AZ CPA November 2015

AZ CPA November 2015

Implementing an Effective

Corporate Ethics Policy Make Every Audit Your Favorite Project

Trustee Services Independence Rules In Good Company Profile — Megan Faust

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

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

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Editor

Patricia Gannon

Advertising

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Board of Directors Chair Chair-Elect Secretary/Treasurer Directors

Rob Dubberly Greg Nelson Molly Montgomery Mike Allen Brenda Blunt Teresa Finley Gary Fleming Randy Fletchall Mike Holt Bill Judge Jennifer Nordstrom Mark Patton Vanesa Romero Curtiss Smith Nancy Thomas

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Chapter Presidents Southern Chapter Northern Chapter

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The Right Call in Tax and Estate Planning.

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

Opinions expressed by contributors are not necessarily those of the ASCPA.

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4 AZ CPA NOV. 2015

AZ CPA

Volume 31 Number 9

November 2015

Features

11 In Good Company Profile

ASCPA member Megan Faust tells us about what it’s like working for global company Amkor.

by Patty Gannon

13

Implementing an Effective Corporate Ethics Policy

Five steps companies can take to ensure their ethics policies are effective.

by Tanya Barman and Samantha White

Make Every Audit Your Favorite 16 Project

25

AZ CPA Quick Quiz Read the magazine and take this short quiz to get an hour of CPE!

by Lindsay Stevenson, CPA

17 Trustee Services Can Be Risky

Columns & Departments Chair’s Message by Robert E. Dubberly, CPA Members News A Dash of SALT by James Busby, Jr., CPA Classifieds

Simple ways for firms and organizations to make every audit a success.

Careful consideration is needed before taking on the role of Trustee for a client.

by Kim Stone-Vilim

6 7 9 26

19

How Much Time Does it Take to Be An Effective Managing Partner?

Trends and guidance on “managing” managing partner charge hours.

by Gary Adamson

21

Independence — The Need for Consistency and Common Sense

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

Understanding why practitioners struggle with compliance.

NOV. 2015 AZ CPA

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ASCPA Chair’s Message

New Learning Opportunities Author Robert Fulghum said, “All I really need to know…. I learned in kindergarten,” and I believe there is some truth to that concept. But, much of our learning began way before kindergarten and, of course, continues throughout our lives. I’m certainly no expert in pedagogy (yes, I had to look it up too), given that my degree is in accounting. Like most of us, much of my early learning was modeled after my parents’ instructions and, after that, my teachers’. Today, as a professional, I remain open to learning and feel that in order to stay competitive and up-to-date with the latest professional standards from the FASB or the PCAOB or guidance from the SEC, one must continue to learn. The AICPA agrees with this notion as all CPAs are required to complete 120 hours of CPE every three years.

by Robert E. Dubberly, CPA

The traditional classroom is no longer the only place where learning takes place.

We must continue to seek new learning opportunities, be it via traditional methods or through the use of technology.

6 AZ CPA NOV. 2015

As I’ve noted in previous articles, I’m the father of three boys, ranging from elementary school to high school age. My wife and I have experienced firsthand some dynamic changes in the field of education. Some of these changes were the furthest from my mind when I was in school. The notion that backpacks would no longer hold textbooks, but rather iPads, was something that we had to get used to and now embrace. With that said, the evolution of learning and the use of technology within education has allowed our boys within minutes to access materials for which we spent countless hours at the library. In a few key strokes, my boys can access the information needed to write a robust research paper.

Further, if they happen to miss a day of school, they can watch their teacher’s YouTube video explaining the Algebra lesson taught that day. They can also access other videos via free websites where they can see math problems worked out and go over those concepts once again. As parents, my wife and I have access to their grades by assignment, as well as the details of their quizzes and tests which paint a clear picture of our children’s progress on a daily basis. We no longer have to wait for the parent-teacher conference to find out how our children are doing.

Education has also become flexible and attainable. Who would have thought that high school and advanced degrees would be available via the Internet? Further, many employers, and of course our very own ASCPA, provide online courses in order to make it more convenient for CPAs to complete our CPE requirements.

For me, much of my annual training is provided via online courses (either live or self-studies that can be viewed at times that are best for my schedule).

In short, today’s world provides a vast array of opportunities for education. The traditional classroom is no longer the only place where learning takes place. We must continue to seek new learning opportunities, be it via traditional methods or through the use of technology. Lastly, we must also remember that learning can be a cooperative process. As professionals, we should not be shy of seeking our peers’ counsel and expertise in areas where we may not feel as well versed.

Experience allows us to gain wisdom and we need to be open and share this knowledge with those newer to the profession. I consider myself blessed to have a few seasoned colleagues who allow me to discuss scenarios with them and act as sounding boards. It is my hope that I can, in the future, play that role for younger professionals. In the meantime, I will focus on what I ask of my children, to learn something new, every day. n

Member News CBIZ MHM had their annual Dress For Success Donation Drive and raised $1,800 with the following events: bake sale, jeans days, candy jar contest, raffle and a tricycle race, where they had members of the audit department competing against members of the tax department.

Pictured: Zandra O’Keefe (left) and Liana Barrett

Goodwill of Central Arizona honored longtime supporter Dennis E.(Denny) Mitchem with a dedication ceremony of their Strategy Room now named in his honor at their corporate office, Bette DeGraw, dean emerita of the College of Extended Education at Arizona State University and professor emerita in the School of Public Affairs was elected to the board of Republic Bank Arizona.

ASCPA member Roman Kepczyk, CPA, director of consulting for Xcentric, was once again chosen as one of Accounting Today’s Top 100 Most Influential People.

