AZ CPA March/April 2012 by ASCPA

CPA MARCH/APRIL 2012

The Arizona Society of Certified Public Accountants

New Rules of Evidence Relating to Expert Witnesses

Motivating Challenging Employees Life Member Randy Roberts

Personal Goodwill vs. Enterprise Goodwill

www.ascpa.com

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CPA

MARCH/APRIL 2012

Volume 28 Number 3

Arizona Expert Witnesses to be Tested — An Alert for CPAs Who Testify

Personal Goodwill vs. Enterprise Goodwill

If you provide testimony as an expert witness, you could soon be facing some new challenges due to newly adopted Federal Rules of Evidence. by Don R. Bays, CPA

Features Randy Roberts to Receive Life Member Honor at ASCPA Annual Meeting

Randy Roberts’ passion for auditing and dedication to the profession makes him a great choice for this year’s Life Member honor. by Patty Gannon

Using personal goodwill and enterprise goodwill in business and divorce valuation. by Mark Hughes, CPA/ABV/CFF

Spotlight on Management Accounting

Information about the new CGMA designation.

Managing and Motivating Challenging Employees

Find out how to change the cycle of your challenging employees’ bad behavior. by Sandra Wiley

Arizona Society of Certified Public Accountants 4801 E. Washington St., Suite 225-B Phoenix, Arizona 85034-2021 www.ascpa.com

Columns & Departments 6

Chair’s Message by Mark Anderson, CPA

Focus on Members

22 Classifieds

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CPA

The Arizona Society of Certified Public Accountants

President & CEO

Cindie Hubiak

Editor

Patricia Gannon

Copy & Advertising Deadline The first of the month one month prior to publication date. Board of Directors Chair Chair-Elect Secretary/Treasurer Directors

Mark Anderson Armando Roman Karen Abraham Anita Baker Rob Dubberly Megan Faust Julie Norton David Richardson Craig Robb Elva Vivas David Walser Corrine Wilson Neal Young Kevin Yeanoplos

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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 advertisements within this publication. Opinions expressed by correspondents and contributors are not necessarily those of the ASCPA.

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Chair’s Message

by Mark Anderson, CPA, CGMA

Collaboration In my November article, I weighed in on the issue of mandatory audit firm rotation. This was prompted in part by a new law that included a requirement for Charter Schools to rotate audit firms every five years. Under the guidance of our capable lobbyist, Kevin DeMenna, and President & CEO, Cindie Hubiak, we initiated discussions with Senator Rich Crandall, CPA, chair of the Senate Education Committee and DeAnna Rowe, executive director for the State Board for Charter Schools (State Board). Our objectives in these discussions were twofold: 1) to assist the State Board in their efforts to review audit information submitted to the Board by CPA firms, and 2) to reverse the law that required audit firm rotation for charter schools and possibly others in the future. Following several meetings where we collaborated closely on these issues, we came away with what all parties involved felt were optimal solutions that created a win-win rarely accomplished in the business or government environment. The ASCPA will assist the State Board by forming a volunteer ‘ad hoc’ committee of CPAs experienced in auditing charter schools that will review a sample of audits on an annual basis and provide valuable input to the State Board. The ASCPA will also work with the State Board to provide recommendations of CPAs who can serve on the State Board as the need arises. In addition, Senator Crandall agreed to sponsor legislation that will remove the audit firm rotation requirement for several of the reasons mentioned in my November article including the point that rotating auditors usually leads to higher audit costs. That is certainly something the charter schools or any company cannot afford. I was fortunate to be a part of these discussions and witnessed firsthand the importance of engaging in collaborative efforts that can generate positive results for everyone. I want to personally thank

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Senator Crandall, a fellow CPA and member of the ASCPA, for his passion for education and his leadership in the Senate on this and many other issues. I also want to thank Cindie Hubiak and Kevin DeMenna for all they do behind the scenes to advocate for our profession. Collaboration is an attitude and a culture that I have come to appreciate more since the arrival of Delta Dental of Arizona’s new CEO, Allan Allford one year ago. His style of openness and inclusiveness has changed the way our leadership team work together and how we approach the challenges inherent in today’s complex business world. It has made a real difference in the satisfaction I feel when I leave the office each day. I hope that same collaborative atmosphere can be created in our new relationship with the State Board for Charter Schools as we work with them to improve public education in Arizona for the next generation. As I wrap up my final article as Chair of the ASCPA Board, I have to admit that this experience was much more fulfilling than I had ever imagined. We are fortunate to be part of this respected

A CPE instructor once made the statement that the most trusted advisor in people’s lives next to their spiritual advisor is their financial advisor/CPA. I chuckled when I first heard this, but after meeting with so many CPAs these last few years and hearing of their many encounters with clients and business associates, I think he is right! profession that is making a positive difference in the business world every day. I am more proud than ever to let people know that I’m a CPA. A CPE instructor once made the statement that the most trusted advisor in people’s lives next to their spiritual advisor is their financial advisor/CPA. I chuckled when I first heard this, but after meeting with so many CPAs these last few years and hearing of their many encounters with clients and business associates, I think he is right! I look forward to the opportunity to meet many more of you in the future. AZ CPA

Focus on Members Newsworthy CPAs “A good leader is not a supervisor, rather a coach. You must lead by example, delegate important responsibilities, listen to your employees, treat each with respect and as individuals with distinct personalities and unique competencies. Live your life outside of work in the same manner you do within.” Bill Hodges, CPA, of Miller/Russell & Associates, quoted in an article on leadership in Phoenix Business Journal. “We try to stay ahead, be leading edge. There’s been times the IRS came in to do audits and we explained the mechanics of the rules because, simply, local agents didn’t have the experience or training we had.” Tom Furrier, CPA, in an article profiling his firm R & A CPAs in Inside Tucson Business. Cindie Hubiak, CPA, and Ed Zollars, CPA, were both quoted in an article about procedural changes made by the IRS in Phoenix Business Journal.

