AZ CPA June 2019

AZ CPA June 2019

Not-for-Profits and the

New Leasing Standards

Preparing for a CPE Audit

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

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AZ CPA JUNE 2019

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AZ CPA The Arizona Society of Certified Public Accountants President & CEO Editor Advertising

Stronger Together The Corporate Finance and Construction Industry Conferences have joined forces to bring you the new

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Greg Nelson Chapter Presidents Southern Chapter Cathy Kinzer Northern Chapter James Shankland Southwest Chapter Helen Greenwell North-Central Chapter Gidget Schutte of Certified Public Accountants (ASCPA) to provide information, news and trends to the accounting profession. It is distributed 10 times a year as a regular service to ASCPA members. 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 JUNE 2019

Volume 35 Number 5

AZ CPA

June 2019

Features

11

Four Things Not-For-Profits Can Do in 2019 to Make Adopting The Lease Standard Easier The effective date for the new leasing standard under ASC Topic 842 will be here soon: catch up on what you need to know.

by Allan Klose

15 Columns & Departments Chair’s Message by Jared Van Arsdale, CPA

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Member News

7 8

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

9

Board of Director Highlights

20

Quick Quiz

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17

Classifieds 22 Arizona Society of Certified Public Accountants 4801 E. Washington St., Suite 180 Phoenix, Arizona 85034-2040 www.ascpa.com

The Arizona State Board of Accountancy randomly selects registrants to participate in CPE audits each month.

Find out what you can do to stay compliant.

by Fred Bedoya, CPA

Annual Meeting

Preparing for a CPE Audit

Indemnification: Understanding Your Risks CPA firms are experiencing an uptick in clients trying to embed clauses in various agreements with the firm. Here are some considerations to weigh before agreeing.

by Suzanne M. Holl

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ASCPA Chair’s Message

Fulfilling Our Prominence as Trusted Advisors

by Jared Van Arsdale, CPA The Society and all its volunteers have brought to the membership the resources, education and support needed to fulfill our prominence as a trusted advisor.

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AZ CPA JUNE 2019

Most days, I get the morning started with a series of podcasts that I subscribe to as a means of keeping me up to date on global, national and local affairs. Within that list there are a handful of podcasts that provide thought-provoking, long-form discussions on in-depth topics requiring me to be more keenly aware and present while listening. Although, most of those same days while driving to drop my son off at school, I am often respectfully questioned if we “need to listen to talking today” and “can we listen to rock-n-roll instead.” Of course, I am happy to acquiesce. There are a few podcasts that are on my list for entertainment purposes but the long-form discussions are by far the best thing I have come across. Supreme Court case analysis from the National Constitution Center, philosophical intuitions of Sam Harris in Making Sense, and Hardcore History with Dan Carlin are a few that I have updated consistently.

Towards the end of 2018, I recall listening to Sam Harris interview Dr. Nina Shapiro who is a pediatric ear, nose and throat physician at UCLA. The entire interview was fantastic, although one point that stuck with me was the importance of obtaining a second, and if possible a third, opinion when contemplating surgeries or other major life-changing health events. Shapiro reinforced the benefits to be derived from obtaining a third opinion, which of course makes sense when ensuring you have a well-rounded understanding of your condition before opting for any treatment. Understandably, we also know that sometimes multiple opinions are not feasible due to the lack of time and/or resources. Nonetheless, I contemplated this point over and over for the weeks following. In particular, I searched my memory for instances where my wife or I had felt so unsure to have questioned the advice we received from our chosen advisors and more importantly, what may have led to that feeling.

As with the medical profession, the CPA is a trusted designation, advisor, employee and member of the family. To that extent, we know that the CPA has enjoyed a history of being held in high regard for professionalism and duty to the people, organizations and communities we serve. We can all recall instances in the past where doubt has crept into our profession. However, through reinforcement of our commitments to the groups we serve, we have navigated that sense of doubt to maintain a trusted designation in the CPA. In the abundance of news, podcasts, social media, blogs and similar services we absorb, we may feel that we have to overexpose ourselves to content in order to obtain a well informed view of the facts. As such, I am ever so grateful and take solace in our team at the Arizona Society of CPA as one of those trusted sources.

The Society and all its volunteers have brought to the membership the resources, education and support needed to fulfill our prominence as a trusted advisor.

Want to listen to some good material? Check out the latest ASCPA podcast here www.ascpa.com/podcast. n

Member News Governor Ducey appointed the Society’s recommended candidate, Lisa B. Lumbard, CPA, to the Arizona State Board of Accountancy. Lumbard has been serving on the Board’s A&A Committee for several years and has volunteered for the ASCPA. She sold her practice recently and now consults on nonprofit governance.

The governor also appointed Mike Levine to the Board as a public member.

He has a broad business background and understands the work of CPAs. Christopher T. Coots, CPA, PFS, J.D., was promoted to tax partner at Wallace, Plese + Dreher.

Heinfeld, Meech & Co., P.C. recently promoted Katherine Shell, CPA, to senior associate and Jessica Sanchez to staff associate II.

In Memoriam Allan Bobbe

Coming Soon!

In the near future, you will access webcasts using your ASCPA website login.

Forgot your password?

