Insight Magazine - Fall 2023

Creating Sustainability Goals Accounting for DEI Writing Effective Engagement Letters Navigating Non-Competes Audit Meets AI Cannabis Industry Social Equity And More!

ILLINOIS CPA SOCIETY 550 W. Jackson Boulevard, Suite 900, Chicago, IL 60661 www.icpas.org Publisher | President and CEO Geoffrey Brown, CAE Editor Derrick Lilly Assistant Editor Amy Sanchez Senior Creative Director Gene Levitan Copy Editor Mari Watts Photography Derrick Lilly | iStock Circulation John McQuillan

ICPAS OFFICERS Chairperson Jonathan W. Hauser, CPA | KPMG LLP Vice Chairperson Deborah K. Rood, CPA, MST | CNA Insurance Secretary Brian J. Blaha, CPA | Wipfli LLP Treasurer Mark W. Wolfgram, CPA, MST | Bel Brands USA Inc. Immediate Past Chairperson Mary K. Fuller, CPA | Citrin Cooperman

ICPAS BOARD OF DIRECTORS John C. Bird, CPA | RSM US LLP Jennifer L. Cavanaugh, CPA | Grant Thornton LLP Brian E. Daniell, CPA | West & Company LLC Pedro A. Diaz de Leon, CPA, CFE, CIA | Cherry Bekaert Advisory LLC Kimi L. Ellen, CPA | Benford Brown & Associates LLC Lindy R. Ellis, CPA | Ernst & Young LLP Jennifer L. Goettler, CPA, CFE | Sikich LLP Monica N. Harrison, CPA | CLA (CliftonLarsonAllen LLP) Joshua Herbold, Ph.D., CPA | University of Illinois Scott E. Hurwitz, CPA | Deloitte LLP (Retired) Joshua D. Lance, CPA, CGMA | Lance CPA Group Enrique Lopez, CPA | Lopez & Company CPAs Ltd. Leilani N. Rodrigo, CPA, CGMA | Roth & Co. LLP Richard C. Tarapchak, CPA | Verano Holdings Corp.

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Insight is the magazine of the Illinois CPA Society. Statements or articles of opinion appearing in Insight are not necessarily the views of the Illinois CPA Society. The materials and information contained within Insight are offered as information only and not as practice, financial, accounting, legal or other professional advice. Readers are strongly encouraged to consult with an appropriate professional advisor before acting on the information contained in this publication. It is Insight’s policy not to knowingly accept advertising that discriminates on the basis of race, religion, sex, age or origin. The Illinois CPA Society reserves the right to reject paid advertising that does not meet Insight’s qualifications or that may detract from its professional and ethical standards. The Illinois CPA Society does not necessarily endorse the non-Society resources, services or products that may appear or be referenced within Insight, and makes no representation or warranties about the products or services they may provide or their accuracy or claims. The Illinois CPA Society does not guarantee delivery dates for Insight. The Society disclaims all warranties, express or implied, and assumes no responsibility whatsoever for damages incurred as a result of delays in delivering Insight. Insight (ISSN1053-8542) is published four times a year, in spring, summer, fall, and winter, by the Illinois CPA Society, 550 W. Jackson, Suite 900, Chicago, IL 60661, USA, 312.993.0407.

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inside

Fall 2023

spotlights

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The Power of Purpose: How an Accounting Career Can Support Your Passions

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CEO Outlook There’s More to DEI Than Race and Gender

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Capitol Report Under Pressure: State Government Agencies Navigate Audit Difficulties

46 Gen Next Why: The Most Powerful Three-Letter Word 48 In Play LaToya C. McKinney, CPA, MSAA, wants to show diverse students that there’s a place for them in the profession.

trends 8

Risk Management 8 Critical Elements of an Effective Engagement Letter

10 Hiring & Retention Navigating Non-Competes in a Changing Labor Market 12 Artificial Intelligence What Happens When Audit Meets AI?

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Beyond Compliance: Creating Sustainability Goals That Make a Difference

14 Diversity & Equality Cannabis Industry Social Equity Is Falling Short: Can CPAs Help?

16 Young Professionals Career Paths in Accounting Don’t Have to Fit a Mold

insights 30 Growth Perspectives The Future for Accounting Firms Is Advisory Services 32 Leadership Matters How to Become a Better Delegator 34 Evolving Accountant DEI: Meaningful Change Requires an Ecosystem 36 Financially Speaking 3 SECURE 2.0 Changes to Discuss With Financial Planning Clients 38 Corporate Insider 3 Benefits of Strong Supplier Relationships

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Accounting for DEI: Active Choices Drive Results

40 Tax Decoded Illinois’ Sales Taxes: A Deeper Dive on Exclusions and Exemptions 42 Ethics Engaged The Ethics of DEI: Cultivating a Positive Workplace 44 Practice Perspectives Have It All: Better Profit Margin, Work-Life Balance, and Clients

ceooutlook Geoffrey Brown, CAE President and CEO, Illinois CPA Society

There’s More to DEI Than Race and Gender Expanding the accounting profession’s dialogue surrounding diversity, equity, and inclusion is a business imperative.

There are many areas in my professional and personal life that I’m passionate about: Volunteerism, philanthropy, and running are just a few examples that come to mind. One that often stands out among the others is advocating for greater diversity, equity, and inclusion (DEI).

Throughout my career, I’ve always sought ways to drive conversations around DEI and facilitate actionable steps that organizations can put into motion. These actions have included offering scholarships, hosting educational programs on topics like implicit bias and why diversity matters, leading research about the state of diversity in the respective profession, conducting listening sessions with organizations and their affiliated professionals, and facilitating conversations designed to incent lasting change.

Within the accounting profession, DEI conversations have long been focused on race and gender. While these critical dimensions of diversity and identity often get the most attention when we discuss equity, inclusion, and belonging, there are other important DEI elements that must be accounted for if we truly want to better and benefit our workplaces.

Given the accounting profession’s current talent shortage, intentionally focusing on expanding DEI could lend a hand in mending the talent pipeline and driving business success. For instance, a new or renewed focus on a dimension like differing ability could prove beneficial; studies have found that ethnically and gender diverse organizations tend to be more profitable. Looking at a wider swath of diversity that includes neurodivergence could enable an organization to be more effective at solving problems and ultimately more impactful.

As we begin to broaden DEI beyond the confines of race and gender, we must be mindful to ensure that our organizational

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cultures align with the expectations of an increasingly more diverse and inclusive population. Without cultural alignment, recruitment and retention will almost certainly continue to challenge organizations. And while expanding DEI efforts will look different within every organization, what will be the same for all is that genuine intentionality and commitment are essential to the success of any DEI initiative.

I can assure you that there’s no one-size-fits-all approach to achieving meaningful DEI within your organization, let alone across the accounting profession. At a minimum, I implore those in positions of influence to champion change within their organizations by identifying which DEI dimensions are most viable and then determining appropriate metrics for measuring progress and success. Otherwise, it may be difficult to show that DEI is a real organizational priority or the business imperative that it’s becoming.