Member Jamie Jarman, CPA, of Price Kong Co., CPAs P.A., at the P.F. Changs Rock ‘n Roll Marathon running his first full marathon! Nic Miller was promoted to retirement plan administrator of Pinnacle Plan Design in Tucson. Jacob Gregory, CPA, with CliftonLarsenAllen received an honorable mention as Board Member of the Year by the Arizona Small Business Association. Stella Shanovich, CPA, of Grant Thornton, was appointed to the firm’s national not-for-profit leadership team. Scott Wallace, CPA, was named chair of CPAmerica International. Mark Feldman, CPA, was hired as CEO of Miller/Russell & Associates.

Anne Davison, CPA, wrote an article on Schedule C for the Real Estate Agent in The Arizona Journal of Real Estate & Business.

The Arizona Society of CPAs presents the

2012 Annual Meeting featuring guest speaker/member

Sharon Lechter with a “Focus on Financial Literacy” and honoring

Randy Roberts, CPA as a Life Member May 22

Keegan, Linscott & Kenon, promoted Bret Berry, CPA, to director of audit services and Adam Lohr, CPA, to audit supervisor. Rich Dozer has been appointed to the board of Apollo Group.

MARCH/APRIL 2012 y AZ CPA

Randy Roberts to Receive Life Member Honor at ASCPA Annual Meeting Randy Roberts, CPA, CGFM, has a passion for auditing. This passion has directed his life-long career of more than 30 years at the Arizona Office of the Auditor General and his dedication to the accounting profession with his volunteer commitment on various boards such as the American Institute of CPAs’ Auditing Standards Board, committees and task forces for the National State Auditor’s Association, and the Governmental Accounting Standards Board. It is this dedication to the profession that has

CONTRIBUTIONS American Institute of Certified Public Accountants • Auditing Standards Board • Various Task Forces • State and Local Government Expert Panel • Government Audit Committee Toolkit • Governmental Accounting and Auditing Conference Planning Committee National State Auditors Association (and NASACT) • NASACT Special Recognition Award • Accounting and Auditing Standards (Chair) • CARA, Faster CAFRs, Single Audit, and Human Resources committees • NASACT’s FAF Study Group researching GASB’s role in setting accountability standards • Member of NASACT Annual Conference planning committee Governmental Accounting Standards Board • Member of FAF strategic discussion panel on GASB • Concepts Statement No 4-Elements of Financial Statements task force U.S. Office of Management and Budget • Member of Executive Order Workgroup on Improper Payments Act and Leveraging Single Audits • Member of Super Group—Plans for Considering and Implementing IPIA Improvements Other • Arizona Society of CPAs—Board of Directors • Arizona State Board of Accountancy—Governmental Accounting & Auditing Standards and Reporting Committee

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earned Roberts the honor of being designated as a Life Member of the Arizona Society of CPAs—an honor that will be bestowed on Roberts at the 2012 ASCPA Annual Meeting in May. “I’m the technical nerd in the office,” says Roberts, who loves getting into the kind of detail that auditing requires. He needed that attention to detail when he spent 500-600 hours of work each year above and beyond that required from him at his office to help craft the new auditing standards. The Auditing Standards Board recently issued SAS Nos. 122–124, which includes 40 clarified SASs and represents the culmination of its Clarity Project, undertaken to make U.S. GAAS easier to read, understand, and apply. The ASB undertook this project to redraft all of the auditing sections in the Codification of Statements on Auditing Standards. Roberts was a big contributor to this work. “There was a lot of traveling and long nights and weekends involved, but I was happy I could play a part and make a difference. It also helped my office in that it opened up contacts across the country and will help us to better implement the new standards. I think it was a win-win for both of us.” Roberts claimed that all the stars aligned just right when he was asked to take one of the only government spots open on the AICPA’s Auditing Standards Board. “I got lucky that the time and place was right and to have that level of impact on the standards was really cool,” says Roberts. Roberts will also be able to be in a unique position to help implement them here in Arizona in 2013. He also thinks he surprised some of those on the board by not just being “the government guy.” “I jumped in with both feet and believe I was able to make a difference and