Navigate to ascpa.com/login and select the Forgot Password link before your next webcast.

Stay tuned for more information!

ASCPA member Mark Landy (right) with Rep. Lieberman

Senate Bill 1256 (School Districts; Procurement Practices; Auditors) Each year, the Arizona Legislature passes the state’s budget in a package of roughly 11 budget bills. This package includes a capital outlay bill, which determines how much of the state’s budget is allocated to various state agencies. The remaining bills are called Budget Reconciliation Bills (BRBs), which go into detail on the process by which the budget is to be implemented.

The budget is typically produced at the end of the legislative session, and many of the BRBs include substantive provisions unrelated to the actual revenues and expenditures of the state. In some cases the budget package can be used as a lastditch effort by legislators to get their priorities enacted into state law.

In the 2018 Legislative Session, the Governor signed HB 2663 (budget; BRB; K-12 education; 2018-19) into law. This 83-page bill outlined the state’s K-12 Education budget and included several provisions related to K-12 procurement.

Among the provisions in HB 2663 was an amendment to ARS Section 15-213.04 (which outlines procurement practices in school districts and charter schools) stating that “a school district may not hire the same auditor or auditing firm for more than three consecutive years.”

This mandatory audit firm rotation requirement came as part of a wave of procurement proposals put before the legislature in 2018 in the wake of news that Scottsdale Unified School District employees violated procurement and conflict of interest laws. Legislators supporting this measure believed that changing audit firms on a regular basis would help prevent fraud and future procurement violations in school districts.

While the intent of those provisions was to stop illegal procurement practices, the language actually put school districts and charter schools at greater risk of fraud and would have produced lower audit quality. It is well known to the ASCPA and its members that mandatory audit firm rotation increases the likelihood of audit failures because of the steep learning curve involved, increases start up costs and produces a loss of critical institutional knowledge.

The ASCPA and its government relations team, DeMenna Public Affairs, worked closely with the sponsor of SB 1256 to ensure that these short-sighted provisions were repealed. ASCPA member Mark Landy met with Rep. Lieberman to discuss these concerns. This important legislation made its way through the legislative process and was signed into law by Governor Ducey on April 11, 2019. The legislation contained an emergency clause, which means that the bill went into effect immediately upon receiving the Governor’s signature.

To view SB 1256, please visit: www.azleg.gov/legtext/54leg/1R/laws/0085.pdf.

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2019 ASCPA Annual Meeting and Awards Luncheon

Past Leaders Meeting

Jared Van Arsdale, Cindie Hubiak and Eric Hansen

Outgoing Chair Mike Allen

Life Member Debra Davenport and her colleagues from the Auditor General’s office

Thank You to Our Sponsors

Peggy Ullmann, Tim Hansen and Ed Zollars

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AZ CPA JUNE 2019

A Dash of SALT

Status Update on Arizona Tax Legislation In this month’s state and local tax (SALT) column, Busby addresses the status of two high-profile tax bills still pending at the Arizona Legislature (as of the time this article was submitted).

As predicted, this session Arizona lawmakers debated how to respond to the federal tax reform measures that took effect for tax year 2018, whether to amend the state tax code to allow remote sales tax collections in the wake of Wayfair, and the transaction privilege (sales) taxation of digital goods and services. This article focusses on the current status of the latter two issues because the Society updated its members concerning the state’s conformity efforts throughout the legislative session.

Arizona’s Response to Wayfair A 2017 study estimated that Arizona’s share of sales taxes from remote vendors may be between $190 and $293 million annually. Following the U.S. Supreme Court’s decision in the Wayfair case, Arizona lawmakers considered two bills.

S.B. 1155 would have created a study committee to examine underlying legal hurdles, as well as best practices around the country, and issue a report by the end of the year detailing what the state should do to begin lawfully and efficiently collecting taxes from remote vendors. However, S.B. 1155 failed in the Senate.

H.B. 2702 would impose economic nexus thresholds and require both individual remote sellers and marketplace facilitators who cross such thresholds to begin paying sales tax on their proceeds from transactions with Arizona customers.

However, Arizona has not adopted the Streamlined Sales and Use Tax Agreement or any of its features that were designed to reduce administrative and compliance costs for taxpayers. It permits its 91 municipalities that impose sales taxes to select from more than 50 tax base differences in addition to differences between each municipality and the state; and it imposes burdensome sourcing rules on out-of-state sellers. Thus, H.B. 2702 was held in House Rules Committee due to concerns that remote sellers may challenge remote sales tax collection in Arizona as unduly burdening interstate commerce.

Interested parties are working on a strike-everything amendment that would address some of these concerns and impose economic nexus thresholds and require both individual remote sellers and marketplace facilitators who cross those thresholds to begin paying sales tax on their proceeds from transactions with Arizona customers.

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.

The Taxation of Digital Goods and Services Unlike most states, Arizona has not enacted legislation to specify which digital goods and services, if any, are subject to sales tax. Yet, without statutory direction, state and local taxing authorities have taken the position in confidential

JUNE 2019 AZ CPA

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audit assessments and obscure private taxpayer rulings that digital goods and a variety of digital services are subject to tax under the state’s outdated tax code.