CBIZ MHM has recently won two workplace awards: • 2 0 1 5 C a r e e r B u i l d e r To p Companies to Work for in Arizona — CareerBuilder® and Republic Media • 2015 Arizona’s Most Admired Companies—AZBusiness Magazine and BestCompaniesAZ Henry & Horne, LLP was named among 2015 Most Admired Companies by AZ Business Magazine.

In Memoriam Monique M. Stecklein, CPA

Thank you, Joe! Joseph Evers, CPA, CISA, a shareholder with Evers Robinson Ltd., has been on the Peer Review Committee with the California Society of CPAs since 2006 (the group administering Arizona’s peer review program). He was also one of the original members of the Peer Review Committee with the Arizona State Board of Accountancy and helped to establish the original guidelines for Arizona’s peer review program.

Evers has extensive accounting and audit experience with his own firm and with KPMG. He performs a number of peer reviews of both large and small firms each year.

“The experience and knowledge I receive working on the Peer Review Committee has been very valuable to me and has helped me out in my own firm,” says Evers, who typically spends about 60-80 hours per year working on the committee.

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A Dash of SALT

Five Important Changes to Four Arizona Tax Credits This month’s state and local tax (SALT) column addresses five recent legislative changes to four Arizona tax credits.

For the first time in many years, the Arizona Legislature did not create any new income tax credits this year, but it did make five important changes to four existing tax credits. All of the changes either expanded the scope of existing credits or extended the deadline to make qualifying contributions.

Changes to the Credit for Contributions to Public Schools Two bills changed Arizona’s individual income tax credit for qualifying contributions to public schools. This dollar-for-dollar credit is good for up to $200 for single taxpayers and for up to $400 for married taxpayers filing jointly.

First, in HB 2066, the legislature expanded the scope of the credit, which previously was available only for contributions to support extracurricular activities or character education programs at public schools. The credit is now available for contributions to public schools to support preparation courses, materials, fees for standardized testing for college credit or readiness, and contributions to support career and technical education certifications. These changes are retroactive to January 1, 2015.

Then, in HB 2483, the legislature extended the deadline to make qualifying contributions. Individuals may now make contributions to public schools on or before the 15th day of the fourth month following the close of the taxable year and claim a credit for the contribution in either the current year or the preceding year.

Changes to the Credit for Contributions to Charities that Assist the Working Poor Two years ago, the legislature doubled the maximum dollar-for-dollar individual income tax credit taxpayers may claim for contributions to qualifying charitable organizations, from $200 for single taxpayers and $400 for married taxpayers filing jointly, to $400 and $800, respectively, if the donee is a qualifying foster care charitable organization.

This year, in SB 1103, the legislature expanded the scope of the credit available at the higher amounts to include donations to qualifying charitable organizations that spend at least 50 percent of their budget on, and provide services to, at least 200 persons less than 21 years of age who participate in a qualifying transitional independent living program.

by James G. Busby, Jr., CPA

James G. Busby, Jr., CPA, is a state and local tax attorney at The Cavanagh Law Firm. Busby previously worked in the SALT departments at Arthur Andersen and Deloitte & Touche. Before entering private practice, Busby was in charge of all transaction privilege (sales) tax audits at the Arizona Department of Revenue.

If you have any questions, please contact the author. He can be reached at (602) 322-4146 or JBusby@CavanaghLaw.com.

Changes to the Credit for Corporate Donations to Private School Tuition Organizations HB 2153 extends existing dollar-for-dollar corporate income tax credits for contributions to school tuition organizations by an S corporation to shareholders of the corporation, as long as the corporation contributes an aggregate of at least $5,000 in the tax year. Shareholders of such corporations may claim pro rata

NOV. 2015 AZ CPA

9

shares of the credit and carry forward unused portions of the credit for up to five years. These changes are retroactive to January 1, 2015.

Changes to the Credit for Investments in Renewable Energy Facilities

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Last year, the legislature added nonrefundable dollar-for-dollar individual and corporate income tax credits that may be carried forward for up to five years for manufacturers — and lessors who lease qualifying facilities to manufacturers — that invest at least $300 million in new renewable energy facilities that produce electricity used in the companies’ own manufacturing processes.

Limitations to the credit added last year include: (1) the amount of the credit was limited to $1 million per facility per year for five years; (2) no taxpayer may claim more than $5 million in credit per year; (3) ADOR may not authorize more than $10 million in credits per calendar year on a first-come, first-served basis; and (4) taxpayers may not claim both this credit and the credit for renewable energy production.

This year, in HB 2670, the legislature increased the amount of the credits available per taxpayer from $1 million to $5 million per year, and made the credits available to taxpayers that use the energy from the renewable energy facility primarily for an international operations center. These changes are retroactive to January 1, 2015.

Among other requirements, to qualify as an international operations center, the owner or operator of the facility must: (1) invest at least $1.25 billion in new capital assets, including the cost of land, buildings, and equipment, within ten years of certification, and (2) make a minimum annual investment of $100 million in new capital assets, including the cost of land, buildings, and equipment, for 10 consecutive years. Excess investments in prior years can be carried forward as credits in future years to meet this threshold. n

In Good Company with

Megan Faust CPA Vice President/Controller of Amkor

Global Company Perfect Fit for Travel Loving CPA Megan Faust worked as a senior manager of audit for KPMG for 10 years when she got a phone call from Amkor. “At first I thought I would never leave KPMG,” says Faust. “But then I thought, ‘I can do this.’ It was a really good transition for me to go from public accounting to industry.” She started working at Amkor in 2005 as the director of external reporting and five years later moved into the position of senior vice president, corporate controller.

