AZ CPA Jan. 2018

AZ CPA January 2018

Resolving Ethical Dilemmas GASB Revised OPEB Standards Important Ethics Changes for CPAs in Business

The Arizona Society of Certified Public Accountants y www.ascpa.com

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Are you utilizing Arizona’s foster care tax credit?

This dollar-for-dollar credit now stands alone.

Reduce your state taxes while helping Arizona's children in care.

To take advantage of this credit, please visit TaxCreditForKids.org/cpa

“To ensure that every child has someone who cares”

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AZ CPA JANUARY 2018

An Arizona 501(c)(3) Qualifying Foster Care Organization tax ID # 86-0611935; United Way ID # 0023

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JANUARY 2018 AZ CPA

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AZ CPA The Arizona Society of Certified Public Accountants

Accounting & Assurance Conference January 10, 2018 Black Canyon Conference Center Also offered as a webcast Are You Ready for the New Revenue Recognition Standards?

Peter R. Alfele, CPA, CliftonLarsonAllen LLP Data Analytics – The New Art of Winning Roger Wahman, Intersys West Region

President & CEO

Cindie Hubiak

Editor

Patricia Gannon

Advertising

Heidi Frei

Board of Directors Chair Chair-Elect Secretary/Treasurer Directors

Immediate Past Chair Greg Nelson AICPA Council Members

SOC Auditing: What Risk is There to My Organization of Not

Monitoring My Vendors?

Chapter Presidents Southern Chapter Northern Chapter

Michael S. Nyman, CPA, CliftonLarsonAllen LLP Arizona State Board of Accountancy: Its Mission and Functions LeRoy M. Gaintner, CPA, President of the Arizona State Board of Accountancy Leading With Emotional Intelligence Brittney Williams, CPA, Heinfeld, Meech & Co., P.C. Do’s and Don’ts for Expanding Your Practice Into New Areas Joe Epps, CPA, Epps Forensic Consulting PLLC IT Security and Cyber Frauds Dr. Robert K. Minniti, CPA, Minniti CPA LLC

Learn more and register at www.ascpa.com/aac2018 4

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Molly Montgomery Mike Allen Jared Van Arsdale Michael Chesin Virginia DeSanto Tom Duensing Marcus Feder Kristen French Alan Gold Aaron Grant Julia Miessner Alice Pope Jeffrey Quick Nikki Vogt Char Woodall

Karen Abraham Armando Roman

Cathy Poore Bethany de Alva Southwest Chapter Helen Greenwell North-Central Chapter Ellen Carpenter AZ CPA is published by the Arizona Society of Certified Public Accountants (ASCPA) to provide information, news and trends in the profession of accounting. It is distributed 10 times a year as a regular service to members of the Society. The ASCPA, its members, board of directors and administrative staff assume no responsibility for advertisements herein. The ASCPA and the above people also assume no liability for business decisions made by readers in reference to statements and/or claims in articles or advertisements within this publication.

Opinions expressed by contributors are not necessarily those of the ASCPA. Arizona Society of CPAs 4801 E. Washington St., Suite 180 Phoenix, AZ 85034-2040 Telephone (602) 252-4144 AZ Toll-Free (888) 237-0700 www.ascpa.com

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AZ CPA Volume 34 Number 1

January 2018

Features

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Foundation Supports Student Attendance at National Association of Black Accountants Conference Scholarship recipient Christian Harris is profiled.

Resolving Ethical Dilemmas: You Make the Call According to Cotton, there are four barriers that cloud clear ethical thinking.

Learn how to see through the clouds.

by David L. Cotton, CPA (in VA), CFE, CGFM

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Columns & Departments Chair’s Message by Molly E. Montgomery, CPA 6 Member News

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A Dash of SALT by James G. Busby, Jr., CPA

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Quick Quiz

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Classifieds 22

Arizona Society of Certified Public Accountants 4801 E. Washington St., Suite 180 Phoenix, Arizona 85034-2040 www.ascpa.com

Important Ethics Changes for CPAs in Business The American Institute of CPAs recently released two significant ethics changes for CPAs in business.

by Gilbert B. Blumenthal, CPA

Déjà vu: GASB’s Revised OPEB Standards — Haven’t We Done This Before?

Although the OPEB accounting

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standards are long and complex, their reporting requirements will fortunately seem very familiar.

by Michael G. Stelpstra, CPA, and Donna Miller, CPA

JANUARY 2018 AZ CPA

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ASCPA Chair’s Message

Transforming the Pyramid At the 2017 AICPA Fall Meeting of Council in San Antonio, I attended a session that took a deep dive into the future of finance. The presenters acknowledged a pyramid-shaped finance department structure that we are all so familiar with. They showed how this model is transforming into a shape that is much wider at the top with very little at the base. Our groups evaluated several potential versions of what future finance departments will look like, and every option showed the traditional pyramid-shaped model being turned upside down.

by Molly E. Montgomery, CPA

Learning how to sell our strategies, our solutions, our services, is a skill that needs to be introduced to entry-level staff from the day they start working.

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When we hire new staff out of college, it makes sense to delegate menial tasks to them so they can learn the basics and get familiar with how things work. Over time, their technical skills and expertise are sharpened, and they can begin taking on more meaningful work. Get the foundation set, then grow into a role that requires more responsibility and adds more value to the organization or the clients they work with. This used to be the ideal model, where a more experienced professional would take younger staff under their wing, taking on a master-apprentice type of relationship.

The transformation of the pyramid-shaped model in finance departments and in public accounting firms is highly indicative of how the profession needs to be proactively changing the expectations of entry-level staff. With the technology that is available today, the menial tasks that are required for a finance department or a public accounting firm to function no longer need to be passed along to lowerlevel staff as a way to train them for their future roles. The inverted pyramid does not mean organizations are going to be hiring less entry-level staff. It means the job function and what is required of entry-level staff will look more like what a traditional mid-level, more experienced position used to be.