Last year, a bill was introduced that would have clarified which digital goods and services are taxable, but it failed. This year, lawmakers are weighing S.B. 1460, which provides that prewritten software and specified digital goods would be subject to Arizona’s state and local sales and use taxes going forward, but clarifies that — consistent with a recent amendment to Arizona’s constitution — digital services are not taxable.

Supporters are having a tough time securing enough votes to pass S.B. 1460 because opponents argue it would reduce state and local tax revenues because taxing authorities already are attempting to collect taxes on virtually all digital goods and services under existing law. n

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Four Things Not-For-Profits Can Do in 2019 to Make Adopting The Leasing Standard Easier

by Allan Klose The effective date for the new leasing standard under ASC Topic 842 will be here before you know it. Most not-for-profit organizations must adopt the standard for fiscal years beginning after Dec. 15, 2019 (Calendar year end 2020/Fiscal year end 2021 financial statements). Not-for-profit organizations that issue or are conduit bond holders for securities that are traded, listed or quoted on an exchange or over-the-counter market begin adoption for fiscal years beginning after Dec. 15, 2018 (and interim periods within those fiscal years).

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Free Webinar for ASCPA members R & D Tax Credits: Recognizing the Value Across Many Industries June 13 — Noon to 1 p.m.

The R&D tax credit is a game-changing federal and Arizona tax credit that drives cash flow for businesses of every size and scope. Recent legislation changes have broadened the innovation tax credit’s reach and impact for startup companies as well as for business owners locked in an alternative minimum tax.

Sponsored by Acena Consulting

Register at www.ascpa.com/fwjun19 12

AZ CPA JUNE 2019

Transitioning to the new standard has the potential to be time consuming because each lease will need to be evaluated under the ASC Topic 842’s definitions and reporting requirements. The new leasing standard also requires lessees to record most leases on the statement of financial position, which will have a ripple effect on debt covenants, EBITDA and other financial measures.

Not-for-profit organizations can make the transition to the new standard easier by working through some of the following elements before the end of 2019.

Train Employees The first step to transitioning to the new leasing standard is to understand what will be different under ASC Topic 842 from current U.S. GAAP (ASC Topic 840). Management should encourage anyone involved with financial reporting to attend seminars, read articles and talk to a service provider in order to be prepared for the new financial reporting requirements for leases.

The new standard comes with some new definitions—for example, capital leases in the existing standard will be considered finance leases in the new standard. It also comes with some changes to how the leases are recorded on the statement of financial position.

Accounting for finance leases will be very similar to capital leases: lessees will record right-of-use assets (formerly capital lease assets) and lease liabilities (formerly capital lease obligations) for each finance lease. But changes in the accounting for operating leases for lessees is different because a new right-of-use asset and lease liability will be recorded under the new standard, while these leases are off-balance sheet in ASC Topic 840. Assets and liabilities from operating and finance leases must be presented or disclosed separately from each other. Variable lease payments dependent on an index or rate should be included in the measurement of the recognized asset and obligation (measured at the commencement date), while other variable payments are excluded for lessees. A practical expedient

Transitioning to the new standard has the potential to be time consuming because each lease will need to be evaluated under the ASC Topic 842’s definitions and reporting requirements.

exists for leases with terms of less than one year.

For lessors, the primary changes include changes in terminology, alignment with changes to lessee accounting, and some additional alignment of the accounting for leases with the revenue recognition standard introduced under ASC Topic 606.

Take Inventory of Leases Each lease will need to be evaluated for compliance with ASC Topic 842, so lessees and lessors should take the time to inventory all of their leases. Review existing contracts and ensure that assets are listed on either the fixed asset listing or leases schedule. Knowing the contracts that are in place at the effective date and the assets that will be affected will help streamline the application of the new standard.

Evaluate the Impact & Share Findings with Stakeholders The requirement to record most leases that are longer than one year on the statement of financial position may have an impact on financial metrics. Lessees should conduct an initial analysis on what that impact could be, including any related covenants or contracts.

For example, loan covenants may use a Debt Service Coverage ratio that looks at the interest expense on all a borrower’s indebtedness plus all the long-term indebtedness of a borrower compared to a borrower’s cash flows from operation. Lessees will want to pay close attention to the covenant’s definition of indebtedness, which is generally defined as the principal amount arising from debts, liabilities, and obligations of every nature or form, including lease obligations. A covenant would likely put restrictions on what that Debt Service Coverage ratio would be (such as it should not exceed 3:1), and the adoption of the new standard may instantly change the calculated ratio.

Take the following example, which shows the impact of a five-year operating lease with future minimum lease payments totaling $571,917: If lessees can proactively see that adopting the new standard may lead to covenant violations, they can address the issue before the standard’s effective date.

They can also share those findings with their board. Board members will want to know where complications may arise with adopting the new standard (such as potential issues with debt covenants) and how the organization plans to respond to them.

Modify Agreements With the effective date for most notfor-profit organizations still more than a year away, lessees will have time to amend or modify any agreements that may be particularly affected by the new reporting requirements. If recording more lease liabilities on the statement of financial position will violate debt covenants, for example, lessees may want to meet with their lender and renegotiate or amend their agreements to avoid the debt covenant violation.

