency (PCIE), 51 percent of audits were deemed “not acceptable.” Recent peer review results show a more limited number of nonconforming engagements (11 percent nonconforming A-133 engagements). Similarly, the Department of Labor (DOL) consistently notes about a 33 percent error rate, whereas peer reviewers in 2012 identified a 6 percent nonconforming rate. The second broker-dealer PCAOB inspection results that were released in August 2013 were disconcerting: deficiencies were noted in 57 out of 60 audits, and independence was lacking in 22 out of 60 audits inspected. Too few broker-dealer audits were selected for peer review to provide a meaningful comparison. 4
Some practitioners are under the impression that the regulatory perspective focuses on areas that are immaterial. In the case where the regulators are financial statement users, their perspective cannot be ignored. Therefore, it is instructional to learn about the key ethics violations and peer review findings, and consider the areas that the regulators find problematic.
Problems on ERISA Engagements
Confusion still exists over the scope and eligibility of a limited-scope audit. Some practitioners mistakenly believe that no work is involved with this kind of audit. Not so: all of the audit work that would be required in a full-scope audit is required in a limited-scope audit, with the exception of certain audit procedures related to the investment information. Additionally, according to Employee Retirement Income Security Act (ERISA) Section 103(a)(3)(c), a limited-scope audit is only available for plans holding investments that are prepared and certified by a bank or similar institution, or a regulated insurance company that is supervised and subject to examination by a federal or state agency. A proper certification is essential. Other frequent practice problems include a lack of testing of the fair value of investments at the end of the year and at least some investment gains or losses on a full-scope audit; failure to test the participant data for accuracy and completeness; and improperly reducing or eliminating testing due to over-reliance on a service organization control report. The AICPA has a listing of the most frequent ethics violations on ERISA engagements that details the numerous practice problems encountered in connection with ethics investigations. Similar deficiencies are identified in the peer review process. Furthermore, the DOL is in the midst of a statistical audit-quality study in which it will be selecting about 400 audits from the 2011 plan year for review. The results of the study, expected in fall 2014, will help practitioners better design audit procedures and materiality to address issues the DOL considers important.
Government and Not-for-Profit Engagements Referrals from regulators to the AICPA Professional Ethics Division are often initiated because of improper major program determination. Some practitioners mistakenly believe that if the engagement has been filed without being rejected by a federal agency, then nothing is wrong. This is completely inaccurate. Improper major program determination is frequently found through regulatory agency oversights. In many cases, due to the importance placed by the regulatory agencies on the major program determination, errors can result in a need to recall and correct audit reports and related audit testing. As a result, major program determination is a critical area. Causes for missed major programs include using preliminary numbers without reconsidering the impact of adjustments; failure to use the correct OMB Circular A-133 compliance supplement to determine program clusters; incorrect risk assessment; and incorrect percentage of coverage due to inaccurate low-risk auditee determination. In addition to major program determination, other material deficiencies include failure to test at least some of the compliance requirements for the major programs identified; lack of documentation of understanding of internal controls over compliance that addresses the five elements of internal control (control environment, risk assessment, control activities, information and communication, and monitoring); use of an incorrect threshold for determining type A programs; and presentation problems on the Schedule of Federal Awards (SEFA). One frequent SEFA problem relates to presenting nonfederal funds on the SEFA. The guidance provided by the AICPA State and Local Audit Guide (AAG-SLA Section 7.24) specifically requires that the nonfederal funds be segregated from the federal awards and not be listed under the federal agencies or included in the total of federal awards, and that the title of the schedule be changed to reflect the nature of the awards. Another SEFA presentation problem stems from not providing the proper totals – such as not providing a total for program clusters, not providing a total for each federal program, among others. The Alabama CPA MAGAZINE
- Don’t Let It Collapse Similar to the list for ERISA engagements, the AICPA has published frequent ethics violations found on government and not-for-profit engagements. Similar deficiencies are identified in the peer review process.
Practice Quality Tips
Consider risk when accepting an engagement. Practitioners that accept an engagement in a high-risk industry for the first time should consider consulting. Key questions should include the following: * Does the firm have the appropriate level of expertise? * What are the applicable regulations? * Is there an audit guide? * Are there relevant continuing professional education courses that provide the industry fundamentals? * Does the AICPA produce an industry-related audit risk alert that is relevant to the client’s business? * Are external resources needed to ensure compliance? Having an engagement quality control review (EQCR) for high-risk engagements, or engagements in a practice area outside of the firm’s ordinary practice area, can be a great way to achieve high quality. Ultimately, many of the practice problems identified by regulators, peer reviewers, and professional ethics investigators relate to a lack of adequate audit documentation. Many practitioners try to rely on sign-offs on checklists to document the work performed. Given the varied accounting, financial reporting, internal control, and compliance systems that exist, no checklist can adequately explain the work performed on a particular engagement. Similarly, simply including schedules with check marks and no explanations is insufficient. Documentation needs to include the specific identifying characteristics of the items tested and the nature of the testing performed. Oral explanations do not represent sufficient support. If you are uncertain regarding the adequacy of your audit documentation, consider including a review of the adequacy of the audit documentation in the scope of an EQCR. While attending a continuing professional education course is a perfect way to learn about the latest changes to the standards, it is important that you have a process in place for implementing changes to standards. The AICPA peer review checklists can help you double-check an engagement for compliance and can be used in connection with a pre-issuance or EQCR. The AICPA peer review materials also include a section on monitoring that can be used by smaller firms to document the monitoring of their firm’s quality control systems.