The most profound shift I experienced in my career happened when I chose to follow my passion for fitness, became a certified personal trainer, and got a job working at Lifetime Fitness in Scottsdale. At the time, the Lifetime gym in Scottsdale was the number one gym in the country for personal training when ranking the various locations based on revenue. This was a 100 percent commission job, where I had to find my own clients and create my own schedule in order to receive a paycheck. I had no time to waste. I asked my supervisor to teach me how to sell, and we spent several hours each week in his office going through intense sales training. Sales was completely uncharted territory for me. I had not yet been promoted to a manager-level role as a CPA and was told on several occasions by my superiors that I just needed to build my network. Sales would come later.

Three months into my new role as a personal trainer, I found myself on the list of top trainers in the company based on monthly sales revenue. This did not happen because I learned how to sell. This happened because I learned how to connect with members who came into the gym, by learning how to understand what they wanted out of life and what was bringing them into the gym in the first place, and

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Member News by learning how to communicate what I had to offer that helped solve their greatest challenges around their health.

I learned that selling is not about selling. It is far more valuable and far more exciting than simply closing a deal.

This experience completely shifted my understanding of our profession and what it means to add value as a CPA. What frustrated me most was how this critical distinction was not being introduced early enough in the pyramid-shaped model of our profession. Learning how to sell our strategies, our solutions, our services, is a skill that needs to be introduced to entry-level staff from the day they start working.

This is the connection to understanding the value we bring to the table and is the greatest opportunity to train the skills that the future of our profession requires: complex problem solving, critical thinking, creativity, communication, judgement, negotiation and emotional intelligence. I assure you, these skills are already present in younger staff; they just need to be given more opportunities to sharpen those skills.n

Jessica Iennarella, CPA, was accepted into the AICPA’s Young Member Leadership Committee.

Elizabeth Hale, CPA, founder of eeCPA, LLC, was elected to the board of the Board Developer Foundation.

James I. Barash, CPA, was promoted to partner at RSM US, LLP.

CAPITAL, LLC, designed to support the commercialization of University of Arizona science, services and intellectual property.

Bradley J. Preber, CPA/CFF, CGMA, was interviewed by the Journal of Accountancy in an article, “Fraud and fraudsters: A quick guide for CPAs.”

Andrea Garcia was elected to the national board of directors of Accounting & Financial Women’s Alliance.

Jeff Pruitt, CEO of Tallwave, received the Business Leader of the Year Award at the Governor’s Celebration of Innovation Awards.

Marissa L. Graves, CPA, is president of the Northern Arizona University Alumni Association.

Michael N. Deitch, CPA, is one of three founders of a new venture capital fund, UAVENTURE

Take advantage of ASCPA tools and resources for a successful tax season.

Learn more at: www.ascpa.com/taxresources

JANUARY 2018 AZ CPA

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A Dash of SALT

Government Property Lease Excise Tax Reforms In this month’s state and local tax (SALT) column, Busby explains recent changes to Arizona’s government property lease excise tax, which applies to certain government-owned properties leased to private parties.

Properties owned by federal, state, county and municipal governments are not subject to Arizona’s property tax. Some Arizona municipalities have used this tax exemption to persuade businesses to locate in their jurisdictions by taking title to buildings constructed on government-owned land and then leasing them back to the businesses.

Businesses that enter these agreements benefit by not paying property taxes.

Municipalities that enter them benefit from the development and from jobs and sales taxes generated by construction of the buildings and ongoing business operations, even though the municipalities forgo their minor share of the property taxes that the development otherwise would engender.

The Government Property Lease Excise Tax In 1996, to appease property owners who do not benefit and end up paying higher property tax rates because these agreements reduce the tax base, and because it was concerned that the possessory interest tax it previously enacted to address this issue may have violated the uniformity clause of Arizona’s constitution by providing statutory exemptions from the tax not authorized by Arizona’s constitution, the Arizona legislature enacted a government property lease excise tax (GPLET).

Every city, town, county and stadium district that holds title to one or more buildings located on land that they or another political subdivision of the state own that are available for use for any commercial, residential rental or industrial purpose must levy the tax — unless an exemption or abatement applies.

As its name suggests, rather than an ad valorem tax on property, GPLET is an excise tax — applying at various rates per square foot based on the type of building involved, and on a per-space basis for parking garages and parking decks. Similar to Arizona property taxes, GPLET is distributed in part to the county, municipality, community colleges and school districts where the building is located.

Properties located in statutorily defined “slum or blighted areas” within the “central business district” of a city or town may qualify for an abatement of the GPLET for eight years from when the certificate of occupancy was issued. Then, historically anyway, GPLET rates generally resulted in a much lower tax burden for the remainder of the lease period than if the property had been subject to property tax.

In 2010, the Arizona legislature significantly increased GPLET rates for new leases entered into on or after June 1, 2010. But, depending on the building’s value and the property tax rates where it is located, even the new GPLET rates may result in a lower tax liability than if the property had been subject to property tax.

by James G. Busby, Jr., CPA

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.

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building, now must calculate the GPLET payment due.

2017 GPLET Reforms In response to ongoing complaints by property owners who do not qualify for GPLET treatment and the 2015 Report to the Arizona Legislature from Arizona’s Auditor General regarding the state’s GPLET program, the legislature recently enacted several changes to Arizona’s GPLET statutes, effective August 9, 2017: •

Government lessors must maintain public databases of all properties in their jurisdiction that qualify for GPLET treatment, or post the lease agreements online, and submit a link to DOR to post such information on its website.