Seek Help When Needed Taking a deep dive into the new standard and assessing the impact of the lease accounting changes can put a significant strain on internal resources. An accounting provider that is experienced with ASC Topic 842 may be able to help evaluate how adoption will affect you and provide recommendations for changes that can make adoption easier. n For comments, questions or concerns about the leasing standard, please contact Allan Klose in the CBIZ MHM Phoenix office at aklose@cbiz.com. Klose will speak at the ASCPA Not-for-profit Conference on June 20. Register at www.ascpa.com/npc.

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Dashboards & Data Analytics: Using Data to Drive Greater Social Impact in Our Communities

Economic Update: Impact of Tax Law Changes on Nonprofits

What Not-for-Profits Gain (or Lose) Under Tax Reform Emerging Technologies

Not-for-Profit Conference

To Record or Not to Record?

Basic Taxes for Tax Exempt Organizations

Black Canyon Conference Center

Adoption Stories: A Discussion on the Implementation of FASB 2016-14

This conference is available as a webcast.

Am I Still a Target for Cyber Fraud?

General Sessions:

Ethical Risk in Nonprofits and How Accountants Can Help

Best Practices for Protecting Your Nonprofit Status

June 20

Thank You to Our Sponsors Platinum Sponsor

Arizona’s Leadership in Deregulation and the Impact on Financial Professionals Serving the Nonprofit Community Concurrent Sessions How Not-for-Profit Organizations Can Prepare for the New Leasing Standard

Nonprofit Number Wrangling The Wonder and Mystery of the IRS Form 990

Gold Sponsors CBIZ MHM, LLC CLA (CliftonLarsonAllen) LLP Fester & Chapman, PLLC Henry+Horne National Bank of Arizona Your Part-Time Controller, LLC

Functional Expense Allocation Changes Payroll Reporting in a Shared Employee Environment Cover Your Assets: Internal Controls for Any Size Nonprofit 14

AZ CPA JUNE 2019

Learn more and register at www.ascpa.com/npc2019

may also request course outlines to help support the registrant’s classification of CPE. It is the Committee’s responsibility to verify the following, between what is reported on required Board CPE forms, in comparison with CPE Certificates of Completion that include the following elements: • Registrant’s Name • Course Provider or Sponsor • Course Title • Credit Hours • Date of Completion

Primary Reasons for CPE Non-Compliance:

Preparing for a CPE Audit

by Fred Bedoya, CPA The primary duty of the Arizona State Board of Accountancy (Board) is to protect the public from unlawful, incompetent, unqualified or unprofessional certified public accountants through certification, regulation and rehabilitation. As part of this mission, the Board randomly selects registrants to participate in Continuing Professional Education (CPE) audits each month. The Continuing Professional Education Advisory Committee (Committee), a body that reports to the Board, then reviews supporting Certificates of Completion and communicates to the Board as to whether a registrant is compliant with all CPE requirements.

R4-1-453(F) requires that CPAs maintain detailed records of the CPE courses taken for a three-year period from the date of the renewal submittal. Once chosen for audit, the selected CPA has 30 days to respond to the Board’s request to supply the required Certificates of Completion. If needed, the Committee

u

The Committee has aggregated primary reasons for CPE non-compliance: 1. Missing certificates of completion.

2. Certificates of completion that, while provided, do not offer sufficient evidence of the reported CPE in terms of subject, method, hours, or the appropriate CPE reporting period.

3. Instructional delivery method is reported incorrectly. Required CPE hours in the method of Classroom or Live/Interactive Webinar (CW) are not met as the CPE is considered self-study and is therefore reclassified as Correspondence Program (CP).

4. Required CPE hours in the area of ethics (E) does not equal at least 4 total hours and/or does not include a minimum of one hour each in the following two areas: a. Ethics related to the practice of accounting including the American Institute of Certified Public Accountants Professional Code of Conduct, and b. Arizona State Board of Accountancy statutes and administrative rules.

5. Required CPE hours in the subject areas of accounting, auditing, taxation, business law, or consulting services (A/T/B/C) do not meet the minimum 50% of the total required CPE. (If 80 total CPE hours are required, then

JUNE 2019 AZ CPA

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a minimum of 40 CPE hours in A/T/B/C is also required.)

6. Required CPE hours in the subject areas of accounting, auditing, and taxation (A/T) do not meet the minimum 20% of the total required CPE. (If 80 total CPE hours are required, then a minimum of 16 CPE hours in A/T is also required.)

7. CPE hours in Lecture or Discussion Leader (LL), Publishing (P), or Introductory Computer (IC) exceed the maximum allowable hours. (If 80 total CPE hours are required, then a maximum of CPE hours are credited as follows: LL ≤ 40; P ≤ 20; combination of LL and P ≤ 40; and IC ≤ 20.) Example: 100 hours of CPE are reported, but LL is reported as 65 hours, which exceeds the maximum allowable by 25 hours. The total reported CPE will be reduced by the number of hours that exceed the maximum allowed. In this example, total CPE hours are now reduced to 75, making the registrant 5 hours short in meeting requirements.

8. Repeated CPE courses are reported as having been taken, or offered as LL credit hours, during the same CPE reporting period.