Faust supervises Amkor’s global accounting and tax teams of 25 people at the corporate headquarters in Tempe and is accountable for the finance teams at each of their factories world-wide – teams that range from 10 to 50 people in each factory and are headed by controllers who report to her. All of their factories are in Asia — Korea, Phillipines, China, Taiwan and Malaysia. They are currently working on a acquiring a factory for Japan in 2016, which will account for onethird of Amkor’s revenue.

A world-traveler, Faust recently returned from visiting Japan and the Phillipines. She travels to Asia several times a year for Amkor and had the opportunity to work for KPMG abroad in Munich, Germany at the start of her career.

“I was honored to transfer to Germany when I first worked at KPMG, and that is what sparked my travel bug,“ says Faust. During her time in Germany, she traveled throughout Europe and then took two months to backpack throughout Asia with her husband. “It opened my eyes to all the different cultures that are there. It was really one of the best experiences of our lives.”

“The international business aspect of Amkor and my role here is really exciting to me,” says Faust. “Obviously there are a lot of challenges working with different cultures and different local regulatory standards – Local GAAP, U.S. GAAP, all of those things weave into your ultimate goal of having accurate reporting. Another challenge is growing, integrating and streamlining from a systems prospective. We started our journey to a world-wide ERP system and SAP back in 2006, and we have placed each of our factories on the same system. We are currently working with the new venture in Japan to get their system on SAP as well.”

Faust works with CPAs, or each country’s equivalent, and often has finance team members from another country come to work at the corporate office for two years. “They get a taste

NOV. 2015 AZ CPA

11

of what it is like to work at corporate headquarters, and it is very helpful for communications between the teams.”

When asked what a typical day is like, Faust says there is no such thing.

“While it varies, when we are in a closed cycle, there is a lot of focus on reviewing numbers. That includes executive meetings and reviewing variance analysis. We prepare materials for, and report to, the audit committee.

In the quieter periods, that is when the real work occurs. I have site visits overseas. My typical day includes lots of meetings. There are many projects here that I keep tabs on.”

“My favorite part is that there is no routine. I am challenged in many areas to learn and grow. It is very stimulating and exciting. I like working with my team. I like to teach and develop their careers.”

What does she find different about public accounting vs. industry? “When I was in public accounting, I had the thrill of meeting a new client every week. I also had a bit of an adrenalin rush with timelines and budgets. So I worried about moving into the normalcy of a routine monthly close or a quarterly key reporting. I found that my work here is actually much more dynamic. Here at Amkor every day is different. That is what I love about my job.”

“As a CPA in industry, I get to use accounting as a solid base, but I basically evolved into making many

12 AZ CPA NOV. 2015

more business decisions.

I wasn’t expecting it to be so dynamic and challenging.”

“I would never trade the great foundation and knowledge that I gained by working in public accounting,” adds Faust.

“It made me eligible for this type of role. I was involved in many types of transactions and international business situations – all those dynamics have broadened my skills set.”

“I feel rounded having the public accounting experience,” states Faust. “I also value the really wonderful female mentors I had at KPMG. Melinda Xanthos and Lisa Daniels both were very encouraging. Sometimes being a woman progressing in a CPA career can be challenging. Being supported

by KPMG and having those women role models who were also working moms really helped me stay focused, so I knew I could have this career. Without their help, I may not be where I am today.”

When asked if she experiences gender bias in her position at Amkor, she says: “Our CFO at Amkor is a female, and within Amkor I have not had any concern with respect toward women. When working in Asia, I have had situations where I am in meetings, and I’m the only female. I may even be the most senior person in those

Faust and her family at Buckingham Palace on a recent trip to Europe. meetings. It was important with my work, not only aboard, but here in Phoenix as well, that the company I work for supports and values what a woman can bring to business.”

“I also feel very fortunate to have the caliber of professionals that make up my team here,” says Faust. “I feel blessed that I have such a great working environment, and I’m excited to get up and work with the team every day.”

Faust spends her free time with her husband and three children and is involved in their school and extracurricular actives. Not surprisingly, she loves to travel and shares this love with her husband. She recently traveled to Europe with her family and they showed the children where they lived in Munich. “It was fun that we got to share that part of our lives with them,” says Faust. n

—Patty Gannon

1. Code of ethics The essential elements of a code include assurances of support for the policies from organizational leadership, practical guidance on what is expected regarding ethical issues, commitments concerning stakeholder relationships, example Q&As, scenarios or decision trees, details of how the code will be implemented and monitored, and the consequences of misconduct. Signposts to further support, advice and other relevant policies should also be included.

2. Communication and awareness campaigns

Implementing an Effective

Corporate Ethics Policy

by Tanya Barman and Samantha White

When asked about their values, the vast majority of companies can provide a document they would describe as a code of ethics or conduct. However, research suggests a possible disconnect between companies’ stated intentions and the degree to which they truly value ethical behaviour.

Here are five steps that companies can take to ensure that their corporate ethics policy is effective and becomes embedded in the company culture. Also included are practical examples of the various ways organizations have accomplished this task.

This is a continuous process. Communication of a company’s ethics policy never ends.

To engage employees and raise awareness of ethical decision-making, Cisco Systems created “Ethics Idol,” a cartoon parody of the reality television singing contest American Idol. In each episode, animated contestants sang about a particular ethical dilemma or situation, which was then commented on by a panel of Idol-esque judges. After watching the show on the company’s intranet, viewers were asked to vote on which of the judges had given the appropriate response to the situation. At the end of each section, the organization’s ethics officer revealed the correct answer based on official compliance standards.

