AZ CPA May 2017 by ASCPA

AZ CPA May 2017

Hiking With Tanya

Navigating the New Normal Valuation Discounts in Marital Dissolutions

New Board Members Identity Theft on the Rise The Arizona Society of Certified Public Accountants y www.ascpa.com

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of Certified Public Accountants (ASCPA) to provide information, news and trends in the profession of accounting. It is distributed 10 times a year as a regular service to members of the Society. The ASCPA, its members, board of directors and administrative staff assume no responsibility for advertisements herein. The ASCPA and the above people also assume no liability for business decisions made by readers in reference to statements and/or claims in articles or advertisements within this publication. Opinions expressed by contributors are not necessarily those of the ASCPA.

Arizona Society of CPAs 4801 E. Washington St., Suite 225-B Phoenix, AZ 85034-2021 Telephone (602) 252-4144 AZ Toll-Free (888) 237-0700 www.ascpa.com

AZ CPA MAY 2017

AZ CPA

Volume 33 Number 4

May 2017

Features

2017-18 ASCPA Board of Directors Welcome the new Arizona Society of CPAs Board of Directors.

Hiking With Tanya Tanya M. Luther, CPA, has hiked every day for more than one year, and she is not stopping anytime soon. by Patty Gannon

Navigating the New Normal In this new value and knowledge climate, traditional measurements may no longer apply for businesses. by Ash Noah, CPA (in NC), CGMA

Columns & Departments

Valuation Discounts and PostPetition Earnings in Marital Dissolutions

The case of Schickner v. Schickner changes two issues that should be considered by valuation experts.

Chairâ&#x20AC;&#x2122;s Message by Molly E. Montgomery, CPA 6 Member News

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

Classifieds 26 Quick Quiz

by Sephen E. Koons, CPA, ABV, ASA, CFF

20 Identity Theft on the Rise

The Identity Theft Resource Center reported a 35 percent increase in data breaches in 2016. by Dr. Robert K. Minniti, DBA, CPA, CFE, CVA, CFF, MAFF, CGMA, CrFA, PI

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

Accounting for Tomorrow

Are we driving change, or is it driving us? Find out about the new AICPA transformation. by Kimberly Ellison-Taylor and Tim Christen

MAY 2017 AZ CPA

ASCPA Chairâ&#x20AC;&#x2122;s Message

My Place in the Profession When I first joined the ASCPA board as a director in 2013, I remember sitting at lunch with a colleague when he asked why I accepted the position on the Board. He was not questioning my decision, he was simply curious about my underlying interest and motivation. I have been asked this question several times over the years as my role and involvement with the Board has evolved; not just from friends and colleagues, but it is a question I continually ask myself. The career path I have taken over the past 15 years has been far from traditional; and every career move I have made has been fueled with intention and a deep desire to make a difference.

by Molly E. Montgomery, CPA

I have observed a profession that is fueled by an endless passion for growth, an infinite capacity to learn, an unparalleled work ethic, an extraordinary talent for unraveling extreme complexity and an unwavering foundation of integrity.

AZ CPA MAY 2017

My first job out of college was with an accounting firm just outside of Washington, D.C. that specialized in the nonprofit industry. With that firm, I had the opportunity to work with some incredible organizations, such as Conservation International, the Jane Goodall Institute, Human Rights Campaign and CHF International. Those first few years of my career included trips to Ecuador, Costa Rica and Azerbaijan for field-office audits for several of our large international NGO clients. I became fascinated with the profession early on, as I saw how much our expertise and skillset was impacting the business community and the global economy. I left Washington, D.C. in 2005, determined to find my place in the profession. The following nine years of my career included everything from auditing casinos and hospitals in Las Vegas, to Sarbanes-Oxley implementation for several public companies, to becoming a sole-proprietor and learning the ins-and-outs of small business, to getting a masterâ&#x20AC;&#x2122;s degree in taxation, to spending several years in the forensic accounting and litigation world â&#x20AC;Ś and everything in between. My place in the profession finally became clear when I decided to venture into the life of entrepreneurship. I look back at my journey with gratitude for every opportunity and challenge that has brought me to where I am today. My experience up to this point has not just been about the clients I have served, the industries I have become so familiar with, or the technical expertise I have gained. I have also deeply analyzed how our profession operates and the impact we are all making in the world. Regardless of how different each of our experiences has been, I have observed a profession that is fueled by an endless passion for growth, an infinite capacity to learn, an unparalleled work ethic, an extraordinary talent for unraveling extreme complexity and an unwavering foundation of integrity. The moment each of us chose to pursue the path of a CPA, we made a commitment to a life of learning and personal growth for a greater purpose of leading and serving a society that leans on the foundation that we have built as a profession. When I ask myself the question of why I chose to accept a position with the board years ago, I immediately feel the strength of that foundation. I am excited and grateful for the opportunity to contribute to a profession that has had such a profound impact on my life, and on the lives of those around me. In the midst of a dramatic shift to a fast-paced digital world, an intense political environment, an increasing need for forward-thinking business strategy, and the challenges the CPA profession faces at a local and national level, my hope is that each of you will lean in with me while we collectively continue to build and strengthen the foundation of our profession. n

Member News Dr. Rufus Glasper, CPA, was honored with the 2017 Regents Award for Outstanding Service to Higher Education. CBIZ MHM, LLC promoted Aaron M. Banda, CPA, and Allan C. Klose, CPA, to managing director and shareholder and Kyle Felix, CPA, to audit manager. Henry+Horne team members helped pack thousands of meals for children around the world in partnership with Feed My Starving Children. Employees helped pack 143 boxes in two hours, which came out to 30,888 meals to feed 84 children in the Philippines for a full year. Henry+Horne also donated $1,000 from the Jeans Fund, a fund where employees donate money to wear jeans on Fridays. Henry+Horne has also been named one of the “100 Best Arizona Companies” for 2017-2018 by BestCompaniesAZ.Companies are selected for this honor based on commitment to leadership and excellence and the economic impact made on Arizona.