We all have important roles to play in expanding our views on diversity, reducing bias, and addressing the lack of inclusivity and equity in the accounting profession. I believe it’s important for professional communities like ours to prioritize creating spaces for conversations and programming across the spectrum of DEI. We must also acknowledge that expanding the dialogue surrounding this topic will be uncomfortable and challenging at times, but it’s what’s needed to keep the profession moving forward. Creating and sustaining a profession that’s relevant and welcoming to an increasingly diverse population and talent pipeline is essential. I invite you to join us in driving dialogue, seeking solutions, and enacting real, sustained change.

capitolreport Martin Green, ESQ Senior Vice President and Legislative Counsel, Illinois CPA Society @GreenMarty

Under Pressure: State Government Agencies Navigate Audit Difficulties As units of local government around the state eagerly search for CPAs and firms to perform their audits, efforts are underway to mitigate these challenges.

One of the critical issues facing the profession right now that’s come to the forefront in state government is the availability of CPAs to perform audits for compliance filings. The ongoing pipeline issues, demographic shifts as more CPAs retire, and an increase of CPA firms opting out of audit work altogether have significantly limited the pool of available auditors, leaving state agencies, units of local government, charities, and grant recipients scrambling to meet compliance requirements. This perfect storm is even more exasperated by Illinois’ large number of local government units (more than 7,000) and state funds.

Earlier this spring, I was contacted by the Local Government Division of the Illinois Comptroller’s Office and the Illinois Municipal League to discuss this issue. Specifically, the difficulties downstate units of local government are having when trying to find a CPA or CPA firm to perform their audits. While it’s preferable to have a local CPA or CPA firm perform audits for these entities, it’s not required.

I explained this to a southern Illinois municipality I was working with on its request for proposal (RFP). Ultimately, a firm from the Chicagoland area responded to their RFP and was awarded the audit work. This particular firm is examining its audit practices with on-site fieldwork to see what work can be performed remotely to eliminate lengthy or unnecessary travel to the municipality.

As part of these discussions, the Illinois CPA Society (ICPAS) surveyed CPAs and firms to gauge their capacity for performing government audits and their level of interest in having their name posted as a resource for the comptroller’s office and municipal league to refer units of local government to them for help.

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So far, we’ve compiled an ongoing roster of CPAs and CPA firms who are available to do this work, which is in addition to our “Find a CPA” directory on the ICPAS website.

In addition to the conversations with the comptroller’s office and municipal league, ICPAS has had conversations with other government agencies on this issue, including the Governor’s Office of Management and Budget, the Illinois State Board of Elections, and the Office of the Illinois Attorney General. Notably, Illinois Auditor General Frank J. Mautino is also feeling the pressures brought on by the decreased auditor pool, as fewer firms are responding to RFPs to perform state government audits. Similar to CPA firms, Mautino has also observed intense competition when trying to employ CPAs in his office to perform compliance audits and other oversight responsibilities.

Additionally, ICPAS President and CEO Geoffrey Brown, CAE, has recently sent an informational letter to constitutional officers and departments to facilitate a larger discussion and focus on this issue.

The letter serves four key purposes: 1. To formally provide information on the nationwide issue.

2. To outline the challenges of completing the number of required audits in a timely fashion.

3. To share ICPAS’ views and suggested remedial actions.

4. To encourage annual audit alternatives used by state government entities for regulatory oversight.

Of course, central to our discussions with these officials has been the challenge for CPAs and their firms to master the complexity and evolution of audit standards—a key to providing these levels of audit services.

In addition to Brown’s letter, ICPAS’ Not-for-Profit Organization Committee drafted an extensive informational paper with suggestions to improve administrative processing of compliance filings and other substantive alternatives to annual audit filings. Also, during this past spring legislative session, ICPAS, along with other stakeholders, was successful in increasing the decades-old charitable audit threshold from $300,000 to $500,000, while

charities at the $300,000 level will be required to submit financial statement reviews.

While these initial responses and actions have provided some mitigation to the larger issue, substantive information will hopefully facilitate consideration of alternatives to some agencies’ overreliance on the audit as a perfunctory compliance tool.

Overall, it would be counterintuitive to push back on the high demand for professional services of this nature. As a profession, it’s important that we continue to maintain the highest levels of audit standards. Of course, the challenge for CPAs is to maintain ownership of the audit franchise and meet the regulatory demands.

www.icpas.org/insight | Fall 2023

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RISK MANAGEMENT

8 Critical Elements of an Effective Engagement Letter An engagement letter is critical to the success of any CPA. To help protect yourself and your firm, make sure your letter has these eight elements.

BY DEBORAH K. ROOD, CPA, MST

1. CLIENT NAME

ONE of the best tools a CPA can (and should) consistently employ to help manage their professional liability risk is an engagement letter—a document that defines the contractual obligations between the CPA and their client.

Of course, it can’t just be any engagement letter—it needs to be an effective one. An effective engagement letter identifies the services to be performed, each party’s responsibilities, and the terms and conditions of the engagement. Ineffective engagement letters are overly brief, absent of key elements, and are poorly written.

While most CPAs understand the significance of engagement letters, there’s evidence that supports the need for practice improvement throughout the accounting profession. According to CNA, the endorsed insurer of the AICPA Professional Liability Insurance Program, only 50% of tax claims asserted against CPA firms in the program in 2022 had an engagement letter related to the underlying service. For consulting services claims in the same year, only 68% had an engagement letter (better but not where it should be).

To help you protect yourself and mitigate risk, these eight critical elements should be included in every engagement letter.

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The first critical element may seem obvious—the identities of the parties involved in the engagement. However, it’s important to remember that identifying all engaged parties provides a defense to third parties asserting that the engagement was performed for their benefit.

In your engagement letter, ensure that the client’s proper legal name is used, including subsidiaries and other related parties (if services are to be delivered to those parties). Within the body of the letter, consider identifying a specific point of contact you’ll take direction from and to whom questions and requests should be directed. Identifying a singular client point of contact has proven to be beneficial, particularly when business owners are in conflict with one another or if a request is made of you by an owner who’s not the primary contact.

2. SCOPE OF SERVICES Often, disputes arise when the client’s understanding of the services to be rendered differs from yours. To reduce the likelihood of an expectation gap and avoid misunderstanding or misinterpretation, your engagement letter should clearly delineate the services to be provided with sufficient detail.

Although such detail may be fairly straightforward for an attest or tax compliance engagement, it’s commonly less so for consulting

and tax services other than tax compliance. Work with your client to articulate the specific scope of the service they require and include such details in your engagement letter.

For example, “Consult regarding the individual income tax implications of the current year sale, installment sale, or like-kind exchange of the real property located at 123 Main Street, City, State, based upon a sale price of $X,” is preferable to a brief summary.

For instance, “Minimize the tax on the sale of the rental property,” is far too brief and may raise questions regarding which rental property or if tax was truly minimized if another planning strategy resulted in less tax.

CPA firm deliverables are solely for client use, not for third parties, which should be clearly stated in the engagement letter.

6. ENGAGEMENT TIMING Identify when services will begin and any contingencies, such as receipt of client documentation, engagement letter, or retainer, that may affect the start date. This clarification helps reduce the risk of a misunderstanding with your client regarding timing.

After the scope of services is drafted, consider asking a colleague or an impartial party to read your engagement letter to help evaluate whether it’s sufficiently specific.

The same is true for the service’s end date. Identify when the services are expected to conclude, whether it’s a milestone, such as delivery of the engagement work product, or a specific date or length of time. This clarification helps determine when the statute of limitations begins, which can aid in your defense in the event of a professional liability claim.

