AZ CPA February 2016
The Return of Nanny Gate? Domestic Employee Compensation Issues
Handling Tax-Time Stress • SSARS 21 The Arizona Society of Certified Public Accountants y www.ascpa.com
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AZ CPA Volume 32 Number 2
February 2016
Features
New Feature — In it for the Outcome — Not the Income!
CPAs at Henry & Horne are committed to community service.
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by Elizabeth Bolt
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Managing the Pressure and Demands of the Tax Season
You don’t have to be in public accounting to take advantage of these stress relieving tips.
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AZ CPA Quick Quiz
Read the magazine and take this short quiz to get an hour of CPE.
by Joelle Hadley
Back on the Radar in 2016: Nanny Taxes If you or your clients have household workers, new employment issues could affect you. by Kathleen Webb & Daniel Rafeedie
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Columns & Departments Chair’s Message by Robert E. Dubberly, CPA
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Members News
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A Dash of SALT by James Busby, Jr., CPA
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Quick Quiz
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New Financial Statement Service a Gift to CPAs and Clients
A look at the changes in SSARS 21, which are considered by the profession to be the biggest subtantial changes in standards since the 1970s. by I.L. “John” Alarecon, CPA, CGMA, & James I. Caruso, CPA, CGMA
Arizona Society of Certified Public Accountants 4801 E. Washington St., Suite 225-B Phoenix, Arizona 85034-2021 www.ascpa.com
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ASCPA Chair’s Message
Unfortunately It’s Not Getting Easier
by Robert E. Dubberly, CPA
It is my hope that the FASB’s simplification project will provide some much needed relief in the application of some of our most complex standards.
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It’s hard to believe the annual financial reporting season is upon us again, and preparers and auditors alike are planning for our busiest time of the year. For me, I spent much of November, December and early January attending or instructing training that highlighted new standards or updated current thinking on guidance previously issued by our standard setter and regulators. The highlight of these trainings was the 2015 AICPA National Conference on Current SEC and PCAOB Developments. At this year’s conference there were several focal points – FASB Foundational Projects, Other Technical Accounting Standards/Projects, SEC Updates and PCAOB Developments. Keynote speakers included professional staff from the FASB, SEC and PCAOB including: Russell Golden, FASB Chair; Mary Jo White, the SEC Chair and Jim Doty, the PCAOB Chair. Highlights from the AICPA conference included: • The FASB started with its foundational projects. Interesting enough to me, it seems that every technical training that I’ve attended since at least 2008 has included a discussion on the new revenue and lease standards. After all of the consternation and debate, a final revenue standard was issued in 2015 and a new lease standard is expected the first quarter of 2016. • In addition to the revenue and leasing standards, the FASB discussed other accounting standards/projects including financial instruments, the disclosure framework project, new Accounting Standards Updates (ASUs) on consolidation, going concern and cloud computing. The FASB also has an ongoing simplification project, and they have, or shortly will have, to issue ASUs to simplify the accounting for measurement period adjustments related to business combinations, employee benefit plans, equity method of accounting, debt issuance costs, the presentation of deferred income taxes and share-based payments. • The SEC and PCAOB provided regulatory updates. • The SEC’s update included comments from the Chairman, the Office of the Chief Accountant, the Division of Corporation Finance and the Division of Enforcement. Chair White set the stage in her opening comments where she provided the following thoughts on Internal Controls over Financial Reporting (ICFR) — “it is hard to think of an area more important than ICFR to our shared mission of providing high-quality financial reporting information that investors can rely on.” This theme of ICFR was continuous throughout the SEC’s comments and the SEC Staff were clear that registrants should expect more focus in this area during 2016. The SEC also discussed their disclosure effectiveness project. This initiative is intended to reduce redundant disclosures in order to improve the effectiveness of Regulation S-X, and in some cases, reduce the cost of compliance. Additionally, the SEC Staff provided observations related to non-GAAP measures, segment reporting and the results around recent enforcement actions. • The PCAOB’s developments included a focus on audit quality, inspections results, the adoption of the new related party auditing standard, the expected adoption of the new standard to disclose the audit partner and other significant
audit participants, and an update on the PCAOB’s audit quality indicators initiative. After participating in these sessions, it’s clear to me that the expectation for both preparers and auditors is at an alltime high. Accounting and audit quality is job one! For registrants, our collective regulators are on the job, and they will be monitoring our progress through the comment letter and inspection process. As for standard setting, adoption of the revenue and leasing standards will be challenging. Early evaluation is critical to the success of the adoption of those standards. With that said, it’s my hope that the FASB’s simplification project will provide some much needed relief in the application of some of our most complex standards. Given these challenges, I for one am glad such a remarkable group – CPAs – are responsible for the success of this task. Good luck and happy reporting season! n
Member News Kevin R. Yeanoplos, CPA/ABV/ CFF, ASA, was appointed to the AICPA ABV Exam Task Force for 2016. He has served on this Task Force for six years. Henry & Horne, LLP, recently acquired Anderson, Church & Co. PLLC. BeachFleischman PC has m e rg e d w i t h Cervantes CPA Firm, P.C., effective Jan.1, 2016. The combined firms are practicing as BeachFleischman PC, and Cervantes CPA Firm’s employees have relocated to BeachFleischman’s office in Phoenix. Flowers, Rieger & Associates, PLLC recently hired Valerie Ferry, CPA, as a senior tax manager. Pinnacle Plan Design has promoted COO Amanda Iverson, CPA, to shareholder.
Andrew H. Short, CPA, ABV, CFF, CFE, CGMA, has been promoted to managing director and Lea G. Broka, CPA, CFE, CCA, CGMA, has been promoted to manager at Fenix Financial Forensics LLC (“F3”). The Arizona State Board of Accountancy approved the appointment of Scott A. Mitchem, CPA, to the Law Review Advisory Committee and Candace P. Given, CPA, to the Peer Review Oversight Advisory Committee. Josephine Giordano, CPA, MBA, ABV, CVA, joined KotzinValuation Partners as a manager. Anne Davison, CPA, is now a tax manager at RSM US LLP. Jason Washo, CPA, joined the board of the Foundation for Senior Living.