50 Year Members Thank you and congratulations for celebrating 50 years as an ASCPA Member to:

Edward L. Espinoza, CPA James G. Knollmiller, CPA F. George Drewry, CPA (Retired) Anthony C. Choi, CPA

The Republican House and Senate Victory PACs Kickoff — March 28. Pictured (l to r): House Speaker J.D. Mesnard, Ryan DeMenna, Cindie Hubiak, Greg Nelson and Senate President Steve Yarbrough.

Uof A Professor Honored with Excellence in Teaching Award Professor Jayanthi Sunder, Ph.D., from the University of Arizona will be honored with the Arizona CPA Foundation for Education and Innovation’s Excellence in Teaching Award at the ASCPA Annual Meeting. Sunder teaches Intermediate Financial Accounting II and Advanced Accounting to the masters students in accounting. Her dedication to the academic and professional success of her students earned her the Outstanding Teacher of the Year award from the Accounting Students Association for 2014-15. Sunder also actively mentors Ph.D. students. She adopts a holistic approach to teaching and views her role as providing students with a framework for critical thinking. She is well regarded for her accounting research and plays a valuable role in helping her students prepare for a successful career in accounting.

Join us as we honor Sunder at the ASCPA Annual Meeting on May 19 at the Arizona Biltmore Resort.

MAY 2017 AZ CPA

2017-18 ASCPA Boa

Molly Montgomery ASCPA Chair Owner, Ascension Consulting

Mike Allen ASCPA Chair-Elect Principal REDW LLC

AZ CPA MAY 2017

Jared Van Arsdale ASCPA Secretary/Treasurer Ullmann & Company, P.C.

Michael Chesin ASCPA Director 2016-18 Senior VP and CFO Helios Education Foundation

Virginia DeSanto ASCPA Director 2016-18 VP & CFO Arizona State University Foundation

Tom Duensing ASCPA Director 2017-19 Assistant City Manager City of Glendale Finance Department

Greg Nelson Immediate Past Chair VP & CFO, WorldatWork

Marcus Feder ASCPA Director 2017-18 Audit Manager Salt River Project

ard of Directors Nikki Vogt ASCPA Director 2017-19 Partner Deloitte & Touche LLP Kristen French ASCPA Director 2017-19 Partner Vestboard, PLLC

Julia Miessner ASCPA Director 2016-18 Senior Manager BeachFleischman PC

Char Woodall ASCPA Director 2016-18 Tax Director Priority Ambulance LLC Alan Gold ASCPA Director 2017-19 Managing Partner MGKS, Inc.

Alice Pope ASCPA Director 2017-19 Senior VP & CFO HonorHealth

Karen Abraham AICPA Council Member CFO, Blue Cross Blue Shield of Arizona

Aaron Grant ASCPA Director 2017-19 Supervisor Keegan, Linscott & Kenon, P.C.

Jeffrey Quick ASCPA Director 2016-18 Senior Partner Quick and Associates, PC

Armando Roman AICPA Council Member Principal, AXIOM Financial Advisory Group LLC

MAY 2017 AZ CPA

Hiking with Tanya CPA hikes every day for more than a year It was Christmas Eve and Tanya M. Luther, CPA, was waiting for some friends to join her on a hike up Echo Canyon on Camelback Mountain. They didn’t show up and she was about to leave, when she met a young girl coming down the mountain. The girl told her, “You are not really alone here – you should give it a whirl.” So she started up the mountain while contemplating her life. “Life overall has been really good to me, but there was always something I was searching for. And I asked that question while I hiked, and I clearly heard in my head: ‘Come out and visit Me (God) every day and have blessings or a prayer while you hike.’” “I climbed up Echo that day – which is one of the harder hikes in Phoenix – and there were lots of great people who were giving out chocolates and champagne along the way; there was a Christmas tree and Santa. And I thought, maybe this IS what I’m supposed to do. So I agreed from that day to hike a minimum of two miles, every day, with an elevation change and a prayer.” “I’ve always struggled with how do I stay present and how do I see the small miracles? So up there on the mountain, I got a glimpse of it and thought maybe I can do this.” So Luther set out to hike every day for one year, and not only has she accomplished that feat, she has continued to hike for one year plus 100 days and counting. When she first started out, she wasn’t at all happy with the challenge. “I actually had a conversation in my head that I wasn’t going to be able to do this. I’m too busy, I have other things to do, the summers are hot, etc. I respect all paths, but for me I pray to God and I decided to take him up on this challenge.” So how does she do it? “I do it through calmness and prayer and discipline and most of all passion. Some days it takes me longer to hike. If I’m not feeling well, I just take it slower and maybe do an easier hike. I try to be flexible. I always have my hiking shoes ready and I have hiked in a dress and pearls!” Luther says that with the many rewards she has received, she cannot envision herself stopping. “This is not a competition; this is Tanya doing something that specifically works for Tanya. It is my time, I love it, I love the outdoors, I love to