Peer Review Changes to Address Disparity Recently redesigned checklists on employee benefit plan audits help reviewers focus on areas that the DOL finds significant. For A-133 engagements, new procedures have been implemented that require the peer review administering entity to review the major program determination for the A-133 engagements selected by the peer reviewer. These steps have helped to uncover key practice problems. Furthermore, in January 2014 AICPA’s Peer Review Board approved a series of short-term initiatives designed to improve the quality of the peer review program. These initiatives include the following: • c ing the quality of peer reviewers to ensure ongoing competency, which may result in additional focused training and an exam. • F ocusing on emerging risk industries and areas of concern to assist peer reviewers and firms with key audit and industry risk areas, such as government pensions, ESOPS, and evaluating independence when performing nonattest services. •R evising the reporting model to improve the transparency of peer review results. •E nsuring the completeness of the engagement population so that all firms that are required to have a peer review are properly enrolled in the peer The Alabama CPA MAGAZINE
review program and that the scope of the peer review includes all required engagements. AICPA’s efforts with respect to ensuring the completeness of the engagement population have been extensive. Recently, the DOL provided the AICPA with a list of 4,918 firms and requested that the AICPA verify whether the firms were properly enrolled in AICPA’s peer review program. The list was compiled from Form 5500 filings for the 2011 plan year, and only included firms from states in which peer review was required for licensure in 2011. The AICPA reported preliminary findings back to the DOL that noted at least 144 firms that were not enrolled. The AICPA was unable to match hundreds of other firms for a variety of reasons (including firm mergers and dissolutions, name changes, and so on) and has been working through the list to try to locate these unmatched firms to verify compliance with peer review program requirements.
Some of the ideas under consideration include using more real-time data, leveraging technology, ensuring completeness and consistency, and including randomness in the process. The AICPA is using the firm listing provided by the DOL to verify that the nature and scope of the peer reviews for these firms are correct. This project is still in progress, but early results have been disappointing, with a number of firms not including employee benefit plans in the scope of their peer review. In many cases, where the scope of the review has been found to be insufficient, peer review reports have been recalled. The AICPA performed a similar project on A-133 engagements, where it looked at 2011 data collection forms filed with the federal audit clearinghouse (FAC) and identified 213 firms that indicated that the type A threshold was $500,000 (generally it should be $300,000). The AICPA then checked the firm information against the list of firms enrolled in the peer review program and found that a number of firms were either not enrolled in the peer review program, had never been enrolled in peer review program, or had peer review with an insufficient scope. The FAC project resulted in 32 ethics cases, some resolved with significant findings. The AICPA updated this project with the 2013 filings and opened 23 ethics cases. The public nature of the A-133 and DOL filings make it easier to assess peer review program compliance and identify deficient work. As audit reports for A-133 audits are now required to be searchable, it will be easier to target deficient audit reports. The leveraging of technology to improve the peer review program will increase as the next phase of AICPA’s peer review program begins.
Peer Review in the Future
On Aug. 7, the AICPA released a discussion paper, Enhancing Audit Quality – Plans and Perspectives for the U.S. CPA Profession, that addresses audit quality from a holistic approach including potential changes to the audit and quality control standards, additional implementation guidance, improvements to training programs based on the AICPA Future of Learning Task Force, revisions to the CPA Exam, enhanced ethics enforcement initiatives, considerations on improving compliance with the ethical requirements of competence and due professional care, and changes to the peer review program. The AICPA also has a task force that is evaluating the future of practice monitoring. Some of the ideas under consideration include using more realtime data, leveraging technology, ensuring completeness and consistency, and including randomness in the process. A concept paper exploring these various options is expected out this fall. This dialogue is a tremendous opportunity to create an improved practice monitoring system that supports and rewards higher quality accounting and audit practices. This effort will only succeed, though, with the input and support from firms interested in seeing higher quality results. ______
Allison M. Henry, CPA, vice-president of professional and technical standards for the Pennsylvania Institute of CPAs (PICPA). Ms. Henry can be reached at ahenry@picpa.org. This article is reprinted with permission of the PICPA. 5
MEMBERS IN MOTION New Positions and Promotions Walt Ellis has been promoted to commercial loan officer at Troy Bank & Trust. Ellis had been TB&T’s credit analyst since joining the bank in 2009. He is a graduate of Auburn University with a degree in finance and earned the additional hours needed to sit for the CPA exam at Troy University. Warren Averett Turnaround Advisors announced that Wesley Willings has been promoted to manager. Willings’ responsibilities include managing turnaround and restructuring engagements, financial reporting and tax compliance projects. He has been with the firm since 2009 and is a graduate of the University of Alabama Wesley Willings with both undergraduate and MAcc degrees. The Alabama Family Trust announced the hiring of Doug Marshall as its new CFO and chief taxation officer. The Alabama Family Trust is a unique public service created by state law to provide special needs trusts for disabled persons of all ages as safe havens for financial resources to help as- Doug Marshall sure important benefits from SSI and Medicaid and as protection from fraud or exploitation. Marshall previously served as CFO for United Cerebral Palsy of Greater Birmingham. During his 25 years at Energen Corporation, he served as controller of Alagasco and director of tax at Energen. He began his career in the Birmingham office of E&Y.