•

DOR now must certify that leases qualify for the lower GPLET rates intended for leases that were entered into before June 1, 2010.

•

Government lessors, rather than the business that occupies the

ASCPA Annual Meeting Save the Date — May 16, 2018 at the Arizona Biltmore Speaker: AICPA Chair Kimberly Ellison-Taylor www.ascpa.com

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•

Delinquent GPLET payments are subject to interest at the same rate applied to delinquent property tax payments (16 percent) rather than the rate charged by the IRS (currently four percent).

•

Except for grandfathered properties, (a) the lease period for properties that qualify for a tax abatement may not exceed eight years even if the lease is transferred to another party during that period, (b) the government lessor must convey the building and the underlying land to the private party within 12 months of expiration of the lease, and (c) the property shall not later qualify for other favorable property tax treatment regardless of its location or condition. n

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had a great time creating relationships with fellow students.

3. Why did you decide to study accounting?

I decided to study accounting as I believe it is the most important part of a company. Many people do not understand the related aspects within accounting, and that is the reason why a majority of startup companies fail. I also believe there are numerous job opportunities with an accounting degree, so the options are endless!

4. What tips do you have for balancing school, work and extracurricular activities?

Foundation Supports Student Attendance at National Association of Black Accountants Conference

The best way to balance school, work and extracurricular activities is to stay organized. I currently play college basketball, work two part-time jobs, am a full-time student, and also do part-time fitness training. I do not have much free time at all, but I enjoy staying busy. I would also recommend staying calm when tasks become very tedious. You must never lose your cool, as the outcome will be tremendous; just continue to work hard and remain patient.

5. What are your career aspirations?

Two accounting students received scholarships from the Arizona CPA Foundation for Education & Innovation to attend the National Association of Black Accountants (NABA) Regional Student Conference in Houston in October. Christian Harris, Benedictine University, and Isaac Batu, Grand Canyon University, attended the conference. These scholarships were made possible thanks to the Sam Gallant Memorial fund.

Christian Harris shares more about his experience at the conference and his career goals.

1. Why did you decide to attend the NABA Regional Student Conference?

I decided to attend the NABA Regional Conference as I felt it was the perfect opportunity to generate connections with other accounting students outside of Arizona and representatives from companies/accounting firms across the United States. The NABA Conference allowed me to represent myself as an aspiring black accounting student.

2. What were the highlights of the conference for you?

After graduation, I plan on sitting for the CPA exam and then working for a public accounting firm or a big company. I also plan on getting my real estate license and hopefully one day I can open up my own gym. I want to have money working for me rather than myself working for money through different forms of income. n

You can make a difference for accounting students with a donation or a legacy gift to the Foundation. www.ascpa.com/foundation

The highlights of the conference were my internship interviews with representatives from KPMG, Kaiser Permanente and Edward Jones. But, overall I

JANUARY 2018 AZ CPA

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Resolving Ethical Dilemmas: You Make the Call

by David L. Cotton, CPA (in VA), CFE, CGFM Raise your hand if you are ethical. Well, that was easy enough. If I asked 100 CPAs to raise their hands if they are ethical, 100 hands would go up without hesitation. So, why do we need codes of ethical conduct? Why do we need ethics committees to investigate complaints against CPAs regarding allegedly unethical conduct?

According to Dr. Lawrence Kohlberg’s stages of moral development,1. as we evolve as a species, we should become more sophisticated in our moral reasoning. We should progress from the “pre-conventional” stage (where we decide what is right or wrong based on direct consequences to ourselves) to the “conventional” stage (where we decide what is right or wrong by following established rules and laws) to the “post-conventional” stage (where we are guided by using universal ethical principles such as the common good and justice). My translation into lay terms would be that Kohlberg’s pre-conventional stage is simply “situational ethics” (just don’t get caught). His conventional stage is simply “rules-based thinking” (learn and follow the rules and you will be fine). Kohlberg’s post-conventional stage is “principles-based thinking” (just do the Right Thing).

As CPAs, we are certainly among the most sophisticated and advanced thinkers. So, why can’t we all agree to just do the Right Thing? In my view, there are four barriers that cloud clear ethical thinking: (1) in any given situation, we will not all agree on what the Right Thing to do is; (2) we often get so wrapped up in what we are doing that we fail to recognize ethical dilemmas that confront us; (3)

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most ethical dilemmas are just conflicts of interest and we (as humans) possess an ability to rationalize doing the Wrong Thing; and (4) it is not always possible to do the Right Thing without violating some of our complex ethical rules.

We Do Not Always Agree on What the Right Thing to Do Is A good illustrator of this barrier is a philosophical problem that ethicists have spent years studying, Philippa Foot’s Trolley Problem.2.

The problem itself is quite simple: A speeding, runaway trolley is hurtling down a track on which five people are tied. Fortunately, you are at a switch in the track that can divert the runaway trolley onto another track. Unfortunately, there is one person tied to this other track. What should you do?

Seems like a pretty easy decision at first glance: pull the switch—five lives are more valuable that one life. Reflect further, however, and you will realize that pulling the switch would make you directly responsible for taking a life

— maybe it’s best to not get involved.

Reflect further and you realize that you don’t know anything about the six people—the five might be heinous villains while the one might be in the final stages of developing a cure for cancer.

The more you think about the problem, the more complex it will get.

We Often Fail to Recognize Ethical Dilemmas When Confronted By Them Pretty much every ethical decision model (and there are many) starts with recognition of an ethical dilemma, followed by steps that should be taken to resolve the dilemma. So, failure to see the dilemma prevents us from getting to steps 2, 3, 4, 5 and so forth. For example, under the “threats & safeguards” Conceptual Framework model contained in both the Code of Professional Conduct and Government Auditing Standards, we are supposed to remain alert for seven categories of “threats” to independence and then apply “safeguards” that can mitigate the threats.