AZ CPA MAY 2017

pray and I love people. It is my sweet spot. Given that, how could I not do it?” She has gained health benefits, her stamina has improved, and so has her dog’s, who she takes hiking when she can. What other benefits/rewards has she seen? “Well, the main one is that I fell in love with myself! I absolutely fell in love with myself – I see my strengths and I see my weaknesses – it settles everything. I am so at home now – I found my home.” As senior manager at Central Arizona Project, Luther believes hiking has made her job easier. She says she is faster, more settled and her mind is clearer. Luther has had people come from all around the world to hike with her. She doesn’t keep stats, but she does journal. She has hiked in California, Canada and Colorado this year. The weirdest thing she has seen on the trail? “On Valentine’s Day, I hiked with a friend up Piestewa Peak. I brought wine and sweet potato chips. As we are watching the sunset, this ringtail cat came up and tried to steal my chips! He was hilarious.” She has advice for people who want to do something similar. “Do what works for you,” says Luther. “Do something you enjoy every day — make the commitment and then just be open enough to allow it to happen. Let the universe and the people around you help you accomplish your goal.” n —Patty Gannon

A Dash of SALT

Arizona Tax Changes to Welcome the Sharing Economy In this month’s state and local tax (SALT) column, Busby summarizes recent Arizona tax law changes enacted to encourage the growth of the sharing economy in the state, including a sales tax exemption for drivers for, and operators of, online ride-sharing businesses such as Uber and Lyft, and a streamlined method for collecting sales tax on short-term rentals of residential properties through an online lodging marketplace such as Airbnb or HomeAway.com.

by James G. Busby, Jr., CPA

Since he took office in 2015, Gov. Doug Ducey has promoted tax policies to welcome the sharing economy. A few months ago, after California regulators shut down Uber’s self-driving cars, Ducey welcomed them to the state saying, “California may not want you, but we do.”

No Sales Tax on Ride-Sharing Businesses In 2015, Arizona passed legislation prohibiting state and local tax authorities from imposing sales taxes on “transportation network companies,” such as Uber and Lyft, and drivers providing “transportation network services,” defined as the transportation of a passenger between points chosen by the passenger and arranged with the driver using the transportation network company’s digital network or software application.

Collecting Sales Tax on Short-Term Rentals In 2016, Arizona passed a law streamlining the sales tax collection process for owners of residential properties rented on a short-term basis to others through an online lodging marketplace such as Airbnb or HomeAway.com — but only if the online lodging marketplace collects and pays sales taxes levied on transactions facilitated by the online lodging marketplace. Effective for proceeds received beginning Jan.1, 2017, online lodging marketplaces can pay those taxes through the newly established online lodging marketplace classification, a 5.5 percent state sales tax on proceeds from the business of operating an online lodging marketplace. “Online lodging marketplace” is defined as a digital platform for compensation through which an unaffiliated third party offers to rent lodging accommodations not classified as commercial or industrial property to an occupant. The law clarifies that owners of residential properties rented out through online lodging marketplaces are not subject to state sales tax on proceeds from the rentals as long as the online lodging marketplace provides them with documentation showing that tax was remitted on all short-term rental transactions. While the law authorizes Arizona municipalities to enact corresponding sales taxes on proceeds from short-term rentals through online lodging marketplaces that would be administered, collected and enforced by the Department, to date no Arizona municipality has done so. Rather, Arizona municipalities require owners of residential properties that are rented out on a short-term basis to be registered

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.

MAY 2017 AZ CPA

CPAs Join us for the

ASCPA Annual Meeting May 19

If you like Ted Talks, then you are sure to enjoy what we have in store for you at the Annual Meeting. In addition to honoring Life Members Randy Fletchall and Jim Susa, we will present Ignite CPAs — a fast-paced event where six CPA speakers will present a topic, giving them each five minutes to inspire and entertain you! Here is what we have in store for you: • Are You as Innovative as a Two-Year Old? • From Air, Land and Sea – My Journey to Becoming a CPA • Take the Stage by Igniting Your Passion • More Than Skin Deep: Five Long-Run, Delayed Gratification Steps to a Healthier Marketing Program • And more. Join us at the Arizona Biltmore Resort.

Thanks to our Gold Sponsors:

Go to www.ascpa.com for more information or to register.

AZ CPA MAY 2017

to collect and report sales taxes each month as if they were a hotel. Perhaps Arizona municipalities will set up a system for online lodging marketplaces to collect and remit city sales taxes on proceeds from short-term rentals of residential properties after they resolve their outstanding litigation with the online travel companies over whether the fees those companies collect are subject to municipal hotel taxes.

Potential Alternative Taxes on Short-Term Rentals Online lodging marketplaces that do not have nexus with Arizona are not required to collect and report Arizona sales tax. Thus, registration to collect and report sales tax under Arizona’s online lodging marketplace classification is optional for most online lodging marketplaces. However, Arizona tax authorities may attempt to collect state sales taxes under the state’s transient lodging classification, as well as city sales taxes under the cities’ hotel classification, from online lodging marketplaces or owners for proceeds from short-term residential property rentals if an online lodging marketplace did not collect and report state tax under the state’s new online lodging marketplace classification and city taxes under the cities’ hotel classification on the gross rental amount, including all accompanying fees. Practice Tip! Arizona’s 5.5 percent state tax rate for the online lodging marketplace classification is the same as the state tax rate for the transient lodging classification. So for sake of convenience, owners of residential properties who rent them out on a short-term basis may want to rent them exclusively through an online lodging marketplace that will collect and report the appropriate state and city sales taxes so the owner does not have to worry about reporting sales tax or getting audited by Arizona’s tax authorities. n

Navigating the New Normal Measuring What Matters in the Value Economy by Ash Noah, CPA, CGMA Businesses have long relied on finance professionals to measure value and provide input on business decisions. At its core, the role of finance and accounting is about measurement, transactions and expressing value in hard numbers. For many years this system has worked well, since business models have centered around tangible issues, transactions and goods. However, more and more business models are being born out of tech disruption and are converging towards something that is more futuristic, value-based and intangible. In this climate — the value and knowledge economy — traditional measurements no longer apply.