NACVA) and manages CDPA’s accounting and advisory services as well as CDPA’s business valuation practice. Blackburn graduated from the University of North Alabama with undergraduate and MBA degrees. Blackburn is a member of the University of North Alabama School of Accounting and Business Law Advisory Council Board of Directors and serves as treasurer on the Limestone County Learn to Read Council’s Board of Directors.
AWARDS AND NEW DESIGNATIONS Terry Sparks, PricewaterhouseCoopers, has been named to the Birmingham Business Journal’s Top 40 under 40. Sparks is assurance partner at the firm. He joined PwC following graduation from Auburn University where he received both undergraduate and MAcc degrees. At the Troy University Accountancy Day on September 4 Melissa Barnes and Steve Williams of Carr, Riggs & Ingram as well as Patrick Bowman of Barfield, Murphy, Shank & Smith were inducted into the Accounting Hall of Honor. Amanda Freeman, vice-president of operations for the Alabama Society of CPAs, was named Accounting Alumna of the Year.
Community News UAB has plans to construct a new 105,000 square foot facility for the Collat School of Business. It will be located at University Boulevard and 13th Street South and will also house the Institute for Innovation and Entrepreneurship. Birmingham-based real estate company Medical Properties Trust donated $1
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Kaye Sheridan, CPA, Director of the Troy University School of Accountancy and Amanda Freeman.
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Kyle Goodwin is now the chief financial officer and chief risk officer for First Financial Bank in Bessemer. Goodwin is a graduate of the University of Alabama, with both BS and MAcc degrees. He was at KPMG for three years, before moving to Regions Bank where he worked in finance, treasury and risk management. CDPA, with offices in Athens and Huntsville, announced the promotion of Jeremy T. Blackburn to shareholder status. Blackburn has many years of professional experience in the finance, public accounting, and business ad- Jeremy Blackburn visory industries serving individuals, private companies and public companies primarily in the private equity, healthcare, governmental, nonprofit, manufacturing and higher education industries. He also has multiple years of experience in the finance industry as a licensed broker. Blackburn began his career at Davidson, Golden & Lundy, a Nashville public accounting firm specializing in auditing, tax preparation and consulting in the Construction/Contractor Industry. He then moved to PricewaterhouseCoopers (PwC), a large international accounting and consulting firm, working out of their Birmingham and Nashville offices for six years as an assurance manager before joining CDPA in 2010. Blackburn is also a Certified Valuation Analyst (licensed by
million for the project and those funds will be used for the building’s auditorium. Carr, Riggs & Ingram, super-regional firm based in Enterprise, has announced two mergers which will further expand its reach. Boohaker Schillaci & Co., with offices in Birmingham, Brewton and Haleyville as well as Taylor & Willis, CPAs of Metairie, Louisiana have joined with CRI. The new offices will operate under the Carr Riggs name, and bring to 42 the number of locations across Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, Tennessee and Texas.
Jean Stover Tanquary
d March 10, 1930 – September 25, 2014 Birmingham, Alabama Certificate number #2808
hen Jean Stover Tanquary died Thursday, September 25, 2014, heaven gained a witty angel. She was best known for her quick, dry humor, combined with a slow delivery and deadpan expression that left some wondering if she was kidding. . . until she raised her eyebrows. Coming of age in Jean’s family meant finally being old enough to recognize her jokes, and each grandchild in turn would say with amazement, “Did you know Grandma is funny?” Besides her humor, Jean was also known for her kindness, honesty, encyclopedic mind, impressive vocabulary, chicken soup that arrived when her children or grandchildren showed the first hint of illness, peach cobblers, pies with melt-in-your-mouth flaky crusts, and her Husband’s Delight casserole (which, she never failed to mention, she didn’t learn to make until after her divorce). Jean was unflappable in any situation, a trait that served her well raising five children who let snakes and mice loose in the house and had their share of fights and stitches. She had a love of afternoon naps, especially during golf and NFL games, and enjoyed crossword puzzles, Sudoku, and piano playing that became increasingly loud and fast, according to her stress level. Although she made others laugh, Jean took many things seriously, including loving her children and grandchildren, spending time with friends, and her church and faith. She lived in Vestavia Hills for 48 years, but was born in rural Columbus, Kansas, on March 10, 1930, and graduated from high school in Columbus before earning a BA from Pittsburgh State College in Kansas and MS from Oklahoma State University. At 52, Jean became a CPA and went to work as an accountant, the perfect job for a woman who alphabetized her spices and never needed a calculator. She retired at age 70 from Warren Averett. The Alabama CPA MAGAZINE
DOING IT BETTER
By Gary Adamson, CPA
Building Your Bench for Succession – A Few Ideas to Help You
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housands of firms are working through the succession and retirement of senior partners and deciding along the way whether or not they can pull it off internally and stay independent. The single most important factor for success is what we see when we look over our shoulder – is the bench of people there to succeed us? It is that simple but for many firms building that bench has been a daunting task. If you have near term retirements and your bench isn’t up to the task or just doesn’t exist, then you are probably one of the many firms driving the M&A explosion in the profession. If you have some time to work on it, this writing will provide some ideas to help you.