We are all busy people. It’s easy to miss what might be obvious to someone on the outside looking in.

For many, many years, most small governmental organizations hired a single CPA firm to (a) prepare financial statements, and (b) audit the financial statements. Seemed pretty logical, not to mention cost-effective. Of course, we now all recognize this as the “selfreview” threat to independence — the first of the seven threats under the Conceptual Framework. It did not suddenly become an ethical issue once the Conceptual Framework was developed—it was always an ethical dilemma. Most of us simply failed to see it as such and thus never even considered a need to apply safeguards.

It’s Often Pretty Easy to Rationalize Doing the Wrong Thing All CPAs are human. As such, we are often placed in situations where we can be pressured to do other than the Right Thing. It then can become easy

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to rationalize. “It’s for a good cause.”

“No one will be adversely affected— no harm, no foul.” “There are worse things.” “Everyone does it.” “There’s no law against it.” “If I don’t do it, someone else will.” There are probably enough rationalizations to fit any situation in which we might find ourselves.

To cite an extreme example, let’s look at David Friehling, Bernie Madoff’s supposedly independent auditor. For decades, Friehling issued audit reports on Bernie’s investment management company. He never actually performed any audit work and even had his own $14 million invested with Bernie. Friehling, an active member of the AICPA and New York Society of CPAs certainly knew what he was doing was wrong.

Yet, the temptation of becoming wealthy caused his ethical compass to “deviate.”

I don’t know what his rationalizations were, but it’s easy to speculate: Look at all of the people Bernie is making rich (“It’s for a good cause”). Or, no one will be adversely affected (“no harm, no foul”). If I don’t go along with Bernie, he will just find someone else to do his “audits” (“If I don’t do it, someone else will”) And so forth.

There are Some Situations in which it is Not Possible to Follow All of the Rules and Still Do the Right Thing CPAs dedicate themselves to “serving the public interest.” Sometimes, our complex ethics rules can be in conflict with that overarching principle. Let’s look at a hypothetical situation.

Ivana Dotha-Righthing, CPA, has been engaged to audit the financial statements of “Bernie L. Madhatter Investment Securities LLC.” Halfway through the audit, Ivana discovers that Bernie is not really investing his customers’ money as he is promising but is instead just running a Ponzi scheme. Ivana consults the AICPA Code of Professional Conduct for guidance.

She first finds section 0.300.030.01: “The public interest principle. Members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate

a commitment to professionalism.” That seems to imply that the Right Thing to do is report what she has discovered to law enforcement. Then she comes across section 1.700.001.01: “A member in public practice shall not disclose any confidential client information without the specific consent of the client.”

What are the chances that Bernie will give Ivana his consent to report what he is doing?

Good news on this front for those of us who do yellow book audits. The authors of Government Auditing Standards anticipated this very situation.

If a yellow book auditor encounters an auditee misspending government funds, she or he is required to advise the auditee to self-report the situation.

If the auditee declines, the auditor then advises the governing board that it should be reported. When that does not happen, the auditor then has an obligation to report the situation—and this “direct reporting” obligation remains even if the auditor is fired or resigns from the engagement.

The yellow book does not negate Code section 1.700.001.01 obviously.

But, if a CPA is engaged to do an audit under Government Auditing Standards, the auditee is explicitly agreeing to what the yellow book requires.

There will always be some situations where the Right Thing is not crystal clear.

But, for most situations, we know—deep down inside—what the right course of action is. We need to heighten our awareness to ethical threats—it’s always good to have more than one experienced professional helping us maintain our vigilance. We all know what rationalizations are; when we find ourselves engaging in them, it’s a good indication that we are facing an ethical dilemma. Finally, let’s all decide in advance that “serving the public interest” trumps all other ethical rules and act accordingly. n David L. Cotton, CPA (in VA), CFE, CGFM is chair of Cotton & Company LLP in Alexandria, Virginia. He has served on ethics committees for the AICPA, Virginia Society of CPAs and the Greater Washington Society of CPAs.

Endnotes 1. See: Auditors’ Ethical Reasoning: Insights from Past Research and Implications for the Future, Journal of Accounting Literature, 2003, By Jones, Joanne; Massey, Dawn W.; Thorne, Linda.

2. See: Philippa Foot, The Problem of Abortion and the Doctrine of the Double Effect in Virtues and Vices (Oxford: Basil Blackwell, 1978)(originally appeared in the Oxford Review, Number 5, 1967.)

For more on this topic by David Cotton, attend the

ASCPA Governmental Accounting Conference February 2, 2018 Hyatt Regency – Phoenix Learn more and register online at www.ascpa.com/gac2018 JANUARY 2018 AZ CPA

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Important Ethics Changes for CPAs in Business

by Gilbert B. Blumenthal, CPA The American Institute of CPAs recently promulgated two significant ethics changes for CPAs in business. Both changes were effective August 31, 2017.

The resultant broadening of a CPA’s responsibilities, along with completely new content, makes these interpretations required reading.

Revised Interpretation — “Knowing Misrepresentations in the Preparation and Presentation of Information,” formerly “Knowing Misrepresentations in the Preparation of Financial Statements or Records” (ET sec. 2.130.010) under the “Integrity and Objectivity Rule” (ET sec. 2.100.001) New Interpretation — “Pressure to Breach the Rules” (ET sec. 2.170.010) under the “Integrity and Objectivity Rule” (ET sec. 2.100.001) Let’s review both of these interpretations: The “Knowing Representations” interpretation is not new, but the latest revision clarifies the responsibilities for CPAs in business, i.e., those not in public practice. The use of the general term “Information” characterizes the expansion of the responsibilities of a CPA in business: • At all levels within your employing organization.