3. CPA FIRM RESPONSIBILITIES

7. TERMINATION AND WITHDRAWAL

Your CPA firm’s responsibilities are generally limited to performing the services identified in the engagement letter in accordance with the professional standards outlined in the letter. Why include relevant professional standards? Doing so helps identify the specific duty of care to which you’ll be held to in the event of a dispute, and it provides a defense to the plaintiff’s counsel suggesting that a different standard applies.

While nobody likes to contemplate ending an engagement before work is complete, it can and does occur. You may wish to terminate an engagement if your client insists that you take an unreasonable tax position or if your client hasn’t paid you for your services. So, make sure to include a statement in your engagement letter that notes you may withdraw from the engagement at any time without completing the services. If you feel providing examples is necessary, be sure to include the phrase, “including but not limited to,” to convey that other circumstances may result in termination or withdrawal.

This section of your engagement letter should also include limitations of the engagement which, for most services, includes no responsibility to detect theft, fraud, or weaknesses in your client’s internal controls.

4. CLIENT RESPONSIBILITIES Experience demonstrates that clients who deflect their responsibilities related to your services are quick to blame you if problems arise. Therefore, clearly defining their responsibilities is an important element of every engagement letter for any service.

Client responsibilities may include, but are not limited to: • Providing requested information and responding to inquiries in a timely manner.

• Maintaining a system of internal controls.

• Making management decisions.

• Accepting responsibility for the results of your firm’s services.

• Providing certain representations when requested.

5. DELIVERABLES The deliverable is the result or work product of the service you’ve been engaged to perform for your client (e.g., an audit report, a tax return, or a written memo summarizing recommended process improvements). Written deliverables are preferred to oral ones since they provide evidence of the work you’re expected to perform. However, if oral advice is provided, the deliverable could be an email to your client summarizing the oral advice you provided. Of course, like the scope of services, it’s important to be specific in your engagement letter. Be sure to: • Describe the anticipated deliverable and its format.

• Identify tax form names and numbers to be prepared (if applicable).

• Attach a template of the deliverable (if additional clarity is needed).

• Note any restrictions or limitations on the use and distribution of the deliverable. With the exception of attest engagements, most

8. BILLING AND FEES Including the fees or fee estimate in your engagement letter helps clarify, in writing, the anticipated cost to your client. This specificity increases the likelihood of being paid and reduces the likelihood of a fee dispute. You should also identify contingencies that may result in fees that differ from the estimate provided.

Simply put, engagement letters often serve as written records of discussions or mutual understandings that’ve already transpired.

What’s important to take away is that engagement letters help protect you and your firm from disputes and offer clients clarity of what they can expect while working with you. If a client balks at signing an engagement letter, consider drawing a parallel to their business or everyday life. Would an architect start designing a home without an understanding of what the homeowner wanted?

Would an individual turn a car over to a mechanic without first approving what is to be repaired and at what cost? Obviously not.

The same should be true for CPAs—engagement letters should be the foundation of our business.

Deborah K. Rood, CPA, MST, is a risk control consulting director for CNA Insurance in Chicago and serves as vice chairperson of the Illinois CPA Society Board of Directors.

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 author’s 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.

www.icpas.org/insight | Fall 2023

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HIRING & RETENTION

Navigating Non-Competes in a Changing Labor Market A proposed rule would prohibit employers from using non-compete agreements with workers.

What does this mean for the accounting and finance profession?

BY LORI GOLDSTEIN, JD

THE use of employee non-compete agreements in hiring practices has faced criticism in recent years, with opponents expressing concern that they prevent job mobility and stifle wages for workers.

Employers, however, are often proponents of non-competes and see them as necessary for protecting their intellectual property (IP), trade secrets, client lists, and other business interests. Now, the federal government is stepping in on the issue.

On Jan. 5, 2023, the United States Federal Trade Commission (FTC) proposed a rule that would ban almost all employee non-compete restrictions, superseding varying state laws and retroactively invalidating existing agreements. Currently, most states—including Illinois—allow non-compete agreements with reasonable duration and geographic scope. A few states—California, North Dakota, and Oklahoma—ban them, and others restrict them with salary thresholds.

The potential for a national ban is already making employers in all states scramble. Some are now amending existing restrictive covenant agreements and making changes to future employment and separation agreements.

While there’s no need for accounting and finance firms, or those working for them, to panic yet, there are a few things to consider to get ahead of a potential federal ban.

UNDERSTAND NON-COMPETE AGREEMENTS AND OTHER RESTRICTIONS There are a few common types of restrictions employers can currently impose on employees: 10

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• Post-employment non-compete: This agreement prohibits a former employee from working for competitors or in a competitive business for a certain duration. This is the strictest restriction type. Of course, during employment, employers have more leeway to restrict competition and other activities, and employees have common law fiduciary duties.

• Post-employment non-solicitation: This agreement prohibits a former employee from contacting clients, prospects, employees, contractors, and/or vendors of their prior employer to lure them away or to a competitor. Sometimes agreements include a nonsolicit that may be considered a “de facto” non-compete. It prohibits accepting the client’s business, even if it wasn’t solicited by the former employee.

• Confidentiality/non-disclosure, trade secrets, IP, and nondisparagement: These types of agreements and clauses come under less scrutiny and have fewer limitations than noncompete/non-solicit agreements but are still widely used.

Importantly, it’s best for employers to establish restrictions at hire, whether in an employment or restrictive covenant agreement or incentive/stock option agreement/plan. Otherwise, it can be challenging to convince an employee well into their employment to agree to restrictions, especially if their employment is ending.

Additionally, employee handbooks with confidentiality or noncompete policies aren’t generally enforceable contracts.

KNOW IF YOUR NON-COMPETE IS ENFORCEABLE It’s risky for current or prospective employees to assume any agreement they’re subject to isn’t enforceable. Generally speaking, there are three key requirements for a non-compete or non-solicit to be considered valid.

1. Legitimate Interest to Protect: The employer must have a legitimate business interest to protect. Such interests may include long-term client relationships, company goodwill, trade secrets, or confidential information acquired by the employee.

2. Reasonable and Narrow Scope: Employer restrictions must have a reasonable and narrow scope that doesn’t create hardship on the employee. One example is geographic scope (i.e., the geographic area(s) where the employer is currently doing business or imminently intends to do so). Some geographic scopes are limited to a radius of five miles, but can range from a state, region, continent, or even internationally, depending on the scope of the employer’s operation and market.

Restrictions must also have a limited duration (up to a few years is generally acceptable). The more important the employee’s role, the longer period a non-compete may be upheld.

Agreements must also narrowly focus on activities that actually compete with the employer. For example, courts look for narrow definitions of “competitive business,” the employer’s “clients,” and restrictions tied to the employee’s actual duties and contact with confidential information and clients.

Additionally, restrictive agreements can’t violate public policy.

Agreements that are illegal, give employers virtual monopolies on the workforce in that field or location, or unduly deprive an employee from work options aren’t valid.

3. Consideration: Finally, like all contracts, restrictive agreements must be supported by valid consideration (i.e., something of value given to the individual). State laws differ on what’s deemed adequate consideration. For some, it’s sufficient to offer new or continued at-will employment where either party can terminate anytime without cause or notice. Other states, like Illinois, require more. Courts generally enforce the parties’ “choice of law” (as designated in the contract). However, if an employee worked in a different state, particularly one with more employee-friendly restrictive covenant laws, a court might apply that law.