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Terri Reed and Melissa Loughlin-Sines at Children’s Center for Neurodevelopmental Studies.
New Feature! In it For the Outcome— Not the Income Henry & Horne, LLP, Committed to Community Service by Elizabeth Bolt Employees dedicated to giving back are the driving force behind the community service efforts at Henry & Horne, LLP. The Arizona accounting firm reaches hundreds of people in need every year through various volunteer events and donation drives. “We’re a local company and it just makes sense to give back to our community. It’s so important. You don’t ever want to take things for granted,” said Robin Adair, executive assistant and Community Service Committee chair. Each year, the firm participates in 10 volunteer events, holds six donation drives and hosts a firm-wide community service event where all employees participate. In November, more than 100 employees helped sort donations, unload trucks and set up the boutique at Sunshine Acres Children’s Home. Team members also fulfilled wish lists for 70 children through Child Crisis Arizona and provided Thanksgiving meals for 50 Valley families in need. Last year, team members volunteered 534.5 hours and donated $7,922.45 to help 16 organizations. They sorted 6,422 pounds of food at St. Mary’s Food Bank Alliance, collected back-to-school items for the Southwest Autism Research and Resource Center, served 612 meals at St. Vincent de Paul and donated items to help with the needs of Crisis Nursery. Employees also make a donation every Friday to the Jeans Fund to help support the various volunteer and donation events. Henry & Horne, LLP team members don’t just participate in these events, they coordinate them, too. The firm’s Community Service Committee is made up of seven employees who meet to brainstorm how to help. “Giving back is another way for us to help out our clients and the industries we serve as a profession,” said Kevin Bach, manager and first-year committee member. Once organizations and events are set up, the committee puts out the call to employees for help. That’s where team members like manager Melissa LoughlinSines come in. “No matter what has happened in my life, I am always aware that I have it pretty good compared to many others,” said Loughlin-Sines. “I like to be able to help when
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Dan Mace packs meals at Feed My Starving Children
I can and the firm’s community service activities give me that opportunity.” Loughlin-Sines is a familiar face among the employees who volunteer. She sees it as a chance not only to help the community, but to also instill the importance of giving back to the next generation of volunteers. “I am teaching my boys that it is important to help out when we can. They see me doing it and they have also participated in many of the firm events,” said Loughlin-Sines. Community Service is one of Henry & Horne, LLP’s pillars. Each year a team member is recognized for his or her participation and dedication to serving the community. The efforts also help foster another firm pillar – Team Engagement. Employees enjoy spending time together while volunteering. “You have the chance to get to know your team members better because you’re in a smaller group setting. We have fun together but are all committed to helping out,” said Bach. Giving back extends beyond the office as well for many employees who are encouraged to serve on various boards and volunteer positions for organizations throughout the Valley. n Elizabeth Bolt is marketing & communications coordinator at Henry & Horne, LLP. She can be reached at elizabethb@ hhcpa.com. Do you have a community service story? We’d love to hear about it! Contact Patty Gannon at pgannon@ascpa.com.
A Dash of SALT
SPECIAL EDITION — Arizona Postpones Key Sales Tax Reforms … Again! This Special Edition state and local tax (SALT) column addresses the latest, indefinite delay to Arizona’s effort to simplify its sales tax system. In 2013, the Arizona Legislature passed a transaction privilege (sales) tax reform bill. As one of just four states that allow municipalities to administer their own sales taxes, one of the legislature’s primary objectives was to simplify the state’s sales tax system by doing away with the requirement for some businesses to: • Obtain municipal sales tax licenses from up to 18 cities that administer their own sales taxes (non-program cities); • File municipal sales tax returns with up to 18 non-program cities; and • Remit sales taxes to up to 18 non-program cities.
by James G. Busby, Jr., CPA
The Intended Effective Date and the Initial Delay Arizona’s sales tax reforms were to be effective on January 1, 2015, and some of the changes did go into effect on that date — like Arizona’s cumbersome new rules governing the taxation of construction contractors and the rule that prevents municipalities from initiating a new sales or use tax audit on a company unless the company is only engaged in business in one municipality or the municipality is authorized by the Department of Revenue (Department) to conduct the audit. However, the most important simplifications, those that would have required the Department to issue all municipal sales tax licenses, to process all municipal sales tax returns, and to receive all municipal sales tax payments, did not go into effect on January 1, 2015 as planned. Instead, late in 2014, the Department announced that these key reforms were being delayed until January 1, 2016 due to the “complexity and scale of programming” required.
The Latest Delay Indefinite Now, roughly two and a half years after former Arizona Governor Jan Brewer signed Arizona’s sales tax reforms into law, the Department updated its website to indicate that it will not issue sales tax licenses for non-program cities, process sales tax returns for non-program cities, or receive sales tax payments for nonprogram cities beginning January 1, 2016 because its computer system still is not ready — and this time the Department did not indicate when its computer system will be ready to implement these important reforms.
James G. Busby, Jr., CPA, is a state and local tax attorney at The Cavanagh Law Firm. Busby previously worked in the SALT departments at Arthur Andersen and Deloitte & Touche. Before entering private practice, Busby was in charge of all transaction privilege (sales) tax audits at the Arizona Department of Revenue. If you have any questions, please contact the author. He can be reached at (602) 322-4146 or JBusby@CavanaghLaw.com.
A Silver Lining When Arizona passed its sales tax reforms in 2013 there were 18 non-program cities. Since then, three cities — Bullhead City, Somerton, and Willcox —allowed the Department to begin collecting sales taxes for them beginning January 1, 2015 and, effective January 1, 2016, the City of Sedona will allow the Department to begin collecting sales taxes for it.
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So, as of January 1, 2016, Arizona taxpayers will “only” have to juggle additional sales tax licensing, filing and payment responsibilities in up to 14 non-program cities — Apache Junction, Avondale, Chandler, Douglas, Flagstaff, Glendale, Mesa, Nogales, Peoria, Phoenix, Prescott, Scottsdale, Tempe and Tucson.