9. LL preparation time exceeds the total course credit hours (e.g., the course takes 4 hours to teach, but reported preparation hours exceeds the 4 hours).

10. LL preparation time exceeds actual preparation hours (e.g., the preparation takes 2 hours, but 10 hours of preparation are reported).

Cautions •

•

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CPE taken in one CPE reporting period cannot be credited toward part of another CPE reporting period.

CPE taken to satisfy a suspension of a CPA certificate may not be credited toward requirements

AZ CPA JUNE 2019

of the subsequent registration period.

• Receipts for the purchase of CPE and other such ancillary documents are not accepted as evidence of CPE attendance.

• CPAs who work for employers that provide CPE are urged to maintain their own copies of Certificates of Completion on a regular basis. While larger employers typically maintain CPE records and then issue an annual CPE report, it is possible that an employee who has separated employment may not be able to obtain the CPE evidence after having left their employ. Such circumstances may put the CPA at risk for non-compliance with CPE requirements.

• College coursework that is reported as CPE requires a college transcript to be submitted in lieu of Certificates of Completion.

• Evidence of Lecture (LL) hours requires a letter from the college or course sponsor that can independently verify the hours spent in lecture, to include: Lecturer’s Name, College Name/Course Sponsor, Course Title, Teaching hours by lecturer, Range of dates that the course was taught (e.g., 8/17/2018 through 12/12/2018) If this range crosses CPE reporting periods, then two letters are required to specify how many hours were taught in each period

Changes to CPE Rules (Effective 2/4/2019)

CPE Reciprocity: Non-resident CPAs renewing their Arizona CPA certificate shall be determined to have met the CPE requirements of Arizona if they meet CPE requirements in the jurisdiction where the non-resident CPA’s principal place of business is located.

Nano-Learning CPE: CPAs may earn a maximum of four hours of CPE each renewal period by completing nanolearning courses. A nano-learning program is a tutorial program designed to permit a participant to learn a given

subject in a 10-minute time frame, through the use of electronic media and without interaction with a real-time instructor.

CPE Credit Increments: Apart from nano-learning, CPE will be credited in one-fifth and one-half hour increments for periods of not less than one class hour.

Reporting CPE for Renewal: CPAs will be required to report, at a minimum, only the statutorily-required hours of CPE for the registration period rather than the total CPE hours taken during the registration period. There is a continued benefit, however, to report total CPE hours taken. If CPE hours are not credited for a course during a review or audit of the CPE, then other CPE hours reported above the statutorily-required hours will be reviewed to determine if a different course can be credited prior to taking any action regarding non-compliance with CPE requirements.

CPE Record Retention: CPAs shall maintain CPE records (transcripts, course outlines, and certificates of completion that include the registrant’s name, course provider or sponsor, course title, credit hours and date of completion) for three years from the date the registration was dated as received by the Board for all CPE completed during the registration period, even if the only CPE reported on the registration was for the statutorilyrequired hours. Maintaining all CPE records help protect CPAs if a CPE deficiency is found. n This article was written by Fred Bedoya, CPA, with help from the CPE Advisory Committee. If any CPE requirements are unclear or may possibly lead to a CPA’s subjective interpretation, please contact Board staff members for clarification. The Board’s website also offers additional guidance at www.azaccountancy.gov/Renewals/ CPE.aspx, and link to the Board’s CPE Substantive Policy Statement that can be found at https://www.azaccountancy. gov/AboutUs/SubstantivePolicy.aspx. The Substantive Policy Statement includes: #2017-002 - CPE Method Classification of Rebroadcasted Live Webinars.

Indemnification: Understanding Your Risks

by Suzanne M. Holl, CPA CPA firms are experiencing an uptick in clients trying to embed indemnification and/or hold-harmless clauses in various agreements with the firms.

Many of the clauses are inappropriate for CPA services or are overly broad, even to the point of shifting all liability to the CPA firms. Here are some considerations to weigh before agreeing to any such clauses.

Indemnification and hold-harmless clauses dictate the degree of liability of each party and the extent that each party takes on or shifts risk. Certain courts have found that “hold harmless” is not distinct and is the same as indemnification, while others have found the duty to hold harmless is broader than indemnification and requires protection against liability.

For example, an indemnity clause typically states that one party agrees to “indemnify” the other party. To indemnify a party is to absorb the losses if something you (the “indemnitor”) do, or fails to do, causes the other party to experience loss, damages or even a lawsuit from a third party. CPAs are being pressured more by their clients to take on the “indemnitor role” and to agree to such language in engagement letters, nondisclosure agreements (NDAs), business associate agreements under the Health Insurance Portability and Accountability Act (HIPAA), and other agreements that may be executed between CPAs and their clients.

Most people would support and agree with the concept that if a mistake is made that results in damage to someone else, the party that made the mistake should be held responsible to “make it right.” What “making it right” looks like, of course, will depend on the facts and circumstances of a particular situation.

How this translates to the CPA/client relationship can be troublesome, given that some of the indemnity and hold-harmless clauses as written are extremely broad, and there may be many contributory components to the underlying facts and circumstances that should go into the assessment of determining actual “fault.”