There’s a disconnect There is a fundamental shift taking place between where finance and accounting has been and where it’s going. Today’s business models are based on value creation with intangible assets. In the knowledge economy, organizations are using their unique abilities to meet the needs of their customers — that is where their value lies. The disconnect occurs when finance continues trying to measure value and success in a traditional way. The shoe no longer fits.

MAY 2017 AZ CPA

Customer Satisfaction Quality of Business Processes Customer Relationships

Quality of People Reputation of Brand So how do CEOs make business decisions when they cannot rely on the traditional metrics that finance and accounting have always used? And how do finance executives come up with new ways of measuring value in order to make better decisions? In essence, how do businesses navigate the new normal of the value economy?

Creating a new toolkit Finance and accounting need to make some adjustments to better support organizations operating in the valuebased economy. These businesses need a new toolkit: a new way to measure value and success, and make decisions. There are three key steps to building this new toolkit in your organization: 1. Identify New KPIs To understand and manage the value of your intangible assets, it’s important to measure them. This means identifying a new set of key performance indicators (KPIs). Even if the KPIs need to evolve, putting them in place provides an important starting point to tracking the business and its progress. KPIs for intangibles should take into consideration a few key things: they should be measurable, impact the business, and be tied to accurate data. According to recent research by the American Institute of CPAs and The Chartered Institute of Management Accountants, the top KPIs being monitored by businesses measuring intangibles are: • Data quality • Return on invested capital (ROIC)

AZ CPA MAY 2017

• • • • • •

Employee productivity Customer experience and satisfaction Employee engagement and retention Competitor activity Customer pipeline and retention Brand awareness and equity

However, other KPIs to consider include: • Talent sourcing pipeline • Social engagement • Social sentiment • Digital marketing effectiveness 2. Relate KPIs to Value Drivers It’s important to also understand the value drivers behind the KPIs you’re measuring. In other words, how does that KPI actually influence the business? Today’s organizations need to show the market how they’re different, and the customer is usually at the beginning and the end of the value chain. Thus, most value drivers should relate back to the customer somehow. Hence, according to the same research noted above, the top five value drivers to consider include: • Customer satisfaction • Quality of business processes • Customer relationships • Quality of people (human capital) • Reputation of brand 3. Measure, Measure, Measure To measure intangibles, businesses must make connections between financial outcomes and pre-financial measures that they can use as leading

indicators, usually based on a causal relationship or correlation. Going back to step one, this means your KPIs must be tied to data, and you must be able to gather and analyze that data accurately in order to measure the value of your intangibles. With advances in big data, there are now many more tools available to assemble, track and analyze intangibles than ever before. For example, companies can use social analytics tools as one way to measure their brand equity or customer sentiment, or leverage HR analytics software to measure KPIs around employee productivity, engagement and retention. Even if you don’t have access to high-end data collection and tracking tools, you can still gather and analyze data to measure KPIs by conducting surveys and questionnaires, in-depth interviews, focus groups, peer evaluations or other methods. Creating long-term value while simultaneously meeting the organization’s current operational goals requires a new toolkit, and more advanced performance management than can be achieved using traditional financial measures alone. Developing new metrics to better understand your performance and make the mostinformed business decisions will help your organization thrive in the value economy. n Ash Noah, CPA (in NC), CGMA, is vice president of CGMA External Relations, American Institute of CPAs. Originally published by American City Business Journals.

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Valuation Discounts and Post-Petition Earnings in Marital Dissolutions By Stephen E. Koons, CPA, ABV, ASA, CFF In a case of first impression, the Arizona Court of Appeals, Division One, handed down its decision in the Schickner v. Schickner matter in 2015.1 The court dealt with two issues that must now be considered by valuation experts in marital dissolution cases involving business ownership. The first is whether discounts for lack of control and lack of marketability should be applied when valuing a business. The second is whether earnings and distributions between the date of the petition and the date of the decree represent the sole and separate property of the husband. The marital community owned interests in two businesses, a 50 percent interest in a medical practice (WME) and a 20 percent interest in a surgery center (PSC). WME was a managermanaged limited liability company and the other 50 percent physician-owner was the manager of WME. PSC was also a manager-managed limited liability company and the other 50 percent physician-owner of WME was also the 80 percent physician-owner and manager of PSC. The husband did not have any intent to sell either the 50 percent interest in WME or the 20 percent interest in PSC.

Valuation Discounts Regarding WME, the court noted that even though the manager of WME was the other physician-owner, the husband decided to convert one-half of his compensation to distributions as a tax-saving strategy. In addition, other than the inability to alter terms of the building lease, the record did not otherwise reflect any substantial limitation on his joint control of WME. The court determined that the underlying assumptions justifying the application of a minority interest discount are not supported by the record.