Practice Tip! CPAs who work for or consult with businesses that are subject to Arizona sales and use taxes should make sure their companies and clients realize that Arizona’s non-program cities will continue issuing separate sales tax licenses and requiring separate sales tax returns and payments for the foreseeable future. n
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Watch for ASCPA Ads Promoting the Hiring of CPAs Watch and listen for ads promoting hiring a CPA in your area. Print, online and radio ads will appear in the Yuma Sun, Arizona Daily Sun, Prescott Daily Courier, Inside Tucson Business, KTAR and the Phoenix Business Journal in January and February. These ads will promote the ASCPA Find a CPA online referral service. If you are looking for new clients, be sure you have signed up to be part of the ASCPA’s referral service.
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AZ CPA FEB. 2015
One of the key ways to manage the heavy workload is to think about managing your energy, not just your time. Time is finite. Energy is infinite – if we manage it effectively. If we just keeping working longer hours and power through everything, we actually become less productive. Learning to fill your energy tanks during this tax season versus draining them is imperative to a productive and enjoyable next few months. By incorporating a few of these practical tips, you will get more done in the time you do have. As a human being, you have interconnected energy sources that allow you to be engaged in work and life. The most relevant sources to use during tax season are physical energy, mental energy and emotional energy. Each energy source impacts the other, so that if you create good habits in one source, the others will benefit. Consequently, if you default to bad habits in another area, they will all be negatively impacted.
are physically tired, it impacts our ability to focus, it makes us more sensitive emotionally and you have less energy to do the things that bring you joy or give time to those who are important in life. Being aware of your physical energy makes you more sustainable in life and work. Sleep: Ideally, you need six to eight hours of sleep for your brain to work well the next day and for your body to feel rested. Go to bed and get up earlier. Don’t stay up late trying to finish a deadline. Instead, go to bed, get a good night’s sleep and wake up earlier to finish the project. Diet: Don’t skip breakfast. In the rush of getting to work on time, the importance of good protein and calories to get your metabolism going is often forgotten. It’s never a good idea to skip a meal, but breakfast is THE meal you don’t want to miss. Prepare it the night before or take something easy to eat in the car. Focus on high protein foods. Avoid high carbs and high sugars. Eat four to six small meals a day versus three big ones. The amount should be no bigger than your hand. Prepare snacks for the entire week the weekend before, such as small bags of nuts, protein bars, yogurt and veggies with hummus. Movement: During high demand times it’s not always easy to exercise. If you CAN go to the gym either before work, during lunch or right after work, you will feel more energetic that evening and the next day (not to mention sleep better and probably not snack as much at night). Just get your body moving. Take the stairs, take a walk, go on a short hike, or walk through the office. When you move your body, you send oxygen to the brain. You will also lower the stress hormone cortisol. Studies have shown that sitting up to 11 hours a day can take up to three years off your life. Moving around every 90 minutes is the perfect break for your body and brain. Use a timer when you have a heavy workload as a reminder to stop and take a break.
Physical Energy
Mental Energy
Managing the Pressure and Demands of the Tax Season by Joelle Hadley There is a famous phrase, “When the going gets tough, the tough get going.” Everyone involved in tax reporting gears up for this time of year. Besides just getting tougher, there are some ways we can work smarter during this time of high demand and pressure.
This is the sheer quantity of our energy. Having physical energy means you can get through your day and week without feeling physically exhausted. When we
This is our focus of energy. This is one of the most important energy sources
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to pay attention to this time of year. Unfortunately in our society, the ability to focus has become a lost skill. Mental energy allows you to organize your thoughts along with your schedule. You must be able to focus 100 percent on the job at hand, whether that be the small details of a report or a big picture conversation with a client about longterm financial goals. Time Management: Being organized and disciplined with time/priority management skills is critical for mental energy. Work from a prioritized handwritten (or computerized) to-do list each day. Make the list the night before. Print out your weekly calendar and schedule so you know what lies ahead of you. Be sure to schedule time in between your meetings and work for getting the to-do list done, for extra emergencies, and time for prep and follow up. It’s better for your energy to work later into the evening with breaks in between them all at once in shorter amounts of time. Mental Breaks: Just like your body, your brain needs breaks to be effective.
Research shows that taking a mental break every 90 minutes to two hours will help you engage more effectively on the project at hand. This break could be taking a walk, getting a glass of water, stopping to say hi to a colleague, calling a loved one or even reading a few pages in one of your favorite books. Getting online for your mental break is not recommended as it can be too distracting. Creative Endeavors: Just when you think you don’t have the time for hobbies and creative activities is precisely the time when you need them the most. Creativity comes in different forms. It could be working with your hands, creating something, writing, crafting or immersing yourself in a project. It just takes 10-20 minutes to be effective, and this can be done anytime.
Emotional Energy Emotional energy allows us to connect with others. With all the stress and pressure that come with work, it often takes a toll on our positive outlook
and enjoyment of life. Oftentimes, little room is left for doing the things that bring pleasure. Being happy and having positive emotions allows you to be pleasant with others. With all the interactions you’ll have during this tax season, it’s important that our interactions are impactful. Managing Negative Energy: Whether it be a tough conversation or an unexpected setback, negative emotions like fear, anger, disappointment or sadness can decrease your mental abilities by 75 percent. Know when you might be feeling one of these emotions and take three important steps: • Stop and get ahold of yourself. Don’t ruminate about something frustrating. • Breathe deeply. Oxygen to your brain will help you think clearer. • Be grateful. Mentally going to your “happy place” such as a beach or the forest or thinking of things you love (family, friends, pets) can lower your heart rate and make you feel calm. Laugh and Have Fun: Don’t forget to have fun during stressful times. Schedule a funny movie night each week. Watch funny videos on YouTube. Read positive and happy books. Immerse yourself in nature. Listen to your favorite music in your car or at your desk. Bring flowers to your desk. Try a new restaurant. Read a self-help chapter each night before bed. Spend quality time with friends or family. Do yoga. Any of these activities will increase your happy hormones like dopamine, serotonin and oxytocin that decrease stress hormones. No matter how stressful this time of year can be for CPAs, it is important to think about your health and well being and make sure you put energy management on the top of your to-do list. n Joelle Hadley is founder of The Culture Coaches, a coaching firm that helps people love their work and their lives. Connect with her on social media and let her know which tips worked best for you. She can be reached at Joelle@theculturecoaches, (602) 999-1363 and facebook, twitter, instagram.