• Including the preparation and presentation of information for use both within and outside your organization.

• Including stakeholders including management, investors, creditors, regulators and others.

The intent of the new guidance presented in this interpretation is to clarify certain responsibilities for CPAs in business. CPAs responsible for recording, maintaining, preparing, approving, or presenting information must do so in accordance with the Integrity and Objectivity Rule. The information you provide may assist stakeholders in understanding and evaluating aspects of your company’s operations and finances. This includes financial and non-financial information that may be made public or used for internal purposes such as the following:

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•

Operating and performance reports • Decision support analyses • Budgets and forecasts • Information provided to the internal and external auditors • Risk analyses • General and special purpose financial statements • Tax returns • Reports filed with regulators for legal and compliance purposes Obviously, CPAs who are responsible for recording, maintaining, preparing, approving or presenting information should present the information in accordance with a relevant reporting framework. Information should be prepared or presented in a manner that is intended not to mislead, including not to inappropriately influence contractual or regulatory outcomes. Information you prepare or present must be complete and without omissions that would render the information misleading Ultimately a CPA is responsible for using professional judgment to assure that facts accurately reflect the true nature of business transactions or activities and are described clearly and classified appropriately. The interpretation provides guidance in the event that information you are associated with, or are aware of, is misleading. The key word is “associated.” No CPA wants to commit an Act Discreditable by failing to deal with information that is false

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or misleading, regardless of the source of that information. If you become aware of such an issue, consider the safeguards that are described in the interpretation as they are designed to protect all concerned.

Circumstances may be such that you may wish to resign from your organization. However, resignation may not relieve you of your responsibilities, including any responsibility to disclose concerns to third parties, such as regulatory authorities or the employing organization’s (or former employing organization’s) external accountant.

Matters involving situations in which there are concerns regarding the accuracy, reliability, intent or completeness of information should be documented just as you would with any other Ethical Conflict. See ET Sec. 2.000.020 when addressing ethical conflicts that may arise when a CPA encounters obstacles to following an appropriate course of action.

Such obstacles may be due to internal or external pressures or to conflicts in applying relevant professional and legal standards, or both.

Pressure to Breach the Rules According to the AICPA, the intent of this new interpretation is to provide guidance for CPAs in business when they are faced with pressure from others (for example, a colleague, superior, or customer) to take actions that could result in a breach of the rules, particularly the “Integrity and Objectivity Rule.” This new interpretation prohibits a CPA from placing pressure on others that would result in others breaching the rules. However, the focus of the guidance is on the CPA being pressured by others in a way that could result in the CPA breaching the “Integrity and Objectivity Rule.” The interpretation includes numerous examples of pressure that a CPA in business may face when undertaking professional activities.

An additional reason for this new guidance is that the Professional Ethics Executive Committee (PEEC) has considered the IESBA’s new ethics standard, section 370, Pressure to Breach the

At some point in every CPA’s career, they may feel pressure to push the envelope of professional propriety.

Fundamental Principles. The PEEC believes this proposed interpretation is substantially consistent with that contained in the IESBA Code of Ethics for Professional Accountants.

At some point in every CPA’s career, they may feel pressure to push the envelope of professional propriety. This is the first guidance specifically for CPAs in business and it is a valuable supplement to the Subordination of Judgment interpretation. See ET Sec. 2.130.020, which prohibits a CPA from knowingly misrepresenting facts or subordinating his or her judgment when performing professional services for an employer.

Below are excerpts from the interpretation to illustrate pressures that you may face that could result in a violation of the Integrity and Objectivity Rule.

• Pressure to influence presentation of information: • Pressure to report misleading financial results to meet investor, analyst, or lender expectations.

• Pressure from elected officials on government accountants to misrepresent programs or projects to voters.

• Pressure from colleagues to misstate income, expenditure or rates of return to bias decisionmaking on capital projects and acquisitions.

• Pressure from superiors to approve or process expenditures that are not legitimate business expenses.

• Pressure to suppress internal audit reports containing adverse findings.

• Pressure to act without sufficient competence or due care: • Pressure from superiors to inap-

propriately reduce the extent of work performed.

• Pressure from superiors to perform a task without sufficient skills or training or within unrealistic deadlines.

• Pressure related to financial interests. For example, pressure to manipulate performance indicators from superiors, colleagues or others, such as those who may benefit from participation in compensation or incentive arrangements.

• Pressure related to gifts or entertainment: • Pressure from others, either internal or external to the employing organization, to offer gifts or entertainment to inappropriately influence the judgment or decision-making process of an individual or organization.

• Pressure from colleagues to accept inappropriate gifts or entertainment from potential vendors in a bidding process.

• Pressure related to conflicts of interest, for example, pressure from a family member bidding to act as a vendor to the member’s employing organization to select that vendor over another prospective vendor.

In those situations in which you determine that the pressure to breach the “Integrity and Objectivity Rule” has not been eliminated, you should: • Decline to undertake or discontinue the professional activity that would result in a breach of the rule.

• Consider whether to continue a relationship with the employing organization.

JANUARY 2018 AZ CPA

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Governmental Accounting Conference February 2, 2018 Hyatt Regency – Phoenix Update on State Budget — Richard Stavneak, Joint Legislative Budget Committee GASB Update – What Lies Behind and Beyond the Blue Covers — David R. Bean, Governmental Accounting Standards Board Resolving Ethical Dilemmas – You Make the Call — David L. Cotton, Cotton & Company, LLP Lunch Presentation — Current State of the American Municipalities — Scott Smith, Valley Metro Concurrent Sessions 1: Reporting Fiduciary Activities and Leases – A Closer Look — David R. Bean, Governmental Accounting Standards Board Municipal Bankruptcy 101: What the CFO and Auditor Need to Know — Kenneth Pun & Vanessa Burke, The Pun Group Anatomy of a Cyberattack — Michael Cocanower, itSynergy Concurrent Sessions 2: Déjà vu: GASB’s Revised OPEB Standards – Haven’t We Done This Before? — Donna Miller & Michael Stelpstra, State Auditor General’s Office, and Erin Higbee, Arizona State Retirement System Managing vs. Leading — David L. Cotton, Cotton & Company, LLP From Risk Assessment to Analyzing Data – Key Fraud Detection Tools — Karin Smith, Heinfeld, Meech & Co., P.C.