MAY 2017 AZ CPA

Regarding PSC, the court concluded that the evidence reasonably supports the application of a minority share discount. The marital community owned a 20 percent interest in PSC and the record revealed that there was no basis to conclude that the husband’s control over PSC was not substantially limited by the holder of the 80 percent interest. Therefore, the court determined that the discounted value of PSC is supported by the record. This case brings some clarity to the question of whether to apply discounts for lack of control and lack of marketability. However, there are still some unanswered questions. The court seemed to include minority interest discounts and lack of marketability discounts interchangeably. It was also unclear from the record regarding WME whether the court considered limitations on the husband based on the operating agreement. What about the application of discounts to a 49 percent ownership interest in a business? We will have to wait for a future court for answers.

Post-Petition Earnings/ Distributions The lower court determined that distributions made by WME and PSC subsequent to the filing of the petition represented the husband’s sole and separate property. On appeal, the wife contended that distributions paid through the date of the decree in excess of $250,000 represented community’s profits interest. The husband contended the distributions were from his toil and labor and therefore, his sole and separate property. The petition for dissolution was filed on June 4, 2010 and the decree of dissolution was filed on June 20, 2013. The parties did not dispute the community property status of WME and PSC. The WME employment contract set forth a base salary at $250,000, subject to amendment upon mutual written agreement, and there was no written amendment. The husband received an annual salary of $500,000 from WME until 2010, when he converted half his salary to distributions. His CPA testified that he received combined salary and

AZ CPA MAY 2017

distributions of $500,000 per year for his toil and labor. PSC did not pay a salary to the owners. The restructuring of the salary in 2010 was not dispositive as to whether all the distributions became the husband’s sole and separate property. Instead, in determining the amount of compensation, one must consider that the source of the compensation is an asset owned by the marital community and the amount must be reasonable given all the facts. The Court of Appeals determined that the trial court’s finding that post-petition monies paid to the husband were his sole and separate property is not supported by the record. The Court vacated the trial court’s ruling and remanded it for determination of the reasonable compensation received for toil and labor. Post-petition compensation and profits now must be considered in marital dissolution cases. Reasonable compensation analyses should be performed for the period from the date of the petition through the date of the decree. However, there are some problematic issues that must also be considered. These include: temporary orders for child support, spousal maintenance, expenses and debts; income taxes; potential offsets caused by “double/triple-dipping;” date of valuation; prospective valuation issues; use of estimates; and, possible alternative solutions. •

Post-petition earnings are used to establish temporary orders for child support, spousal maintenance and responsibility for other expenses. If a portion of this income is later determined to be community earnings, an offset may be appropriate.

•

Income taxes may have been paid by the in-spouse on post-petition earnings. If a portion of this income is later determined to be community earnings, an offset for taxes may be appropriate. Barring that, the only remedy would be for the business, husband and wife to amend tax returns re-

allocating the income. The statute of limitations may have lapsed. •

If post-petition earnings are apportioned between husband and wife, they may be counted twice, once in the valuation of the business and once in the distributions – a “double-dip” (or maybe a “triple-dip” if spousal maintenance is considered). An offset may be appropriate. However, the court may be required to facilitate adjustments all the way through date of the decree of dissolution.

•

Should the valuation of the business (and other assets) now be performed as of the date of the decree? Business valuations are generally prepared as of some date in the past and performing a valuation on a prospective basis would be difficult, at best.

•

A post-petition income analysis using estimates for the period subsequent to the date of the report to the date of the decree of dissolution may also be necessary. However, there could be significant differences between estimates and actual results and there may be no opportunity to make an adjustment.

•

There is no business risk retained by the spouse whose community interest in the business is purchased. The only risk retained by that party is credit risk, which is generally compensated through interest, rather than distributions of earnings. It seems more equitable to compensate the “out-spouse” based on the credit risk assumed. This approach may be more equitable, is much simpler and avoids some of the complications mentioned.

In cases where the marital community owns an interest in a business, valuation experts should consider the extent of control available among the business owners in determining whether to apply

valuation discounts. Also, an analysis of earnings and distributions, business income and expenses, reasonable compensation and normalization adjustments from the date of the petition to the date of the decree will also need to be analyzed. The decision by the lower court on remand has been appealed.2 So stay tuned for more in this case. n Stephen E. Koons, CPA, ABV, CFF, ASA is managing director, Litigation+Valuation Services at Henry+Horne. He can be reached at StephenKo@hhcpa.com. Endnotes: 1. In re the Marriage of: Daniel C. Schickner, Petitioner/Appellee, v. Renna M. Schickner, Respondent/ Appellant, No. 1 CA-CV 13-0513 (4-16-2015) 2. In re the Marriage of : Daniel C. Schickner, Petitioner/Appellee, v. Renna M. Schickner, Respondent/ Appellant, No. 1 CA-CV 160490 (Notice of Appeal filed 8/24/2016).

