Spring 2019 - Florida CPA Today | Volume 35, Number 2 by Florida Institute of CPAs

SPRING 2019 | VOLUME 35, NUMBER 2

Leases Government Style LEASES —of GASB – An Overview GOVERNMENT Statement No. 87

STYLE

An Overview of GASB Statement No. 87 PAGE 8

PAGE 15 X What Xxxx in the World is an IT Auditor?

PAGE 19 X Revenue Xxx Recognition and Telecommunications

PAGE PAGE X 22 Of Course! Dealing CPEwith Catalog Subpoena Requests for Digital Data

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CONTENTS PRESIDENT/CEO Deborah L. Curry, CPA, CGMA EDITORIAL COMMITTEE William C. Quilliam, CPA, chair Keith C. Blackman, CPA Douglas E. Day, CPA Lynda M. Dennis, CPA David J. Hochsprung, CPA David S. Holland, CPA Michael S. Kridel, CPA Troy Y. Manning, CPA Ryan A. Myers, CPA All articles submitted to Florida CPA Today are subject to technical review, Editorial Committee review, space availability, and editing requirements and restrictions. Florida CPA Today publishes letters to the editor in its Members’ Forum. For information about the guidelines, visit ficpa.org/letterstoeditor.

Statements expressed herein are those of the identified authors and not necessarily those of the Florida Institute of Certified Public Accountants, Inc. (FICPA), nor should statements be considered endorsements of products, procedures or otherwise. The FICPA reserves the right to reject any editorial material or paid advertising that does not meet Florida CPA Today criteria or detracts from its ethical and professional standards. Florida CPA Today is published quarterly by the Florida Institute of Certified Public Accountants, Inc., 3800 Esplanade Way, Suite 210, Tallahassee, FL 32311. Telephone: (850) 224-2727 or (800) 342-3197. Visit our website at ficpa.org. This magazine is provided to members of the FICPA. No specific amount of your dues, either expressed or implied, is for this publication. This magazine is not available for purchase by either FICPA members or nonmembers. For display advertising information, contact the FICPA Marketing Department at (850) 224-2727, Ext. 270. © 2019 by the Florida Institute of Certified Public Accountants, Inc. All rights reserved. Reproduction in whole or part is prohibited without the express written consent of the FICPA.

COVER STORY

Leases — Government Style An Overview of GASB Statement No. 87

FEATURES

DEPARTMENTS

Web Digest: What in the World is an IT Auditor?

Revenue Recognition and Telecommunications ENDORSED PARTNER CONTENT

Dealing with Subpoena Requests for Digital Data

Can your Credit Card Processor Trigger an IRS Audit?

2 4 6 28

President's Message

30 36 38

Staff Reports

Chair's Message News Briefs Take Five Q&A: Rumessa Abrar

CPAs in the Spotlight Marketplace

Employee Benefit Plan Cybersecurity Risks, Responsibilities

Visit issuu.com/ficpa to access and download the digital version of Florida CPA Today. SPRING 2019 | FLORIDA CPA TODAY

PRESIDENT'S MESSAGE

Don’t be the Paint Can My painting challenges begin with shaking the bulky can. I’m then balancing on one foot, steadying the can with the other, and slowly easing up the countersunk lid – around and around – with the opener tool. Hoping that the can doesn’t topple, I’m wishing for a bigger drop cloth. After freeing the lid is the tricky task of filling the paint tray without spilling on the drop cloth, or worse – the floor. With the tray finally full, painting begins. Meanwhile paint dripping down the side of the can has solidly affixed it to the drop cloth. What a mess. As Marc Randolph, co-founder of Netflix and recent guest speaker at the USF Muma College of Business Thought Leader Series explained, paint cans haven’t been redesigned in more than 40 years. They remain a universal pain point that’s ripe for innovation. According to Randolph, looking for pain is the first step in innovating. He says big ideas aren’t popping out of thin air, they are buried within piles of bad ideas, waiting to be unearthed. We must look everywhere and start with pain points.

DEBORAH L. CURRY CPA, CGMA

...innovation is borne from solving problems. [Randolph] described successful entrepreneurs as the ones who can quickly vet lots of ideas, are willing to take risks and silence their inner critic with plenty of self-confidence.

Marc Randolph’s message was inspiring; I thank USF for hosting him. As Randolph explained, innovation is borne from solving problems. He described successful entrepreneurs as people who can quickly vet lots of ideas, are willing to take risks and silence their inner critic with plenty of self-confidence. Did you know that Netflix accumulated losses of $50 million and today is valued at nearly $10 billion? Randolph says that innovation is everywhere and anywhere, in little towns and big cities. As CPAs, we know the time-value of money. A self-described perfectionist, it didn’t take Randolph long to realize that perfectly polishing a bad business plan for six months is never as good as quick-testing a succession of bad ideas, until the one good idea is confirmed. Randolph's advice to entrepreneurs comes down to a few simple concepts. Can these work for you? • Have tolerance for risk, do something. “If you really want to start something, stop putting it off and go out and do it!” • “Too many people have disruptive ideas in their head and a hundred reasons not to start. Let’s just try it, see what happens. Almost every big innovation starts that way.” • “Large, stable companies have a hard time getting started, taking risks.” The same is true of people when they get too comfortable. • “You’ll learn more in one minute of doing it than you will in six months of writing a business plan. Perfection costs time that you don’t have – speed vets out bad ideas fast.” • “Anyone can do this. It’s not about having good ideas. It is building a system for quickly testing lots of ideas. Try hundreds of ideas.” Perhaps Randolph’s most important point was this: Don’t be the paint can. If you are unwilling to disrupt yourself, you are leaving it wide open for someone else to disrupt for you.

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CHAIR’S MESSAGE

The Future, Embracing it Now Templosion ['Tem-ploh-zhuh n]: Technology enabling change to happen at a faster and faster pace (while not drowning us in the process). Over this past year I’ve spoken with our members often about change. Disrupt or be disrupted. Using technology to our best advantage is part art. Data, software and the rest will never replace the beauty of a sunrise or laughter shared between friends. Technology is so integrated into our daily lives it is easy to think we can’t live without it. It’s crazy when my phone tells me how many hours I spent looking at it each week. Maybe our spouses, children, family, friends and coworkers should give us a similar weekly “meter reading” as to our level of face-time with them. I hope my people numbers always are significantly higher than my phone screen time!

GARY FRACASSI CPA, CGMA

Technology will be the disruptor to our profession for the foreseeable future and necessitates constant learning, unlearning, relearning. You are not alone in this, the FICPA exists to help all its members cope and thrive amid what sometimes feels like a crush of templosion.

Look what’s happened within our profession to see how massively technology is shaping our work and careers. Most baby-boomers and gen X-ers learned accounting and auditing basics using pencils and pads — before the PC, Lotus and Excel killed the 13-column pad and T-accounts. Now its artificial intelligence and bots that are taking on routine accounting tasks and changing — disrupting — how and what we audit. Today’s accounting students need broad knowledge to succeed at the CPA exam and in their careers from the starting block. There is no end in sight. Technology will be the disruptor to our profession for the foreseeable future and necessitates constant learning, unlearning, relearning. You are not alone in this, the FICPA exists to help all its members cope and thrive amid what sometimes feels like a crush of templosion. Younger members may navigate the cloud with ease while needing help honing their communication skills. Members with young families need all the technology they can get for working smarter, and remotely, with ease. Those of my generation can be masters at delivering personalized service and perhaps a tad ungraceful in navigating the company’s new cloud storage filing system. The FICPA’s Emerging Leaders Program is an exceptional solution for YCPAs looking to strengthen their leadership skills and professional connections. Read more about this terrific program on page 28. Our cover story is a must-read for assisting local governments and those who serve them in fully implementing the comprehensive GASB Statement No. 87 standard by 2020. If thoughts of network security, hacking and responding to a digital data subpoena make you weak at the knees you’ll find timely guidance on those topics here too. While disruption is sure to continue, this is my last column as your chair. In June I will be honored to pass the leadership gavel over to the passionate Abby Dupree, backed by the incredibly capable FICPA board and staff. My advice to Abby, and to you is to keep your eyes looking forward (and only occasionally at your cell phone screen) so you don’t miss a moment of the progression of our great profession. I have jokingly said that I’m currently serving the 20th year of a life sentence to the FICPA, but once elected chair, I got a shot at parole! I am not looking forward to being paroled. My service with the FICPA has been a labor of love. Serving as your chair has been one of the greatest honors of my career. Thank you.