MIND ILLINOIS’ 2022 AMENDED RULES On Jan. 1, 2022, Illinois amended its Freedom to Work Act, which both codified court decisions and added new restrictions for employee post-employment non-compete and non-solicit agreements. The law doesn’t apply to independent contractors or to non-competes in the context of a business sale, nor to employees covered by collective bargaining agreements or most employees in the construction industry. Here are some key points from the statute: • Unless an employer provides an at-will employee with a specific “benefit” for signing, the employer can’t enforce a non-compete until the employee works at least two years after signing.

According to the statute, an acceptable benefit is “a period of employment plus additional professional or financial benefits or merely professional or financial benefits adequate by themselves.”

While the law doesn’t define “additional professional or financial benefits,” the legislation may be suggesting signing bonuses, equity grants, and other types of traditional consideration. For example, an employer can provide protection beyond at-will employment by promising severance pay if the employee is terminated without cause.

• Courts can modify a non-compete/non-solicit clause to render it enforceable.

• Non-competes are only valid for employees earning at least $75,000 annually. The threshold amount will increase by $5,000 every five years until it reaches $90,000.

• Non-solicits can only be imposed on employees earning $45,000 or more. This minimum will increase by $2,500 every five years to a $52,500 base.

• Minimum earnings include any W-2 compensation, including salary, bonuses, commissions, and tips, as well as elected deferrals like contributions to a 401(k) plan, a flexible spending account or a health savings account, and commuter benefit deductions.

• The circumstances of employment separation (e.g., voluntary resignation vs. termination for cause) are generally irrelevant for enforcement. But employers who furlough, fire, or lay off employees due to COVID-19 or similar circumstances can’t enforce the restrictions unless they provide “garden leave” (employee’s base salary) for the entire restrictive period.

• Employers must give employees at least 14 days’ notice and an opportunity to review agreements with an attorney. Importantly, it’s best to notify new employees 14 days before their start date.

• The attorney general can enforce, investigate, and sue employers who engage in a “pattern and practice” of violations.

Monetary penalties are up to $5,000 for each violation or $10,000 for each repeat violation within five years.

• If an employer sues unsuccessfully, the employer must pay the individual’s attorney’s fees.

WATCH FOR THE PROPOSED FEDERAL BAN State laws on non-competes, including the above-mentioned Illinois law, would be superseded by the FTC’s proposed federal ban. Understand that the FTC’s proposed rule is limited to employee non-competes and wouldn’t affect non-solicits or other restrictions. However, it would ban “de facto” non-competes (barring individuals from accepting or doing unsolicited business).

Notably, it would apply retroactively to existing agreements and would require employers to notify current and former employees that the provision is invalid.

The business community’s reaction to the FTC’s proposed ban hasn’t been surprising. Most employers strongly reject a broad ban and are pushing to narrow the scope. The U.S. Chamber of Commerce has vowed to fight the ban and questioned the FTC’s legal authority to implement a wholesale ban without authorization from Congress.

As it stands now, the FTC is reviewing public comments and will vote on the rule in April 2024. Here are some steps those using or subject to non-competes can consider to prepare for a possible ban.

• Make sure all agreements comply with current state laws.

• Narrowly tailor restrictions to meet actual business needs.

• Consider alternatives to non-competes, like strengthening covenants on confidentiality, IP, and non-solicitation.

• Think about what to offer as adequate consideration to current and prospective employees subject to restrictive agreements.

• Provide required notice (e.g., 14 days in Illinois).

• Do due diligence when hiring to make sure there aren’t any conflicts with a candidate’s agreements with current or former employers. Otherwise, the former employer could sue for intentional interference with that agreement.

• If a current or former employee is violating or threatening to violate a restrictive covenant, investigate and take necessary action.

While much uncertainty looms over the FTC’s vote, one thing is certain—those that act proactively now and stay informed will be in the best position to handle any changes that come.

Lori Goldstein, JD, is the attorney and owner of the Law Office of Lori A. Goldstein LLC, in Northfield, Ill. www.icpas.org/insight | Fall 2023

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ARTIFICIAL INTELLIGENCE

What Happens When Audit Meets AI? New research on artificial intelligence in audit examines the impact when human auditors trust—or don’t trust—the machines.

BY JOSHUA HERBOLD, PH.D., CPA

SINCE at least the Industrial Revolution, humans have been reluctant to fully trust machines. From John Henry’s race against a steam-powered hammer, to Neo’s rebellion against the Matrix, our folklore warns of the dangers of creating inventions that are faster, better, and smarter than their creators. But does that really apply to the accounting and finance world?

“It’s great that firms are spending time and resources to develop artificial intelligence (AI) systems that can help accounting and finance professionals, but it’s going to be a problem if auditors and accountants don’t want to use it,” cautions Jenny Ulla, Ph.D., CPA, an assistant professor of accountancy in the Gies College of Business at the University of Illinois Urbana-Champaign.

Large professional services firms are already ramping up substantial investments in technologies based on AI, machine learning, generative pre-trained transformers (GPT), and large language models—the underlying programming behind products like OpenAI’s ChatGPT and Google’s Bard. In one of the largest such investments to date, KPMG has committed to invest $2 billion in Microsoft’s generative AI technology and expects this investment to lead to over $12 billion in incremental revenues over the next few years.

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But as firms explore the potential for these new technologies, regulators have expressed concern about overreliance on them.

The Public Company Accounting Oversight Board’s Standards and Emerging Issues Advisory Group recently announced that AI is one of its top three concerns and held an open meeting to “consider proposing for public comment amendments to existing standards addressing aspects of designing and performing audit procedures that involve technology-assisted analysis of information in electronic form.” United States Securities and Exchange Commission Chair Gary Gensler has even said that overreliance on AI by financial institutions could end up being the cause of the next financial crisis.

While regulators worry about overreliance on AI, new research from Ulla and her co-authors examines the opposite. In “Man Versus Machine: Complex Estimates and Auditor Reliance on Artificial Intelligence,” Ulla and researchers Benjamin Commerford, Sean Dennis, and Jennifer Joe explore the phenomenon known as “algorithm aversion,” which could lead to underreliance on the technology in which firms are investing so heavily. If users underrely on technology, the shift to AI may not yield the anticipated improvements in audit quality, for instance, especially when complex, subjective estimates are involved.

Algorithm aversion occurs when humans trust input and advice from other humans more readily than from algorithms, even when the advice and the underlying situation are the same.

“Do people treat estimates that come from a human versus an AI system differently?” Ulla asks. “Algorithm aversion is the tendency to discount computer-based advice more heavily than human advice. It’s been shown in a whole range of decision-making scenarios, from movie recommendations, to dating advice, to forecasting stock prices. Part of it could be that decision makers don’t understand how the systems work, and part of it could be that they don’t trust that the AI systems are well-suited to the tasks. The research on algorithm aversion finds that people tend to believe that computers are best suited for simple or objective tasks, and that computer systems can’t think or adapt in real time.”

Ulla’s research suggests that auditors may be reluctant to rely on AI-generated advice, even if it’s more accurate than human advice.