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MAY 2017 AZ CPA

Identity Theft on the Rise by Dr. Robert K. Minniti, DBA, CPA, CFE, CVA, CFF, MAFF, CGMA, CrFA, PI A person’s identity is more valuable to him or her than any single tangible possession. To quote William Shakespeare, “Good name, in man and woman, dear my lord / Is the immediate jewel of their souls: Who steals my purse, steals trash; ’tis something, nothing; ’Twas mine, ’tis his, and has been slave to thousands: But he that filches from me my good name; Robs me of that which not enriches him ; And makes me poor indeed.” (Shakespeare, Othello, Act III, Scene III) Identity theft is a crime that 20 years ago was hardly a concern for businesses or individuals; however, today it is one of the most recognized crimes in the U.S. This does not imply that identity theft did not occur 20 years ago, but that the effects on the victims were less noticeable. People in the 18th century coming to America from Europe could use the identity of a person still in Europe with little or no effect on that person. Even during the 19th century, it was common for someone in the U.S. to move west and assume a new identity to escape criminal charges or creditors. Indeed, until the passage of the Social Security Act in 1935 and the issuing of Social Security numbers, a person’s identifying information consisted mostly of his or her name and face. Even as late as the 1960s and 1970s, if you wanted to check a person’s credit, you had to call all of his or her creditors individually, and you had to trust that person had provided you with a complete list. Over the years, identity theft has become a more profitable crime. This is because in the modern economy, businesses offer goods and services on credit to strangers based on the data in the buyer’s credit history. With telecommunications and internet technology, buyers and sellers do not need to meet in person to consummate their transaction. The internet has made access to information almost instantaneous. Increased access to data on the internet has provided identity thieves easier access to an individual’s personal information from both inside and outside the U.S. Identity thieves can use the internet as a means to gather an individual’s identification without ever coming into personal contact with the individual, indeed in many cases the victim’s information was stolen in a data breach. The Federal Trade Commission’s Consumer Sentinel Network ranked Arizona in 10th place for the number of cases of identity theft per capita in 2015.1 In Arizona, the Phoenix metropolitan area ranked 36th in the nation, and the Tucson metropolitan area ranked 50th in the nation, for cases of identity theft . Being at risk for identity theft can include factors that are beyond your control, specifically to whom did you entrust your personal information. The Identity Theft Resource Center reported a 35 percent increase in data breaches in 2016.2 Identity theft is broadly defined as the use of one person’s identity or personally identifying information by another person without his or her permission. Identity theft is a type of fraud and can be committed against an individual or an organization. Fraud is defined as making a false statement, omission or action that someone else relies upon and based on that reliance gives up something of value. By using false information to obtain items of value, identity thieves are committing fraud. Identity theft not only harms individuals—it harms the public. The Internal Revenue Service reported receiving as many as five million tax returns result-

AZ CPA MAY 2017

ing from identity theft of individuals in 2013. The report further indicated claims for over $30 billion in 2013 for these fraudulent tax refunds.3 The U.S. Department of Justice indicated that in 2014 around 17.6 million U.S. residents, seven percent of the total population, were victims of identity theft.4 Many identity theft victims spend hundreds or even thousands of hours repairing their credit and reputation after being victimized by identity thieves. n Dr. Robert K. Minniti, DBA, CPA, CFE, CVA, CFF, MAFF, CGMA, CrFA, PI is president of Minniti CPA LLC. He can be reached at minniti.cpa@cox.net.

Endnotes 1. https://www.ftc.gov/system/files/ documents/reports/consumer-sentinel-network-data-book-januarydecember-2016/csn_cy-2016_ data_book.pdf 2. http://www.idtheftcenter.org/ 3. https://www.justice.gov/tax/stolenidentity-refund-fraud 4. https://www.bjs.gov/content/pub/ pdf/vit14.pdf

The ASCPA will be holding a CPE class led by Dr. Minniti on

Detecting and Preventing Identity Theft on

May 22, 2017. This class will cover the types of identity theft, how criminals obtain a victim’s information, and how to protect yourself and your clients from becoming victims of identity thieves.

Accounting for Tomorrow

by Kimberly Ellison-Taylor, CPA, CGMA and Tim Christen, CPA, CGMA

At the top of Fast Company magazine’s list of the 50 most innovative companies in the world this year was not a startup, but a company that many of us first met two decades ago: Amazon. Amazon today looks very different than it did in 1995 when it primarily sold books. Its business model has expanded significantly to include music streaming, digital assistants, grocery delivery, TV shows, logistics, drones, Web services and much, much more. Amazon “has continued to be nimble even as it has achieved enviable scale,” Fast Company wrote. It demonstrates a “willingness to embrace uncertainty, experimentation and messy inconsistencies.” To thrive in today’s environment —shaped by geopolitical shifts, rapid technological change and the unrelenting challenge of complexity — such dexterity is a must. In a KPMG survey, two-thirds of CEOs said that the next three years will be more critical for their industries than the last 50. And four in 10 said that they plan to transform their organizations into significantly different entities as a result. “The question organizations need to ask themselves is this,” a recent Conference Board report concluded, “Are we driving change and disruption, or are they driving us?” That’s a question our profession has long asked — and one the profession has answered time and again by choosing the path of innovation. There are numerous examples in our history: The embrace of specialization nearly 30 years ago, computerization of the Uniform CPA Exam more than a decade ago, adoption of cloud computing and our focus on the future of learning, to name just a few.

MAY 2017 AZ CPA

Maintaining that strength for the profession of tomorrow will require new ways of thinking and increasingly faster responses to changing client and business needs.