contribute. I helped shape what I think the auditing standards should be.” Roberts has been active on many different National and State committees and activities (see side-bar), and his service includes serving as chair of the National State Auditors Association’s Audit Standards and Reporting Committee. He has also served on the AICPAs State and Local Government Expert Panel, the Arizona Society of CPAs Board of Directors, and is active in the National State Auditors Association’s technical committees. “I am retiring in June, but I will be sticking around the office to help with any unfinished business and to help out when I can,” says Roberts, who is retiring from his position of Professional Practice Director, to spend more time with his family. Roberts, and his wife Roberta, have three daughters and three granddaughters, with one more grandchild on the way (and yes, he is hoping for another girl). “I used to wish for a grandson, but once I had three granddaughters, I didn’t want to break the streak,” smiles Roberts. When asked why he stayed in one place for his whole career, he said the Auditor General’s Office provided him with a place to experience professional growth, while spending time with his family. “I can honestly say that this is a place where I enjoy coming to work every day,” says Roberts. Arizona Auditor General Debbie Davenport is also happy Roberts dedicated his long career to the Auditor General’s Office. “The Arizona Office of the Auditor General is dedicated to the principles of Integrity, Accountability, and Making a Difference,” said Davenport. “I am fortunate to have an office full of individuals who believe in and espouse these very principles. I am especially

fortunate to have had the opportunity to work with someone who over a more than 30-year career has embodied these principles in every way. That person is of course Randy Roberts. It is rare to find someone who has the dedication, technical knowledge, and expertise that Randy undoubtedly possesses. It is rarer still for that person to be able to communicate, teach, and put into practice in such a practical way, the things he knows and the skills he has; but Randy is that rare individual. The breadth and depth of the contributions he has made in his career have gone far beyond our Office. His involvement in auditing and accounting issues and concerns at the State and National level have been a credit not only to our Office and State,

but also to the profession itself. I wish that everyone could have the pleasure and privilege of working with someone like Randy. I am certainly glad that I have.” When asked how he feels about being honored as a Life Member, Roberts commented that he was “speechless.” “And it is hard to make me speechless,” says Roberts. “It is nice to know that the work I’ve been doing has been recognized—it is good to have AZ CPA it validated.”

Join us as we honor Roberts as a Life Member at the ASCPA Annual Meeting on May 22 at the Arizona Biltmore Resort. MARCH/APRIL 2012 y AZ CPA

Managing and Motivating Challenging Employees by Sandra Wiley Anyone who has managed a team has most likely stumbled across a challenging employee. Identifying the challenging behavior is easy; finding ways to change the behavior and motivate the team member so they exhibit superstar qualities is the true challenge. Why are they so difficult? Why do they continue the unpleasant behavior, even when they are told that it needs to change? Because it is working for them!This is behavior that has worked for them before, and allows them to get what they want. In order to get the performance YOU want from the person, you must change the cycle that they have developed. Let’s look at the cycles of bad behavior that some of your employees may have fallen into: Slackers are individuals that perform just enough to get the work done and no more. You might see their performance as “just good enough” to not fire them. They evade the harder tasks and often seem cynical and are apathetic. Space Cadets are seen by employers as those individuals who show difficulty in grasping the reality of their situation. They may be told about technical issues that need to be corrected, they respond affirmatively that they will fix issues, and then simply act as if they have not been told anything.

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Power Grabbers are the people who are hungry to feed their egos by asking for only the projects and clients that will benefit them, not necessarily the overall company. They love the power, but are often not good at working within a team infrastructure. Loners are the individuals in the company that simply want to be given work and then left alone. They do not want to work on team projects or help to develop others. Drama Queens/Kings love the attention, both good and bad. They always have a story and they always seem to know all of the gossip. They often will suck you dry emotionally because they are always on a very high or very low emotional level. Challengers will take you to task at every turn. They often seem to be disagreeing with you, no matter what your stance, and they may even disagree with something they agreed on the day before. Exhausting! Clingers like to be right on your heels at every step. They seem to be incapable of doing even the smallest of tasks on their own. Many of you may be thinking about names of past or current employees that you have worked with who fit the definitions above. You may also be thinking about the excuses that were given for retaining these under-achieving people. Excuses like: •But he/she is one of my top performers •It’s not worth the conflict •Maybe they will change •His/her skills are worth the headache because of the expertise they have When a leader in the firm or business coddles, ignores or spends many hours trying to change the behavior of a challenging employee, what are they telling their star employees? The actions that are being taken—or not taken—are sending the message that more care will be given to the under achievers than your best employees. Morale, productivity, retention, self-esteem and profitability will all decrease, and your firm will certainly suffer. The bottom line is that almost ev-

ery leader in every company knows that the result of not dealing with an underperforming employee is not good for them, however, they also do not know how to change the cycle that has been allowed to happen. Identifying an assertive process that can be implemented is imperative for positive progress. The following eight questions will give the leader a performance correction roadmap for improving a challenging employee’s behavior, and help build confidence before the conversation takes place. As you think through each question, it is important that you write your responses and practice saying them out loud, possibly to a peer who can give you feedback. The key is to be fully prepared as you begin the process of changing the cycle of bad behavior. What is the real issue? While this may sound simple, the deeper you look at the real problem you will often find that the problem is not as simple and straightforward as it seems. As you write

out the problem, think about how it is affecting the firm, coworkers, partners, clients and ultimately the ability for the employee to grow in their position at the firm. Take the time to really identify all issues that need to be discussed. What is the goal of the conversation you will be having? As you talk with your employee, is the goal to change the overall behavior, engage in a conversation with the employee to gather more information, or is it to give the employee a warning that if the behavior does not change he/she will be dismissed? Identifying your overall goal will help you structure your comment appropriately. What is the date, time and place that you will have the conversation? Adding the appointment to the calendar will draw the line in the sand that will show the employee and yourself that you are making a commitment to have the conversation. Make sure you schedule an adequate amount of time and schedule it in a space where you

will both be comfortable. A conference room where you can sit next to the employee is a positive step. Your office sometimes feels like you are not trying to have a two-way conversation, it feels like you are “telling” them and not “engaging” with them. Who is your support team in this conversation? Having a tough conversation like this is not a single person project. Supervisors, mentors, human resources and firm administration can potentially all be on your team as you gather information, seek professional help and practice what you will be saying. Keeping the conversation confidential is your ultimate goal, but ensuring you have all of the information that you need to ensure a legal and ethical outcome is also necessary. What are the facts? As you seek help from your support team, ensure you have all of the facts you need, as well as specific examples from your support team. The most powerful knowledge you have are real life examples that