For example, did the CPA solely contribute to the cause of the damage as a result of his or her negligence, or did the client or one of its representatives contribute, in part, to the underlying cause of the mistake?

Many of the indemnity and hold-harmless clauses embedded in CPA/client agreements attempt to shift all liability from the entity to the CPA firm and include broad language that extends the CPA firm’s responsibilities to more than just the professional services being performed. Such agreements, such as NDAs, may be boilerplate agreements that clients use for all independent contractors. As such, they contain many legal conditions and caveats that are not necessarily appropriate with respect to the professional services being provided by the accounting firm.

CAMICO, the ASCPA’s preferred provider of professional liability insurance, strongly encourages CPAs to take great care in reviewing any contracts or agreements containing such language; consider the worst possible scenario under the agreement and determine the level of risk the firm would be taking on. It’s important, therefore, that before you contractually bind the firm to an arrangement of this significance, take the time to understand all the implications of the legalese in the agreement. Doing so will enable you to make an informed decision about any terms and conditions that may pose a higher standard and greater liability to the firm than what would normally be anticipated.

Make sure you are comfortable with the agreement and the expectations that will fall on the firm. Be prepared to reject the client opportunity if you cannot negotiate the terms to your satisfaction.

Risk Management Tips Before signing these types of agreements/contracts, CPAs should ensure that their firm has considered the following risk management steps and adequately provided for the potential of additional liability risks: Consult an attorney in your state before agreeing to any indemnity clause. Push back! You don’t have to accept the terms as they are written in an agreement, preprinted or not.

Educate your client regarding the scope and limits of your engagement.

This enhanced awareness may help to convince your client that a broad, all-encompassing indemnity clause is not appropriate, given the scope and limits of the engagement letter.

Limit any indemnity and holdharmless conditions in agreements you sign by taking all three of the following key steps: (1) add language clarifying that any liability would need to be judicially determined by a court of competent jurisdiction; (2) specify that the firm is responsible only for claims that arise “solely” as a result of the firm’s gross negligence or willful miscon-

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duct; and (3) confirm that the firm will assume no obligation or liability arising in whole, or in part, from the client’s own negligence or intentional misrepresentations.

Understand the coverage implications of the indemnity clause, as this type of provision may lead to significant costs to a CPA firm. Professional liability insurance policies typically have an exclusion for claims arising out of liability assumed by the firm under a contract, unless that liability would have been present regardless of the existence of the contract. Be wary of contractually binding your firm to this added significant exposure; indemnification can be costly, especially if the language is broadly worded and the clause has you paying for all claims, regardless of their merit.

Consult an attorney in your state if you have questions regarding the efficacy and potential exposures to your firm of certain indemnification and

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hold-harmless clauses before signing agreements containing such language.

Indemnification Hierarchy of Risk— Questions to Consider When asked to sign an indemnity agreement, CPAs should ask themselves the following questions: Who is asking you to indemnify them? Most often you will be asked by your clients to indemnify them. Sometimes a third party may ask.

Why are you being asked to indemnify? Determining the answer may provide information in order to suggest an alternative that is acceptable to all parties.

What exposure is the subject of the indemnification request? It is almost never appropriate to agree to indemnify your client or third party for exposures directly related to the client’s obligations to you. For example, any request that provides indemnity for your client’s failure to accurately and timely inform you of information necessary to complete your work is very risky and not appropriate. On the other hand, client

requests for indemnity for exposures unrelated to your professional services is far less risky. For example, clients may ask for indemnity for risks arising as a result of your personnel being in the client’s offices (e.g., slip and fall, damage to property, etc.). We often see large corporations, municipalities and other governmental entities making such requests.

Is the indemnity request limited?

A broad blanket indemnification, again, is almost never appropriate. Remember, unless specifically limited, an indemnification does not require you to be negligent in order to trigger your duty to indemnify. On the other hand, indemnification agreements limited to exposures in which you are judicially found negligent and the sole cause of the loss create very little additional exposure to you.

What insurance issues need to be considered? By far the most important insurance issue to consider is the impact of your acceptance of indemnification on your professional liability insurance.

Before you agree to any indemnification,

check with an attorney in your jurisdiction or your insurance company. The other insurance issue to consider is the extent to which you can protect against the indemnity risk through other insurance. For example, many business owner policies (BOPs) address the premises risk exposure from your personnel being in the client’s offices. If you cannot insure against the risk created by the indemnification, you must consider fee/exposure leverage. Assess the size of the indemnity risk versus your fees. If the indemnification exposure is much greater than your fees, risk increases, and the reward is limited.

If you are still considering the indemnity request after asking these questions, consult your legal adviser. Never decide on your own. Indemnification law varies by state, so this risk discussion does not address every possible issue or solution on a per-state basis. n Suzanne M. Holl is senior vice president of loss prevention services with CAMICO (www.camico.com).

BROPHY COMMUNITY FOUNDATION | Student Tuition Through Tax Credits

Companies With An Arizona Income Tax Liability Can Get A 100% Income Tax Credit » C & S corporations and insurance companies, that pay premium tax, qualify » These funds give students, with verified need, tuition assistance for K-12 private schools » Arizona Department of Revenue approves donors on a first-come, first-served basis » Contact us before July 1 to reserve your spot in the Queue International proudly supports Brophy Community Foundation and their “U-Haul role in preparing and cultivating high achieving young people who could not

access this level of education on their own. Our local community will be the biggest beneficiary of the citizenship and leadership they will go on to provide.”