FLORIDA CPA TODAY | SPRING 2019

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NEWS BRIEFS

FICPA NEWS

FICPA OFFICIAL NOTICE FICPA SCHOLARSHIP FOUNDATION ANNUAL MEETING In compliance with Article II, Section 4 of the Bylaws of the FICPA Scholarship Foundation, be it known that the Annual Meeting of the Members and Board of Trustees will be held on Tuesday, June 11, 2019 at Disney's Contemporary Resort in Lake Buena Vista, Florida immediately following the FICPA Scholarship Foundation Board of Trustees Meeting. ANNUAL MEETING OF THE MEMBERS In compliance with Article III and Article XI, Section 6 of the FICPA Bylaws, be it known that the Annual Meeting of the Members will be help at 10:00 a.m. on Thursday, June 13, 2019, at Disney Contemporary Resort (in conjunction with the Mega CPE Conference) in Orlando, FL. A regular meeting of the FICPA council will immediately follow the Annual Meeting.

Volunteering CPAs Enhance Image, Provide Service

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Walters & Associates, CPAs Merger

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LEASES — GOVERNMENT STYLE An Overview of GASB Statement No. 87

BY LYNDA M. DENNIS

n June 2017, the Governmental Accounting Standards Board (GASB, the Board) issued Statement No. 87, Leases, to provide more useful decision-making information for the users of state and local government financial statements. In many respects, Statement No. 87 is similar to the lease accounting and reporting standards established by the Financial Accounting Standards Board (FASB) for business entities. For example, both standards are based on the principle that a leased asset represents the right to use such asset for the period of the lease term, and both address accounting and reporting requirements for lessees and lessors. This article provides a high-level discussion of how state and local governments will account for and report leases for fiscal periods beginning after December 15, 20191 (fiscal year beginning July 1, 2020 or October 1, 2020 for most Florida governments). The requirements of the standard

are to be applied on a retrospective basis, meaning Florida governments have less than two years to determine both their beginning and end-of-year leased assets and related lease liabilities or lease receivables. Statement No. 87 does not apply to the following: • Leases of • Intangible assets (including licensing contracts for computer software among other items). • Biological assets. • Inventory. • Leases in which the underlying asset is financed with outstanding conduit debt and the lessor does not report the underlying asset and conduit debt. • Contracts meeting the definition of a service concession arrangement2. • Supply contracts.

1 Early implementation is encouraged. 2 As defined in paragraph 4 of Governmental Accounting Standards Board (GASB) Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements.

FLORIDA CPA TODAY | SPRING 2019

OVERVIEW OF REQUIREMENTS3

Definition of a Lease — Statement No. 87, defines a lease “as a contract that conveys control of the right to use another entity’s nonfinancial asset4 (the underlying asset) as specified in the contract for a period of time in an exchange or exchange-like5 transaction.” The contract may be written or oral, and the standard uses the term “contract” rather than “agreement” to imply that the lease transaction should be legally enforceable by all parties. To show the contract transfers control of the right to use the leased asset, governments that are lessees will determine if they have the right to (1) obtain present service capacity from the underlying asset and (2) determine the nature and manner of use of the underlying asset. In addition, the definition of a lease drives the accounting and financial reporting of the transaction rather than whether the contract is termed a lease. Lease Term — The lease term under Statement No. 87 generally includes the “noncancelable period” of the lease as well as options to extend or terminate the lease. With respect to these options, lessees and lessors will separately consider if it is “reasonably certain”, based on relevant factors, to expect exercising any option to extend or terminate the lease. Therefore, lessees and lessors will consider factors such as: • Whether there is a significant economic incentive/ disincentive to terminate the lease. • History of exercising options to extend/terminate. • Extent the underlying asset is essential to providing government services. If both the lessee and lessor have an option to terminate the lease without permission from the other party, or if both parties have to agree to extend the lease, the lease term is considered “cancelable” and the cancelable period is excluded from the lease term. Cancelable periods include a monthto-month lease period continuing into a holdover period until a new lease contract is signed. A fiscal funding clause does not affect determination of the lease term unless it is reasonably certain the clause will be exercised. Short-term Leases — Statement No. 87 classifies leases based on whether they are for a term of 12 months or less or more than 12 months, including options to extend (regardless of their probability of being exercised). In the

...Florida governments have less than two years to determine both their beginning and end-of-year leased assets and related liabilities and receivables. case of noncancelable leases, the maximum possible term is the noncancelable period and any notice periods. Under Statement No. 87, all leases of 12 months or less (including options to extend) are reported as “short-term leases” and all leases of more than 12 months are reported simply as “leases”. Lessees will recognize short-term lease payments as expenses/expenditures and lessors will recognize shortterm lease receipts as revenues. Leases Transferring Ownership — Under Statement No. 87, lease contracts transferring ownership to the lessee at the end of the lease term should be reported as a financed purchase by the lessee (for example property, plant, or equipment rather than a “lease asset”) and a sale of the underlying asset by the lessor. However, this requirement does not apply if the lease contract includes (1) termination options or (2) a fiscal funding/cancellation clause which is reasonably certain of being exercised. Lease Liability — Lessees are required to recognize a lease liability for all lease contracts other than those which are short-term leases or leases transferring ownership. Generally, the lease liability is initially measured at the present value of payments the lessee expects to make during the lease term. Statement No. 87 includes several other factors to be considered in determining the amount of the expected payments (for example, various types of variable payments, penalties, incentives, and other payments). Future lease payments are required to be discounted using the interest rate charged by the lessor or the interest rate implicit in the lease (if known) or the estimated incremental borrowing rate of the government. Governments are required to remeasure the lease liability in subsequent years if certain events occur such as a change in the lease term and other factors identified in the statement.

3 This article discusses the requirements of Statement No. 87, Leases, from the perspective of the financial statements prepared using an economic resources measurement focus (government-wide statements and the proprietary and fiduciary fund fund level statements). Please refer to the full text of the statement for the accounting and financial reporting requirements relating to leases reported in financial statements prepared using the current financial resources measurement focus. 4 Nonfinancial assets are those not deemed a financial asset as defined in paragraph 86 of GASB Statement No. 72, Fair Value Measurement and Application. Examples include economic assets such as property, plant and equipment. 5 In exchange-like transactions the parties to the transaction exchange values which are related but not necessarily of equal value or the direct benefits may not exclusively be for the parties to the transaction.

SPRING 2019 | FLORIDA CPA TODAY

Lease Receivable — Lessors are required to recognize a lease receivable for all lease contracts other than those which are short-term leases, leases transferring ownership, or leases of assets which are investments. Generally, the lease receivable is initially measured at the present value of payments the lessor expects to receive during the lease term reduced by any estimated uncollectible amounts. Statement No. 87 includes several other factors to be considered in determining the amount of the expected payments (for example, various types of variable payments, penalties, incentives, and other payments). Future lease payments are required to be discounted using the interest rate the lessor charges the lessee. Governments are required to remeasure the lease receivable in subsequent years if certain events occur such as a change in the lease term and other factors identified in the statement.

Governments are required to remeasure the lease receivable in subsequent years if certain events occur such as a change in the lease term and other factors identified in the statement. Lease Asset — Initially, lessees are required to recognize a lease asset and amortize the lease asset in a systematic and rational manner over the shorter of the lease term or useful life of the underlying asset. Leases with a purchase option that the lessee is reasonably certain to exercise are amortized over the useful life of the underlying asset. A lease asset is measured as the initial lease liability; plus payments made to the lessor at/before commencement of the lease; plus the initial direct costs (ancillary charges to put the lease asset in place); less any lease incentives received from the lessor at/ before commencement of the lease term. Lessors do not derecognize a lease asset unless, as noted previously, the lease transfers ownership of the underlying asset to the lessee at the end of the lease term. The lessor accounts for the lease asset the same as it accounts for other capital assets and is subject to depreciation and impairment. Deferred Inflow of Resources — At the inception of the lease term, lessors are required to recognize a deferred