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will help the employee see how their behavior is working against them. What are the steps that the employee must achieve in order to reach the desired outcome? Write out the steps, in your opinion, that the employee must take to change their behavior. This is not the final plan, but it will be the conversation starter for your meeting. Once you have opened the conversation with the employee, and you talk about steps that they can take to improve, then seek their assistance in editing the steps with their suggestions for improvement. Adding ideas from the employee will always make the outcome more successful since they will be invested in the plan. What tools can you provide to help the employee achieve the desired outcome? With the plan in place, identify some tools that might help the employee stay on track and motivated. This can be task lists, performance plans, weekly meetings, mentoring, coaching, peer group meetings or in extreme cases an outside professional counselor. These tools will help the employee and you stay accountable to the plan that you developed. When is the follow-up meeting? Never leave the meeting without a specific, written follow-up meeting scheduled. You are now armed with the information you need to deal with those challenging employees that are in your organization today. The overall situation they are in comes down to two possible outcomes that you as the leader can help them achieve: 1) agree to a roadmap to success where they stay with the firm as an active and productive team member or 2) allow them to find new opportunities outside the firm. It all begins with the leader’s commitment to having a strategic AZ CPA conversation. Sandra Wiley, COO & shareholder of Boomer Consulting is ranked by Accounting Today as one of the 100 most influential people in accounting. She can be reached at sandra.wiley@ boomer.com.

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Arizona Expert Witnesses to Be Tested —An Alert for CPAs Who Testify by Don R. Bays, CPA If you provide testimony as an expert witness, you could soon be facing some new challenges from opposing attorneys regarding the opinions you will be rendering in the courtroom. Effective January 1, 2012, Arizona joined several other states that have adopted the Federal Rules of Evidence relating to expert witnesses, i.e., the “Daubert” standard.

Senate Bill 1189 to ARS §12-2203 In 2010, Senate Bill 1189 was enacted into law by the Arizona Legislature as Arizona Revised Statute, Section 12-2203, which states the following: 12-2203. Admissibility of expert opinion testimony In a civil or criminal action, only a qualified witness may offer expert opinion testimony regarding scientific, technical or other specialized knowledge and the testimony is admissible if the court determines that all of the following apply: •The witness is qualified to offer an opinion as an expert on the subject matter based on knowledge, skill, experience, training or education. •The opinion will assist the trier of fact in understanding the evidence or determining a fact in issue. •The opinion is based on sufficient facts and data. •The opinion is the product of reliable principles and methods. •The witness reliably applies the principles and methods to the facts of the case. The court shall consider the following factors, if applicable, in determining whether the expert testimony is admissible pursuant to subsection A: •Whether the expert opinion and its basis have been or can be tested. •Whether the expert opinion and its basis have been subjected to peer reviewed publications. •The known or potential rate of error of the expert opinion and its basis.

MARCH/APRIL 2012 y AZ CPA

•The degree to which the expert opinion and its basis are generally accepted in the scientific community.

The Arizona Supreme Court Weighs In A.R.S. §12-2203 did not have any teeth; however, until September 7, 2011, when the Arizona Supreme Court approved the Petition to Amend Rules of Evidence and Rule 17.4 (f), Arizona Rules of Criminal Procedure (“the Petition”). This is because the Arizona Supreme Court, not the state legislature, is responsible for deciding the procedural rules that Arizona courts must follow. What the Arizona Supreme Court did was to amend several of Arizona’s Rules of Evidence with the Petition. The Petition’s Prefatory Comment to 2012 Amendments summarizes three kinds of changes: “(1) the Arizona rules have generally been restyled so that they correspond to the Federal Rules of Evidence as restyled. These ‘restyl-

ing’ changes are not meant to change the admissibility of evidence; (2) in several instances, the Arizona rules have also been amended to ‘conform’ to the federal rules, and these changes may alter the way in which evidence is admitted (see, e.g., Rule 702); and (3) in some instances, the Arizona rules either retain language that is distinct from the federal rules (see, e.g., Rule 404), or deliberately depart from the language of the federal rules (see, e.g., Rule 412).” The Prefatory Comment concludes with: “Where the language of an Arizona rule parallels that of a federal rule, federal court decisions interpreting the federal rule are persuasive but not binding with respect to interpreting the Arizona rule.”