Research shows that most companies’ efforts tend to fail after step two.

3. Training and reinforcement Most organizations now offer online anti-bribery training. On its own, this is not enough; companies shouldn’t be comforted by a tick-the-box mentality.

There is no substitute for face-to-face, qualitative training with wider discussion and debate of understanding and practical application.

Discussion of scenarios can help employees explore ethical issues in training sessions. For example, Stryker, a medical device producer, reviewed events that had taken place within its industry and built a set of fictionalized scenarios based on them. To provide context, Stryker created a hypothetical

NOV. 2015 AZ CPA

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ETHICAL MANAGEMENT CHECKLIST Here’s a checklist of reflective questions for finance professionals relating to the management of ethics. The questions serve as a foundation for reflection. m Does your organization have an ethical statement/code of conduct/ code of ethics? If yes, does it reflect your professional obligations? m Does your organization currently communicate its ethical business

practices and commitment to responsible business? If yes, how? m Are your statements for responsible business monitored and verified?

If yes, how and by whom? m Does your organization include a session on ethics and responsible

business in its induction program for all staff? m Is this featured in ongoing training? m Are you aware of what categories of ethical information are gathered in your organization? If yes, are there any omissions? m Do you know who in your management team uses ethical data? Who

else might benefit from using ethical data, and how do you work together? m Does your board/chief executive/CFO take responsibility for ethical

performance? If no, what role should they take? m Are staff rewarded/disciplined in relation to ethical performance? m Is someone in the organization responsible for gathering or analyzing ethical performance information? m Does ethical data gathered within your organization help inform business decisions and business success? m Does your organization have an anti-bribery policy? If yes, is your anti-

bribery policy promoted/enforced? How? m Does your organization have a whistle-blower/speak-up line? If yes,

how is it communicated, and how are reports acted upon? m Does your organization have an open-door policy between management

and other employees to promote openness and transparency? m Do you feel confident that you and your team can maintain objectivity

and integrity as well as avoid conflicts of interest? What steps can you take to ensure you do? m Would you know what steps to take if you were asked to do something

that challenges your ethical standards? m Have you undertaken professional development to improve your skills

in gathering, understanding and using non-financial information to benefit your organization? If yes, what other professional development in regard to ethical performance would you benefit from?

Copyright © 2011-2014 American Institute of CPAs. All rights reserved.

14 AZ CPA NOV. 2015

organization with a back story, mission and an organization chart. Employees were presented with a scenario based on this background and were asked to go through the company’s code of ethics to identify which of the standards were being broken in that case. After the discussion, it was revealed to participants that all of the scenarios had actually taken place in the sector in the past, helping to bring the training home.

4. Supporting context and culture This involves having the “ethical architecture” in place to support a living, breathing code. That architecture includes outlining policies and regulations in employee contracts and supplier agreements, identifying individuals and boards who are accountable for outcomes, creating ongoing awareness-raising programs, opening discussions with feedback and having oversight and monitoring procedures in place. Taking action against wrongdoing and communicating the action taken to staff is an important element of this.

More companies are including ethicsrelated criteria in performance reviews.

For example, management accountants might be asked whether they challenged or raised and resolved an issue or an area of concern that could lead to fraud. For managers, does your team escalate issues and ask for clarification?

Siemens’s strategy is to focus on bridging the communication gap between senior management and employees at the lower levels of the company. In the 2013 financial year, the company introduced “integrity dialogues” in which compliance refresher training is cascaded down through the company. Compliance officers provide training to the senior management of each business unit, who then train their own direct reports and so on. Individual operating units within the company enhance their training activities with additional topics that address challenges specific to them. In this ongoing part of the practice, leaders talk about integrity and explain how they themselves “walk the talk” in terms of how they do business. The dialogue is

carried through to every sales meeting to bring about an open discussion on ethical issues and how they should be handled.

5. Monitoring and accountability Effective speak-up arrangements, such as anonymous helplines, through which employees, contractors and other third parties can raise concerns in confidence about unsafe, unethical or unlawful practices are an important element of good corporate governance. A key component of these arrangements is that staff feel comfortable that they can raise issues without fear of retribution.

Some companies report the number and nature of queries raised internally to the board and executive committee and include the information in company newsletters. Some provide a breakdown of the reports by country and as a percentage of the workforce. Enlightened companies now communicate internally about disciplinary actions taken when wrongdoing occurs.

Some companies make this information public. Beverage company Diageo’s

annual sustainability report details the number of suspected breaches of the company’s code of ethics (743 in 2013), how many of these were later substantiated (376) and whether they were reported through the speak-up hotline (242) or raised directly with a line manager or the compliance department, for example. The report also states that 116 people exited the business in 2013 as a result of breaches of the company’s code or policies.

Reporting in this way provides evidence that the company has procedures in place that are actually used and are effective in managing ethical misconduct.

According to the report, Diageo routinely shares examples of breaches that have recently occurred or testimonials from colleagues who were tempted to do the wrong thing yet made the right decision.

The company also keeps track of employees’ perceptions of integrity within the company through asking questions in a values survey.

The litmus test The real litmus test of whether your ethics policy is working and embed-

ded is if an employee feels comfortable enough to speak up if he or she has a concern and whether he or she believes the company will respond and, if need be, take appropriate action.

Once an ethics policy is securely embedded in your company, you also have to take into account the wider value chain. Today’s complex and extended supply chain has significant implications for organizations’ ethical, governance and risk-management policies and practices.

Therefore, it is advisable to conduct due diligence on new and existing suppliers alike, engaging them in ongoing discussions regarding your standards and contractual expectations.