FLORIDA CPA TODAY | SPRING 2019

inflow of resources measured as the initial lease receivable; plus payments received from the lessee at/before commencement of the lease which relate to future periods; less any lease incentives paid to/on behalf of the lessee at/before commencement of the lease term. Over the term of the lease, the deferred inflow of resources is reduced and recognized as revenue in a systematic and rational manner. Regulated Leases — External laws, regulations, or legal rulings govern certain types of leases such as aviation leases between a government owned airport and the private air carriers. Lessors are required to recognize payments under these types of leases as revenue if the lease contract includes all of the following requirements. • Lease rates cannot exceed a reasonable amount as determined by an external regulator. • Lease rates should be similar for lessees which are similarly situated. • Lessor cannot deny potential lessees the right to enter into leases if facilities are available (assuming the lessee’s use of the facilities complies with generally applicable use restrictions). Lease Incentives — Examples of lease incentives include rebates, discounts, rent holidays and other such incentives to reduce amounts that a lessee is required to pay for a lease. Lessees are required to consider the effect of lease incentives when measuring the lease liability and the lease asset. Likewise, lessors are required to consider the effect of lease incentives when measuring the lease receivable and deferred inflow of resources. Lease incentives reduce lease payments and are defined in the statement as (1) payments made to/ on behalf of the lessee where the lessee has the right of offset with its obligation to the lessor or (2) other concessions granted to the lessee. Notes to the Financial Statements — There are a number of disclosures lessees and lessors are required to provide relating to their lease activities. Governments may choose to group this information for different types of leasing activities such as short-term leases, leases, regulated leases or other useful groupings. Disclosures vary between lessees and lessors and a detailed discussion of the requirements is beyond the scope of this article. For lessees, detailed required disclosures are discussed in paragraphs 37 – 39 of the statement and in paragraphs 57 – 60 for lessors.

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Other Issues â&#x20AC;&#x201D; Statement No. 87 addresses other leasing activity issues such as lease contracts with multiple components, lease contract combinations, lease modifications and terminations, subleases, sale-leaseback transactions, lease-leaseback transactions, intra-entity leases and leases between related parties. A discussion of these other issues is beyond the scope of this article; however, the accounting and reporting for these transactions is discussed in paragraphs 63 â&#x20AC;&#x201C; 91 of the statement. IMPLEMENTATION CONSIDERATIONS

Obviously, governments and their auditors need to become familiar with the requirements of Statement No. 87 as soon as possible. To assist state and local governments in implementing the requirements of the standard, the GASB is in the process of developing an Implementation Guide for Statement No. 87. The Implementation Guide will be limited to clarifying, explaining, or elaborating on the standard and it is currently expected to be issued in final form in mid-to-late 2019. While the Implementation Guide is expected to be useful in interpreting the requirements of the statement, it will not provide a detailed implementation plan. Therefore, governments will need to develop their own implementation plan and to begin this process in the very near future. One of the biggest challenges many governments may face in implementing the requirements of Statement No. 87 will be identifying and then locating all of their lease contracts. Leasing property, vehicles, and equipment as a lessee or lessor is common among governments and the lease function may not be centralized. Governments with a decentralized lease process may need more time to identify and locate lease contracts than governments with a centralized lease process. It will be important for governments also to identify executed leases which are not yet effective as these also are required to be accounted for under the statement. Because lessees are required to report lease assets and lease liabilities for leases with a term greater than 12 months (other than leases transferring ownership), there may not be an advantage to leasing assets over financing them or purchasing them outright. Governments may find it helpful during the implementation process to critically assess what they lease and why and then evaluate if leasing is the best alternative. Once all lease contracts have been identified and located, governments will need to assess their intent relating to any extension or termination clauses. For an effective imple12

FLORIDA CPA TODAY | SPRING 2019

mentation and ongoing application of the statement, individuals outside the accounting/finance function may need to be involved in these assessments. Statement No. 87 requires the lease receivable/lease liability to be measured using the present value of payments expected to be received/made during the lease term including any extensions or terminations which are reasonably certain of being exercised. However, for purposes of Statement No. 87, lease payments do not include amounts associated with taxes, insurance, maintenance and the like. During the implementation process (and each year thereafter), governments will need to determine what is included in a lease payment and exclude any amounts not directly relating to the underlying asset in measuring the lease receivable/liability. The lessor will likely know what is included in the lease payment even though the amounts may not be delineated in the lease contract and lessees may need to reach out to them to identify the various components of a lease payment. Determination of the discount rate to be used in measuring the lease asset/lease liability is not likely to be an issue for lessors. However, the rate the lessor charges the lessee may not be stated in the lease contract and it may prove problematic for the lessee to obtain the interest rate implicit in the lease from the lessor. As a result, lessees will likely use their estimated incremental borrowing rate as the discount rate. Statement No. 87 requires lessees to amortize a lease asset over the shorter of the lease term or useful life of the underlying asset but a specific amortization method is not defined. Since the lease term may include the effect of any extension or termination clauses, governments may want to consider an amortization method which results in approximately the same amount of amortization each year for the lease asset and lease liability. For example, a government could choose to amortize a lease asset at an amount equal to the amortization of the discount on the lease liability. When remeasurement is required, adjustments to the lease asset and related lease liability will likely fully or partially offset each other. As such, a gain or loss on the remeasurement will be fully or partially eliminated. During the implementation process, governments using their estimated incremental borrowing rate will need to determine this rate for each lease, based on the inception date of the lease and the nature of the underlying lease asset. Governments will need to consider leases of assets used in governmental activities separately from lease assets used in

Governments with a decentralized lease process may need more time to identify and locate lease contracts than governments with a centralized lease process. business-type activities as interest rates often differ based on the underlying risks associated with a borrowing. For example, general obligation bonds secured with a governmentâ&#x20AC;&#x2122;s full faith and credit are typically considered less risky than revenue bonds secured with utility revenues. In this case, the estimated incremental borrowing rate will likely be lower for lease assets used in governmental activities than for lease assets used in business-type activities. The estimated incremental borrowing rate may also need to be determined for any new lease contracts entered into after the implementation date of the statement. EFFECT ON AUDITORS OF GOVERNMENTAL ENTITIES

Auditors who provide nonaudit/nonattest services to governmental organizations are required under the 2018 Government Auditing Standards6 (GAGAS) and Generally Accepted Auditing Standards (GAAS) to evaluate the effect these services have on their independence. Under both GAGAS and GAAS, auditors are required to be independent during the period under audit and the period of professional engagement. In some cases the auditor may simply provide assistance in implementing new accounting standards while in other cases the auditor may also assist in preparing the financial statements. Due to the complexities associated with Statement No. 87, clients may ask their auditor to assist them in implementing the requirements of the statement (including drafting notes

and other required disclosures). Auditors historically engaged to assist their clients in preparing the financial statements may be required to provide a higher level of assistance in the year Statement No. 87 is implemented. GAGAS and GAAS require the auditor to determine the effect nonaudit/nonattest services have on independence before agreeing to provide such services. Auditors of government entities will need to communicate with their clients well in advance of the effective date of Statement No. 87 to discuss what nonaudit/nonattest services they can or cannot provide. CONCLUDING THOUGHTS

Unfortunately, a number of governments have yet to develop a plan to implement Statement No. 87 because the effective date is almost two years away. The requirements of the statement are to be applied retrospectively which means governments will need to report beginning balances for lease assets/lease receivables and lease liabilities/deferred inflows of resources. As this article discusses, there are a number of challenges for governments and their auditors in implementing and applying the requirements of Statement No. 87. Working through these challenges will take time even for governments with little leasing activity. It is less than two years before Florida governments will be required to report leasing activities under the statement and the time to prepare for implementation is now. LYNDA DENNIS is a certified government finance officer and a full-time lecturer in the Kenneth Dixon School of Accounting at the University of Central Florida. She also is a contract CPE discussion leader and course developer in the areas of accounting and reporting for governmental and not-for-profit organizations. Dennis has served in a financial capacity, including as chief financial officer, in governmental and not-for-profit organizations. She also has worked as an auditor for local and Big 4 firms with an emphasis in the insurance, government and not-for-profit sectors.

6â&#x20AC;&#x192; For financial audits, the 2018 Government Audit Standards are effective for periods ending on/after June 30, 2020 which is the fiscal year before most Florida governments will be required to implement GASB Statement No. 87. Auditors will need to be independent as of July 1, 2020 or October 1, 2020 for government clients implementing the statement for their fiscal years ending June 30, 2021 and September 30, 2021, respectively.

WANT TO LEARN MORE ABOUT GASB 87? The AICPA webcast "GASB Leases: What Preparers & Auditors Need to Know to be Ready for Implementation" was held this past Tuesday, and it deals specifically with GASB 87. The good news is we have another presentation coming up on June 26, 2019!

Visit f icpa.org/gasb-leases to register!