Special Thanks to Platinum Sponsor: Henry+Horne

Learn more and register online at www.ascpa.com/gac2018 18

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Finally, you should document the facts, communications, courses of action considered, parties with whom these matters were discussed, and how the matter was addressed.

One last thought. The Arizona State Board of Accountancy has adopted by reference the AICPA Code of Professional Conduct as part of the Administrative Code. This change is effective January 1, 2018. As a result, the Code is no longer “persuasive,” it is the law in Arizona. n Gilbert B. Blumenthal, CPA, has been active in the Arizona CPA community since 1978. He received his training in two of the now “Big 4” CPA firms, ultimately becoming a shareholder and managing partner of a local CPA firm that grew to become one of the largest in the Phoenix area. Blumental also served in the U.S. Army in the office of the Inspector General, Frankfurt, Germany.

He has authored and taught a variety of CPE courses and is the principal instructor for professional ethics programs for the ASCPA. He teaches a Business Ethics class throughout the year.

Sign Up Now! Gil Blumenthal’s Ethics Classes in 2018 Professional Ethics Update for CPAs in Business - Including Revised AICPA Code May 21 July 23

Professional Ethics Update for Arizona CPAs - Including Revised AICPA Code June 25 August 27 September 24 October 25 November 26

www.ascpa.com

AZ CPA JANUARY 2018

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Déjà vu: GASB’s Revised OPEB Standards — Haven’t We Done This Before?

by Michael G. Stelpstra, CPA, and Donna Miller, CPA Have you ever done something for the first time but felt like you had done it before? For fiscal year 2018, government employers will implement the Governmental Accounting Standards Board’s (GASB) new postemployment benefits other than pensions (OPEB) accounting standards. These new OPEB standards are very similar in many ways to the pension standards government employers implemented in fiscal year 2015. Although the OPEB accounting standards are long and complex, their reporting requirements will fortunately seem very familiar.

OPEB Liability Similar to Pension Liability — In June 2015, GASB issued Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other than Pensions, which became effective for fiscal years beginning after June 15, 2017. Statement No. 75 requires governments that provide their employees with OPEB to report an OPEB liability in their financial statements. GASB’s pension standards, Statement No. 68, required governments to report a similar pension liability. Both liabilities represent the unfunded cost of postemployment benefits that employees have earned and will receive when they retire or become disabled.

Arizona’s multiple-employer pension plans provide OPEB—Statement No. 75 defines OPEB as: a. Postemployment healthcare benefits — including medical, dental, vision, hearing, and other health-related benefits — whether provided separately from or provided through a pension plan b. Other forms of postemployment benefits — for example, death benefits, life insurance, disability, and long-term care — when provided separately from a pension plan.

Arizona governments participating in the Arizona State Retirement System (ASRS) provide two OPEB types to their employees through the ASRS — one for healthcare benefits, the health insurance premium supplement, and the other for long-term disability benefits separate from the pension plan. Arizona governments participating in the Public Safety Personnel Retirement System (PSPRS), Corrections Officer Retirement Plan (CORP) and Elected Officials Retirement Plan (EORP) have OPEB for only the health insurance premium supplement. Although PSPRS, CORP and EORP provide disability benefits, those benefits are provided through the pension plan and any liabilities are already reported in the pension liability.

Therefore, governments participating in any or all of these plans will report a OPEB liability for the health insurance premium supplement, but only those in the ASRS will report an OPEB liability for disability benefits.

In addition to participating in one or more of Arizona’s plans discussed above, a limited number of Arizona governments provide single-employer OPEB plans.

For example, some governments provide single-employer plans that pay for an explicitly stated portion of retirees’ health insurance premiums and others provide plans that implicitly subsidize retirees’ health insurance. Employers that provide health insurance with an implicit subsidy allow their employees upon retirement to stay in the same health insurance plan that they were in while working. In this situation, an implicit retiree benefit exists when retirees are allowed to pay a reduced premium with a blended rate for active employees and retirees who are all members of the same plan. Based on actuarial determinations, the blended rate is considered reduced for retirees because their medical costs are expected to be higher, and therefore a plan with only retirees would have a higher unblended insurance premium rate.

Although most Arizona governments do not offer single-employer pension plans, single-employer OPEB plans are more common.

OPEB Obligations Are Likely Less Than Pension Obligations — When Arizona governments began reporting pension liabilities, they significantly reduced their reported net positions. In fiscal year 2015, ASRS, PSPRS, CORP, and EORP employers reported a collective net pension liability of almost $23 billion. In comparison, many employers will likely see a slight increase in their reported net position when they begin reporting their OPEB obligations. This is because these Arizona plans offer only supplemental OPEB benefits that are relatively small compared to their pension benefits, and their OPEB obligations generally have a higher funded ratio than their pension obligations, including some plans that are overfunded. However, for certain single-employer plans, Arizona governments are not accumulating funds to pay future healthcare retirement benefits described above. Therefore, a few Arizona governments could have significant OPEB liabilities, although still substantially less than their pension liabilities.