Joe Shoen, Chairman, U-Haul International Dawn Kennedy J.D., Executive Director dkennedy@brophyprep.org | 602.264.5291 (x6521) www.brophyfoundation.org The Brophy Community Foundation has NEVER accepted donor designated contributions. Arizona law now requires all school tuition organizations to print the following notice on all printed material and websites: A school tuition organization cannot award, restrict or reserve scholarships solely on the basis of donor recommendation. A taxpayer may not claim a tax credit if the taxpayer agrees to swap donations with another taxpayer to benefit either taxpayer’s own dependent.

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Highlights of April Board of Directors Meeting Among other actions at its April 24, 2019 meeting, the ASCPA Board of Directors reviewed the following: Consent Agenda The consent agenda, which included the board minutes, financial statements, Foundation contribution, revised investment policy, Investment Committee members and revised conflict of interest form was approved.

2019-2020 Society Budget Approval The 2019-2020 budget was reviewed and approved after much conversation.

The board recognized the Society’s investment in branding and advocacy communications to secure the future for members.

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AZ CPA JUNE 2019

Future Strategy – Who Is Our Member?

The board discussed the Society’s business model, exploring how serving non-CPAs, including students, diminishes and/or adds value to current activities.

Words of Wisdom Outgoing board members Kristen French, Aaron Grant, Molly Montgomery and Nikki Vogt shared thoughts about the future of the Society, the profession and their experience as a board member. Mike Allen thanked each of them for their contributions.

Accountancy Board Update & Dialogue Julie Klewer and Monica Petersen dialogued with Society board members about legislation impacting the Accountancy Board, legislative/rulemaking activities and other items. Mike thanked Julie for serving on the Accountancy Board, noting her five-year term ends in June.

A Day in The Life Paul Evans and Tim Hansen each shared a view of the challenges and joys they experience in their life and job.

Other Business Mike thanked board members for their support during the year, and Mike was thanked for his leadership.

If you have questions or would like additional information, please contact Cindie Hubiak at (602) 324-2888; AZ toll free at (888) 237-0700, Ext. 203; or chubiak@ ascpa.com

AZ CPA Quick Quiz You’ve Read It, Now Get Credit Take this quiz on AZ CPA content online or submit this hard copy.

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. Once a quiz is purchased, a link and password will be emailed to you. Your results will be sent immediately after completion, and certificates are emailed within two business days.

m Global Leases m Temporary Leases m Finance Leases

7. Once chosen for a CPE audit, the selected CPA has how many days to respond to the Board’s request to supply the required Certificates of Completion? m 30 days m 60 days m 90 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 June 2020. Please note that users have three attempts to pass the quiz with at least a 70 percent score.

8. CPAs may receive up to how many hours of CPE as nano-learning? m 4 m 8 m 16

June 2019 Issue of AZ CPA*

9. It is recommended that if you are considering an indemnity request, you should consult your legal adviser. m True m False

10. Whose five-year term on the Accountancy Board ends in June? m Monica Petersen m Julie Klewer m Jared Van Arsdale

1. In his Chair’s message, Jared Van Arsdale talks about the benefit of: m Podcasts m Lobbying m Gardening 2. When did Senate Bill 1256 go into effect? m Jan. 1, 2019 m Immediately Upon Signing m March 10, 2019 3. Arizona adopted the Streamlined Sales and Use Tax Agreement m True m False 4. Supporters are having a tough time securing enough votes to pass S.B. 1460 because: m opponents argue it would increase state and local tax revenues m opponents argue it would reduce state and local tax revenues m digital goods can’t be taxed in a fair manner

5. The effective date for the new leasing standard under ASC Topic 842 is: m Dec. 15, 2019 m Jan. 1, 2018 m March 10, 2019 6. The new leasing standard comes with some new definitions—capital leases in the existing standard will be considered what in the new standard?

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) 252-1511 scan and send to ASCPACPE@ascpa.com.

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Classifieds Business Opportunities $520K+ MESA, AZ TAX AND ACCOUNTING FIRM FOR SALE Contact cpapracticearizona@gmail.com.

Mesa based 30+ year practice, partner seeks retirement. 50%+ business related work, $520k in billings/$300k in discretionary owner income. Owner will help transition, can be flexible on deal structure, and is seeking a sale this year.

Employment AUDIT SENIOR — R & A CPAs is one of Tucson’s fastest growing public accounting firms and was recently nominated in the Copper Cactus Awards for Best Place to Work!! Our auditors travel less than two weeks per year and remote/flexible schedules are available.

R & A CPAs consistently provides and rewards opportunities for professional and personal growth and prides itself on promoting and supporting the goals of our team members. Relocation costs are available for this position. Audit Senior participates/leads on team engagements or projects of various clients. This individual will supervise associate accoun-

tants, providing feedback and evaluating their progress; resolve accounting. www. randacpas.com.