For example, to engage a supplier base spanning 70 countries, UK-based retailer Marks & Spencer holds regular face-to-face meetings with partners as well as an annual conference.

The company has a website where suppliers can access tools, guidance and incentives.

Helping to raise awareness through the chain is beneficial for all. After all, good companies keep good company. n

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Make Every Audit Your Favorite Project Simple Ways for Firms and Organizations to Make Every Audit a Success

by Lindsay Stevenson, CPA As we all gear up for another round of audits, clients and auditors are thinking the same thing – “Here we go again!” Being able to see the opportunities and challenges in an audit engagement provides an insight that can result in better leveraging of resources and even enjoying the audit process. Whether you are the firm preparing your PBC list or the organization trying to rally your resources, using some of these tips and tricks could have your team grinning instead of groaning.

Start at the Beginning Starting the audit on a high note means it is significantly more likely to be successful. Two major factors contribute to the early success of an audit engagement: planning and communication.

The most important thing about planning is timing. When planning is rushed, left until the last minute or not given the full attention of team members, it will inevitably cause challenges.

•Confirm scheduling at least four weeks in advance of planned fieldwork and provide request lists no later than two weeks prior to fieldwork. Make sure to review last year’s requests and incorporate last minute items in this year’s early list.

•Provide pre-fieldwork requests at least one week prior to scheduled fieldwork and have all other requested information ready or available for the audit team on the first day of fieldwork. If requests cannot be fulfilled in time, organizations should notify auditors at least three days before fieldwork so rescheduling can be discussed.

•Identify key contacts for each major function of the audit engagement. For audit firms, this means the primary or in-charge should be clearly identified and all the necessary contact information should be provided to the organization. For organizations, identify the primary individual responsible for facilitating the progress of the audit. This person should understand the overall objectives of the audit and the individuals in their own organization who will have the necessary skills to provide requested information.

•Use email. Phone calls are great for working through a tough technical issue or getting clarification, but verbal information can be lost in translation. Send emails to summarize phone discussions and verify that everyone is on the same page.

•Incorporate new requests into the original request list and redistribute the list to the entire team. This will reduce the amount of emails going back and forth following up on late requests and allow for next year’s request list to be more complete.

Set Realistic Deadlines and Goals Sometimes we incorrectly equate a smooth audit with aggressive deadlines and “beating” the performance on the prior year audit. To avoid setting the team up for disappointment, set realistic deadlines for major milestones.

•Create a schedule outlining major milestones and assign reachable goals for

16 AZ CPA NOV. 2015

achieving each. Milestones should be identified by both the firm and the organization to ensure that each knows what is critical to the other for completing overall audit objectives.

•Work together as a team to determine how each deadline or goal will affect the rest of the audit engagement.

Commit to the Monitoring Progress More often than not, projects are successful because we are paying attention to the progress of every major goal.

Organizations will generally be juggling their annual audits around regular tasks of their team while auditors are striving to meet the needs of multiple clients on a variety of engagements.

•Assign more than one person to the monitoring of deadlines and goal achievement. The audit can generally be broken down into easily defined sections, createing a workable hierarchy where separate sections will roll-up to the overall engagement responsibility.

During fieldwork, assess the request list to determine what is still outstanding. Meeting as a team to re-prioritize missing information requests and follow up can improve timing and avoid miscommunication.

Schedule an Exit Meeting Get the entire team together to talk about the engagement when reports are being finalized.

•Schedule the exit meeting before the report issuance date. By meeting before the reports are finalized, meaningful discussion occurs as both the organization and the firm are still engaged and haven’t moved on to the next project.

• Come prepared. If there were results that could have been improved, make sure to offer possible solutions.

At the end of the day, firms and organizations are a team working toward a common goal. Productivity and results are significantly improved when all processes are well defined and evaluated for success and can dramatically impact the outcome of any audit engagement in a very real and positive way. n Lindsay Stevenson, CPA, is an ASCPA member and vice president of finance and tax for 1st Financial Bank USA. She can be reached at lstevenson@1fbusa.com.

Taking on the role of trustee can come with some big risks, so careful consideration is required before accepting ...

Trustee Services Can Be Risky

by Kim Stone-Vilim You receive a message from a client: “Hey Mr./Ms. CPA, you’ve been my accountant for several years, and I’m finally getting around to putting my estate together. Would you serve as my trustee?”

This seems like an innocent enough question and a way to earn some pretty easy fees. Who wouldn’t say “yes”? Well, not so fast.

CPAs are often the first choice to serve as trustees due to their tax and financial background. They usually have the most knowledge about a client’s financial situation and are a neutral party. However, taking on the role of trustee can come with some big risks, so careful consideration is required before accepting.

Many CPAs are asked to serve as trustees because the client’s family members may not have the necessary skills or the client suspects a family member may have personal interests that may interfere with the proper administration of the trust.

NOV. 2015 AZ CPA

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Before you accept the trustee role, consider the following: • Does the client have any problems with his or her children, other family members, or potential beneficiaries?

• What investments make up the trust?

• I s t h e c l i e n t i n v o l v e d i n litigation?

• Are you the sole trustee or are you serving with other family members or other professionals?

• What decision-making authority will you have over the trust assets?

• How large is the estate?

You will want to weigh the pros and cons as well as your level of comfort and expertise in the various areas.

If there are family conflicts, do you really want to be caught in the middle?

Do you understand all the business ventures and investments the client is involved with, and would you be able to sell or liquidate them if needed? If the client is involved in litigation, what are your duties upon their passing?