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Back on the Radar in 2016: Nanny Taxes by Kathleen Webb and Daniel Rafeedie Nobody likes to pay taxes, but the fines and penalties of not paying them can cost your clients so much more. A perfect storm of changing conditions in the U.S. labor market—the shockingly high number of misclassified workers, the growing national domestic workers’ rights movement, increasing state and federal labor regulations and the new information sharing agreements between federal and state agencies—have put the household payroll industry under renewed scrutiny. Eerily similar to 1993’s Nannygate scandal, where unfiled domestic employment tax returns cost two potential U.S. Attorney Generals their nominations, all families who employ domestic employees (nannies, elder care providers, housekeepers, etc.) are faced with a variety of new challenges when it comes to compensating them. If your clients have household workers, it’s important that you’re fully aware of the enforcement issues that could directly affect them. Here’s what you need to know.
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Misclassification of Workers The sharing economy is under fire, and we are seeing the effects trickle down to household employment, particularly senior caregivers. First and foremost, you need to ensure that your clients are properly classifying their household workers as domestic employees. Just recently, a class action lawsuit was filed in California against Uber for alleged “misclassification” of its drivers. The lawsuit claims that the popular rideshare company is cheating the law by classifying its drivers as independent contractors when they’re really employees. In 2014, Wage and Hour Division investigations into misclassified workers resulted in payments of more than $79 million in back wages for more than 109,000 nationwide workers in the janitorial, temporary help, food service, day care, hospitality and garment industries, among others. State unemployment funds are severely taxed, to the point of bankruptcy in some cases, due to unprecedented unemployment benefits claims. Empty tax coffers in particular have generated an increased urgency to enforce misclassification cases.
Domestic Workers Bill of Rights Because of these growing issues in the news, we’re now seeing a rapidly growing domestic workers movement. Unions have been actively drawing attention to the Domestic Workers Bill of Rights, and as these groups empower and educate previously uninformed workers, there is now an increased liability and risk for families employing workers. Even if domestic workers are misclassified unintentionally, the employers are liable. The increased oversight will surely increase now that the DOL began full enforcement of rules changes pertaining to in-home senior care on January 1, 2016. According to the National Employment Law Project (NELP), misclassified “independent contractors” are deprived of minimum wage, appropriate overtime pay, workers’ compensation and unemployment insurance. Additionally,
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independent contractors have to pay more taxes. They are responsible for paying both the employer and employee‐side FICA and FUTA taxes, which averages about 15.3 percent of their gross wages. Employees, on the other hand, pay only 7.65 percent. These discrepancies can make a significant difference in the income of low wage workers.
New Information Sharing Agreements In a heightened effort to crack down on unpaid employment taxes, including the misclassification of workers, more than half of the states have signed an agreement with the federal government agreeing to share information and coordinate enforcement efforts. The independent contractor-based business model is now under close scrutiny. In the eyes of the federal government, nannies, housekeepers and caregivers are not independent contractors — they are domestic employees.
Affordable Care Act The correct classification of workers as employees or independent contractors not only affects the tax payments of workers, but also has severe implications for the legal protections that workers receive. As of March 2014, all individuals – including household employees – are required to obtain health insurance that meets government standards under the Affordable Care Act (ACA). But without verifiable income, many household employees are ineligible for the ACA subsidies that help them obtain health insurance. Insurance premiums and penalties are skyrocketing, meaning more people are now searching for available subsidies. Not only does verifiable income allow employees to become eligible for ACA subsidies, it also allows nannies and other household employees to qualify for unemployment benefits, workers compensation coverage, social security and Medicare benefits, and tax credits for low income workers. It is truly in the best interest of your clients – and their
employees – to pay their household help legally.
Immigration Reform As enforcement continues to ramp up, federal agencies are now requiring immigrants to file tax returns as a part of their path to citizenship. In recent years, we’ve seen a spike in ITIN numbers for workers who are looking to become legal U.S. citizens. Household employers who employ undocumented workers must start complying with the law by paying them as full domestic employees. It’s critical that your clients do their part to help their employees meet the requirements needed to become U.S. citizens when the opportunity arises. As we kick off 2016, now is the time to strengthen the relationship with your clients and show them how you can add value. The best thing you can do for your clients is to make sure that they are aware and on top of their domestic employer tax situation. Even if your clients are familiar with the recent increase in enforcement, they may not fully understand the implications. Knowing the complicated nature of tracking hours, calculating taxes and handling payroll, CPAs may want to recommend that all their clients who employ household workers utilize an outsourced solutions provider that specializes in household payroll and tax compliance. n Kathleen Webb, president of HomeWork Solutions, which provides payroll and tax services to families employing household workers. Webb is an expert in “nanny tax” payroll taxes, having consulted with Senate staffers in the drafting of the 1994 Nanny Tax Law. She has authored publications including: “ABC Nanny Guide: How to Find and Keep Your Ideal Caregiver” and the “HWS Guide to Household Payroll.” She can be reached at kathy@HomeWorkSolutions.com. Daniel Rafeedie is director of sales and marketing for HomeWork Solutions. Rafeedie is an active member of the International Nanny Association (INA) and Alliance of Professional Nanny Agencies (APNA), among others. He can be reached at Daniel@ HomeWorkSolutions.com.
New Financial Statement Service a Gift to CPAs and Clients by J.L. “John” Alarcon, CPA, CGMA, and James J. Caruso, CPA, CGMA In October 2014, AICPA’s Accounting and Review Services Committee (ARSC) released its new Statement on Standards for Accounting and Review Services No. 21 (SSARS 21). The new standards are considered by the profession to be the most substantial change to accounting standards since the 1970s. Plus, it introduced a financial reporting gift: a new level of service called preparation of financial statements. The new standards are effective for financial reporting periods beginning on or after Dec. 15, 2015. While early adoption is permitted, there have been a lot of questions about the implementation of SSARS 21 over the past 12 months. The purpose of this article is to analyze the implications of one piece of SSARS 21 – Section 70 – on the CPA profession, from the perspectives of both the provider and the user of accounting services.