AICPA members again picked the path of transformation last summer. By approving an international association with The Chartered Institute of Management Accountants (CIMA) in June, they enabled a platform for enhanced resources and benefits for members, employers, and most importantly, the public interest. This bold path will allow us to promote, protect and grow the profession and extend its relevancy far into the future while advancing the strength of the CPA. Since the approval of our members, we have been very busy working to make that vision a reality through the new Association of International Certified Professional Accountants (the Association). It combines the strengths of the AICPA and CIMA to advance public and management accounting and power enhanced resources for members of both professional bodies. To date, we have integrated the management, strategy and operations of both organizations, and are pleased to note that we currently have one team working across 35 offices in support of CPAs and CGMAs around the world. We are already making progress. In January, for instance, the Association took a stand against mandatory audit firm rotation in South Africa on behalf of the 650,000 members and students it represents. In March, we launched a new website (www.aicpaglobal.com) for the Association and an iconic new look for our family of brands

AZ CPA MAY 2017

to underscore the dynamic role of our profession in powering trust, opportunity and prosperity worldwide. In Washington, we are working to represent the public interest and keep you informed on policy changes and the impact as our new president and Congress act on tax, trade and other key agenda items. We have also launched an online resource (aicpa.org/taxreform) where members can get the latest information and insight on proposed and passed tax law changes. In coming weeks, members will see new tools to assess and advise on a rapidly growing risk — cybersecurity. Members in business and industry will gain access to a new daily newsletter to help them keep up with developments relevant to their work. We have new initiatives to provide awareness and understanding of emerging technologies that create both opportunities and challenges for our business models and the services we offer. One key area is audit. We are beginning research into the auditing function of the future — how it’s performed, what tools are needed and what skillsets will be required. At the heart of this work is a question that guides us: How do we drive a dynamic profession forward? There is plenty of evidence that shows the strength of our profession today. The CPA is unmatched for trust — business decision makers and investors rank the CPA first among fi-

nancial and business professionals. The Center for Audit Quality, in its annual Main Street Investor Survey, found confidence in public companies at an all-time high. And our unwavering commitment to the pipeline of future talent continues to pay dividends. Additionally, the CGMA continues to grow in demand as employers seek talented leaders and team members who can transform data into actionable insight that drives better decisions. More than 150,000 professionals around the world now hold the CGMA, and our Global Management Accounting Principles and CGMA Competency Framework are setting the benchmark for management accounting practice and competency development. Maintaining that strength for the profession of tomorrow will require new ways of thinking and increasingly faster responses to changing client and business needs. We have to work across many fronts to advance the profession in a world that will be more and more influenced by technology as well as international business forces. As a profession of public and management accountants, we must be agile and willing to embrace uncertainty and experimentation. In that way, the Association — with its expanded reach and resources — is an accelerant for innovation. And, similar to Amazon’s metamorphosis, 20 years from now the profession will likely look quite different— however, just as strong and relevant. Through our initiatives and collective efforts today, we will ensure that we are well prepared for different services, different technologies and different skills. n Kimberly Ellison-Taylor, CPA, CGMA, is chairman of the American Institute of CPAs and Public Accounting Board. Tim Christen, CPA, CGMA, is the immediate past chairman of the American Institute of CPAs and current vice chairman of the Association of International Certified Professional Accountants.

Not for Profit Conference June 28 Black Canyon Conference Center

Special Thanks to Platinum Sponsor: Eide Bailly LLP Keynotes: Mistakes Were Made – Heads Rolled: The Responsibilities of the Governing Board David L. Cotton, Cotton & Company, LLP Nonprofits: How Goodness Interferes With Ethics Dr. Marianne Jennings, ASU

First Concurrent Sessions: Special Events – Differences Between GAAP and Form 990 Reporting Colette Kamps, Henry+Horne Nonprofit Accounting 101: A Primer Katie Thomas, Diamond J Accounting, LLC Trust Building Jason McKeever, Eide Bailly LLP

Second Concurrent Sessions: Interstate & Multi-State Taxing Issues Dr. Laura Robichaud, Eide Bailly LLP Hot Topics: Including Group Audit, Peer Review & Standards Changes Rob Leslie, Eide Bailly LLP Are You Ready for Restatement? – 403(b) Plan Document Updates for 501(c)(3) Organizations Sylvia DeSantiago, DeSantiago Pension Consulting, LLC

Third Concurrent Sessions: UBIT 101: Where is Your Unrelated Business Income Hidden? Amy O’Loughlin, Denise Foshe and Kristen Bass, CBIZ MHM, LLC ASU 101: Overview of Recently Issued ASUs that Could or Would Affect Not-For-Profit Organizations Rob Leslie, Eide Bailly LLP 5 Easy Ways to Let an FLSA Lawyer Ruin Your Organization Don P. Johnsen, Gallagher & Kennedy

Fourth Concurrent Sessions: Form 990 Quiz Show Jackie Eckman, CliftonLarsonAllen LLP Uniform Guidance: Two Perspectives Levi Gibson, Pinal County & Jay Parke, Walker & Armstrong, LLP Board Transparency Sarah Zelhart, UMOM New Day Center

Learn More at www.ascpa.com/conferences

MAY 2017 AZ CPA

Grow Your Business More than

3,000 The Internal Revenue Code Conformity bill was signed on March 2, one of the earliest dates in years!

people visit the ASCPA’s Find a CPA page each year.

Education A variety of learning options: On-Demand, Webcast, In-Person, Conferences, Self-Study FREE CPE offered each year

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in scholarships were given to students by the Arizona CPA Foundation for Education and Innovation.

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AZ CPA MAY 2017

The Arizona Society of CPAs

New in 2017 Webcast options are now offered for Conferences and Don Farmer.

Your Professional Home for Every Stage of Your Career

Get advice from other CPAs on Connect, your online discussion forum. Our Tax Community: Giving Back Our Young Professionals packaged medical supplies for Project Cure.

550 Members 13,600 discussions Library with 138 Resources

New Career Opportunities Post your resume or view job listings online. Keep Informed Society membership keeps you up-to-date on Accountancy Board activities and professional issues that affect you as a CPA.