Rule 702 and Testifying Experts With approval of the Petition, the Arizona Supreme Court has adopted conforming changes to several Rules, in particular to one applicable to testifying

experts, Rule 702 (Testimony by Expert Witnesses). Rule 702, as revised, contains the following language: “A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if: * The expert’s scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue; * The testimony is based on sufficient facts or data; * The testimony is the product of reliable principles and methods; and, * The expert has reliably applied the principles and methods to the facts of the case.” Following the new language for Rule 702, the Petition adds a Comment to 2012 Amendment, which states: “The 2012 amendment of Rule 702 adopts Federal Rule of Evidence

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702, as restyled. The amendment recognized that trial courts should serve as gatekeepers in assuring that proposed expert testimony is reliable and thus helpful to the jury’s determination of facts at issue. The amendment is not intended to supplant traditional jury determinations of credibility and the weight to be afforded otherwise admissible testimony, nor is the amendment intended to permit a challenge to the testimony of every expert, preclude the testimony of experience-based experts, or prohibit testimony based on competing methodologies within a field of expertise. The trial court’s gatekeeping function is not intended to replace the adversary system. Cross-examination, presentation of contrary evidence, and careful instruction of the burden of proof are traditional and appropriate means of attacking shaky but admissible evidence.” What Arizona’s Rule 702 now means for testifying experts (not just CPAs, but physicians, engineers and others providing scientific testimony) is that they can expect to be challenged in the courtroom more intensely than ever before (The former rules fell within the “Frye” standard, which tended to allow far more “expert” opinions in as evidence). The challenges will not only be from opposing attorneys, but also from judges regarding the testifying experts’ credentials, the sufficiency of facts or data they considered, whether reliable principles and methods were used by them, and whether the principles and methods considered by them have been reliably applied to the facts of the case. Testifying experts should consider including language in their written reports that helps stem the Rule 702 questioning they can now expect. AZ CPA Don R. Bays, CPA, ABV, CVA, CFF is a Director of the Valuation and Litigation Support Services Group of Henry & Horne, LLP, Tempe, AZ. He is also a member of the Arizona Society of CPAs Forensic and Litigation Services Steering Committee. Don can be reached at donb@hhcpa.com.

MARCH/APRIL 2012 y AZ CPA

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BeachFleischman is also announcing that Chris Lutes has joined the firm as an Accounting & Assurance Shareholder. In addition to his client service role, Mr. Lutes will oversee BeachFleischman’s Phoenix operations. Mr. Lutes has more than 20 years of experience serving companies in the hospitality, construction, healthcare, manufacturing, distribution and service industries. In addition, he is the past chair of the Accounting & Auditing Standards Committee for the Arizona State Board of Accountancy. To learn more about career opportunities at both BeachFleischman locations, contact Karen Mattull at kmattull@beachfleischman.com.

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5363 East Pima Street, Suite 101 | Tucson, AZ 85712 (520) 319-9057 | weiss60@msn.com www.ArtWeissLaw.com

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Personal Goodwill vs. Enterprise Goodwill by Mark Hughes, CPA/ABV/CFF There are situations, in the contexts of tax law and family law, in which allocation of personal and enterprise goodwill is relevant and should be subject to detailed analysis. Although it is not the law in Arizona now, it may be good practice for a family law attorney to argue the distinction between personal and enterprise goodwill and, at trial, be able to provide the trier of fact with a well-reasoned and supportable allocation of goodwill. Intangible assets represent the excess market value of a business, beyond the value of its tangible assets. An important type of intangible asset, goodwill, is one that cannot be traced to an identifiable source. Examples include patents, trademarks or contracts. For the purpose of this article, we will discuss two important categories of goodwill: • Personal goodwill (also known as “professional goodwill”) attaches to a particular individual rather than to the business that the individual owns. • Enterprise goodwill (or “business goodwill”) is derived from characteristics specific to a particular business, regardless of who owns or operates it. To highlight the differences between these two components of goodwill, consider the following example of two hypothetical beauty salons, “Hair Now” and “Salon Pecan.” The two salons, located a mile apart, have virtually identical ownership structures, assets, liabilities, revenues and net income. Beyond those similarities, the salons have little in common. Hair Now is at a busy intersection and serves customers on a walk-in basis. Profits are split evenly among the owners. In contrast, Salon Pecan is in a secluded neighborhood and requires customers to make appointments, often weeks in advance, with a particular stylist. Profits are allocated based on the revenue generated by each owner.

MARCH/APRIL 2012 y AZ CPA

Although both salons produce virtually identical benefits for their respective owners, there is a difference in the nature of the goodwill of Hair Now’s owners versus that of Salon Pecan’s owners. The owners of Hair Now receive earnings tied directly to the enterprise, such as its location, business model and mechanism for distributing profit. The owners of Salon Pecan, however, receive earnings tied directly to their personal skills, reputation and repeat clientele. Thus, an owner of Hair Now would typically possess a higher level of enterprise goodwill, and a Salon Pecan owner would have a higher level of personal goodwill. In a business sale, a Hair Now owner would likely find it easier to transfer to a prospective buyer the goodwill associated with her ownership interest, due to the expectation that the earnings of Hair Now would continue at historical levels regardless of who was working in the business. However, an owner of Salon Pecan would likely have a harder time transferring her goodwill, due to the expected decline in earnings from

the regular clients who are more loyal to her than to the salon.