Ulla and her co-authors examined whether auditors evaluating complex accounting estimates would be susceptible to algorithm aversion: “Participants in our study completed a scenario where an audit task involved a potential audit adjustment. The client was a bank, and the client’s stance was that no adjustment was needed to their allowance for loan loss (ALL). Participants were given a report from their firm’s specialist that contradicted management’s evidence and suggested that their ALL was materially understated.”

Although all participants saw the same firm-provided report, some participants were told that the report came from the firm’s in-house valuation group (i.e., humans), while others were told that the report was from the firm’s proprietary AI system. Regardless of the source, identical language was used to describe the accuracy and reliability of the report.

Participants in both conditions proposed audit adjustments to increase the client’s ALL. On average, however, participants who believed the firm evidence came from the firm’s proprietary AI system proposed ALL adjustments in dollar amounts that were 23% lower than participants who thought the evidence was provided by humans, a result that’s consistent with algorithm aversion.

or not, because every situation is different, and it’s a very nuanced area. It depends on the person, the task, and the scenario. It could even depend on the seniority of the decision maker. It gets even more complicated if the client is using AI as well.”

This awareness is a central theme for much of Ulla’s research. “I struggled so often as an auditor, and now I wish I would’ve read some of the research that was out there,” she admits. “It would’ve helped so much to see where some of the pitfalls and blind spots were.”

What’s next in this line of research? Ulla says, “Another paper we’re working on examines how auditors react to misestimates committed by humans versus AI systems. Our preliminary results show that if an AI system makes a mistake, people immediately abandon the system and say, ‘I don’t want to use that.’ But if a human makes a mistake, they’re more willing to give the human the benefit of the doubt.”

Ulla’s advice for firms investing in AI-driven technologies is to consider the human element: “The main takeaway is awareness.

Firms should be aware that algorithm aversion could happen, and it could have a significant effect on the quality of your services. So, firms should be sure to include that awareness in their development of, and training on, these technologies. An auditor might not fully understand how the AI system made its conclusion, but they still have to go to the client and explain it. That puts the auditor in a very difficult spot. But, if we can cautiously embrace these new technologies, this will be an exciting time for our profession.”

Joshua Herbold, Ph.D., CPA, is a teaching professor of accountancy and associate head in the Gies College of Business at the University of Illinois Urbana-Champaign and sits on the Illinois CPA Society Board of Directors.

When the nature of the evidence provided by the client was more objective, the difference in proposed audit adjustments grew even larger. Ulla and her co-authors also varied the banking client’s underlying information used to develop their conclusion that no adjustment was necessary to the ALL. As described in the paper, some study participants were told that the client “relies heavily on the judgment of loan officers and credit analysts, who use a variety of methods and information (e.g., discussions with real estate brokers) to develop estimates for a key parameter in the ALL estimate (i.e., collateral values).” This information is considered relatively more subjective. Other participants were told that the client “relies on client-selected, detailed market data (i.e., real estate price indices) to update collateral values in a standardized manner.” This method is considered relatively more objective.

The results? The effects of algorithm aversion became even clearer: For participants who believed that the client’s evidence was more objective, seeing an AI-based audit firm report (instead of a human-based report) led to a 43% lower proposed audit adjustment dollar amounts.

Ulla describes it this way: “Auditors were more than willing to rely on AI-based evidence from their firm and propose audit adjustments based on that evidence. But they were quick to discount an AI system when the client’s evidence seemed to be relatively more objective in nature. If there was any doubt present, participants were willing to discount the AI system.”

Does this mean that firms shouldn’t use these new technologies?

“Not at all,” Ulla says. “However, it’s difficult to predict who’ll use AI www.icpas.org/insight | Fall 2023

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DIVERSITY & EQUALITY

Cannabis Industry Social Equity Is Falling Short: Can CPAs Help?

Despite social equity programs creating a pathway to Illinois’ cannabis industry, progress on minority dispensary ownership has been slow. Here’s how CPAs in this unique market can support change.

BY NATALIE ROONEY

AT the most basic level, social equity is any social policy concerned with justice and fairness. In the context of cannabis, social equity is the idea that regulators and leaders have an obligation to right the wrongs of cannabis prohibition and aid populations that were disproportionately impacted by the War on Drugs and ensure they’re included in the emerging legal cannabis industry.

As a result, more than a dozen states and cities over the past few years, including Illinois, have developed cannabis social equity programs—programs designed to connect persons and communities that have been historically impacted by arrests and imprisonment for cannabis offenses (primarily people of color) to procure and retain a cannabis business license.

Kenneth “Kenny” Mason, CPA, MBA, CEO of Equibis, founded his firm specifically to help cannabis clients after seeing the impact the War on Drugs had on the community where he grew up: Chicago’s South Side. “Cannabis is a complicated industry,” he says. “People who aren’t as business savvy need more support in getting a cannabis business off the ground.”

Mason notes that social equity cannabis licensees face greater challenges than the average entrepreneur—there’s a lack of capital, connections, and resources that make getting licensed seem almost insurmountable.

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Of course, states and cities are taking on cannabis social equity issues in different ways. Jessica Velazquez, CPA, CFE, managing partner and CEO of Indiva Advisors LLP, says “some states have created funds to aid social equity entrepreneurs with necessary capital needs while others don’t offer any capital support. Some states also lower or waive fees while others carve out particular license types.”

In January 2020, Illinois made history by becoming the first state to prioritize a social equity program for business licenses through legislation. The program’s criteria requires that applicants: • Be owned or controlled by someone who lived in an area disproportionately affected by the War on Drugs.

• Have history of an arrest or conviction for marijuana possession or delivery that no longer is illegal.

• Have family members that meet the criteria.

Another facet of Illinois’ social equity licensing program is the Direct Forgivable Loan Program. Rolled out in November 2022, the $8.75 million fund provides loans that are fully financed by the state and available to all conditionally approved social equity loan applicants.

The goal is to provide immediate access to capital. Pending the completion of a simplified documentation process, forgivable loan amounts between $50,000 to $500,000 are available.

Yet, despite these efforts, cannabis social equity still has a long way to go in Illinois. According to 2022 data, Black and Latino-majority

owned dispensaries make up just 1% of dispensaries in the state.

Also of note, by January 2021, one year after legalizing cannabis in the state, not a single license had been issued to a business that was majority-owned by a person of color.

THE SLOW MOVE TOWARD PROGRESS One of the drivers that’s impacted progress in this space was the pandemic, which delayed the issuance of new cannabis business licenses. At that time, social equity applicants were also at a disadvantage compared to established medical marijuana dispensaries who were already set up to sell recreational cannabis immediately once it became legalized. Other issues slowing down progress include the fact that lottery drawings were used to award available licenses that saw nearly 1,700 applicants enter to win just 75 licenses, and there remains a general lack of cannabis social equity regulation and guidance.

Velazquez serves on the board of the Minority Cannabis Business Association (MCBA), the first national nonprofit trade association supporting minorities in the cannabis industry. “When the organization was founded in 2015, we knew social equity was an issue,” she explains, pointing to states like Colorado, Washington, and Oregon, which already had established adult-use cannabis markets but no regulation to address minority participation.