It is usually best to serve as a cotrustee, another set of eyes overseeing the affairs of the trust. If you are to handle trust assets, it is generally a good idea to hire a financial adviser. Both of these safeguards can help in the event of a lawsuit related to the trust. Also, verifying the size of the estate can help determine the risk involved. The larger the trust/estate, the more money there is that could be lost or investments that may decline in value, subjecting you to litigation.

If you decide to serve as trustee, determine up front how you will be paid for this service. Will you charge an hourly fee or be paid a percentage of the estate value? This agreement should be documented either in a separate engagement letter or written into the trust document. In most cases, these fees need to be earned by the accounting firm, not the individual named in the trust, for this work to be covered under the firm’s errors and omission insurance. Be sure to check with your insurance carrier on this.

If you accept the role of trustee, the following steps can help get you organized and assist in your defense in the event of any litigation: • Obtain a copy of the trust agreement and read it carefully.

If any items are unclear, consult with the client or client’s attorney for clarification, and obtain that clarification in writing.

• Confirm all the services you will perform are noted in the trust document; if not, get them included or obtain a separate engagement letter for this work.

• Obtain copies of all financial information, including stocks and bonds, retirement plans, real estate, long-term care, and life insurance contracts.

• Consult with other trustees and notify beneficiaries that you are a co-trustee.

• Set up safeguards, such as approval of all bills by beneficiary before payment, and approval by beneficiary of changes to or sale of any investment vehicles.

• In conjunction with other trustees, hire a financial adviser.

• Confirm whether you or another CPA will be filing the tax returns.

If you will be performing them, obtain a signed engagement letter for this service.

• Determine how often an accounting will be given to beneficiaries. It is recommended that this be done quarterly, but yearly at a minimum.

CPAs can be a good choice to serve as a trustee, and can provide a valuable service for a client. Just be sure you and your client have a clear understanding of your duties and responsibilities. Don’t favor one beneficiary over another, and be sure to administer the trust using reasonable care and the “prudent person” standard, a term generally used by probate courts in determining whether or not a trustee has performed duties satisfactorily. n

Kim Stone-Vilim is a CPA in Illinois.

She can be reached at kstone@allrisks. com. This article was first printed in the Pennsylvania CPA Journal.

How Much Time Does It Take To Be An Effective Managing Partner?

By Gary Adamson

Most CPA firm partners ask the question a little bit differently. It goes something like: “We have X amount of revenue and Y number of partners, so how many chargeable hours should our managing partner have compared to the other partners?” And the next question usually is: “How big should the managing partner’s book of business be compared to the other partners?” If these two questions aren’t a topic of conversation among your partners, they probably should be.

We will give you some of the trends and also some guidance on where you should be.

First, it is much more important to make sure that you “manage” the managing partner’s charge hours than it is to manage the size of their book of business. Most managing partners that we work with continue to maintain relationships with key firm clients as their firms grow and their duties as the managing partner grow. Those clients typically stay in the managing partner’s book; but, they have to leverage the work differently than they used to and rely upon more involvement of other partners and staff to get the work done.

In the 2014 Rosenberg National MAP Survey (rosenbergsurvey.com) the average managing partner client base was $1.16 million for the largest 36 participating firms with revenue of between $20 million and $72 million.

By comparison, the average client base for all partners, equity and non-equity, in those same firms was $1.20 million.

So, in those firms there is no real difference in the managing partner’s book.

The much tougher metric to manage is the chargeable hours of your managing partner and the time that is left to run the firm. How do you know where those numbers should be? It truly is a function of the size and complexity of your firm. The problem is that we don’t adjust quickly enough as our firms grow and most managing partners are spending too little time leading and managing, and too much time serving clients. As a part of our managing partner coaching process we are almost always counseling our firms to find a way to reduce the leader’s chargeable load.

The sad reality is that we see the trend for managing partner chargeability going the wrong direction — up.

Average managing partner charge hours have risen over the last three years based on responses from firms with revenue up to $50 million from the 2014 Inside Public Accounting National Benchmarking Report (insidepublicaccounting.com). To be clear, these are not year-to-year same firm comparisons but rather averages from all contributors to the survey.

Emerging from the recession may have had something to do with the

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numbers with the “all hands on deck” approach that many firms adopted. But leading and managing an accounting firm is not getting easier in the face of competitive issues, succession issues and the returning people void.

In the 2014 IPA Benchmarking Report, for the 35 firms with revenues between $30 million and $50 million the managing partners’ average chargeable hours were only about 500 hours

less than the average practice partner.

Is 500 hours enough to lead firms that are some of the largest in the country?

So again, how do you know where your managing partner should be? We use a pretty simple metric. First, for smaller firms (under $5 million) we don’t see much relief for the managing partner beyond a good firm administrator who carries a lot of the load. We also often see several partners splitting up

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duties wearing different administrative and management hats. In the under $5 million world, your managing partner is probably getting 1100 or so charge hours like all of the rest of the partners.

When you arrive at that $5 million revenue threshold the maximum charge hours for the managing partner should begin to come down by about 100 hours and for every additional $5 million of revenue after that. If our starting point is 1100, a managing partner of a $10 million firm would be at no more than 900 charge hours, at $15 million no more than 800 hours and so on.

This is not an exact science but you need to consciously bring down the hours as the firm grows. It won’t happen unless you plan for it. Most managing partners enjoy the client work, they’re good at it and are sometimes reluctant to give it up. And, remember we’re talking maximum numbers here.

Where do you stop? Our suggestion is that, with the exception of the very largest firms, you don’t go to zero but rather level it out at 100 to 200 hours. The reason is that we believe it’s important for your managing partner to have enough personal involvement in client service to stay knowledgeable of client concerns and issues. It really does help him or her stay grounded and connected.