SPRING 2019 | FLORIDA CPA TODAY

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WEB DIGEST

What in the World is an IT Auditor? BY BRUCE H. NEARON, CPA

Phone rings on Director of IT Audit’s desk – “Hello, this is Audit Partner. Great News! We got the job.” Director of IT Audit – “Congratulations, which job is that?”

Audit Partner – “It’s that big not-for-profit. The one where the request for proposal (RFP) wanted us to describe our IT audit capabilities and the procedures we plan to perform on their audit. You wrote that section of the proposal and made a presentation to their audit committee. They were very impressed and the CFO told me that that part of the RFP tipped the scales in our favor when they were deciding who to engage between the competing firms.” Director of IT Audit – “I’m glad you called, I was just going to call you. Your audit manager already submitted the firm’s IT Audit Attribute questionnaire and our decision aid support system flagged this client as having a more complex IT environment and that further IT audit procedures are likely warranted.” Audit Partner – “You know, I really have to admit that I don’t understand how your department’s capabilities and the procedures you perform have anything to do with my audit; however, I hope I learn that on this job. When can you get out to the client and get started?” Director of IT Audit – “I’ll assign one of our experienced IT audit managers and they will be contacting your audit manager to schedule the IT audit fieldwork.”

SPRING 2019 | FLORIDA CPA TODAY

THE LACK OF UNDERSTANDING OF IT AUDIT AND IT AUDITORS

In general, in the author’s career of planning, supervising, managing, performing, and reporting on thousands of IT audits in connection with external financial reporting, he has observed that when audit partners and audit managers first encounter an IT audit they usually do not understand what an IT audit is and what IT auditors do. It frequently is not until they have been through the process that they understand it, and some, after many years of dismay and misunderstandings can embrace it and recognize the value that IT audit brings to the audit. The purpose of this article is to explain who IT auditors are and what they do. Whether you are a CPA in public practice, private practice or government and whether or not your clients or employers are for profit, not for profit or government entities, you likely have come across the term “IT audit.” Perhaps your firm has an IT audit department or your organization has been on the other side of the equation and your IT system has been examined by an IT auditor. However, most CPAs, whatever their practice area, have had little contact with IT auditors; therefore, a general misunderstanding exists amongst CPAs as to who IT auditors are, what they do, the value they add to a financial audit, and their role in auditing new innovative and disruptive technologies. INNOVATIVE TECHNOLOGIES AND ACCOUNTING AND AUDITING

When you were in college and throughout your career you have been told that innovative technologies will cause disruptive changes in accounting and auditing, and the way business is done. When these new technologies were described they seemed bewildering and it was difficult to fathom how they could affect the daily life of a CPA. Each succeeding generation was faced with new and different technologies; such as, electronic data processing, mainframes in the dark ages of computing, computer service bureaus, mini-computers in the dawn of networking, personal computers that broke the stranglehold IBM had on computing, spreadsheets that obsoleted 13-column green bar paper, accounting software, databases, the internet, local area networks, email, e-commerce and cloud computing. However, as each of these technologies were introduced it was hard to grasp how they impacted auditing.

FLORIDA CPA TODAY | SPRING 2019

Let’s describe what an IT auditor is, their education and training, the certifications they hold, and the kind of jobs they perform. Most IT auditors studied business in undergraduate or master’s college level programs. Some are accounting school graduates and many studied computer science. Those who did not are geeks, white hat hackers, or bitheads; they learned their trade in the trenches. Without a grasp of business, an IT auditor is useless in a financial statement audit. Most IT Auditors also are CPAs, Certified Information System Auditors, and/or Certified Information System Security Professionals. Their education gives them the basic skills for entry into the IT audit field; however, it is their “hands-on” experience working on actual IT audits over many different systems in many different companies and industries that give them the competence and skill set to add value to clients and their employers; not unlike the route that financial auditors, tax accountants and attorneys take in gaining expertise. WHO DO IT AUDITORS WORK FOR?

IT auditors work in public accounting, industry or for government agencies. In public accounting, IT auditors may be part of a separate group under the audit umbrella or part of

The advent of computers and related technologies and their ubiquitous use in business and accounting created new risks. New controls were designed in response, to prevent the risks from resulting in losses. As auditors needed to understand and document the new risks and controls, the demand for IT auditors began. the firm’s consulting arm. For some firms, IT auditors are part of the consulting group because the firm’s client base does not include enough audit clients with complex IT systems to justify a separate IT audit department. In other firms, IT audit is part of the firm’s consulting group because firm management perceives that their IT consultants have the competence to perform IT-related auditing procedures. When IT auditors work in a firm’s consulting group there is a fundamental conflict. Audit and consulting have different documentation, independence requirements, and mindsets. It’s difficult to wear both an audit and consulting hat at the same time. The consultant hat that often prevails over the auditor’s mindset in a financial statement audit can have quality control consequences; such as, non-compliance with documentation standards and non-compliance with the professional ethics requirement for independence. The converse is rare. In industry, IT audit is part of internal audit; therefore, issues of documentation, independence, and mindset are absent. This also is the case for IT auditors who work in government since governmental audit organizations generally are independent organizational units conducting their audits according to the Yellow Book or other federal audit agency directives. Although IT auditors in industry and government may be asked to perform consulting engagements, their direct reports are full-time auditors and not consulting partners. WHAT STANDARDS DO IT AUDITORS USE?

CPA firms may also perform International Standards Organization (ISO) certifications, which are similar to IT audits. These are usually performed by the firm’s consulting division which competes against consulting firms that are not

CPA firms. The type of jobs done by IT audit departments in public accounting, internal audit and government entities all are basically the same. The underlying baselines used for IT audits are: The Committee of Sponsoring Organizations’ (COSO) Internal Control Integrated Framework, Control Objectives for Information and Related Technology (COBIT), National Institute of Standards and Testing (NIST) frameworks and guidance, and ISO standards. IT audits include for-external financial reporting, and very often for-internal audits and governmental audits, procedures to comply with Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement (AU-C-315), Identifying and Assessing Risks of Material Misstatement (AS 12), journal entry testing using CAAT with IDEA or ACL, and reviewing and assessing System and Organization Controls (SOC) reports. SOC REPORTS

At some CPA firms the IT audit department also performs SOC examinations since the required competence and skill set are identical to that needed for AU-C-315 and AS 12 IT audit procedures. As the firm’s reviewers and assessors of SOC 1 reports that support external financial audits, IT auditors encounter many descriptions of systems and how a wide range of audit firms for many industries test controls; thus, learning what is generally accepted by practitioners and how related standards and procedures are implemented in practice. CONCLUSION

In general, the author has found during his career that there is a lack of understanding by CPAs about IT audit and IT auditors; however, the continuous introduction of innovative technologies and their impact on accounting and auditing has made IT auditors more relevant than ever before. This article has explained who IT auditors are, the types of organizations they work for, the standards they use, and their role in SOC examinations. Hopefully, equipped with this knowledge, CPAs will have a better understanding of IT auditors and their necessity and the results they procure from the IT audit. BRUCE H. NEARON, CPA is founder and managing partner of SOC 1 and SOC 2 Quality PLLC. He previously founded and for 18 years directed the IT audit department of the country’s 10th largest CPA firm. Bruce’s career started on Wall Street in the IT department of a white shoe brokerage firm and he worked for NASA at Kennedy Space Center. He owns an orange grove and lives on his farm near Gainesville.