In response, MCBA created a model state legislation and model municipal social equity ordinance that helped guide equity law and policy throughout the United States. In addition to creating model policies, MCBA directly advises industry and lawmakers to help shape laws at all levels of government. “We knew if we didn’t come to the table and push state regulators to look at this issue, we’d [minorities] be completely left out,” Velazquez says.

The hope was that Illinois’ social equity program would be the proverbial white horse. “We had high hopes because Illinois created an actual fund, and at that time, no other social equity programs had done that,” Velazquez says. “It’s a great start, but the entire $8.75 million fund could maybe only benefit a couple cannabis businesses due to the high cost of starting one. That amount of capital isn’t nearly enough to help the many minority entrepreneurs looking for funding.”

An additional challenge with Illinois’ program comes from the requirement that social equity applicants must have 51% minority ownership. “Investors don’t like that,” Velazquez says. “Investors who put millions of dollars into a business want majority control.”

Though, Velazquez isn’t knocking the Illinois program by any stretch. “There are many things that make it challenging for any state to effectuate its goal and mission to provide services to the social equity participants they intend to help,” she says. “No one is really having success yet.”

MIRED IN RED TAPE Nathan Summers, CPA, audit principal at Miller, Cooper & Co. Ltd., says for social equity licensees to succeed, the process needs to be more expedient. “The social equity applicants began this process in 2020 and now, three years later, they still aren’t operational,” he says. “As an applicant, you put resources and efforts into this business opportunity, you raise capital, and build a team to hopefully get a license—you can’t just sit for two or three years waiting for something to happen.”

Mason has worked with several people who applied for the social equity conditional license and agrees the turnaround time is problematic. “We helped applicants put together their financial

information, and then there’s a long, drawn out wait—and no one is sure why. At that point, are the licensees even still able to move forward?” he questions. “Folks are missing opportunities.”

Summers says social equity programs also need more standardization. “It’s unclear if everything is looked at within the same lens from applicant to applicant,” he stresses. “We need more transparency, urgency, more emphasis on moving this forward— and we need to do it quickly.”

HOW CPAS CAN HELP Mason says CPAs serving the cannabis industry are already uniquely qualified to help potential social equity licensees. CPAs can help by: • Assisting with license paperwork and financial documentation.

Social equity cannabis applicants may need more help than the average cannabis client—whether it’s with the license application itself, putting together financial projections, securing investors and financing, or preparing the necessary tax returns. Cannabis entrepreneurs may also need help explaining to investors how the investment funds will be used. “Applicants know they need money, but I often find they’re not prepared for in-depth investor questions,” Velazquez adds.

• Understanding industry intricacies. Velazquez says working in the cannabis space, and especially with social equity clients, means understanding the dos and don’ts of a state’s social equity program. She encourages CPAs to understand the intricacies, not just of these programs, but for cannabis licensing in general.

• Creating connections. CPAs can also provide valuable connections. “Be the bridge for these folks and connect them to one another,” Velazquez says. “There could be opportunities for your cannabis clients to collaborate, pool resources, and exchange information with others in the cannabis industry.”

• Being an advocate. Summers says social equity applicants need advocates. His firm met with Illinois legislators to explain the tax issues facing cannabis operators. The General Assembly ultimately decided to decouple from the federal code with regards to Section 280E, which kept cannabis businesses from deducting most expenses—a big step forward.

“Anything we can do for these entrepreneurs is important, whether that’s helping legislators understand challenges, connecting clients with potential investors, or providing resources,” Summers emphasizes. “We’re here to do all of that. Our expertise as CPAs goes a long way.”

Diversity matters in all industries, Velazquez adds, and cannabis is no different: “I think providers who serve the cannabis industry generally care about seeing it unfold into something we’re all proud of.”

Mason’s hope is that disadvantaged individuals and communities can find their place in the cannabis industry they helped build in the unregulated past.

Ultimately, social equity needs to improve everywhere cannabis is legal, Summers asserts: “The goal is to give folks who haven’t had the same opportunities as others the ability to share in the industry’s upside going forward. There isn’t a perfect system yet, so everyone in the industry needs to give attention to getting this right.”

Natalie Rooney is a freelance writer based in Eagle, Colo. A former vice president of communications for the Ohio Society of CPAs, she has been writing for state CPA societies for more than 20 years. www.icpas.org/insight | Fall 2023

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YOUNG PROFESSIONALS

Career Paths in Accounting Don’t Have to Fit a Mold College students considering careers in accounting need to be shown that the CPA credential can take them anywhere they want to go.

BY ANDY KAMPHUIS, CPA

IT’S an interesting time for college students considering the accounting profession and what the certified public accountant (CPA) credential has to offer. Pop open popular trade publications, like Accounting Today and Going Concern, and countless headlines stress the lack of talent entering the profession, increased regulatory pressure, and how artificial intelligence (AI) will ultimately beat humans at the CPA exam and alter the profession. Seeing all of this is feeding a growing perception that anyone who chooses to become a CPA will just get worked to the bone until they ultimately get replaced by a robot. No wonder the CPA profession has a bad rep among today’s accounting students and prospective CPAs! The reality is CPAs aren’t going to be replaced by robots (although, I firmly believe professionals who embrace technology will replace those who don’t). So, how do we solve the profession’s talent shortage problem and inspire the next generation of CPAs to forge 16

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ahead and inspire change? There’s no magic solution, but one thing we can do is change the narrative. Rather than emphasizing the challenges our profession is facing, it’s in our best interest to help aspiring CPAs realize the exciting opportunities and career paths they can enjoy.

Reflecting on my own perspective in college, I viewed the path of a CPA as you might expect: start at a Big Four firm, gain varied client experience, target an industry of interest, and then head down the industry route. I didn’t appreciate that there were a multitude of spurs, switchbacks, bridges, and tunnels that could be taken to create my own unique career path in accounting until I was several years into it. Today, I find that I’ve taken a very different career path than the “mold” I had constructed in my head as a college student.

Anyone who’s worked with me throughout my career knows I have a passion for recruiting. Over the years, I’ve shared my career journey hundreds of times to inspire, motivate, and recruit students into the profession. The fact that I’ve taken a unique career path isn’t special in and of itself—many CPAs can share similar stories—

but I share it to illustrate the potential every accounting professional has to create their own incredible story.

My first inclination to pursue a career in accounting began in high school. My dad was a CPA, and I enjoyed my high school accounting class, so it felt like a natural fit. That was about the extent of my deep thinking about what I wanted to be when I grew up.

Once I got into college, I stuck to this plan while taking on various internships in industry, government, and eventually at a Big Four firm where I later accepted a full-time offer in the audit group. This was the height of the aftermath of the 2008 financial crisis, so I was feeling pretty good about having a job offer in hand while still having my master’s year of school to complete before the real world would smack me in the face. My perspective at the time was that joining a Big Four firm would be a great steppingstone for a few years before I’d surely jump ship for industry.

After joining the firm full-time, I was given incredible opportunities to learn from some great mentors, serve some great clients, and even work abroad in Italy for a period. So, I blew right past the three-year public accounting phase I’d anticipated and was genuinely enjoying the experience, learning a ton, and seeing opportunities for continued growth.