Personal Goodwill in Divorce Over the years, there has been a great deal of debate within the business valuation and legal professions with respect to the treatment of personal goodwill, particularly in valuations performed in the context of divorce. From state to state, there appears to be no consensus as to the proper treatment of personal goodwill: 24 states and the District of Columbia exclude personal goodwill from the marital estate; 19 states (Arizona among them) include personal goodwill in the marital estate, and eight states have no formal precedent. For several years, the guiding Arizona case was the Arizona Court of Appeals’ 1981 ruling in Wisner v. Wisner (129 Ariz. 333, 631 P.2d 115). In that case, the Court found that the husband’s surgical practice had goodwill value derived from repeat referrals from other physicians and that its value was includable in the marital estate. In an unpublished 2006 decision in

Stathakis v. Stathakis (1 CA-CV 050094), the Arizona Court of Appeals discussed the distinction between personal and enterprise goodwill, citing precedent cases in Washington and California. It is currently unclear whether Arizona will follow the lead of Washington and California and find that personal goodwill, as opposed to enterprise goodwill, does not create an item of property that can be valued and divided as a community asset. If the Arizona courts follow the majority in distinguishing between enterprise and personal goodwill, it will become important to segregate between personal and enterprise goodwill when valuing privately held companies and professional practices for marital dissolution purposes. Segregating the intangible value of a company between enterprise goodwill and personal goodwill is an inherently difficult task. However, a valuation analyst can consider many objective factors in making the allocation. In any company being valued, there will be evidence of various elements of both personal

Behind The Scenes with…Taser Join us as we go Behind The Scenes at Taser, May 31, 2012! Hear from CFO, Dan Behrendt, who will share some of what makes Taser tick, tour their facility and even take part in a real-live demo! Stay tuned for more details and registration information, coming soon.

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and enterprise goodwill that can be collected through research and interviews with management. The analyst can then consider these factors in the allocation of goodwill. The table below presents common forms of evidence that can be utilized to determine the underlying drivers of excess earnings for the subject company. In addition to examining the evidence of personal and enterprise goodwill, the analyst can also contemplate a hypothetical sale of the ownership interest being valued. This process involves the consideration of what a willing and qualified buyer would pay for the company if the seller would be permitted to compete in the same line of business in the same general geographic area. If the buyer would pay very little for the business, due to expected losses of

Business Category

repeat customers or specific referrals to the newly formed competing entity, this points to a high degree of personal goodwill. If the selling owner would be unlikely to siphon business away from the entity that he or she sold, then there would likely be a higher degree of enterprise goodwill. It is important to note that any amount paid in a transaction for a non-compete agreement or a consulting agreement is essentially compensating a business owner for his or her personal goodwill. Knowledge of the amounts typically allocated to non-compete agreements and consulting contracts for actual sales within a given industry can also assist the analyst in segregating enterprise and personal goodwill. An important consideration is whether to value the business in its existing state or to assume that a â&#x20AC;&#x153;non-existentâ&#x20AC;?

non-compete would be part of a hypothetical fair market value sale. The treatment of enterprise and personal goodwill in divorce continues to be an evolving topic in the legal and valuation arenas. By utilizing evidence stemming from the specific facts and circumstances of a particular business valuation, the analyst can more accurately estimate the degree to which enterprise and personal goodwill exist. Utilizing this thorough analysis, a qualified valuation professional can then utilize judgment based on experience to help ensure equitable outcomes in AZ CPA marital dissolution cases. Mark Hughes, CPA, ABV, CFF, is a senior valuation analyst of business valuation & litigation support services at Henry & Horne, LLP, He can be reached at MarkH@hhcpa.com.

Evidence of Personal Goodwill

Evidence of Enterprise Goodwill

Advertising Focus on the reputation, experience and skills of the owner/ operator; business name is the name of the owner; photos of owner Customers return due to personal relationship with owner/operator; many other options for similar goods or services in the area Other professionals refer business based upon skills and reputation of service provider; many similar providers in area; no formal referral contracts New customers arrive seeking a particular service provider; profits are allocated based upon income production

Focus on the entity without mentioning management or ownership; business name different from ownerâ&#x20AC;&#x2122;s name; corporate logo

The business is either completely or Management mostly reliant on one owner for income Depth generation; income associated with ownership interest being valued would disappear if that owner left

The business generates income from multiple producers; income associated with the ownership interest being valued would not disappear if that owner left

No employment or non-compete agreements between owners and business; key employees are not secured by employment or non-compete agreements with the business

Employment or non-compete agreements exist between owners and business; key employees are secured by employment or non-compete agreements with the business

Advertising Repeat Customers

Referrals

Organization Structure

Employment Agreements

Customers return due to location, convenience, price or other company specific factors; goods or services are unique to a particular area Other professionals refer business based proximity or organizational affiliation; referral relationships are contractually defined and transferrable New customers arrive seeking a general service from the business; profits are allocated equally among owners

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key insight throughout the decisionmaking process and maintain oversight and control of organizational capital and resource allocations.

The CPA as Management Accountant

Spotlight on Management Accounting Business is in flux amid unprecedented economic, technological and social change. Across the world, organizations are racing to keep up with the pace of business, global competition and the increasing risks of day-to-day operations. As organizations focus on how they process and interpret these global forces, the role and responsibilities of the finance function are evolving as well. It’s no surprise that now, more than ever, organizations rely on management accountants to apply non-financial, qualitative information along with financial analysis to help make decisions vital to achieving sustainable growth. CEOs want help “connecting the dots” to communicate a clear picture of how the organization is running and where the opportunities are. Increasingly, CPAs in business, industry and government have taken on these responsibilities and become key players in shaping their organizations’ futures and continuing success.