SPRING 2019 | FLORIDA CPA TODAY

FLORIDA CPA TODAY | SPRING 2019

Revenue Recognition and Telecommunications BY VANESSA A. ZANG, CPA

When the Financial Accounting Standards Board (FASB) released Accounting Standards Codification 606, Revenue from Contracts with Customers (ASC 606), on May 28, 2014, several industries were provided additional resources for implementation. Among them was telecommunications (telecom), for which the Revenue Recognition Transition Resource Group and AICPA’s Telecommunications Entities Revenue Recognition Task Force have tackled some of the most challenging issues faced while implementing ASC 606. The public company effective date of Dec. 15, 2017, is behind us, and there have been two issues that have had the largest impact on telecom financial statements resulting from the adoption of the five-step model outlined in ASC 606: • Elimination of the contingent revenue cap (step 4) • Material right considerations for nonrefundable up-front activation or installation fees (step 2)

Telecoms often provide services through bundled offerings and generate revenues through subscription fees or usage charges for access to networks that provide data, internet, voice, and television services. Some also sell or lease equipment such as mobile phones, modems, cable boxes, and a variety of accessories. Prior to ASC 606 adoption, when a wireless device was sold, revenue recognized by a telecom was restricted to the amount received that was not contingent on the provision of future services, which was typically the cash received at the time of sale. This restriction is often referred to as the “contingent revenue cap.” Upon implementation of ASC 606, the sale of a phone and ongoing wireless services may be considered two performance obligations (step 2). When a contract includes two or more performance obligations, the entity would generally allocate the transaction price on a relative stand-alone selling price

(SSP) basis. ASC 606 cites the best evidence of an SSP as the price for which the entity sells a good or service under similar circumstances to similar customers. Therefore, under ASC 606 more revenue typically will be allocated to the equipment sale than the amount historically recognized because of the elimination of the revenue cap. Additionally, a contract asset is recorded at the time of sale equal to the revenue recognized on the equipment in excess of amounts billed. Entities that provide wireless devices at subsidized prices in connection with fixed-term service plans will be most affected by this change. Identifying performance obligations within a contract (step 2) involves dissecting the entity’s promise to the customer and determining if the goods or services are distinct. To be distinct, the promise to transfer the good or service must be separately identifiable from other promises within the contract, and the customer must be able to benefit from the good or service (either on its own or together with readily available resources). Telecom providers often charge activation or up-front nonrefundable fees. Typically, up-front fees are nominal, charged regardless of the contract term (i.e., one month vs. two year), and permit customers to renew the service contract without paying an additional fee. When up-front, nonrefundable fees are charged in connection with a bundled service offering, the performance obligation is often the delivery of the actual services (such as television, internet,

SPRING 2019 | FLORIDA CPA TODAY

and voice). Activation would not typically be considered a performance obligation, as no transfer of good or service has occurred. Under prior guidance (ASC 605), these were typically recognized over the life of the customer. As illustrated in ASC 606, the accounting treatment for an up-front fee depends on whether the customer’s ability to forgo paying the fee upon subsequent renewals represents a material right for which the customer would not have obtained without entering into that contract. If an option is granted to a customer to acquire additional goods (i.e., mobile phones) or services (i.e., discounted minutes), that option gives rise to a performance obligation only if it represents a material right the customer would not have obtained without entering into that contract. The Transition Resource Group emphasizes consideration of both qualitative and quantitative factors in the assessment of whether the entity provides a material right to an existing customer. If deemed a performance obligation, a portion of the transaction price is allocated to that option and the related revenue is recognized when control of the goods or services underlying the option is transferred or when the option expires. The determination of an appropriate period for recognition is subject to judgment.

wireless entities report reductions in service revenue with increases to equipment sales revenue due to the elimination of the revenue cap. While there is some relief for private companies for note disclosures, these issues will need to be thoroughly analyzed to determine the potential impact. VANESSA A. ZANG, CPA, is a director with Kreischer Miller in Horsham. She can be reached at vzang@kmco.com. Reprinted with permission from the Pennsylvania CPA Journal, a publication of the Pennsylvania Institute of Certified Public Accountants.

Although ASC 606 was effective for publicly held companies for reporting periods beginning after Dec. 15, 2017, it will soon be effective for private companies. Recently filed Form 10-Q reports of publicly held companies describe the impact of this revenue recognition on telecoms. Several

FLORIDA CPA TODAY | SPRING 2019

Although ASC 606 was effective for publicly held companies for reporting periods beginning after Dec. 15, 2017, it will soon be effective for private companies.

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Dealing with Subpoena Requests for Digital Data BY H. STEVEN VOGEL, ESQ., AND DEBORAH K. ROOD, CPA

CPA firm received a subpoena for the production of its documents related to an S corporation tax return where one shareholder alleged criminal activity on the part of the other shareholder. The firm contacted its professional liability insurer, which retained an attorney to help the firm properly respond. The attorney requested a copy of the firm's record retention policy (RRP) and the relevant documents. After providing documents to respond to the subpoena, the CPA firm considered the matter closed. Or so it thought. After reviewing the documents that were produced, the plaintiff's attorney believed the firm's production was incomplete and that portions of an email string potentially were missing. Additional discovery found numerous emails and text messages stored on a partner's personal home computer and mobile phone that were missed in the initial response to the subpoena. With this additional information, the plaintiff's attorney turned his attention to the CPA firm, believing the CPA firm was not disclosing information about the shareholder's potentially criminal activity. After five years of unsuccessful pursuit of this theory, the matter was dismissed, but not before the CPA firm lost hundreds of hours of billable time and incurred tens of thousands of dollars in legal fees responding to what first appeared to be a "simple" subpoena. What went wrong? How did the firm miss several key electronic documents when formulating its initial response to the subpoena? The firm's RRP did not address all sources of "electronically stored information" (ESI). Therefore, the firm's response failed to include items stored on personal devices. The proliferation of ESI and the multitude of places where it may be stored leave an electronic data trail with no true road map for a CPA firm to follow when producing such information. Consequently, CPA firms should recognize the importance of evaluating their record storage procedures and consider modifying their existing RRP to address ESI.

FLORIDA CPA TODAY | SPRING 2019

DEFINITIONS

To start, terminology related to ESI should be defined: • ESI: Information created, manipulated, communicated, stored, and/or best used in digital form, requiring the use of computer hardware and software. • Electronic storage media: Any and all electronic devices that can be used to store data, including internal and external hard drives, CDs, DVDs, USB drives, Zip disks, magnetic tapes, SD cards, copy machines, cellphones, "smart" appliances, and more. While a firm may opt to expressly prohibit the use of personal devices to store firm data, the definition of ESI should encompass all relevant information on both business and personal devices. Thus, employees are fully aware that all business data, irrespective of where it is stored, is subject to the firm's RRP. • Electronic discovery or e-discovery: This refers to any process by which electronic data are sought, secured, and searched with the intent of using them as evidence in a lawsuit, arbitration, or other alternative dispute resolution proceeding. • Metadata: This has been described as "data about data." It describes the characteristics, origins, and use of electronic files. HOW COULD ESI BE INVOLVED IN A PROFESSIONAL LIABILITY CLAIM?

Failure to comply with a subpoena or RRP

Subpoenas often include specific protocols for the production of ESI. Therefore, the firm's RRP should be reviewed in conjunction with the protocol referenced in a subpoena to ensure proper and efficient compliance with both. In the event of a claim, noncompliance with a firm's RRP may make the CPA firm appear dishonest or that it is trying to conceal information from the plaintiff as in the example above. The failure to follow subpoena protocol also may result in additional costs to search for, and produce, the requested documents. The firm could potentially be charged with contempt of court for failing to comply with the subpoena.

E-discovery preservation concerns

Proper maintenance and preservation of ESI is critically important and closely related to the RRP. Establishing a protocol for a firmwide litigation hold is also important when a firm receives a subpoena or is threatened with a lawsuit. A "litigation hold" permits the firm to halt all changes to and deletion of records in order to preserve them for discovery. Any alteration to electronic data, whether intentional or unintentional, will be recorded in the metadata of a file and cannot be erased. The failure to execute a required litigation hold protocol or to prevent the alteration of any ESI, including its metadata, following receipt of a subpoena or the threat of litigation may result in charges of spoliation of evidence. Similar to the failure to comply with subpoena protocol, monetary and other court sanctions may be imposed if there is evidence that ESI was not maintained or produced, or was altered. SO WHAT SHOULD YOU DO?