When I was promoted to manager, I was still fighting the mold I thought I should conform to and thought I would give industry (and my original plan) a try by accepting an opportunity as a controller at a private equity portfolio company. This experience gave me new perspectives, expanded my business acumen, matured me as a professional, and sparked my entrepreneurial spirit as I was actively helping to drive a business forward. These years also awarded me the self-confidence to truly own my career. This enhanced mindset—and the wise words of a mentor—led me to my next career pivot.

alignment I had with the firm’s philosophy around quality, client service, a people-first culture, and bold future growth. The firm offered me a unique opportunity to help lead the buildout of a brand-new practice in Chicago. It was the perfect mix of what I wanted to have from a career in public accounting, while also itching my entrepreneurial desires.

The best part about my career path is it’s not over! My story continues to be written, and I’m motivated by now having a platform to create positive career paths and opportunities for the next generation of CPAs. I’m passionate about this profession and finding ways to think outside the box to keep it relevant and desirable for young professionals.

I think those of us who’ve found fulfillment and success in this profession need to be more proactive about showing prospective CPAs that there’s no such thing as a mold that must be followed.

Rather, your career is whatever you choose to make of it.

While the CPAs of tomorrow will have very different experiences than the CPAs of today, it’s my hope learning how dynamic and rewarding this profession can be will inspire the next generation of talent to pursue this fulfilling field. I believe the CPA credential will continue to open unique doors to a wealth of experiences, perspectives, and rewards—but only if we show the next generation what our profession truly has to offer.

Andy Kamphuis, CPA, is a shareholder at Vrakas CPAs + Advisors and a member of the Illinois CPA Society’s Audit & Assurance Services Committee.

Although the experience I gained in industry was critical to my development, it made me realize that what really gave me fire was being a problem-solver for my clients, building lasting relationships, and mentoring the next generation of professionals. I also figured my freshly minted industry experience could be leveraged to help drive the business of a public accounting firm. So, I added “boomerang” to my resume and re-joined the Big Four firm where I started at out of college. My second trip through the firm was a richer experience, as I was able to serve my clients with a renewed perspective—I was able to put myself in their shoes and participate in business development and other initiatives. As I worked up through my early senior manager years, I was laser-focused on partnership as my next career goal but, admittedly, didn’t think that deeply about what it meant to be a partner in the firm beyond the title and earnings potential.

The closer I got to the partnership doorstep, the more I revisited my “why” for pursuing it. I knew I wanted to serve clients and build teams (and of course, the earning potential became clearer to me), but I also wanted to be a decision maker and double down on my entrepreneurial spirit that was sparked during my years in industry.

As I defined my perfect job description, I came to the realization that although I loved the firm and people I was working with, it was time to pursue something different.

I began exploring all sorts of opportunities in the professional services space, including fractional service providers, other public accounting firms (of all sizes), and even the prospect of starting my own advisory firm. During this exploratory time, I was fortunate to be introduced to Vrakas CPAs + Advisors. I was energized by the www.icpas.org/insight | Fall 2023

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The Power of Purpose How an Accounting Career Can Support Your Passions Workers today, especially among younger generations, are prioritizing roles that provide a deeper sense of meaning and purpose. Six CPAs share—and prove— how a career in accounting can offer just that.

BY CAROLYN TANG KMET

Although the cadence of work appears to have reverted to pre-pandemic levels, several recent studies highlight a subtle but significant shift in the American workforce: the employee mindset. Instead of weighing job opportunities based on pay and benefits, job seekers today are prioritizing roles that provide a deeper sense of meaning and purpose.

Earlier this year, Gartner released “The Human Deal Framework,” a study that suggests the pandemic prompted many to reevaluate the connection between their career choices and personal principles.

According to the study, employees are seeking jobs that closely mirror their personal values and provide deeper connections with people, greater autonomy, opportunities for personal growth, holistic well-being, and a shared sense of purpose. Another survey of Gen Z workers, conducted by Monster.com, found that 70% of respondents ranked purpose as more important than pay.

“You could call it the ‘Great Reflection,’” said Caitlin Duffy, research director in Gartner’s HR practice, in a recent press release. “The intent to leave or stay in a job is only one of the things that people are questioning as part of the larger human story we are living.”

www.icpas.org/insight | Fall 2023

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The accounting profession is no stranger to this workforce shift.

Stakeholders have long been looking for ways to build a stronger pipeline of certified public accountants (CPAs) and attract younger generations to the accounting profession—one way is by changing perceptions of the profession itself. According to a July 2023 study from the Center for Audit Quality and Edge Research that surveyed about 1,400 undergraduate business students and recent graduates, the most common reason students said they didn’t major in accounting is that they didn’t find it interesting.

While accounting is often perceived as a field of just taxes and busy seasons, many young professionals are disproving this myth, demonstrating how the profession can create pathways to pursue personal passions. Here, six CPAs share how they’ve purposefully pursued, and successfully found, personal meaning in their work, and what organizations can do to help others in the profession find the same.

A Passion for Teaching Julia Ariel-Rohr, CPA, Ph.D., started her career at a large public company as part of its finance and accounting rotational program, and then spent a few years at Grant Thornton before leaving the business world for academia. These days, she’s an assistant professor of accounting at DePaul University. As she looks back at her professional journey, she says her career was always driven by three goals: to impact lives, to constantly learn, and to give back to an institution that felt like home.

“There’s nothing as fulfilling as teaching students a skill like accounting that’ll enable them to thrive,” Ariel-Rohr says. “One thing I love about teaching a technical skill like accounting is the upward mobility such a degree can provide for students. I personally owe so much to the profession. It’s enabled me to work with amazing organizations and people, travel the world, buy a house, and even meet my spouse.”

Ariel-Rohr hopes to guide her students to blend accounting with their personal goals and interests. While a career in accounting can certainly fulfill everyday base needs, she stresses it’s also possible to find purpose and meaning in the field.

“There are so many opportunities for students with an accounting background. If you like sports, the Chicago Cubs organization needs auditors and accountants! If you care about the environment, there’s opportunities with organizations like the Environmental Protection Agency, the Alliance for Great Lakes, or the Sustainability Accounting Standards Board,” Ariel-Rohr stresses.

Ariel-Rohr believes a sense of belonging and authenticity can influence day-to-day work and recommends that organizations actively consider and implement ways to genuinely support their employees. She suggests organizations establish mentorship and coaching opportunities and provide employees with more autonomy—both efforts can help lend ownership and purpose among employees.

“Following the Great Resignation, and accounting for the current shortage of accountants, focusing on a sense of belonging and purpose can have a great impact on reducing turnover and attracting talent,” Ariel-Rohr suggests.

A Love for Animals In 2022, Morayma Barron, CPA, left her role as a senior tax consultant working with high-net-worth clients at a Big Four firm and transitioned into industry. In her current role, she serves as a senior accountant at Blue River Petcare, a Chicago-based private equity firm that provides back-end business support for a network of veterinary 20

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practices. This move enabled her to combine her love of animals with the opportunity to help people in a challenging industry.

“It’s extremely important to love what you do,” Barron says. “The more you love it, the more you’ll do to succeed. It’s just like the saying goes, ‘If you love your job, you’ll never work a day of your life.’”

Barron stresses that when personal values and interests align with day-to-day job responsibilities, employees will be internally motivated to continue learning and growing, which benefits both the employee and the employer.

“If people aren’t interested in their work, then work will just be viewed as that—work. It won’t be seen as an opportunity to grow, learn, and help others. The more our values and interests align with our work, the more exciting and enjoyable our job becomes,” Barron stresses.