Remember that these are guidelines.

We see numbers all over the map depending on the firm and the makeup of the individual in the managing partner chair. Your goal should be to reduce the client service hours of your leader to free up time to serve what is your number one, most important client – the firm. n Gary Adamson is a CPA in Illinois and the president of Adamson Advisory, specializing in practice and partner consulting for CPA firms. He can be reached at (765) 488-0691 or gadamson@adamsonadvisory.com.

Independence

The Need for Consistency and Common Sense Recently, violations of auditor independence have been made public through articles and disciplinary action. It appears that the audit profession is having difficulty demonstrating compliance, particularly as it relates to audits performed in accordance with the Securities and Exchange Commission’s independence rules. This bad publicity places the profession in the spotlight for unethical behavior. However, to understand why practitioners have struggled with compliance, it is important to understand the independence rules in a broader context.

Generally, the independence rules have the same underlying premise shared by regulators and standard setters. However, the issue of independence has become increasingly complex as it relates to services provided by firms outside of the audit (referred to as nonaudit or nonattest services). Such services are typically those in addition to the basic audit function and encompass services such as limited bookkeeping, tax preparation and financial statement drafting. For purposes of this discussion, the focus is on preparing or assisting with the preparation of financial statements.

The most significant sources of independence standards come from the following standard setters: • American Institute of Certified Public Accountants (AICPA) • Government Accounting Office (GAO) • Securities and Exchange Commission (SEC) • Public Company Accounting Oversight Board (PCAOB) In addition, State Boards of Accountancy have their own rules which are similar to the AICPA rules.

Regardless of the source of standards, the fundamental premise is the same. Auditors should not make management decisions or be in a situation where they are auditing their own work. However, the similarities stop there as each standard setting organization has their own nuances and interpretations regarding compliance.

The following are possible results from these varying standards: • A federal, state or local government receiving millions or even billions of taxpayer dollars can request that an audit firm prepare their financial statements. The auditor must demonstrate that the federal agency has a qualified person to accept responsibility for the nonaudit services. However, this determination is left to the auditor’s judgment and the individual does not have to be a CPA or even a degreed accountant. As long as the safeguards are met, the auditor will be considered independent.

• A retirement plan such as a 401(k) plan holding millions or even billions of dollars of employee retirement monies can request that the auditor draft the financial statements and still comply with professional standards. As with the previous example, the auditor must demonstrate that the plan sponsor has a qualified person to review and accept responsibility for the financial statements.

• A privately held company with multi-billion dollar revenue, thousands of employees and other stakeholders including lenders could request that the auditor draft the financial statements. Again, the auditor needs solely to demonstrate that the company has qualified personnel to accept responsibility for auditors work.

In each of the examples above, the audit firm is subject to independence rules of three different agencies respectively: (1) the General Accounting Office, (2) the Department of Labor and (3) the American Institute of Certified Public Accountants.

In each instance, it is the auditor’s responsibility to assess whether the organization has an individual with

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sufficient knowledge and experience to accept responsibility for the financial statements. The burden of proof is on the auditor to demonstrate that they did not “audit their own work.”

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A small investment broker with only two accountants on staff, one of which is an experienced CPA, requests the auditor to perform the word processing function and make any changes to the financial statements resulting from the audit. In this instance, the auditor is considered to have violated independence standards and may be subject to investigation, fines and sanctions.

Simply stated, the standard setters, regulators and other constituents have significant differing views on when an auditor is “auditing their own work.”

As it relates to financial statements, the rules can range from auditors being allowed to prepare a client’s financial statements in their entirety (see the first three examples) to an auditor not being able to perform word processing, bind or staple a client prepared set of financial statements (see the last example).

The reason for the differing views of when auditors are auditing their own work is not based on principle; it is based on differing objectives of the standard setters and regulators.

For the majority of audits performed in the United States, auditors are permitted to draft the financial statements they are auditing and because of the lack of available resources of many organizations, an expectation often exists that the auditors will assist in areas necessary to complete the audit including assisting with financial statement drafting. In addition, the independence standards have been written in a manner that “lack teeth” necessary for auditors to go back to their clients and force them to obtain the skills internally or hire an outside firm. The majority of standard setters and regulators has not only allowed but has even promoted auditors to either draft or assist in drafting financial statements. The AICPA has resisted changing the independence rules as

creating nonattest rules similar to the SEC’s is not practical and would be burdensome to auditees.

The SEC and its enforcement agency, the PCAOB, prohibit audit firms from being involved in any capacity with a client’s financial statements. As a result, many firms that provide audit services to a wide variety of clientele subject to varying independence standards were caught off guard by the SEC’s very strict interpretation of the rules, which is a significant departure from the other standard setters and regulators.

To understand the SEC’s viewpoint, let us go back to Bernie Madoff. In this instance, the auditor and his family had investments in Bernie Madoff’s investment company of over $14 million by the end of 2008. The auditor then in turn audited Bernie Madoff’s company. Clearly, the auditor was not independent in fact or appearance under any sets of standards. Those well established and accepted rules are not related to nonattest services and are generally accepted by all regulators and standard setters. However, the SEC’s “broken windows” policy has resulted in taking a hard stance on independence rules, including those related to drafting financial statements.

The AICPA, GAO and DOL are resistant to force governments, pension

plans and privately held companies to take more responsibility for their financial statements while the SEC is on the opposite spectrum prohibiting auditors from even stapling and binding financial statements. And unfortunately, the audit profession is stuck in the middle.