What Changes with SSARS 21? SSARS 21 consists of four sections that are codified with the prefix AR-C: • Section 60, General Principles of Engagements Performed in Accordance with Statements on Standards for Accounting and Review Services • Section 70, Preparation of Financial Statements • Section 80, Compilation Engagements • Section 90, Review of Financial Statements AR-C Sections 60 and 90 are largely unchanged compared with existing statements. AR-C Section 80 is the revised standard for compilation engagements, which was simplified and shortened. The main change in compilation standards is that they are now only applicable when the CPA is engaged to provide a compilation, instead of when the CPA “submits” the financial statements to management. The old criterion of submission (according to which a
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compilation report is required when the CPA “submits” financial statements) was removed in the new standard. The new standard also eliminates the “Management’s Use Only” financial statements option, and has replaced it with AR-C Section 70. It is AR-C Section 70 that is new, and it is the focus of this article.
AR-C Section 70, Preparation of Financial Statements The new section applies when a CPA is engaged to prepare financial statements, but not engaged to perform an audit, review, or compilation. Like the compilation, the preparation of financial statements is a nonassurance service, it requires an engagement letter, can omit notes, and can be used outside of management. Unlike the compilation, however, there is no disclosure requirement regarding the CPA’s independence, and the financial statements do not have to be accompanied by a report. In terms of disclosures, the preparation engagement only requires a legend on each page stating that no assurance is provided. The name of the CPA firm is not required. If the financial statements were prepared according to a special purpose financial reporting framework (such as modified cash basis), a description of the framework should be added on the face of the financial statements or as a note. If the CPA is aware of a departure from GAAP or other chosen financial reporting framework, a disclosure should be added on the face of the financial statements or as a note. If the departure was intended to mislead users, the CPA should not prepare the financial statements. It is important to note that AR-C Section 70 does not apply if the CPA is only engaged as a consultant to merely assist in preparing the financial statements or if the CPA prepares the financial statements as a by-product of another engagement, such as preparing tax returns or a personal financial plan. In addition, it does not apply when the CPA is an employee of the company. For a more detailed overview of SSARS 21 and examples of statements and disclaimers by preparers, we rec-
ommend that you read the article, “A Bright Line in SSARS,” published by the Journal of Accountancy in December 2014.1 Regarding whether or not the preparation engagement is subject to peer review, the AICPA clarified in early 2015 that it is subject to peer review if the CPA firm is already subject to peer review because of other engagements (compilation, review, or audit) or if the CPA firm elects to enroll. The preparation engagement is not subject to peer review if the firm only performs preparation engagements. Arizona CPA Rules only require peer review if a firm performs audits, examinations, reviews or full disclosure engagements. So, firms that only prepare financial statements using the preparation standard will not be required to enroll and undergo peer review for Arizona licensing purposes. The Arizona State Board is set, however, to update rules in order to require participation in the Education Enhancement Review (EER) program for firms who only perform preparation engagements. This update to rules is pending. If firms have any questions or are unsure, or are accounting practices outside Arizona, they should consult the State Board of Accountancy to determine if enrollment in peer review is required. The impact of SSARS 21, and AR-C Section 70 in particular, is twofold. First, it creates a level of service that is better adapted to today’s business environment and needs. Second, it makes CPA firms more competitive in the outsourcing market.
Better Fit for Today’s Business Environment AR-C Section 70 brings a level of service that was not codified until now. With these CPA-prepared financial statements, the standards are more in line with the needs of users who do not require a report, particularly among privately held companies. Before SSARS 21, a CPA firm was required to provide a report if financial statements were to be used outside of management. “Management” was
From the CPA firm’s perspective, the preparation engagement makes it easier to provide outsourced accounting and controller and CFO services in a way that is cost-effective relative to non-CPA firm competitors or internal staff. very narrowly defined, such that thirdparty users included even financially sophisticated investors and boards of directors that were relatively close to the company’s operations. In many accounting outsourcing arrangements where a CPA firm provided CFO/controller services, the firm would trip into the reporting requirement by way of simply submitting financial statements, despite neither the client’s management nor external constituencies needing or wanting the formality of compiled financial statements accompanied by a compilation report. The compilation report is often viewed as little more than a “necessary evil,” with limited value and a paradoxical message to the reader in its attempt to distinguish between financial statement presentation and management’s underlying information, which itself is often the result of the CPA’s own work in an accounting outsourcing engagement. As a result, the outsourcing engagement becomes more expensive for the client due to the additional cost of the compilation procedures and report. This has put CPA firms at a competitive disadvantage when vying for outsourcing engagements versus non-CPA firms or independent consultants that provide interim management, financial advisory services, or business processing outsourcing. It also made it more difficult for CPA firms to position themselves as a cost-effective alternative to the client’s own internal accounting function that would not face these same compliance requirements. To be competitive, CPA firms often had to absorb the additional cost and sacrifice profitability. AR-C Section 70 eliminates this issue. From a user perspective, when financial statements are to be distributed to
third parties, the preparation engagement is expected to be more convenient and efficient than the predecessor compilation engagement. Clients that previously received management-useonly financial statements can now freely distribute those financial statements to third parties if or when necessary. In the past, the client would be prohibited from doing so unless the financial statements were upgraded to a compilation accompanied by a report. From the CPA firm’s perspective, the preparation engagement makes it easier to provide outsourced accounting and controller and CFO services in a way that is cost-effective relative to non-CPA firm competitors or internal staff. The provider no longer needs to choose between issuing a compilation report (at a greater cost to the client or to itself) or restricting the financial statements to management’s use only. In addition, CPAs no longer have to be concerned about whether simply submitting the financial statements would be a trigger for determining if a compilation report is required or not, a decision process that had become increasingly ambiguous with today’s cloud-based accounting systems. With AR-C Section 70, CPAs can more easily adapt their services to the realities of today’s business environment.