Renew today at www.ascpa.com/renew

MAY 2017 AZ CPA

Classifieds Employment Business Opportunities/ Practices for Sale TUCSON CPA TAX PRACTICE seeks succession plan with new partner — A two partner firm of over $1 million seeks a tax partner or manager to buy out partners over time. Beneficial if interested person has an existing practice to merge in. Over 30 years, the practice is highly profitable with a strong concentration in business and individual tax preparation and consulting. Firm would also consider merger with equal or larger firm. Firm has a 90-day lease cancellation notice. Please contact CPAfirm3@ gmail.com. TUCSON CPA FIRM FOR SALE — Retiring Tucson sole practitioner seeks sale of $150,000 high realization, primarily tax practice. No lease. ProSystem & Sage. Paperless. Seller financing with low down payment to qualified buyer. Contact targetthehead99@gmail.co.

ACCOUNTING MANAGER — PART TIME — Precision Aerospace. The accounting manager position is accountable for the accounting operations of the company, to include the production of periodic financial reports, maintenance of an adequate system of accounting records, and a comprehensive set of controls and budgets designed to mitigate risk, enhance the accuracy of the company’s reported financial results, and ensure that reported results comply with generally accepted accounting principles. Send resumes to daleheit1@ gmail.com. UNIVERSITY OF ARIZONA — BUSINESS MANAGER — The University of Arizona Cancer Center seeks qualified applicants for the position of Business Manager, Senior. This position will be responsible for independently managing and controlling accounting, budgeting, auditing and other financial or related functions to

ensure the financial integrity of the University of Arizona Cancer Center. This position will perform professional accounting activities for specialized, complex, and functional areas of the University of Arizona Cancer Center. The University of Arizona Cancer Center (UACC) is dedicated to preventing and curing cancer. The UACC is the only NCI-designated comprehensive cancer center in Arizona. https://uacareers.com/ postings/16948.

Office Space OFFICE SPACE AVAILABLE — 16th Street & Glendale Ave. Large Executive office space in our professional suite. Share space with other CPAs, with access to all of the typical amenities {conference room, copy room, file room} and possible shared services. A staff cubicle is also available. Call or email Ira Feldman for more information. (602)850-5101 or ira@felco.biz. Website: http://www.felco.biz

For information about classified ads, visit www.ascpa.com.

Market & Economic Perspectives Candice Tse, Goldman-Sachs Financial Exploitation: It’s Not Yours Until I’m Dead and Maybe Not Even Then Emily Kile, Kile & Kupiszewski LLC

Financial Planning Conference June 7 Desert Willow Conference Center

The Often Overlooked Variable of Time and How it Affects Estate Planning from the Financial, Family and Small Business Perspectives J. Phillip Glasscock, Smith Paknejad Unlocking Social Security Ryan Bertrand, Transamerica Healthcare Update: What Is Going on in Washington, D.C. and in Arizona John Coyle, The Segal Group

Now on Webcast, too Cyber Frauds and Cyber Security for Financial Planners Robert Minniti, Minniti CPA, LLC

AZ CPA MAY 2017

What’s Happening in Taxes in 2017? Ed Zollars, Thomas, Zollars & Lynch, Ltd.

AZ CPA Quick Quiz You’ve Read It, Now Get Credit Take this quiz online or submit this hard copy on AZ CPA content. Receive a score of 70% or more and earn one hour of CPE credit in specialized knowledge. It’s that easy! Fees Members: $25 Nonmembers: $40 Online Access Login to www.ascpa.com and go to CPE/OnDemand CPE Quick Quiz to access links to all active quizzes. Purchase quiz and the quiz link and password will be emailed to you. Your results will be sent immediately after completing, and certificates are emailed within two business days. Hard Copy Please select one answer for each question. Fill out registration/payment information below and mail or fax to the Society office. Quiz results and certificates will be emailed to the address provided on the registration form. *This quiz will be available until May, 2018. Please note that users have three attempts to pass the quiz with at least a 70% score.

May 2017 Issue of AZ CPA* 1. In the Chair’s message, Montgomery shares details about her career path of which she received a master’s degree in: m Auditing m Taxation m Valuation 2. Tanya Luther lists which one of these benefits from hiking daily to making her accounting job easier? m She is more anxious m She’s learned to slow down m Her mind is clearer 3. Arizona’s sales tax rate for the online lodging marketplace classification is: m 5.5 percent m 4.0 percent m 4.5 percent 4. This is one of the top five value drivers to consider when measuring KPIs: m Retention of employees m Customer relationships m Number of years in operation

5. Brand awareness and equity is a top KPI being measured by businesses measuring intangibles: m True m False 6. The Arizona Court of Appeals ruling in 2015 created problematic issues that must be considered by valuation experts, including all but: m Insurance fees m Child support m Expenses and debts

7. The case of Schickner v. Schickner involved the ruling of what issue? m Marital dissolution cases involving child custody m Marital dissolution cases involving business ownership m Marital dissolution cases involving joint banking accounts 8. W h a t p l a ce i s t h e P h o e n i x metropolitan area ranked in the nation for cases of identity theft? m 36 m 42 m 50 9. The integration of the AICPA and CIMA takes accounting on the path of transformation with one team currently working in how many offices around the world? m 30 m 35 m 45 10. One key area the new Association of International CPAs is researching for future innovation is: m Financial Planning m Taxation m Audit

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 225-B, Phoenix, AZ 85034-2021; fax to (602) 324-6043; scan and send to ASCPACPE@ascpa.com.

MAY 2017 AZ CPA

Arizona Society of CPAs 4801 E. Washington St., Suite 225-B Phoenix, AZ 85034-2021

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AZ CPA MAY 2017