Recruiting Make recruiting a constant effort in your firm meaning that you are always looking for people, not just when someone leaves. Said a little differently, we should always be looking for and have room for great people. If you make the commitment to hire more than you need another very healthy thing will likely happen – you will actually be able to make choices and outplace the weaker players, strengthening the team along the way. We will never be able to do this as well as the Big 4 who historically have accepted (promoted) significant turnover of their younger staff while watching the cream rise to the top. But we need to do it better. Firms having the best success building their bench almost always have a commitment to grow their own. That means a commitment to a campus recruiting process and not being afraid to compete with the larger firms. This takes consistency, a campus presence, a social media and web face for the firm, knowing the professors and selling your firm. You don’t have to settle for the second tier of students. Not every top student is destined for a national firm - you can get some of the best if you work at it. Please don’t be cheap – if you want some of the best don’t let a few thousand dollars stand in the way. I also encourage you to create an internship program in your firm. It is a tremendous way to get a test drive before you actually hire someone. Most schools are now structuring internships that run during tax season. A few points: make sure that you look for interns who you have a reasonable shot at hiring when they The Alabama CPA MAGAZINE
graduate; look for multiple year students if you can find them (repeating internships); again, don’t be cheap - you want to pay market or better. Make sure that you have a staff bonus program for recruiting experienced people. You want your team talking to friends about how great it is to work for you and with some skin in the game they will be more inclined. The good news here is that the
quality of what they send you is generally much better than what you’ll get from an outside recruiter. You want to talk to their friends who aren’t currently looking for a job. These plans are generally for senior positions and above and pay $5000 or more with half at the time of hire and the other half at some future date, if the person sticks. Continued on page 9
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DOING IT BETTER
Kim Kushmerick, AICPA Senior Technical Manager, Accounting
New Revenue Recognition Standard: Build Your Implemen
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he Financial Accounting Standards Board’s new revenue recognition standard presents the most significant accounting change many veteran CPAs have seen. The standard touches every entity (public and private, including not-for-profit entities) that reports under U.S. GAAP and will require CPAs to reexamine the underlying economics of large numbers of established business practices. The new standard applies to most transactions and contracts with customers except for leases, insurance contracts, most financial instruments and guarantees (other than product or service warranties). At first glance, the implementation period for Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, might seem adequate if not generous. Public companies, for whom early adoption is not permitted, are required to adopt the standard in 2017 (for reporting periods beginning after December 15, 2016). Private companies get an additional year—starting with 2018 for their annual reports—and two more years, beginning in 2019—to start applying the standard to interim reports. Private companies may choose to adopt the standard on the public company schedule. After further study, however, many organizations may find the implementation period to be extremely aggressive and the task daunting. There are many components to be analyzed and many questions to be answered: • How will the standard affect operational and performance metrics? • What IT changes will be needed? • How will you retrospectively adopt the standard?
If a public company chooses full retrospective adoption, revenue and the direct effects of change in accounting principle to all contracts must be restated for 2015 and 2016 to show comparative financial statements with a cumulative adjustment as of January 1, 2015. You are encouraged to advise clients and employers to begin developing an implementation plan as soon as possible. The AICPA has organized a major effort including industry work groups, training, and organizational tools to assist CPAs with this monumental implementation. You can use the following key tasks based on the AICPA’s New Revenue Recognition Accounting Standard – Learning and Implementation Plan as a high-level road map to begin organizing your organization’s implementation.
Task 1: Form a task force (2014-2015) Don’t wait to get all of the major players involved. The standard replaces most transaction- and industry-specific guidance with a principle-based approach, making it difficult—if not impossible—for CPAs to estimate the implementation effort required in a specific organization without first conducting a detailed assessment to use in developing a work plan. In all but the very smallest private companies, this assessment will require substantial collaboration with most major business functions including sales and marketing, IT, legal and human resources.
Task 2: Evaluate the impact (2014-2016) Evaluate the changes from current GAAP to the new revenue recognition standard and evaluate the impact on how your company accounts for existing revenue streams and the results to your company’s financial state-
ments. In addition, evaluate how the standard will affect operational and performance metrics, company contracts, compensation plans, accounting policies, internal controls and tax matters. Work with your auditor to ensure that your approach to implementing the new revenue recognition standard and any changes in accounting for revenue recognition are documented completely and accurately.
Task 3: Choose how to retrospectively adopt (2014) The standard should be applied using one of the following two methods: 1. Retrospectively to each prior reporting period presented and the entity may elect any of the following practical expedients: •F or completed contracts, an entity need not restate contracts that begin and end within the same annual reporting period. •F or completed contracts that have variable consideration, an entity may use the transaction price at the date the contract was completed rather than estimating variable consideration amounts in the comparative reporting periods. •F or reporting periods presented before the date of initial application, an entity need not disclose the amount of the transaction price allocated to remaining performance obligations and an explanation of when the entity expects to recognize that amount as revenue. 2. Retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application. If an entity elects this transition method, it also should provide the additional disclosures in reporting periods that include the date of initial application of the following items: •T he amount by which each financial statement line item is affected in the current reporting period by the application of the standard as compared to the guidance that was in effect before the change. •A n explanation of the reasons for significant change. In September, the Securities and Exchange Commission determined that companies electing full retrospective adoption
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Standards
ntation Plan Now will only be required to apply the new standard for three years rather than the expected five years.