More Competitive Accounting Outsourcing Services In response to growing demand for outsourcing services among small- and medium-sized businesses, CPA firms have embraced cloud-based software technology and have significantly expanded their accounting outsourcing practices. According to AICPA’s 2014 MAP Survey, 2 adoption of cloud-
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based software among CPA firms has increased from 29 percent to 48 percent between 2012 and 2014. Accounting outsourcing services accounted for 13 percent of total net client fees among CPA firms, with the smaller practices having the highest accounting outsourcing revenues as a percentage of total fees. Indeed, accounting outsourcing services as a percentage of total fees range from 27 percent for the smallest firms, down to 3.9 percent for the largest firms. In addition, compilations (as a percentage of total fees) range from seven percent for the smallest firms down to 2.3 percent for the largest firms. Cloud technology has made CPA firms more efficient and effective, and as a result it has made accounting outsourcing more profitable for CPA firms and more economical for their clients. SSARS 21 should improve the competitiveness of CPA firms because the new statement is better suited for accounting outsourcing services. AR-C Section 70 allows CPA firms to approach the preparation of historical financial statements within the context of an outsourcing engagement in a manner comparable to internal CFOs or controllers, without being hamstrung by the cost of producing compilation reports that clients and their constituencies do not need or want. Accounting outsourcing is a vast market where CPA firms compete against non-CPA firms. With AR-C Section 70, CPA firms will be able to leverage their accounting expertise and differentiate themselves by offering CPA-prepared financial statements according to AICPA standards. Contrary to non-CPA firm competitors, CPA firms are licensed and are subject to codes of ethics and the regulations of state boards of accountancy and CPA professional organizations. Although CPA-prepared financial statements are provided with no assurance, they are prepared by professionals with acknowledged expertise and under recognized standards. In addition, where the value proposition of other accounting outsourcing industry players is focused on labor arbitrage and cost reductions in transactional
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SSARS 21 should improve the competitiveness of CPA firms because the new statement is better suited for accounting outsourcing services.
back-office accounting activities, CPA firms can differentiate themselves with broader capabilities ranging from strategic advisory services (such as business planning, business valuation, CFO services, performance analytics, benchmarking, and working capital management optimization) to highly specialized and technical advisory services (such as mergers and acquisitions, technology consulting, and tax advisory services).
Preparation of Financial Statement Engagements The specific requirements under AR-C Section 70, Preparation of Financial Statements, are relatively straightforward. As discussed earlier, key requirements include a written engagement agreement, a statement on the financial statements that no assurance is provided, and disclosure of departures from GAAP (or other chosen financial reporting framework) either on the face of the financial statements or in notes to the financial statements. Documentation requirements are limited to the engagement letter and a copy of the financial statements prepared. Documentation of significant consultations or significant professional judgments may also be included. When applicable under SSARS 21 or required for licensure, a peer review on financial statement preparation engagements is more in-depth than a management-use-only engagement review. The peer review should include the following: • The engagement letter • The legend on each page stating that no assurance is provided
• Titles for any special purpose frameworks used • Whether or not the financial statements are in accordance with the framework chosen • The disclosures of departures if applicable3 Although not specifically set forth in AR-C Section 70, we recommend that CPA firms also consider the following as they define their internal policies and processes, and develop the related tools, checklists, and methodologies for delivering preparation engagements: • Pre-engagement determination as to whether the engagement constitutes a preparation engagement or merely assistance in preparing financial statements, which is considered a bookkeeping service not subject to SSARS. • Quality controls around the underlying accounting processes that, in an outsourced accounting engagement, may be integral to the preparation of financial statements, including monthend closing adjustments, reconciliations, and significant estimates. • Quality controls to ensure that the financial statements are in compliance with GAAP (or other chosen financial reporting framework), or that known departures are appropriately identified and disclosed. • Internal review and approval of prepared financial statements by an appropriately qualified professional prior to issuance. • Standardization of language that will be used on the financial statements. While AR-C Section 70 requires that, at a minimum, there be a statement indicating that no assurance is provided, there is flexibility allowed in the full statement that is used. Standard
2016 Arizona Tax Guide Order the only comprehensive guide on Arizona taxes. Authors: Pat Derdenger, Steve Rodis and Ed Zollars
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New in the 2016 Arizona Tax Guide:
• Sales Tax: The new MRRA (maintenance, repair, replacement and alteration) exemption for service contractors took effect on Jan. 1, 2015.
Phoenix Tax Workshop, State Bar of Arizona or Enrolled Agents: $89
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The Arizona Tax Guide includes the following guides: • The Arizona Income Tax Guide is a comprehensive and easy reference guide that highlights the differences between Arizona and Federal income tax law and provides references to the Arizona Revised Statutes for a more in-depth analysis. It contains individual, corporate, partnership and trust tax differences, including tax tables, and is arranged in a manner that facilitates research on any topic. • The Arizona Sales and Use Tax Guide is a resource for anyone preparing or filing Arizona and city sales and use tax returns. The guide details the various sales and use tax rates that apply to each type of sale or product as well as the many exceptions, administrative provisions and Model Cities Tax Code provisions. • The Arizona Personal Property Tax Guide outlines the nature of the tax, reporting requirements, analysis of forms, audit and appeal procedures and small business exemptions. • The Arizona Unclaimed Property Guide covers Arizona rules that apply to unclaimed property, how to report and pay, and how to file your claim.
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FEB. 2015 AZ CPA
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ASCPA Conferences
Governmental Accounting Conference
Feb. 12 Arizona Biltmore Resort
Barry Melancon, President & CEO of the AICPA, will open up the conference with an update on the profession. General Sessions Include: • Changing Economics for Arizona Universities – Eileen Klein, President of the Arizona Board of Regents • GASB Update – David Bean, GASB • Latest on Fraud – David Cotton, Cotton & Company, LLP First Concurrent Sessions: • Economic Outlook • Nuts and Bolts of GASB • IT Risks & Best Practices Second Concurrent Sessions: • Horizons 2025 Panel— Future for CPAs • Fraud is Still Fraud • New Pension Standards
Special Thanks to Platinum Sponsor: Henry & Horne, LLP To register, go to www.ascpa.com and click on conferences.