Establish an RRP

Every firm should have and comply with its RRP. If the firm does not currently have an RRP, it should hire an attorney familiar with services provided by the firm, professional standards, and federal and state laws to assist it in creating an RRP. Ensure the RRP addresses ESI

The RRP should include protocols for the maintenance and preservation of ESI. The RRP should address the time frame for saving emails as well as other documents with specific reference to statutes of limitation contained in the Internal Revenue Code or state law. In addition, the RRP should address and prohibit the alteration of ESI following receipt of a subpoena or other litigation hold triggering event, such as the receipt of a litigation summons or a request from an attorney to secure records. How the existence and implementation of a litigation hold is communicated to firm owners and employees should also be addressed. ESI-related items to be considered in an RRP include but are not limited to: (1) designation of an individual to oversee the legal hold process and monitor the collection of ESI; (2) the locations of ESI; and (3) how ESI is to be retrieved including how to retrieve information from legacy systems. ESI may never disappear from the server or other storage media

When you are required to search for and produce ESI,

Proper maintenance and preservation of ESI is critically important and closely related to the RRP. Establishing a protocol for a firmwide litigation hold is also important when a firm receives a subpoena or is threatened with a lawsuit. remember that it may exist on third-party websites, such as portals, remote servers, social media platforms, or commercial email sites as long as required by that organization's policy. It will be necessary to search for and produce relevant documents from these sites. Firms should consider policies that identify acceptable uses of social media for substantive work-related matters. Ideally, firm members would have separate social media presences for personal and business purposes. Address how ESI will be recovered in the event of a records request

Gone are the days when only one or two places must be searched when a subpoena arrives. Instead, every server, desktop, laptop, tablet, and smartphone â&#x20AC;&#x201D; including backups for those devices â&#x20AC;&#x201D; is a data repository that must be accounted for. Moreover, firms must ensure that the ESI continues to be readable. For example, if operating systems or software have changed, data may no longer be accessible. H. STEVEN VOGEL, ESQ., is a shareholder and attorney with Becker & Poliakoff PA. DEBORAH K. ROOD, CPA, is a risk control consulting director at CNA. For more information about this article, contact specialtyriskcontrol@cna.com. Continental Casualty Company, one of the CNA insurance companies, is the underwriter of the AICPA Professional Liability Insurance Program. Aon Insurance Services, the National Program Administrator for the AICPA Professional Liability Program, is available at 800-221-3023 or visit cpai.com. This article provides information, rather than advice or opinion. It is accurate to the best of the authors' knowledge as of the article date. This article should not be viewed as a substitute for recommendations of a retained professional. Such consultation is recommended in applying this material in any particular factual situations. Examples are for illustrative purposes only and not intended to establish any standards of care, serve as legal advice, or acknowledge any given factual situation is covered under any CNA insurance policy. The relevant insurance policy provides actual terms, coverages, amounts, conditions, and exclusions for an insured. All products and services may not be available in all states and may be subject to change without notice. This article originally appeared in Journal of Accountancy. ÂŠ2019 Association of International Certified Professional Accountants. Reprinted by permission.

SPRING 2019 | FLORIDA CPA TODAY

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Can your Credit Card Processor Trigger an IRS Audit?

BY ERIC COHEN, CEO, MERCHANT ADVOCATE

his may sound like a crazy question, but is it possible that the reporting required by the federal government can flag an audit?

The IRS has reporting regulations requiring credit card processors to submit a 1099-K annually reporting a merchant’s gross revenue. This IRS ruling was effective as of January 2012 with the intent of increasing voluntary tax compliance. The dollar amount reported should be equal to gross sales of all reportable payment transactions, including those taken on credit cards and processing through any card network.

To clarify, here are key definitions: • Payment card transaction — any transaction in which a payment card, or any account number or other identifying data associated with a payment card, is accepted as payment. • Third party network transaction — any transaction that is settled through a third-party payment network, but only after the total amount of such transactions exceeds $20,000 and the aggregate number of such transactions exceeds 200. The gross amount of a reportable payment excludes adjustments for credits,

FLORIDA CPA TODAY | SPRING 2019

cash equivalents, discount amounts, fees, refunded amounts or any other amounts. The dollar amount of each transaction is determined on the date of the transaction. If a taxpayer reports an amount different than what is on its 1099K, this can potentially become a flag for audit. TIMING ISSUES

To further complicate the reporting requirements, the monthly merchant transaction statement provided by a payer’s processor may not reconcile with the cumulative 1099-K report. The inconsistencies could be due to a timing issue, resulting from the merchant’s processing statement cutting

off at a different time of the month. For example, if March 31 falls on a Saturday, all corresponding transactions could post to April instead of March. It is crucial to reconcile these amounts to ensure the merchant is paying taxes on the proper amount of revenue. TOTAL GROSS SALES

Another issue potentially triggering an audit is improper reporting of tips. For example, the following situation resulted from a simple clerical error that was not detected until an audit occurred. A restaurant owner entered gross sales minus tips on line one (1) of his tax form. As CPAs know, the gross amount should have been reported including tips. This error caused a discrepancy in IRS 1099 vs. tax forms, triggering the audit. While this situation was resolved easily, it illustrates how a simple calculation error can cause business owners a lot of time and headaches. CASH DISCOUNT PROGRAM

A new area for potential challenges is the cash discount program. The credit card processing industry has devised a “reverse” surcharge transaction in order to be compliant across card brands (Visa/MasterCard/American Express/Discover). Surcharging is illegal in some states, and comes with its own set of rules. To get around this, merchants can provide a “cash discount” for goods and services, essentially eliminating the credit card processing fees. While the jury still is out on this practice, most businesses are unaware that in reality, cash discount programs do not reduce credit card fees without additional accounting procedures.

Here is how the cash discount program works: If a merchant has $1MM in sales and a discount rate of 4 percent, the business really has $1,040,000 in sales as 4 percent is assessed. The processor applies part of the 4 percent to pay transaction fees while retaining the balance as a substantial commission. Next the processor sends the merchant a 1099-K for $1,040,000 when it should have been $1MM. If the discrepancy is not caught and the $40,000 that was never actually received is not deducted, then the merchant’s tax bill will be inflated. In this case, assuming a 30 percent overall tax rate, the merchant will pay an additional $12,000 (1.2 percent) in taxes. Under these circumstances, what did the merchant really save? And, most likely the company’s customers are not happy that

the merchant surcharged them while the processor is taking an approximate 2 percent commission on every transaction. This is a lose-lose situation, unless the merchant deducts the expense and can substantiate it; most processors will not send their merchants expense forms disclosing the $40,000 in fees. Keeping an eye on credit card processing accounts can be a full-time job. Merchant Advocate has helped businesses save over $100MM for its clients in excess fees, hidden costs, and coding errors. We are experts in the credit card processing field. Reach out to us with any questions- we are here to help. For more information, please contact: Michael Dringus, Business Development Director. 609-709-6985 mdringus@merchantadvocate.com www.merchantadvocate.com

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Employee Benefit Plan Cybersecurity Risks, Responsibilities Expert tips can help protect your practice from needlessly losing money on credit card payments BY CHRISTOPHE RÉGLAT, PRESIDENT AND CEO, COAXIS

mployee benefit plans are attractive targets for cybercriminals because of the large amounts of valuable information that is stored and shared with multiple third parties. Just ask the City of Chicago. In 2016, the retirement accounts of more than 90 municipal employees were breached by hackers who scammed the city out of $2.6 million. Using the employees’ personal information, the hackers set up web profiles that allowed them to take out fraudulent loans from the retirement accounts. The company that administered Chicago’s deferred-compensation accounts spotted the series of suspicious transactions, alerted the city workers who were victims of the hack, and refunded the missing money to their accounts. The city also offered credit monitoring services to the affected account holders.

These incidents are sobering reminders of the fiduciary duty of plan sponsors, administrators, and service providers to protect sensitive employee information such as addresses, birthdates, compensation data and Social Security numbers. The AICPA has created an Employee Benefit Plan Audit Quality Center (EBPAQC) to help CPAs meet the unique and complex challenges of performing ERISA audits. When it comes to protecting participant data from cyber risks, the EBPAQC recommends the following practices and policies:

In another incident, a large university agreed to pay the Department of Health and Human Services (HHS) $650,000 in penalties and implement a corrective action plan after a malware infection targeted the university's employee health care plan, exposing the private health information of 1,500 people. The HHS investigation revealed that the university had failed to accurately assess the risk of malware infection and adopt procedures to secure its data. 26

FLORIDA CPA TODAY | SPRING 2019

• Data Management – Protect and control data. Secure physical access to on-premise file servers and workstations. Use encrypted data backups to protect your firm from lost or corrupted data and the threat of a ransomware attempt. Shadow copies of all changed files should be made throughout the day so the most recent versions can be restored. IT personnel should regularly review backup logs to verify that data backups are complete, and randomly restore files to verify the data is accessible. • Technology Management – Maintain up-to-date technology. Hackers often focus on computers that are not updated and use previously discovered holes to break in. Make sure every device on your network

has an upgraded operating system, adequate firewall protections, and antivirus software that is automatically updated and actively scanning for malware on a pre-set schedule. • Service Provider Management – Perform due diligence on plan data security of service providers. The AICPA cautions plan managers that an SOC 1 report does not address cybersecurity controls and risk. According to its EBPAQC, “For plans that utilize service organizations for most (or all) of their electronic records and investment transactions, a common misconception may be that those plans have relatively little cybersecurity risk if the service organization’s SOC 1 report identifies no issues.” An SOC 2 report specifically addresses cybersecurity controls and risks relevant to the service organization’s ability to maintain the confidentiality or privacy of information being processed by the system, including security, availability, integrity, confidentiality or privacy. “As such, an SOC 2 report can help plan management assess and manage risks associated with outsourcing a function to a service organization by providing information about the effectiveness of controls at the service organization and how those controls integrate with the plan’s controls.”