Task 4: Determine IT changes needed (2014) Based on the determinations made in Tasks 2 and 3, the new standard may require modifications to IT systems to capture the appropriate level of information related to data used to make estimates on revenue recognition and new disclosures. Determine whether any changes will need to be made to IT systems or software applications to capture information needed for the new revenue recognition standard, including the following retrospective adoption and the additional qualitative and quantitative disclosures required.
Task 5: Determine interim disclosures needed for public companies (2014-2016) Public companies should consider the guidance in SEC Staff Accounting Bulletin (SAB) No. 74 (Topic 11:M), Disclosure of the Impact that Recently Issued Accounting Standards Will Have on the Financial Statements of the Registrant When Adopted in a Future Period, to determine the appropriate interim disclosures to be made prior to the adoption of the new standard.
Task 6: Develop project plan (2014–2016) Develop an evolving project plan for implementation of the revenue recognition standard considering all of the tasks above and facilitate training for your staff.
Task 7: Educate key stakeholders (2015-2016) Based on the determinations made in Tasks 2 and 3, the new revenue recognition standard may result in changes in timing of revenue recognized as well as new qualitative and quantitative disclosures that will need to be explained to stakeholders. Educate key stakeholders such as your audit committee, board of directors, investors and lenders on the new revenue recognition standard and what changes they should expect in your company’s financial statements. © AICPA 2014
The Alabama CPA MAGAZINE
Building Your Bench for Succession Continued from page 7
Growth and Development If you can fill the pipeline with new hires how do you grow and keep them? A few ideas that may be helpful: Do a better job in defining your position descriptions and what it takes to advance to the next level in your firm. Your staff want a checklist – that is not what I am talking about. It is more about the experiences that they have had, the initiatives and leadership they have shown, the training that they have completed. Try to articulate how your expectations are different for each level, for example a senior over a staff person. If you can describe that verbally first, that’s a good start. That will give you the basis to build around in writing your position description. Make it clear what the career progression is in your firm and what the ladder looks like. Then, if you are like most firms and have people on that ladder who are not advancing (they have peaked out at a particular level and will never be an owner in the firm) be honest with them and with everyone else in the firm. That means tell them the truth – they are not going to be a partner. They probably already know it. As important is that everyone else in the firm knows who is on track and who is not. You will lose younger “stars” who want to move up if they think the ladder is clogged by too many people above them. When I started out in public accounting I didn’t get much nurturing along the way. It’s different now and building your bench begins with the new hires. It starts off with “buddies” who are peers to help get new staff going, then mentors who are career counselors in most firms and a newer role that I am starting to see in more firms is the sponsor. A sponsor is a partner who takes a personal interest in helping someone grow into a future owner. It means spending the time and building the relationship to help that person get there. It is really grabbing one of the “stars” in your firm and taking a personal interest in their success. It is a step beyond mentorship and it takes the right partner to do it. Unfortunately most firms don’t have enough if any sponsors.
Inclusion The college grads that you are hiring today want to be “a part of it”. That is much more than it used to be and it is difficult for many firms to meet the expectations. It is more than communication – it is involvement. The Millenials want you to involve them on the front end. They want to be in the know. They want to not just understand where the firm is going, they want to influence it. Short of putting new hires on the Executive Committee, there are things that you can do to make your people feel more “a part of it”. Here are a few examples: • Most firms are not very good at articulating the firm’s mission and vision. Your staff really does care where the firm is going and they want to be part of a winning team. You need to find opportunities to talk about your mission and vision often and how the firm’s actions and direction are consistent with them. • Put young people on task forces and committees of the firm. Better yet form an Inclusion Committee to get their ideas on how the firm can improve communications with and involvement of the team. • Create opportunities to communicate with the team especially from the firm’s management/ leadership group. For example, meet with your manager group after partner meetings to keep them informed; hold an open forum lunch for staff with your managing partner a couple of times a year. Building your bench is a big job and it involves several different fronts. For smaller firms it is much more difficult to devote the resources to get it done. With that said, it is the answer to perpetuating your firm and accomplishing internal succession. –––––– Gary Adamson is the President of Adamson Advisory, specializing in practice management consulting for CPA firms. His background includes growing and leading a top 200 CPA firm. He can be reached at (765)488.0691 or gadamson@adamsonadvisory.com. For more about Adamson Advisory, visit www.adamsonadvisory.com or follow the company at www.adamsonadvisory.com/blog. 9
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The Alabama CPA MAGAZINE
Zoebelein on Tax
Tax Tips from a Seasoned Tax Professional
T
he theme for this issue is practice management and, while I have never managed an accounting practice, I have managed the tax function when I worked in industry. (However, I can’t believe that is the same.) I thought instead I would share some tips gathered during my 42 years in taxation. This is a potpourri of things I have picked up along that journey. Some of what I am about to write is basic and you already have it in your arsenal. I suggest you just skip that section. If I help one reader, then it has been worth taking time away from the October 15 deadline to write this article! Staff Training I believe it is equally important to include the “why” with the “how” when training your staff. If you just train the “how to do it” without telling “why it is done this way,” then you are relying on the rote memory of your staff member. Mechanical operations can be learned by repetition, but that will require more of your time to make it sink in. Change the facts a little and your staff person may become lost. My experience has shown me that by taking a little extra time on the front end to explain the tax theory of “why this schedule” or “why our firm does it this way,” I repeat myself less often. This method invokes the intellect as well as the rote memory