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OPEB Reporting Purpose and Requirements Similar to Pensions — As in the pension standards, the new OPEB standards are designed to increase the transparency, consistency and comparability of information across governments. Also, just like for pensions, the new standards require all government employers to report their share of any unfunded, or net, OPEB liability, or their share of any overfunded OPEB liability, a net OPEB asset. A net OPEB liability exists when the OPEB plans’ assets are less than the estimated OPEB obligations. Conversely, a net OPEB asset exists when the plans’ assets are greater than estimated obligations.

In addition to reporting the net OPEB liability, Statement No. 75 requires more robust OPEB information in the notes to financial statements and required supplementary information. Most required information is like the information governments now disclose for pensions. One additional OPEB disclosure is a sensitivity analysis that measures the net OPEB liability calculated using a healthcare cost trend rate that is one

percentage point higher and lower than the assumed rate. This disclosure will not apply to the ASRS, PSPRS, CORP and EORP net OPEB liability because the health insurance premium supplement these plans provide is a set dollar amount that is not based on healthcare costs. Accordingly, no healthcare cost trend rate is assumed in calculating the net OPEB liability. However, the disclosure will apply to single-employer plans that provide an implicit health insurance subsidy because the implied subsidy is based on healthcare costs.

The disclosure would also apply to single-employer plans that provide an explicit health insurance subsidy if that subsidy is based on healthcare costs.

Arizona Governments Must Rely on Plan-Reported Information for Pension and OPEB Liabilities — As is the case for pension reporting, Arizona governments will need to rely on plans’ reported information to report their net OPEB liabilities and related disclosures for ASRS, PSPRS, CORP and EORP. These plans will provide each employer with its net OPEB liability, deferred

outflows/inflows of resources related to OPEB, and OPEB expense. Also, these plans will provide the plan data needed for the note disclosures and required supplementary information. As with pensions, governments will use a measurement date of June 30, 2017, for the net OPEB liability reported in their fiscal year 2018 financial statements.

This allows sufficient time to obtain the necessary OPEB information from the plans. Governments with singleemployer plans will need to contract with their own actuaries to determine their OPEB reported amounts, disclosures, and measurement date.

GASB’s Pension and OPEB Standards Do Not Affect Required Contributions— It is important to note that the pension and new OPEB reporting requirements have not changed the actual cost of providing pension and OPEB benefits. As they always have, Arizona governments will continue to pay their required contributions for ASRS, PSPRS, CORP, and EORP to cover the estimated pension and OPEB benefits and pay benefits when due for single-employer plans that are not accumulating plan assets.

In summary, although there are some complexities to understanding and reporting OPEB obligation amounts and disclosures, implementing the new standards should not prove as challenging as implementing the pension standards. n Michael G. Stelpstra, CPA, and Donna Miller, CPA, are with the State of Arizona, Office of the Auditor General.

Michael Stelpstra and Donna Miller will present on this topic at the ASCPA Governmental Accounting Conference on Feb. 2.

Register online at www.ascpa.com/gac2018 20

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AZ CPA JANUARY 2018

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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 percent or more and earn one hour of CPE credit in specialized knowledge. It’s that easy!

Fees: Members: $25 Nonmembers: $40 Online Access Go to www.ascpa.com/QuickQuiz 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 January 2019. Please note that users have three attempts to pass the quiz with at least a 70 percent score.

January 2018 Issue of AZ CPA* 1. In the Chair’s message, Montgomery shares the meaning of the inverted pyramid, which is: m Organizations will hire less entry-level staff m Job functions of entry-level staff will look more like midlevel positions m Menial tasks will be part of lower-level staff training 2. Which of the following is not eligible for a GPLET: m County m Community College m Residential Home 3. Effective August 9, 2017, delinquent GPLET payments are subject to interest at the rate charged by the IRS (currently four percent). m True m False 4. Christian Harris decided to study accounting because he believes: m It is the fastest path to become a CEO m The accounting field lends itself to many types of industries m It is the most important part of a company

5. David Cotton translates Dr. Kohlberg’s “conventional” stage of moral development as: m Rules-based thinking m Situational ethics m Principles-based thinking 6. According to Cotton, what trumps all other ethical rules: m Rationalizing doing the wrong thing m Failing to recognize ethical dilemmas

m Serving the public interest and acting accordingly 7. Prohibiting CPAs from placing pressure on others that would result in others breaching the rules is under the: m Knowing Misrepresentations Rule m Integrity and Objectivity Rule m Pressure to Breach the Rules 8. The AZ State Board of Accountancy has adopted the AICPA Code of Professional Conduct, effective: m Immediately m January 1, 2018 m January 31, 2018 9. These Arizona governments have OPEB for only the health insurance premium supplement except? m ASRS m CORP m PSPRS 10. Employers providing health insurance with an implicit subsidy allow their employees upon retirement to: m Find a new insurance plan equivalent to their preretirement plan m Transfer to a retirement only plan with higher premiums m Stay in the same insurance plan they were in while working

Quick Quiz Registration Name: ____________________________________________________ Email:_____________________________________________________ Telephone: _________________________________________________

Payment

m Member: $25 m Nonmember: $40 Checks: Please make payable to: The Arizona Society of CPAs Credit Card:

m Visa m MasterCard m American Express

Credit Card #: _______________________________________________ Expiration Date: _____________________________________________ Name on Card. _____________________________________________ Mail to: ASCPA, 4801 E. Washington St. Suite 180, Phoenix, AZ 85034-2040; fax to (602) 324-6045 scan and send to ASCPACPE@ascpa.com.

JANUARY 2018 AZ CPA

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Classifieds Business Opportunities/ Practices for Sale BUSINESS ACQUISITION — Our North Scottsdale CPA firm is seeking to expand and is looking to purchase small to mid-sized practices. We can be flexible during the transition and open to the needs of the seller. Our firm has been practicing in the valley for over 30 years with an emphasis on business taxes and accounting. Our office culture is relaxed and supportive; while always placing our client’s needs first. We are active in our community and received a top semi-finalist 2017 Governors Arts Award for supporting the arts as cofounder of the Scottsdale Philharmonic.