What is Management Accounting? Management accounting is a discipline at the intersection of finance and strategy. It combines quantitative and qualitative data to guide more informed decision making and drive long-term business success. It brings together financial accounting—reporting financial performance, understanding the framework of financial laws, standards and regulations and providing a compliance perspective—and strategy—managing business opportunities, providing a framework of solutions and best practices and guiding decisions. This means management accountants are equipped to shape both short- and long-term strategy, provide

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Organizations have always leaned on CPAs to provide necessary financial information to meet stakeholder needs. CPAs performing management accounting functions build upon their foundation of objectivity and financial expertise to maintain a broad skill set touching on areas such as R&D, production, marketing, human resources and logistics. In many instances, an industry-specific knowledge of regulations, markets and common tactics are added to the mix. This broadened knowledge base, plus the ability to present and communicate information to stakeholders—who often are not finance experts—uniquely position CPAs as management accountants. “I think that we all believe that whether you are by background an accountant, a finance major, an economics major, whatever your background is, that you need to be less siloed, and you need to be a broad thinker,” said Arnold Hanish, chief accounting officer and vice president, Eli Lily & Co. “…So communication skills are critical. Being able to translate complex issues into simplistic terms where non-financial people can understand what you’re saying is critical.”

Introducing the CPA, CGMA Professional recognition of the work CPAs in business, industry and government do on behalf of organizations has taken a significant step forward with the introduction of a new designation, the Chartered Global Management Accountant (CGMA). Complementing the U.S. CPA, the CGMA demonstrates that designees have the experience, skills and expertise to provide organizations with the information needed to optimize performance. The CGMA has been established by the American Institute of Certified Public Accountants (AICPA) and the Chartered Institute of Management Accountants (CIMA) through a joint

venture that collectively represents more than 550,000 accounting professionals and students throughout the world. Together, the AICPA and CIMA are working with employers and influencers around the world to increase awareness of what management accountants do to drive successful business performance. “Leveraging the strength of CPAs and expanding awareness of their role in organizations worldwide, the CGMA will showcase designation-holders’ management accounting expertise and serve as a complement to the knowledge, skill set and commitment to the code of conduct CPAs already have,” said Barry Melancon, CPA, CGMA, president and CEO of the AICPA.

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Provided valuation consulting services in accordance with ASC Topic 718 and Internal Revenue Code 409A

Provided purchase price allocation services in accordance with ASC Topic 805

Provided financial reporting valuation consulting services

Provided purchase price allocation services in accordance with ASC Topic 805

Provided financial reporting valuation services in accordance with ASC Topic 815

Provided purchase price allocation services in accordance with ASC Topic 805

An Opportunity for Arizona Society of CPA Members The CGMA is available to regular (voting) members of the AICPA who meet the qualifying requirements. Members of the Arizona Society of CPAs who also are eligible members of the AICPA, can experience the many resources designed to build their skills and knowledge for a free introductory period through July 31, 2012. Visit cgma.org for thought leadership papers, access to a global community and a career toolkit to help you promote your CGMA. “Our CPA, CGMA members are a value-added force,” says ASCPA President & CEO Cindie Hubiak, CPA, CGMA. “They articulate a clear vision in an otherwise dynamic and complex environment. From inspiring and empowering strategically sound decisions to shepherding their organization’s resources, management accounting professionals set the tone for their emAZ CPA ployers’ ongoing success.”

For more information about the CGMA and to find out if you qualify, visit cgma.org.

New Courses for 2012-13

Online Registration is Now Available at www.ascpa.com for May 2012-April 2013 Seminars Watch for your CPE Resource Catalog to arrive in the mail in April. Register before May 31 and receive a 15% discount. MARCH/APRIL 2012 y AZ CPA

Classifieds Business Opportunities/ Practices for Sale WE BUY CLIENTS—Our CPA firm is seeking to buy clients in increments of one to a small practice in the Scottsdale and Phoenix Metropolitan area. Our staff has been practicing in public accounting for over 30 years and specializes in the small to medium size business needs. We emphasize business accounting and taxes. We are located near Thunderbird and Scottsdale Rd. If you are downsizing or retiring and want an easy transition, please call us today. Ask for Kara at (480)-990-2727.

Employment Opportunities Controller—Goodwill of Central Arizona—Oversee the fiscal operations of the organization and its affiliates, and provide support to the CFO and senior

management in the form of reports and analyses to assist in ensuring overall financial health and stability. Oversee finance department staff of 8-10 (2-3 direct reports), with oversight of payroll, billing, collections, payables, budgeting, cash management and reporting functions. Oversee month and year-end close processes. Bachelor’s degree in Accounting from an accredited university required. 10 years accounting experience, including at least 2 years of previous and recent Controller experience at an organization comparable in size (1000+ employees/$90+ mil annual budget). https://www.goodwillaz.org/ jobs/jobs-at-goodwill. Outstanding Audit & Consulting Opportunities!—Heinfeld, Meech & Co., P.C. , recognized leaders in governmental and non-profit auditing and financial consulting, seeks motivated CPAs for Associate and

After 25+ years serving non-profits, closely held businesses and the individuals who run them, Brenda Blunt is pleased to announce the establishment of her own firm

Call José Herrera at

Brenda A. Blunt, CPA, PLLC Brenda offers a wide variety of tax, accounting and business consulting services including tax planning and compliance, strategic planning, multi-entity structures, and planned giving. Brenda has especially deep experience in the not-for-profit area working with hundreds of local and national not-for-profit

(602)324-4741 or e-mail: advertise@ascpa.com

organizations, consulting with attorneys and other CPA’s regarding their NFP clients and recently having served on the steering committee for the NFP practice group of a top-10 national accounting firm. As a result, she is recognized for her expertise addressing exempt status, UBIT, public charity status, private foundation, compensation reporting, related entities and other issues unique to not-for-profit entities. Brenda is a member, and the initial chair, of the ASCPA NFP Section Steering Committee and a frequent national and local speaker on topics of interest to not-for-profit organizations.