of your staff person. After all, we want our staff to be thinkers, not just mindless form-fillers following last year’s work papers. When I was in a different firm during the heat of tax season a new staff member asked “what box do I tick in Prosystems to do this?” The staff person had no clue why this specific tax form was part of the client’s return in the prior year, or even if was still applicable to the current year’s return. This puts the burden on the reviewer and can lead to a climate of “If it is wrong the reviewer will catch it” (or not). Tax Penalties/Letters to the IRS As tax professionals, we tend to talk in code, which finds its way into our letter writing. Writing in that manner comes across as cold, even cocky. Think of your audience and write as though you’re having a conversation. You have a story to tell; tell it to your reader quickly, within the first two sentences. For example, in a letter to the IRS, I might explain that “My client understands the purpose of the penalty is to ensure compliance. However, a domino effect resulted when the payroll clerk had a sudden death in the family and was not available to make the payroll deposit. Mary, her assistant, filled in and made the tax deposit. But Mary was unaware that the monthly branch payroll coincided with the weekly payroll, causing the federal deposit to be due two days earlier. As you can see, my client has never missed a deposit….etc.” Engage your reader, don’t turn them off by parroting code sections. In any case, the IRS notice sent to your client will provide the penalty code section. Look for the corresponding exception to that penalty section and reference that in your letter. In my example, Mary violated the one day rule resulting in a penalty under §6651(d) to be assessed. The relief sections to that penalty are §6656(a) and §6651(a) (1) reasonable cause. The language of §6656(a) prescribes that relief should be granted where “the failure to make a timely deposit is due to reasonable cause and not willful neglect.” Point out to your reader that Congress put this exception to the penalty in for my client’s exact circumstances and give the explanation. Lastly, show how you have fixed the problem, if that is applicable. Don’t give up after the initial communication with the IRS. I often have to appeal the denial of my first letter by sending almost the same letter a second time. I don’t know if it is policy, but it seems to require two letters. Other Tips on Penalties •P enalty for late filing of a partnership return- If ten or fewer partners/ members, look at Rev Proc. 84-35 for penalty relief. • F irst time penalty relief - If your client has been a stellar taxpayer and this is their first penalty assessed against them, you can request relief. I refer
The Alabama CPA MAGAZINE
to this as the Get Out of Jail Free card and use it wisely. I would consider requesting it by phone. Try the Taxpayer Preparer hot line. •§ 6662 Accuracy related penalty - look for relief under §6664 IRS Matching Program & Desk Audits The infamous information returns, including the family of Form 1099s we all receive, were only paper when I first started to practice. Everyone tried their best to comply and nobody really did anything with them. I envision the IRS paper copy of the information returns were gathered up and, like the end of the movie Raiders of the Lost Ark, they were wheeled into a vault somewhere never to be seen again. Today’s advancement in computers, coupled with the IRS’ mandate to receive these filings in electronic format, has changed the game dramatically. With computers matching information returns with taxpayer identification numbers, there is more accountability. But the tax-paying public is being papered with notices generated by those same computers, often without any human oversight. I refer to the notices as “guilty until proven innocent” since tax, interest and penalty are included. To help your client avoid these notices, I recommend you deal with them as quickly as possible. If the 1099s are incorrect, go back to the payer and try and get them fixed by amending the Form 1099 sent to your client. If that fails, report the incorrect Form 1099 and wash it out with a corresponding deduction explaining the error in the Form 1099. A good example is a Form 1099 issued in the shareholder’s name and ID number instead of the S corporation. Show it as it was issued, and then take it out explaining that the income was reported under the S corporation’s FEIN. If your client is billed for his time plus expenses, many times the Form 1099 will show both the fee plus the expense reported on the Form 1099. Show it as gross and deduct the reimbursed expenses. Respond to the matching notice quickly with your explanation and support. If your support is too large, try showing a sample to a matching group along with an explanation of the volume of records. • I have found that the matching group is behind as much as a month or more, but the computer is not. Your client will continue to receive notices generated by the computer. I have made timely responses with support for the amount on the return. Next thing my client receives intent to levy. Keep in mind, we have done nothing wrong. I called the IRS, only to be told that department was backed up three months! My client’s notice turned into a statutory notice, which led to threat of a levy. All because the IRS’ matching group was three months behind. I have now started adding in my response to the matching group “if the information we are providing is not sufficient to resolve this issue, consider this response our request for an appeals hearing on this matter.” • I f you are getting nowhere and up against a statutory deadline, consider calling in the Taxpayer Advocate. If you are about to run out of time, fax Taxpayer Advocate and alert them by putting bold letters “911”. This will tell them this is an emergency and action is requested immediately. This is a last resort, so use it sparingly. The Alabama fax number is 205-271-6157. The regular phone number for Taxpayer Advocate is 205-912-5631. Desk Audits - I make my response to a desk audit as organized and as easy to follow as I can. I want the agent to spend as little time as possible on the audit of my client. I try to make it such that any sixth grader can follow the question to the answer. I am not implying anything about the agent, but if I can make it easy to follow, then he/she will be able to easily find the answers to those questions. I code my response and support by question number so that it is referenced and cross-referenced. If there are too many documents, consider a sample or request that your case be moved to a closer IRS Service center. Continued on page 15 11
EXECUTIVE DIRECTOR ALABAMA STATE BOARD OF PUBLIC ACCOUNTANCY POSITION ANNOUNCEMENT
LOCATION: Montgomery, Alabama SALARY: Commensurate with experience Under the direct supervision of the Alabama State Board of Public Accountancy (“the Board”) the Executive Director functions as the Chief Executive Officer of the Board with the primary duties and responsibilities as follows:
• Consults with the Board’s attorney, other state accountancy boards and State and National Agencies to keep the Board informed of current trends and issues.