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SOLE PROP SMALL FIRM FOR SALE — Sole prop CPA retiring 4/15/2018.

Want to sell or merge with CPA near 7th st & Bethany. Need place for my

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Employment CPA WITH OWNERSHIP AMBITION — CPA Financial Advantage, P.C. — Upper-level account management duties such as review of accounting, recording and analyzing financial activity, and tax interviews. • 10+ years’ public accounting experience with CPA certificate required, with emphasis on tax preparation and review. • Bachelor’s degree in accounting preferred; Arizona CPA license required. • Possess strong problem solving and analytical skills and have in-depth understanding of GAAP and special purpose framework reporting. • Excellent interpersonal skills, communication, and attention to detail a must. • Ability to perform tax and accounting research and work overtime as needed. • QuickBooks knowledge required. • Knowledge of Intuit Lacerte, Adobe, Microsoft Office, and CS Pro Suite desirable. Submit resumes to Jayne.Wright@cpafapc.com.

PARTRIDGE & ASSOCIATES, CPAs — Our North Scottsdale CPA firm

Tax Software Roundtables Software roundtables are back again this year. This is a valuable opportunity to meet with other tax professionals who use the same software. We will talk about recent updates, as well as share tips and tricks. Bring your questions and insights to this lively discussion in preparation for the new tax season.

All events start at 8 a.m. with breakfast and networking, roundtable from 8:30 – 10 a.m.

Drake - January 9 - www.ascpa.com/drake

Lacerte - January 10 - www.ascpa.com/lacerte

Ultra Tax - January 16 - www.ascpa.com/ultratax

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seeks a highly motivated person for our rapidly growing firm. They must have prepared business and personal tax returns in the last four years and have working knowledge of Quickbooks. We specialize in business taxes and accounting. We are offering a rapid growth and advancement program to an individual who would like to quickly develop into our dynamic management team. Send your resume with salary request to larry@partridgecpas.com.

SENIOR TAX ACCOUNTANT — CRAIG SATZ, CPA, P.C. —Mesa CPA firm seeking a senior tax accountant to prepare individual, partnership, trust and corporate tax returns. Minimum of five years recent income tax experience with a CPA firm desired. Working knowledge of Lacerte, Quickbooks, and Excel needed. CPA license required.

Full-time OR part-time beginning in January. Will consider salaried or hourly compensation. Please apply for this position today by sending your resume to craig@satzcpa.com.

TAX MANAGER AND TAX STAFF CPA — Eight-person Tucson CPA firm, has Tax Manager and Tax Staff positions open for CPAs with a minimum of five years of recent CPA firm experience with partnership potential. Proven sales and marketing skills are highly desirable. We offer highly competitive salaries and comprehensive benefits, including group health insurance, 401(k) with company 4% contribution, eight paid holidays, paid sick time and vacation, and complete reimbursement of all CPA related expenses. Please apply for the Tax Manager or Tax Staff opportunity today, by sending your resume and salary requirements to cpafirm3@ gmail.com.

For information about classified or display ads, go to www.ascpa.com

N C A C P E

❒

AZ CPA JANUARY 2018

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2018 Arizona Tax Guide Order the only comprehensive guide on Arizona taxes Authors: Pat Derdenger, Steve Rodis and Ed Zollars New in the 2018 Arizona Tax Guide: Sales Tax Simplification, with a single portal for filing and paying state, county and all city sales tax (both program and non-program cities), went into full effect on January 1, 2017.

Spiral-Bound Book:

The Arizona Tax Guide includes the following guides:

❒ Members of ASCPA,

• The Arizona Income Tax Guide is a comprehensive reference 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 highlights the differences between individual, corporate, partnership and trust taxes, includes tax tables, and is arranged in a way that facilitates research on any topic.

• The Arizona Sales and Use Tax Guide is a resource for anyone preparing or filing 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.

Phoenix Tax Workshop, State Bar of Arizona or Enrolled Agents: $95

❒ Nonmembers: $115 Electronic PDF:

❒ Members of ASCPA, Phoenix Tax Workshop, State Bar of Arizona or Enrolled Agents: $79

❒ Nonmembers: $99 *Call (602) 252-4144, ext. 200, for special pricing on orders of five or more.

Guides will be available for delivery mid-January 2018.

Order and learn more about the guides at www.ascpa.com

Name ___________________________________________ Company ________________________________________ Address ________________________________________ City ___________________State _____ Zip ___________ Phone __________________ Fax ____________________ Email ____________________________________________

❒ CPA ❒ Attorney ❒ EA ❒ Other: ________________

Method of Payment:

❒ Check ❒ VISA ❒ MasterCard ❒ American Express Name on Card ___________________________________ Card Number ____________________________________ Exp. Date ____________ Amount $ ________________ Signature of Cardholder__________________________

Please return this form and payment to:

Arizona Society of CPAs 4801 E. Washington St., Ste. 180 Phoenix, AZ 85034-2040 Fax credit card orders to: (602) 252-1511

AZ CPA Jan 18.indd 23

Sales tax, standard shipping and handling prices are included.

*The ASCPA will be processing checks submitted in payment as an Electronic Funds Transfer (EFT) transaction. Funds may be withdrawn from your account as soon as the same day we receive your payment.

JANUARY 2018 AZ CPA

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Arizona Society of CPAs 4801 E. Washington St., Suite 180 Phoenix, AZ 85034-2040

PRSRT STD U.S. Postage PAID Phoenix, Arizona Permit No. 952 ADDRESS SERVICE REQUESTED

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