Brenda A. Blunt, CPA, PLLC One East Camelback Road, Suite 860,Phoenix, AZ 85012 602-692-6856 – BrendaBluntCPA@cox.net

SEPTEMBER 2011 y AZ CPA

Is your firm moving? Did you get a promotion? Do you have a new hire in your firm?

Management positions for our growing Audit & Consulting Divisions in our Phoenix and Tucson offices. Nationally recognized on the “25 Best Small Companies to Work for in America” list by the Great Place to Work Institute for the past five years, H&M offers a dynamic culture with outstanding career growth opportunities. A BS in Accounting and at least two years of accounting or auditing experience specializing in governments/non-profits along with CPA designation is required. recruit@ heinfeldmeech.com. Part-time Staff Accountant — Chandler CPA firm seeking permanent, PT bookkeeper / accountant to provide exceptional service to our clients.Min. 2 years experience in a CPA firm. Proficient with QuickBooks, Excel, preparing individual & business income tax returns, sales tax returns, payroll tax returns. Strong computer skills, great understanding of the balance sheet, ability to “clean-up” QuickBooks. Excellent verbal and written communication skills. Send your resume and cover letter and itemize all software experience including length of time, and hourly rate requested. References will be requested if considered.Candidates will be requested to complete a Background Screening and Accounting, Excel and Personality tests. www. jacpaservices.com. TAX PREPARER—CL and Company CPAs PC—Seeking professional with individual 1040 tax preparation experience. Independently motiviated individual who works well with clients and has an eagerness to learn. http:// www.clandcompany.com/

Announce it here with discounted ads in the AZ CPA for our members only. We will even create the ad for you at no additional charge.

Miscellaneous

“Thank you to the ASCPA for the beautiful ad. I have already received a number of comments on it and have even been contacted (within days of it hitting the street!) by a potential new client.” —Brenda Blunt, CPA

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Office Space TUCSON OFFICE SPACE AVAILABLE—Our dynamic office sharing arrangement located midtown in Plaza Palomino is expanding and we have room for additional accountants. Our newly remodeled suite will have approximately 1,500 square feet available (can be divided/space planned) and will be completed summer 2012. Newly negotiated lease reflects current market rent. Benefits of our well-equipped office include shared occupancy expenses (extensive tax & accounting library, receptionist, conference rooms, telephone, internet, scanning/copying equipment) as well as camaraderie. Please visit www.cpatucson.com to learn more about our energetic group. Contact Rob Groll at rob@grollcpa.com or Dave Lotz at dlotz@cpatucson.com or (520) 321.1334.

We All Benefit From a Larger ASCPA We are asking for your help to spread the word about the rewards of being part of the ASCPA. If you know of a CPA who is not a member, please encourage them to join. As a token of our appreciation, you will receive two movie theater tickets for every CPA who you refer who joins. We thank you for all you do for the profession. Please contact José at (602) 324-4741 or jherrera@ascpa.com for more information.

Services PROPERTY TAXES TOO HIGH? I’ve been doing property tax appeals for over 13 years, both real estate and personal (business) property. We produce refunds for 80% of new clients and the average refund is 20% of the tax paid plus interest. Arizona CPA. Contingency fee only. I’m on Linked In, Facebook, Twitter & My City. Website: www. asmrconsulting.com. Call John at ASMR Consulting LLC, (480) 204-1289.

Check Out Our Career Center The ASCPA Career Center is a one-stop shop for employers and job seekers alike. Whether you are looking for the perfect job or searching for the perfect candidate, we make it easy for you.

To place a classified ad, go to

www.ascpa.com and go to marketplace.

Members can post their resume and look for jobs. Employers can post a job or look at members’ resumes. Go to Career Center at www.ascpa.com

MARCH/APRIL 2012 y AZ CPA

Arizona Society of Certified Public Accountants 4801 E. Washington St., Suite 225-B Phoenix, AZ 85034

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

JOEL HERIFORD, JD Business Law, Business Succession Planning, Estate Planning

bcattorneys.com Burch & Cracchiolo, P.A. 702 E. Osborn Rd., Suite 200 Phoenix, AZ 85014 602.274.4611 Direct: 602.234.8788 jheriford@bcattorneys.com

“Working closely with my clients’ CPAs and other trusted advisors ensures that all bases are covered, whether I am helping to form a new business, buy or sell an existing one, plan for succession of a business or create an estate plan. In every case, the clients’ interests are best served through collaboration. Having previously practiced as a CPA with a Big Eight accounting firm, and also making sure that all of the accounting, tax and legal needs are coordinated to attain the best possible result for the client, I understand and appreciate the important role of CPAs.”

Arizona • California • Nevada

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