• Serves as the agent for service of legal process upon the Board.
• Drafts legislation and rules for the Board.
• Responsible for the administration of Board policy.
• Serves as the official custodian of the records of the Board.
• Supervises the Board staff members (five full-time employees) in all functions of the Board such as processing of applications, grades, certifications, registrations, CPA Examination administration, Peer Review Program, agency accounting, preparation of the Board’s annual budget request and operations plan, and preparation of reports required by the Board and other State agencies. • Plans and coordinates regular and special Board meetings including assisting the Board Chair in the development of agendas for Board meetings, preparation of minutes and furnishes Board members with information needed to carry out the regulatory duties of the Board. • Arranges sites for Board meetings, public hearings, disciplinary hearings, and CPA Certificate Presentations.
• Receives and processes complaints and coordinates with the Investigative Committee for proper disposition.
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• Supervises the review of requests for approval of continuing professional education (CPE) programs and the audits of licensees’ CPE reporting.
• Attends and makes presentations at budget hearings, sunset hearings and public meetings. • Responds to inquiries from other agencies or individuals.
• Participates in conferences and other activities relating to professional training, licensure, or practice.
• Provides advisory services to CPA Examination candidates, licensees, Board members and the Public on the Public Accountancy Laws of Alabama and the Board’s Administrative Code (Rules). MINIMUM QUALIFICATIONS: By the date of appointment, the incumbent must be a Certified Public Accountant in the State of Alabama. Qualified candidates must have a Bachelor’s degree and at least five years of managerial experience. Government agency experience preferred, but not required.
HOW TO APPLY: All applicants must submit a resume by December 31, 2014 to the Executive Director Search Committee, Alabama State Board of Public Accountancy, P.O. Box 300375, Montgomery, AL 36130-0375. 10-06-14/EDJOBDESCRIPRPL14.DOC
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The Birmingham Chapter of the YCPAs invites you and your staff to help give the families of the Birmingham Salvation Army Transitional Housing Unit a Christmas they will never forget!
Each winter, the YCPA Birmingham chapter raises funds, purchases and wraps Christmas gifts and provides an evening with Santa for the families in transitional housing units of the Birmingham Salvation Army.
How you can help: • Be your firm’s Operation Christmas fundraising chair • Volunteer as a shopper to purchase gifts • Volunteer as a gift wrapper to wrap all the gifts • Attend the Christmas party to experience the fun and encourage the families Important Dates: • Friday, December 5 - All donations are due • Monday, December 8, 6:00 pm - Wrapping party location to be determined. • Monday, December 15, 6:00 pm - Christmas party at the Salvation Army for the transitional housing families To participate or donate, contact Leslie Parker at leslie@forensicstrategic.com or (205) 397-2124.
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Contribute to the ASCPA archive as we celebrate 100 years. Send photos, early CPA certificates and other memorabilia. Contact Jeannine Birmingham jbirmingham@ascpa.org The Alabama CPA MAGAZINE
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Learn more online by visiting paychex.com/health-reform/esr or by calling Christy Williams at 205-991-3990, ext, 56301.
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The Alabama CPA MAGAZINE
EDUCATION Express
Save $25 when you register at least 10 days before class date.