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AZ CPA FEB. 2015
language for GAAP exceptions should also be defined. • Although the firm’s name is not required on the financial statements, firms may wish to consider a consistent “look and feel” for the resulting deliverable, including formatting, placement of the necessary “no assurance” statement, and any other disclosures. To take advantage of the benefits of AR-C Section 70, CPA firms may seek to convert existing compilation engagements to financial statement preparation engagements, assuming there is no explicit client need for a compilation report. In addition to executing new engagement letters, CPA firms should be diligent about communicating and explaining this new level of service and the resulting deliverable, not only to clients but also to their external constituencies such as investors and lenders who have become accustomed to receiving compilation reports. Although CPA firms should gain efficiencies by replacing compilation reports with financial statements prepared under AR-C Section 70, existing engagements for management-use-only financial statements may actually become a bit more complicated, at least during the initial process of converting them to preparation engagements. Management-use-only financial statements are eliminated by SSARS 21, so these “plain paper” financial statements will have to have the necessary statement that no assurance is provided, and known GAAP exceptions must be disclosed when they may not have been previously. This change should be carefully communicated to clients, along with the advantage that they are free to distribute the financial statements when warranted. CPA firms that, for whatever reason, do not wish to offer the new preparation of financial statements service should note that, to the extent they have management-use-only engagements, these will be eliminated under SSARS 21. So, if management-use-only engagements are not converted to preparation engagements, they must be converted to formal compilations.
As CPAs transition to the new service, it is critical that their internal processes be aligned with the new statements to minimize litigation risk. It is too early to evaluate the litigation threat with these engagements, but it is expected to be similar to compilation engagements. As with most firm services, litigation risk can be mitigated by adhering to applicable AICPA standards, defining and following quality control policies within the firm, and documenting compliance in both instances. With SSARS 21, the CPA profession has taken a significant step toward addressing the needs of both the users and providers of accounting services in today’s cloud-technology-driven world. The profession has enhanced its position by aligning with market needs and enabling CPA firms to capitalize upon the growing market for accounting outsourcing in small- to mid-sized companies. Most importantly, it will do so and still maintain the professional standards that distinguish the value proposition of CPA firms from other service providers. n Endotes: 1. Michael L. Brand, CPA, CGMA, Michael P. Glynn, CPA, CGMA, and Charles J. McElroy, CPA, “A Bright Line in SSARS,” Journal of Accountancy, December 2014. 2. Jeff Drew, “2014 MAP Survey: Firms Tech It Up a Notch,” Journal of Accountancy, January 2015. 3. For more details on the scope of the peer review for engagements performed in accordance with SSARS 21, refer to AICPA’s latest peer review checklists.
J.L. “John” Alarcon, CPA (in PA), CGMA, is chief financial officer for LoanLogics in Trevose, PA.. He can be reached at john.alarcon@loanlogics.com. James J. Caruso, CPA (in PA), CGMA, is partner, finance and accounting outsourcing, with RSM US LLP in Blue Bell, PA. He can be reached at jim.caruso@rsmus.com. This article was first printed in the Pennsylvania CPA Journal (without the added Arizona information).
AZ CPA Quick Quiz You’ve Read It, Now Get Credit Take this quiz online or submit this hard copy on AZ CPA content. Receive a score of 70% or more and earn one hour of CPE credit in specialized knowledge. It’s that easy! Fees: Members $25 Non-members $40 Online Access Login to www.ascpa.com and go to CPE/OnDemand CPE Quick Quiz to access links to all active quizzes. Purchase quiz and the quiz link and password will be emailed to you. Your results will be sent immediately after completing, and certificates are emailed within two business days. Hard Copy Please select one answer for each question. Fill out registration/payment information below and mail or fax to the Society office. Quiz results and certificates will be emailed to the address provided on the registration form. *This quiz will be available until February, 2017. Please note that users have three attempts to pass the quiz with at least a 70% score.
1. Why will Arizona not assist nonprogram cities with sales tax licenses, processing of sales tax returns, or receive sales tax payments?
5. What is emotional energy?
m Computer systems still aren’t ready m The reform is not effective yet m They aren’t part of the program, so it is unnecessary
6. When should you take mental breaks? m When you can no longer think
m Five m 20 m 14 3. What are our energy sources? m Physical, mental, and
m As “independent” they don’t make enough money to qualify for subsidized healthcare even if they make under minimum wage m The workers will have to pay more taxes m Employers can’t hide the payouts and will have to pay fairly 8. How much was paid out in back wages to “misclassified” workers in 2014? m $109, 000
m $79 million m $7.65 million 9. What is the biggest change to SSARS 21?
February Issue of AZ CPA*
2. As of January 1, 2016, how many non-program cities are left?
7. Why is it important to correctly classify household workers as “domestic” versus “independent?
m Your mood m Quality of energy m Energy used to control emotions
m Every 90 minutes to two hours m When you’re frustrated
m Addition of section 70 m There are no changes to SSARS 21 m The omission of section 90 10. When does section 70 apply?