• People Issues – Employees are the weakest link when it comes to cybersecurity. You can have the greatest IT infrastructure in the world, but your firm still is vulnerable if an employee doesn't follow the rules and inadvertently clicks on a defective link or responds to a fraudulent email. It is important to properly train and manage personnel, including procedures relating to passwords, use of social media and internet privacy. The AICPA recommends making proactive and ongoing security training that protects client data part of a firm’s annual CPE curriculum. The consequences of a cybersecurity breach can be substantial and far-reaching: • There are the costs incurred to determine the extent of the breach, investigate and manage the incident response, recover data, and restore the system’s integrity. • The theft of personally identifiable information or an online security breach of plan assets and records can lead to monetary losses to participants, beneficiaries, the plan, the plan sponsor, and service providers. • Cybersecurity breaches can disrupt ordinary operations and damage a sponsor’s and administrator’s reputation. • Plan fiduciaries could be found to be responsible for a breach and required to restore losses to the plan participants and beneficiaries. • A cybersecurity breach of protected health information can result in Health Insurance Portability and Accountability Act (HIPAA) violations and expose the plan sponsor and service providers to fines or monetary settlements. C

If all of this seems overwhelming, consider hiring an outside consultant who can review your firm’s network security and provide direction and implementation support to achieve an optimum level of cybersecurity to protect your firm.

The AICPA recommends making proactive and ongoing security training that protects client data part of a firm’s annual CPE curriculum.

For more information about the resources provided by the AICPA’s Employee Benefit Plan Audit Quality Center, visit www.aicpa.org/interestareas/employeebenefitplanauditquality. CHRISTOPHE RÉGLAT is president and CEO of Coaxis, an endorsed program for the FICPA. Coaxis provides CPA firms with a fully-hosted and managed network solution designed to remove the complexities of federal and industry compliances, curb the demands of maintaining an IT infrastructure, and greatly minimize the threat of cybercrime. For more information, call (850) 391-1022 or email lisa.bryant@coaxissolutions.com. COAXIS ad 2.pdf

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SPRING 2019 | FLORIDA CPA TODAY

TAKE FIVE Q&A

Rummesa Abrar, CPA

Meet Rummesa Abrar, CPA and FICPA member since 2012. Rummesa has enjoyed progressing from FICPA student member all the way to regular member. Here’s her story. CPA, WHY DID YOU CHOOSE IT?

My late aunt was the only accountant in my family. Since I was good at math, an accounting career seemed like a natural choice. The FICPA gets credit for pointing me in the direction of becoming a CPA, and for supporting me every step of the way. WHAT FICPA PROGRAMS AND OPPORTUNITIES HAVE YOU FOUND MOST VALUABLE?

I first learned of the FICPA while a sophomore at Miami Dade College Honors Program. Accounting Professor Cavalaris recommended that I join the FICPA as a student member and apply for its Minority Summer Residency Program (MSRP). To my surprise, I was accepted and became a proud FICPA student member! I was 19 at that time. The MSRP program was a transformative experience, also becoming the catalyst for my dream of becoming a CPA. I then transferred to FIU’s Honors Program and was extremely involved on campus – as a distinguished member of Beta Alpha Psi, on Alpha Kappa Psi’s Treasury Committee, serving as Tau Sigma Honor Society Treasurer and more. In 2013 I was fortunate to be awarded an FICPA Scholarship Foundation (SF) Scholarship. The scholarship went a long way in helping defray tuition expenses. It was so gratifying to accept the check at an FICPA chapter meeting and to celebrate my achievement with some great CPAs, including FICPA Past President Jeff Greene. The FICPA has many programs to support its members at all stages of their careers, such as the Accounting Scholars Leadership Symposium (ASLS). In 2016, through the ASLS I refined my etiquette skills, received a CPA mentor, and enjoyed visiting Walt Disney World’s accounting department to see the numbers behind the magic. By then there was little doubt that a CPA career was right for me. WHAT ARE YOU DOING NOW?

Today I am a CPA and sr. tax accountant with Ernst & Young LLP. I work with colleagues and clients from around the world and love my job! Through EY, I have been involved in an array of opportunities. To bring it full circle, FICPA introduced how diverse the accounting profession is becoming and now I get to be a part of design thinking sessions at EY, fostering such diversity in my profession.

FLORIDA CPA TODAY | SPRING 2019

HOW DID YOU GET THERE?

My CPA journey took many turns. I enjoyed interning at two national firms. I then returned to FIU to complete my MAcc while working full time for a regional CPA firm. My goals were to allow more time to see what aspects of accounting I enjoyed most; excel in school; take the CPA exam immediately after graduation; and to avoid repeating any of the four exam sections. I chose the right path for me, earning a MAcc with tax specialty. Following graduation I studied with a vengeance for the CPA exam, passing all four parts the first time, with flying colors!

Rummesa (l) Receives FICPA Scholarship Foundation Check, 2013

After being part of the FICPA as a student member, MSRP attendee, SF scholarship recipient, and ASLS attendee, I was thrilled in 2017 to move on to my current status: “CPA Regular Member.” WHAT’S NEXT?

I am anxious to pay forward the support I have received by volunteering – at my chapter, with the SF and mentoring minority accounting students like me. I hope to soon join the YCPA Committee too. The FICPA has given so much to me; it’s now time to give back.

Caption: (l-r) Brenda Hubbard, FICPA MSRP Director and Rummesa, 2012

Are you Using Your Membership Benefits? 30 Hours of Complimentary CPE every membership year Enough to make membership pay for itself

Impact Report Legislative Updates Stay connected to the most important developments during session

Discounted CPE and Events Access hundreds of in-person, online, and on-demand high-quality learning and membership events for less

Volunteer Opportunities Give back to the community through CPA Day of Service and other charity and philanthropic events

Local Chapters Make connections and find local CPAs and business leaders in 26 chapters around the state Member Committees Shape the future of our association by serving on a committee

Legislative Advocacy Stay aware of the issues and support our efforts to educate Florida lawmakers on the value of the CPA profession Exclusive Member Publications Florida CPA Today, NewsFlash Weekly, and CPE Ahead keep you connected to new opportunities?

FICPA Connect Collaborate with other members online – anywhere, anytime Communities for Young CPAs, Students, & Women in Accounting Be inspired and learn from members in your shoes Scholarship Foundation Make a difference for the next generation of CPAs Member Discounts Leverage FICPA’s partnerships for exclusive member discounts on products, services, and resources for your practice

We have the connections, expertise, and knowledge to help you do your best. SPRING 2019 mid-May. | FLORIDA Call Member Services at (800)342-3197 x1 with any questions. Renewals will open

CPA TODAY

STAFF REPORT

YCPAs Head to Tallahassee for Leadership Summit The FICPA Emerging Leaders Program Class II (ELPII) culminated January 22 – 24 with the Emerging Leaders Summit (ELS) in Tallahassee. Classmates and other young CPAs (YCPAs) gained first-hand knowledge about Florida’s legislative process and participated in the Summit's Leadership Forum. ELPII was comprised of twenty-six YCPAs from around the state. These professionals enjoyed taking part in local and statewide activities during the seven-month ELP program. Before the Tallahassee Summit, the class completed two half-day local sessions where the YCPAs learned about themselves and their communities. During the first session the class completed personal DiSc® assessments, each gaining insight into their unique communication style. The assessments were reviewed with Scott Bradbary, chief talent officer for Warren Averett CPAs and Advisors. At the second session participants connected with their locally-elected officials and area not for profit organizations. ELPII classmates from every region of Florida also completed a community service project prior to graduation. Class service projects can be viewed on the FICPA’s Facebook page. FICPA President/CEO Deborah Curry, along with Florida Republican Party Chairman Senator Joe Gruters and Tallahassee City Commissioner Dr. Elain Bryant welcomed the YCPAs. FICPA Chairman Gary Fracassi then provided the group with an update on the profession. The second day featured engaging sessions with The Communications Doctor, Dr. Susanne Gaddis. Gaddis’s topics ranged from “Communicating during times of conflict and change” to “Speak for Success: How to polish the way you