AICPA Member Non-Member No. Hours Title Date Division Fee Fee
WEB167 8 Cost Capitalization from A to Z WEB168 8 Enterprise Risk Management for Small and Medium-Sized Enterprises: Enhance Fraud Protection and Profitability in Your Organization WEB166 8 Form 1041 Workshop WEB169 8 Strategies for Tax Dispute Resolution WEB170 8 Auditing Defined Contribution Plans WEB171 8 Personal Financial Planning in Intriguing Times WEB172 8 Cloud Computing: What is it and is it Right for Me? WEB173 8 Deal Structure for Mergers and Acquisitions WEB174 8 Auditing of Employee Benefit Plans WEB190 2 Beyond Standard QuickBooks Reports WEB175 8 Effective Work Paper Techniques: Building a Better Work Paper WEB176 2 Hyperlinks, Data Validation, Pivot Tables, Macros and More WEB177 4 Professional Conduct and Ethics Webcast: Anticipating and Preventing an Ethical Crisis WEB178 8 Retirement Advising: Accumulation and Decumulation Strategies WEB179 8 Stocks, Bonds and Mutual Funds: A Comprehensive Guide to Successful Investing WEB180 8 Stocks, Bonds and Mutual Funds: A Comprehensive Guide to Successful Investing WEB181 8 Leases: Past, Present and Future WEB183 8 Audit Standards Update: Clarity Standards Overview WEB182 8 The New Compilation and Review Standards WEB184 8 Tax Practice Conduct Standards: Circular 230 and AICPA Statements on Standards for Tax Services WEB185 2 Understand Data at a Glance: Conditional Formatting and Other Tricks WEB187 8 Business Succession Planning and Exit Strategies WEB186 8 Oil and Gas Taxation: Nuts and Bolts WEB188 8 Church and Minister Taxation WEB189 8 Preparation of Forms 1040NR and 540NR for the Visiting Non-U.S. Citizen WEB191 8 Investment Planning Re-created: New Strategies for Today’s Environment WEB192 8 U.S. GAAP and IFRS Update WEB193 4 Preserving Independence Ethical Considerations When Performing Nonattest Services WEB194 8 Retirement Distributions: Planning Options WEB195 8 What Your Broker Won’t Tell You About Insurance Planning WEB199 2 Best Enhancements in Excel 2007/2010 WEB196 8 Pension and Profit-Sharing Plan Strategies WEB197 8 S Corporation Preparation, Basis Calculations and Distributions: Schedule K and K1 (Form 1120S) Analysis WEB198 8 Startup Conference WEB200 2 Internal Control and Fraud Reduction Using QuickBooks? WEB201 8 Partnership Preparation, Basis Calculations and Distributions: Form 1065 Schedule K & K1 Analysis WEB202 8 Advanced Auditing of HUD-Assisted Projects WEB203 4 Financial Reporting Framework for SMEs WEB204 4 Accountancy Laws, Ethics, Taxes and Financial Reporting Review - Ethics
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275 275 275 275 275 275 275 275 275 69 275 69 138 275 275 275 275 275 275 275 69 275 275 275 275 275 275 138 275 275 69 275 275 325 69 275 275 138 138
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Tax Tips from a Seasoned Tax Professional Continued from page 11 IRS Audits of Your Client in person Know more about the case than the IRS agent! Meet with your client and make sure he tells you everything, especially any skeletons he may have hidden in the closets. Let him know the best time is to expose any dirty laundry is NOW, because you can’t defend what you don’t know. If the agent finds it, and you did not know about it, that is both embarrassing and harmful to your defense. Control the information you give the agent and keep a copy. Never let the agent have free access to your copier. Offer to copy any documents the agent wants. You need to know what documents the agent has in his possession. You need to know what he knows at all times. If you find errors preparing for the examination, hold them to the end and offer them to the agent. This can be both for and against your client. Be helpful to the agent and above all, be creditable. Avoid talking after you have won your point. You may say something to negate your point. If the agent is proposing adjustments, try and settle it at the examination level whenever possible. This saves your client fees and the agent may have more latitude than appeals. _________ Pearce, Bevill, Leesburg, Moore, P.C, 110 Office Park Drive, Suite 100, Birmingham, AL 35223 205-323-5440 | www.pearcebevill.com The Alabama CPA MAGAZINE
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Presorted Std US Postage PAID Permit No. 131 Montgomery, AL NOVEMBER
2014
The Alabama Society of Certified Public Accountants 1041 Longfield Court P.O. Box 242987 Montgomery, AL 36124
C l a s s ifi e d
YOUR PRACTICE WANTED: We are North America’s leader in practice sales. Let us navigate the complexities, locate the best match from a deep pool of qualified and serious buyers, and optimize your return on the years invested in building your practice. If you are considering a change, contact Alabama broker Lori Newcomer, CPA, at (888) 277-6040 or LNewcomer@apsleader.com for a confidential discussion.
ASSISTANT CONTROLLER WANTED for Birmingham-based consumer magazine publishing company. Excellent opportunity within finance division for CPA minimum of 4 years’ experience. The right candidate will take over a portion of monthly close-out activity within the first few months of hire, with growing responsibility to include contributing to financial statement construction. Position is a direct report to the CFO and will provide the successful candidate exposure to all high-level strategic projects including investment analysis, mergers and acquisitions, capital allocation, and some budgeting/forecasting. Must be detail oriented, possess excellent time management skills, and be able to ensure data integrity and accuracy in work. Must be fluent in GAAP and able to account for business operations. Proficiency with Microsoft Excel required. Experience in MAS 200 helpful. Minimal travel. Industry experience helpful, but not required. This position is located in our Birmingham corporate office. Please send resume and cover letter to Judy Brown Lazenby: jblazenby@hoffmanmedia.com. Visit us at www.hoffmanmedia.com.
PRACTICE FOR SALE: grossing $415,000, primarily from tax preparation and write-up. Seller pays brokerage commission. For more information, please contact Lori Newcomer at 888-277-6040 or LNewcomer@APSLeader.com or visit AccountingPracticeSales.com. Office Building for Sale/Lease – Located near the Riverchase Galleria (Birmingham. 3300 square feet. $299,900. Possible owner financing for qualified prospects. Call 205-902-7892.
Successful transitions require experienced, confidential, professional services you can trust. This is what Akins Professional Brokerage provides. Specializing exclusively in the brokerage of CPA firms, we have no upfront fees. List your firm w/ a professional. Call David Akins, CPA, at (877) 277-0272. Visit our website at www.ProfessionalCPAbroker.com.
“Over the river and through the woods, to the Iron Bowl we’ll go.” Oh, dear, that’s not right, is it? Enjoy the holiday, regardless of your team colors. The ASCPA office will be closed on November 27 and 28.