The majority of CPAs understand their obligation to comply with rules and standards. The CPA’s first obligation is to uphold the public interest and perform work in accordance with standards and regulatory requirements. However, it is difficult for a CPA to accept that the type of entity being audited should have an effect on determining when auditors are “auditing their own work.” The concept of independence is too important to the accounting profession and the public interest to have this level of divergence in the rules.

Regulators and the public should not assume that the audit profession’s noncompliance is a sign that CPAs disregard the importance of the independence rules. It is an indication that the profession needs consistently applied and effectively communicated independence standards. n This article was written by an ASCPA member.

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2016 Arizona Tax Guide Order the only comprehensive guide on Arizona taxes Authors: Ira Feldman, Pat Derdenger, Steve Rodis and Ed Zollars New in the 2016 Arizona Tax Guide:

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

❒ CPA ❒ Attorney ❒ EA ❒ Other: ________________

Spiral-Bound Book: Pre-Order by Dec. 18, 2015 ❒ Members of ASCPA, Phoenix Tax Workshop, State Bar of Arizona or Enrolled Agents: $79

❒ Nonmembers: $99 After Dec. 18, 2015 ❒ Members of ASCPA, Phoenix Tax Workshop, State Bar of Arizona or Enrolled Agents: $89

❒ Nonmembers: $109 Electronic PDF:

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Please return this form and payment to:

Arizona Society of CPAs 4801 E. Washington St., Ste. 225-B Phoenix, AZ 85034 Fax credit card orders to:

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Sales tax, standard shipping and handling prices are included.

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

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

Receive a score of 70% or more and earn one hour of CPE credit in specialized knowledge. It’s that easy!

Fees: Members $25 Non-members $40 Online Access Login to www.ascpa.com and go to CPE/OnDemand CPE Quick Quiz to access links to all active quizzes. Purchase quiz and the quiz link and password will be emailed to you. Your results will be sent immediately after completing, and certificates are emailed within two business days.

Hard Copy Please select one answer for each question. Fill out registration/payment information below and mail or fax to the Society office. Quiz results and certificates will be emailed to the address provided on the registration form. *This quiz will be available until November 2016. Please note that users have three attempts to pass the quiz with at least a 70% score.

November Issue of AZ CPA* 1. Having a company-wide educational program for ethics ensures that you have a functioning ethics policy in your company. m True m False 2. Which of these examples are not used as successful ethics programs? m Ethics discussions companywide m An annual written exam about the company ethics policy m Anonymous helplines where employees can raise concerns 3. What are the two major factors contributing to the early success of audit engagement? m Contracting and Communication m Planning and Communication m Committee Meetings and Communication m Teamwork and Planning 4. What is a good policy for dealing with deadlines and goals? m Set aggressive deadlines and work tirelessly to meet them. m Set a schedule for your own milestones and distribute the schedule to your team. m Create a schedule with reachable goals and get team input on goals.

5. If you decide to serve as a cotrustee, who else should be hired? m Doctor m Stockbroker m Financial Adviser m Insurance Underwriter 6. Which of the following is not one of the steps to organizing your role as a trustee? m Determining who will file tax returns m Working out details of the trust in a verbal agreement m Hiring a financial advisor

7. Which of the following is not true, according to the article on managing partners? m Most managing partners end relationships with key clients. m The trend for managing partner chargeability is on the decline. m The size and complexity of the firm are factors in managing the chargeable hours of a managing partner.

8. Why is it suggested that a managing partner’s hours not be reduced to zero? m It is illegal. m Personal involvement in client service keeps them knowledgeable on client concerns. m The firm’s revenue will be diminished if this occurs.

9. Which of the following statement is not true according to the Independence Rules article? m Auditors should not make management decisions m Standard setters have differing views when considering if an auditor is “auditing their own work.” m The PCAOB supports audit firms being involved in some capacity in the client’s financial statements preparation.

10. We can assume that the reason for a CPA’s noncompliance is because they disregard independence rules on purpose. m True m False

Registration Name: ____________________________________________________ Email:_____________________________________________________ Telephone: _________________________________________________

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Accountant II — Maricopa Community Colleges District — Position#15789. FT salary $46,110 $54,755 - Provides analytic support to the District, including fiscal oversight, reporting, and compliance reviews of transactions in the general, auxiliary, grant, and/or capital funds. Responsible for the proper treatment of transactions in any of the following functional areas: Capital Assets Accounting, F i n a n c i a l R e p o r t i n g , Tre a s u r y / Investments, General Accounting, Grants Accounting. There are 5 positions to be filled in the following areas: Capital Assets Accounting, F i n a n c i a l R e p o r t i n g , Tre a s u r y / Investments, General Accounting, Grants Accounting. A completed online application at the company website is required. Position(s) will stay open until filled. Applications will be reviewed bi-weekly. MCCCD is an AA/EEO Institution.www.maricopa.edu/jobs.

Associate Analyst — Gorman Consulting Group, LLC — Seeking an Associate Analyst for our forensic accounting and business valuation firm in Phoenix. You must have an intermediate to advanced knowledge of tax returns, bank statements, brokerage statements and financial

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Conversations with the Kachina I used to work for an accounting firm that tracked my CPE hours.

Now I am having a tough time remembering which courses I have taken and how many hours I still need.

The ASCPA can keep you organized. Log into the CPE tracker on our website to see all CPE you have taken with the ASCPA, and you can even download CPE certificates and course outlines.

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For more than 75 years, we have been helping take care of Arizonans.

We focus on the health of our members and the well-being of the communities in which they live. That’s why we’re proud to support Arizona Society of CPAs and the work they do to foster a strong and thriving business climate now and far into the future.

28 AZ CPA NOV. 2015