present yourself”. “I thoroughly enjoyed the speaker and the content”, a participant said. “She was very entertaining and captured my attention”. After the Leadership Workshop, staff from Florida Taxwatch presented “Building Florida’s Budget”. During this hands-on exercise, the YCPAs were tasked with balancing the state budget using real-world figures. “Excellent session; got everyone involved. This was a great way to get to know the other professionals in a casual setting. It was very insightful to see how difficult it really is to balance a state budget.” On the final day, attendees visited Florida’s Capitol for a half day of meetings with legislators including Senator Ed Hooper, House Majority Leader Dane Eagle, Representative Jayer Williamson, Senator Gary Farmer and Representative Jason Fischer. Each Representative gave their insight on upcoming bills while Justin Thames, director of governmental affairs, FICPA, explained what the bills could mean for the profession. One participant said, “It was amazing to meet with our elected officials and to learn how the FICPA interacts with the legislature as an advocate and leading voice for the profession”. The Summit ended with a graduation luncheon featuring guest speaker Department of Business and Professional Regulation Secretary Halsey Beshears. The FICPA soon will be accepting applications for ELP Class III. Visit the FICPA Young CPAs web page www.ficpa.org or contact Emerging Professionals Manager Jennifer Allen jennifer@ficpa.org | 850-224-2727 for more information. JENNIFER ALLEN, emerging professionals manager, FICPA

For more information on the Emerging Leaders Program and how to apply, visit

emerging.ficpa.org 30

FLORIDA CPA TODAY | SPRING 2019

Our CPA Partners - and their clients - know this: It is not about what’s now. It is about what’s next. You need to see what’s next...

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STAFF REPORT

R&R For a Great Cause Join us for the win-win. Relax after busy season while helping raise scholarship money for deserving Florida accounting students at one of these fun events. Here’s our 2019 line-up: 1040K COMMUNITY RUN (5K, 10K AND KIDS RACES)

April 27 | 7:15 a.m. | 450 Las Olas Blvd., Downtown Fort Lauderdale

Join CPAs and South Florida’s local running community to celebrate crossing two finish lines – a festive road race AND tax filing deadline! We proudly recognize and thank our Platinum sponsors Dosal Tobacco and Four D’s Realty, LLC; Legacy Sponsor The Davis Family Foundation; Gold Sponsors FICPA and Morrison, Brown Argiz & Farra, LLC; Silver Sponsors EY, LLP, Moore Stephens Lovelace, PA, PWC, Sally Goldman Foundation and Beer Sponsor Marcum Accountants & Advisors . We also thank all of bronze and raffle sponsors. Register today and meet us on Las Olas Blvd. Can’t wait to see you there. View sponsor list and register www.1040K.org. CPE & GOLF

May 3 | Tampa Bay

Sponsorships and registrations for the 15th Suncoast Scramble Golf Tournament are in full swing. Join Presenting Sponsor Otegrity Payroll & HR, tournament co-presenter the FICPA Suncoast Chapter; host sponsor PENSEERVCO and the Scholarship Foundation at the East Lake Woodlands Country Club in Oldsmar for four hours of CPE followed by a fun and challenging round of golf. “Every year players enjoy competing for the coveted Florida CPA Champions Cup,” said Bill Moore, event chairman. “Non-golfers are invited to register to attend morning CPE for just $50. View full sponsor and registeration information www.ficpa.org/golf. SAILFISH CHAPTER’S LEARN@SEA CRUISE

May 9 – 12 | Departs Port Canaveral Enjoy a day at sea, visit Nassau and earn 4 CPE hours aboard Royal Caribbean Harmony of the Seas. Register at www.ficpa.org/learnatsea. SAVE THE DATE: 11TH ANNUAL FAMILY RETREAT

July 25-28 | Key Largo Five-Star Ocean Reef Resort is the perfect backdrop for the 11th Annual Family Retreat. Enjoy family fun, sunshine and casual networking with Florida’s top CPAs at the ultra-exclusive Ocean Reef. Gather your family and unwind with us. No ties allowed but bring your clubs and play in our charity golf tournament (July 26). Book today. Accommodations are known to sell out! www.ficpa.org/retreat For more sponsorship or registration information for any of these events, contact Jan Dobson, FICPA Scholarship Foundation sr. director, at 800-342-3197, ext. 380 or ficpascholarship@ficpa.org. 32

FLORIDA CPA TODAY | SPRING 2019

STAFF REPORT

BOA Announces New Leadership

Tracy L. Keegan

Jesus Socorro, CPA

January’s Board of Accountancy (BOA) meeting marked the official start for its new leadership. In December, Tracy L. Keegan (consumer member) was elected BOA chair and Jesus Socorro, CPA was elected vice chair. Keegan most recently served as vice chair from 2017-2018. She also has served on the BOA’s Probable Cause Panel, as chair of its Rules Committee, and as a member of the Budget Task Force. Keegan was appointed to the BOA by Governor Rick Scott in July 2014 and reappointed in 2018. In her professional life, Keegan is the president and chief financial officer of the state-chartered community bank, BankFLORIDA.

Jesus Socorro, CPA was appointed to the BOA by Governor Rick Scott in December 2016. In additional to serving as vice chair, he will serve on the Board’s Legislative Affairs Committee and chair the Rules Committee. Socorro has served on the BOA’s Probable Cause Panel and as chair of its Budget Task Force. He also was a member of the Ethics Committee of the National Association of State Boards of Accountancy. Socorro is the managing principal of the Risk & Transaction Advisory practice at Morris, Brown, Argiz, and Farra CPA firm in Miami. The Florida BOA consists of nine members responsible for regulating Certified Public Accountants and Certified Public Accounting Firms for the State of Florida, including examination, licensure qualifications, and ruling on disciplinary cases. Seven members are CPAs and two are consumer members. The Board meets at least nine times annually at various Florida locations. All are open to the public. JUSTIN THAMES, DPL, director of governmental affairs, FICPA

WE’RE ONLY SUCCESSFUL BECAUSE OF YOU. Donate to the Florida CPA/PAC when you renew your FICPA dues

90%

of the candidates that the Florida CPA/PAC supported last year were elected.

Your voluntary contribution helps us educate lawmakers on the issues that matter to CPAs – from licensing standards to tax reform and more. Stand up for our profession and donate when you renew your FICPA membership!

DONATE: ficpa.org/PACcontribute Contributions are strictly voluntary and are not deductible for federal tax purposes. The Florida CPA/PAC is an entity completely separate from the FICPA. The Florida CPA/PAC is supported solely by the voluntary contributions of members of the FICPA and others. The Florida CPA/PAC is registered as a corporation with the Florida Division of Corporations and as a Political Committee with the Florida Department of State.

SPRING 2019 | FLORIDA CPA TODAY

DOR UPDATE

Corporate Income Tax Review BY KIMBERLY BERG, RULES COORDINATOR, FLORIDA DEPARTMENT OF REVENUE

During the 2018 Legislative Session, the Florida Legislature tasked the Department of Revenue with reviewing significant changes to federal corporate income tax made by the Tax Cuts and Jobs Act (TCJA) of 2017 that would impact Florida. In particular, the Department was instructed to report on the effects of federal tax changes on the state corporate income tax and on the state’s corporate taxpayers. The final report was delivered to the Governor, President of the Senate, Speaker of the House of Representatives, and the chairs of appropriate legislative committees February 1, 2019.

To create the report, the Department monitored guidance provided by the Internal Revenue Service (IRS), other tax authorities, and advisory groups; established an internal Department team that met weekly to review, draft, and revise report components; and conducted public workshops August 22, 2018, and October 24, 2018, to gather public input. The Department also created a dedicated webpage to collect comments and any additional input from the public about the TCJA. The webpage provided the public with multiple methods for providing comments.

Read the final report on the Department’s website at floridarevenue.com/ CITReview. A total of 13 public comments were received and posted to the Department’s website, along with transcripts that included comments made at the public workshops. Status reports and other resources related to the project were also posted. The final report included a discussion of the potential effects of the TCJA, including options for integration of state law with federal law; estimates of potential fiscal impacts for each option; and a compilation of all public input received, in accordance with Chapter 2018-119, Laws of Florida. Fourteen topics with significant impact on Florida corporate income tax were discussed in detail, in addition to the identification of many topics with minimal impact on Florida corporate income tax. The final report is available on the Department’s website at floridarevenue.com/CITReview. KIMBERLY BERG

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Spring 2019 - Florida CPA Today | Volume 35, Number 2

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President's Message Spring 2019