CFO — MANUFACTURING BUSINESS IN PHOENIX METRO AREA The CFO position is located in the Phoenix, Arizona metro area. This is an excellent opportunity for a highly skilled professional to join the senior management team at a growing, 40-year-old manufacturing business that recently completed a private equity backed recapitalization. The CFO will be responsible and accountable for financial and accounting management, aspects of operational decision making, administrative oversight, and company risk management. Salary and benefits are commensurate with experience and talent. Qualified candidates will be eligible for incentive equity compensation.

Qualified candidates should please send your resume to daleheit1@gmail.com.

CPA REQUIRED. Prepare and review complex business tax returns. Part time position. Dynamic firm. Paperless environment and state-of-the-art software.

QBooks, Lacerte, RIA, and Practice CS are utilized. Flexible hours available.

Attach resume in pdf to az.cpa@aol.com DIRECTOR OF GLOBAL COMPENSATION — Food for the Hungry.

Responsible for all Global Compensation to ensure internal equity and external competitiveness, while adhering to the company’s over-arching compensation philosophy and strategic goals. Provide analytical expertise to leadership, including guidance and interpretation of various compensation policies. Responsible for the project planning components relating to compensation program revision, development, and / or redesign.

Promotes proactive approaches using the company’s HRMS to solve business needs / problems, while also enhancing the understanding and acceptance of the HRMS capabilities. For a complete version of the job description, qualifications and to apply, access our career page: https://www.fh.org/about/careers/.

EXCELLENT CAREER OPPORTUNITY for 5-15 year CPA with strong tax and accounting experience. We are an independent, mid-size firm with a diverse small/medium business and individual client base. Our strong, continued growth is a direct result of our people

Behind the Scenes at Ballet Arizona Sept. 18 11:30 a.m. – 1:30 p.m.

Join your fellow CPAs as we go Behind the Scenes at the Ballet Arizona!

Take a look behind the curtain at the ballet and hear an interesting presentation from a few members of their team, including Executive Director Samantha Turner. We will have an opportunity to peek in on a rehearsal as we tour their facility. This is an exciting and rare opportunity to visit and learn more about the inner workings of the Ballet Arizona.

Lunch will be provided.

www.ascpa.com/ballet 22

AZ CPA JUNE 2019

and our service. We offer a friendly, positive work environment with competitive salary, benefits and growth potential.

Please contact us at slpsht99@aol.com.

SCHUTTE & HILGENDORF, PLLC — Leading CPA firm in the beautiful pines of Prescott, Arizona, seeking a well-rounded, ambitious accountant/ CPA with minimum 4-6 years experience to work with small business clients and individuals. Duties to include tax preparation/planning, monthly accounting, and potentially audit work as a staff auditor. Proficiency in Microsoft Office and QuickBooks required. Knowledge of Lacerte helpful. Salary commensurate with experience. Benefits include health, retirement, education and a fun, flexible and rewarding environment. Contact jobs@prescottaccountants.com.

TAX PREPARERS — North Scottsdale CPA Firm seeking Tax Preparer to prepare business and personal returns. Must have 3-years recent experience in preparing returns. QuickBooks Proficient.

Preference for EA/CPA. Growth Opportunity, Benefits, Competitive Salary DOE. Contact: Joy@partridgecpas.com.

Office Space for Lease EXECUTIVE OFFICE SPACE FOR LEASE — Executive office $800.

Beautiful garden-style office complex in a great office environment located in north Phoenix. Easy access to both the SR 51 and SR 101 just north of NWC of Tatum and Shea Boulevard. Ample parking, beautiful conference rooms, seminar room, and copier, telephone and internet ready. Contact Julie (602) 953-5000.

PROFESSIONAL SUITE — 16th Street corridor — 2,250 SF of recently renovated suite. Two large offices, bullpen, conference, large utility room, server room, storage, reception and use of bathrooms and break room. Access to Cox or T-1. Possibility of shared resources/services with other CPAs in building. Call Ira Feldman (602) 8505101 or ira@felco.biz.

Phoenix Tax Workshop Series 24 Hours of Live CPE for $375 * Added Bonus for purchasing 2019-20 Phoenix Tax Workshop Series!

You will gain access to all 2019-20 recorded sessions for later viewing.

We invite you to join this elite group of tax professionals at their Saturday CPE/CLE sessions (eight times per year). This series is also offered as a webcast.

What does it cost?

The annual fee of $375 includes the opportunity to earn 24 hours of CPE/CLE credit per year, which includes eight, three-hour meetings.

You may attend individual meetings for $70.

What’s on the agenda?

Topics are drawn from current tax issues, court cases and legislation on both federal and state arenas. You will have the opportunity to take part in question and answer sessions to ensure you leave with a complete understanding of the material. Updated agendas will be sent prior to each meeting and will be available in the online CPE catalog.

Meeting dates and times The following Saturday meetings are held at the ASCPA offices in Phoenix from 9 a.m. to noon. A full breakfast is included with each meeting. You may also participate by webcast from your home or office.

Meeting Dates for 2019-2020 June 22, 2019

Jan. 18, 2020

Sept. 21, 2019

Feb. 15, 2020

Oct. 19, 2019

April 25, 2020

Nov. 16, 2019

Register online at www.ascpa.com/ptw JUNE 2019 AZ CPA

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

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