m When a CPA is engaged to prepare financial statements m When an audit is done m During tax season
Registration Name: ____________________________________________________ Email:_____________________________________________________ Telephone: _________________________________________________
emotional m Coffee and energy drinks m A good night’s sleep
Payment
5 How many hours of sleep are needed ideally?
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m 5-6 m 8-10 m 6-8
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m Visa
m MasterCard m American Express
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FEB. 2015 AZ CPA
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Classifieds Business Opportunities/ Practices for Sale NORTH SCOTTSDALE CPA FIRM SEEKING TO BUY CLIENTS — Established over 30 years, we are experienced in smooth transitions and maintaining high client retention. We specialize in servicing small to medium businesses. If you are planning on retiring, we can customize a transition for you. We service the entire metropolitan Phoenix area and offer complete accounting and tax services. Call Joy today at (480) 9902727 or email joy@partridgecpas.com. TUCSON CPA TAX PRACTICE AVA I L A B L E F O R M E R G E R / BUYOUT OR NEW PARTNER — Two retirement minded partners of a $1 million, primarily tax practice in Tucson seek a firm that wants to merge or buyout the partners over an agreed upon time frame. The practice is well established over the last 30 years and highly profitable with a strong concentration in business and individual tax preparation and consulting. Firm would also consider a strong candidate to buy into the practice. Firm has a no cost 90-day notice to landlord, if firm merges and cancels lease. Please send inquiries and desired goals to yazzr33@gmail.com or CPA, 6590 North Regal Manor, Tucson, Az 85750. TWO PARTNER CPA FIRM SEEKS SUCCESSION PLAN — Located in north central Phoenix the firm serves a wide variety of clients with writeup, compilation, review, audit and consulting in addition to trust, estate, corporate, partnership, fiduciary and individual income tax services. The firm has a 25+ year history with annual revenues of $450K+. The partners wish to explore merger/buyout possibilities. Principals only, please respond to: cpa85020@gmail.com.
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Employment Accountant — Well established Chandler company that provides business products and services is seeking an Accountant with 3-5 years of solid accounting experience. Successful candidate will have a wide range of key accounting responsibilities and will work directly with the chief financial officer. B/S in Accounting or related field of study is preferred, but other experience/education will be considered. Working knowledge of GAAP is required. This is a fulltime position with excellent benefits. Qualified candidates please send resume to hr@dns-ans.com. Accountant II — Maricopa Community Colleges District — Position#15789. FT salary $46,110 $54,755. Provides analytic support to the District, including fiscal oversight, reporting, and compliance reviews of transactions in the general, auxiliary, grant, and/or capital funds. Responsible for the proper treatment of transactions in any of the following functional areas: Capital Assets Accounting, F i n a n c i a l R e p o r t i n g , Tre a s u r y / Investments, General Accounting, Grants Accounting. There are five positions to be filled in the following areas: Capital Assets Accounting, F i n a n c i a l R e p o r t i n g , Tre a s u r y / Investments, General Accounting, Grants Accounting. A completed online application at the company website is required. Position(s) will stay open until filled. Applications will be reviewed bi-weekly. MCCCD is an AA/EEO Institution.www.maricopa.edu/jobs. CFO — Flinn Foundation — CFO with working knowledge of investment-portfolio oversight sought at Flinn Foundation in Phoenix. Supports the President & CEO in developing and providing management oversight of all investment, financial, accounting and legal activities. Required: CPA license; Bachelor’s degree in finance, accounting or related field; 10 years senior-level finance and/or accounting experience.
Desired: master’s degree in fields cited above; CFA credential; nonprofit accounting experience. Send cover letter/ resume to fclack@flinn.org. Financial Controller — Tucson area — FLSmidth Krebs — Will manage the execution of corporate financial activities, reporting, financial analysis and preparation of annual budget and quarterly forecasts. Requires Bachelor’s degree in Accounting or finance (MBA highly desirable, but not required). 5-7 years experience in Controller role, managing accounting team. Experience with HFM and JD Edwards Accounting System and able to demonstrate advanced Excel skills. CPA or CMA preferred. Experience in global organization with offshored business processes is strongly desired. Outstanding benefits! Send resumes to: krebsjobs@flsmidth.com. LOOKING FOR A WORLD CLASS PART TIME TAX PREPARER —Solex Accounting, PLLC - I am looking for a long-term fit with a special person who can complement my skills and abilities. Together we’ll generate amazing results. There are promotion opportunities available for the right person. This position offers part-time, flexible hours and is perfect for a professional returning to the workforce who would love to be home when school lets out. The position is part-time but can lead to full time for the right candidate. Five plus years of QuickBooks and individual, partnership, and corporate tax return experience. http://www. SolexAccounting.com. Part Time Staff CPA — Harvey E. Amwake, PLLC — Established sole practitioner near 7th Street and Bethany Home seeks CPA for part time position. 35 hours per week tax season, 10-20 hours per week until October 15th. Position could lead to full time or ownership in the future. Ideal candidate will have 5+ years experience including QB clean up, some research, individual and small business tax returns. QB and
Lacerte experience a plus. We provide exceptional client service and are looking for the right person to enhance our team. Hourly rate open, hours flexible, casual work environment. E mail resume to Harvey@amwakecpa. com. SENIOR Tax Accountant/ Supervisor — N. Scottsdale — North Scottsdale CPA firm seeking individual with 3-5 years recent business and personal tax preparation. Supervisory/management and Lacerte experience a plus. High proficiency with QuickBooks a must. We offer a comfortable work environment with growth opportunities. Benefits and Salary DOE.Send resumes to joy@partridgecpas.com. Tax Manager —Tafoya Barrett and Associates PC — Here is your opportunity to live and work in the beautiful mountain community of Durango
Colorado, with all the outdoor activities you could want while working in a professionally challenging environment. We are a growing CPA firm specializing in income tax and financial planning services for high net worth individuals/ businesses. We are currently looking for a CPA with 2-10 years of advanced tax experience and some management experience. The potential for future ownership exists for the right candidate. Send resume to Tafoya Barrett and Associates PC, Attn: Cindy Morin, 150 E 9th Street, Suite 300, Durango, CO 81301 or CMorin@TafoyaBarrett.com. Tax Preparer — Lisa M. Wheeler CPA LLC — Tax preparer needed for individual tax returns for up to 40 hours per week for February through April. Office located in Paradise Valley. Please email your resume to miriam@ lmwheelercpa.com or call (602) 9536996 for more information.
Miscellaneous BUSINESS PROPERTY TAXES TOO HIGH? — I’ve been successfully appealing property tax assessments for over 15 years, both real estate and personal (business) property on a contingent fee basis. The annual business property reports are also filed for a flat fee. Reasonable rates. Arizona CPA. Visit my pages on LinkedIn, Facebook and Twitter. Call John at ASMR Consulting LLC, (480) 204-1289.
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FEB. 2015 AZ CPA
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AZ CPA FEB. 2015