Barron acknowledges that sometimes it’s difficult for employees to see outside of their day-to-day responsibilities. However, there are ways that employers can help their workforce find meaning and purpose in their roles. The first step, she says, is learning the difference between having a job and having a vocation.

“Companies can help employees identify how their jobs are more of a vocation. And if it truly isn’t that person’s vocation, companies can help employees transition to positions where they’d feel more sense of purpose,” Barron encourages.

Barron also suggests that companies can help facilitate volunteer opportunities for employees, which could help engage employees and foster a greater connection to their work and their community.

An Energy for Entrepreneurship Andrew Coombs, CPA, MST, is the managing partner and CEO of Coombs CPA PC, a New Jersey-based accounting firm that he launched in 2018, which now serves almost 1,000 clients across a wide range of industries. This year, NJBiz Magazine named Coombs the sixth most powerful CPA in New Jersey.

Coombs knew early on that he wanted to be an entrepreneur and launch his own firm, partly because he wanted a certain level of autonomy that isn’t often found in larger organizations.

“A lot of times when you’re in a big corporation it’s about driving the bottom line. But there are other things that are more important than just making money. Whose life did you change? What kind of impact can you have?” Coombs asks.

Coombs established his firm in an underserved community about 20 minutes outside Manhattan, NY. Part of his personal mission is to improve financial literacy in the area and drive generational change.

“If you take 10 people here, nine of them probably don’t know what a CPA is or what they do. They don’t know what an audit is,” Coombs explains.

Coombs says his neighborhood is a community in progress, where most people think the only way to succeed is to play professional basketball or go into the entertainment business. Coombs, a former Loyola University basketball player, says the percentages for financial success are far greater if you consider pursuing other professions.

“I try to give people exposure to different things outside of the norm and show them different ways they can be successful and educate them on different professions, so they have a sense of hope,” Coombs says.

Two years ago, Coombs led a homeownership seminar and taught attendees how to invest in real estate.

“I had people coming up to me and saying, ‘I never really thought of not renting. I never thought I could actually own something.’ That was a good feeling to hear that,” Coombs says.

“Life is more important than just making money and going home,” Coombs advises. “It’s about how you actually impact people, how you can change someone’s life. It’s my purpose to give back and pave the way for future generations.”

A Dream of Inclusivity Starletta Forson, CPA, is a senior tax consultant with Deloitte LLP, where she helps lead teams focused on corporate, partnership, and individual entity tax engagements. In May 2023, she launched Inclusive Teams, Inclusive Dreams, a nonprofit that facilitates mentoring relationships between young professionals and high school students and helps students secure internships.

“I think there’s a desire—especially among students from underserved, diverse communities—for mentorship and professional experiences that can help them decide if they want to go to college and what major to choose,” Forson explains.

The first Inclusive Teams, Inclusive Dreams cohort will launch in March 2024. Participants will progress through three days of programming during which they’ll receive professional skill development regarding interview etiquette, a “Which Career Best Suits Me” assessment, and a resume workshop. On the third day of programming, industry partners will interview students for internship opportunities.

Forson was inspired by her own experience in high school where she had the opportunity to shadow a local attorney for a month.

She said the experience helped her decide whether a legal career was right for her. (It wasn’t, but she still learned a lot and appreciated the time.)

“Our hope is that through providing some of these students with paid internship opportunities, we can help them strive for a brighter future and make the process a little bit easier,” Forson reflects.

Many Chicago firms are supportive of Forson’s efforts and are providing opportunities for students to apply for summer internships. Forson is appreciative of her own employer’s support of her efforts and hopes that other organizations will continue to provide a safe space for employees to express personal values and interests.

“Diversity, equity, and inclusion (DEI) is a topic that’s very important to me, and I believe the firm I work for does a great job at highlighting and providing opportunities for employees to get involved,” Forson says. “When I volunteer and help with initiatives related to DEI, I feel closer and more involved with the organization and the people I work with, which inevitably makes me a better peer and co-worker.”

A Compassion for the Victimized Meghan Mokate, CPA, MSCA, started her accounting career at a Big Four firm. During that time, she started volunteering with the Crisis Center for South Suburbia, a nonprofit community organization that provides emergency shelter and other essential services for individuals and families victimized by domestic violence. She served as a special project volunteer, a hotline volunteer, and also worked on technology projects with the administrators. When the organization’s executive director discovered that Mokate was a CPA, she invited Mokate to interview for a finance position with the organization. She now serves as the finance and strategy officer for the organization.

“I always knew that I wanted to end up in the public service sector,” Mokate says. “I feel called to use my skills to create a more equitable world and provide resources to those in need. I am especially drawn to causes related to gender inequality and gender-based violence, which is why I got involved volunteering at the crisis center.”

Mokate feels lucky to have a job that’s fulfilling and purpose driven.

She says that on a day-to-day basis, she’s surrounded by compassionate and driven people who share the goal of better serving victims and families affected by domestic violence. She adds that the nature of her job extends beyond strictly financial responsibilities—there’s other hands-on projects, such as helping to put beds together for transitional housing clients. She says experiences like these allowed her to learn new skills and gain new perspectives.

“Most people spend a minimum of 40 hours a week at work. For a lot of CPAs, that number is much higher. It’s essential for us to feel a sense of purpose at work so that we can stay connected to our core values and can spend time investing in ourselves, others, and society as a whole,” Mokate says.

Mokate also says that when your job aligns with your values and your interests, it’s more motivating to take on challenges and opportunities. “We should be sure that we’re not changing ourselves to fit our careers, but rather our careers should fit us, especially when it comes to our values.”

A Care for the Future Joey Reeve, CPA, is the founder and CEO of Universal CPA Review, an online CPA prep course that leverages color-coded diagrams, interactive charts, and adaptive learning technology to teach complex accounting principles. He started the business after seeing a lack of CPA study materials that could truly help students understand the concepts being tested. Reeve says the visually rich content caters to all learning styles and especially benefits those who find visual aids helpful in understanding and retaining information.

“The profession of accounting starts with education,” Reeve says.

“I wanted to create a program that inspires younger generations to achieve their CPA license and better understand the value that it brings.”

Reeve believes that what motivates him every day is having work that ties in with his interests and skills. He says that organizations that are able to connect employees with their interests will see stronger results.

“When you place someone in a role that aligns with their interests, they feel inspired, and they’ll naturally create more value for the organization,” Reeve notes.

Considering the recruiting and retention challenges faced by accounting firms today, Reeve suggests firms should consider connecting with employees on a deeper level to have a better understanding of their personal motivations. By knowing what employees value beyond the paycheck, he believes organizations will be better positioned to support their workforces.

“It’s important to make your people feel seen and important,” Reeves advises. “Like one of my favorite quotes says, ‘People don’t like you, they like the way you make them feel about themselves.’”

Carolyn Tang Kmet is a clinical associate professor at Northwestern University and a frequent Insight contributor. www.icpas.org/insight | Fall 2023

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Beyond Compliance Creating Sustainability Goals That Make a Difference How can organizations, led by their finance teams, look beyond looming SEC requirements, and create lasting ESG goals that truly make a difference? According to experts, it’s about finding the right balance.

BY TERI SAYLOR

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hile many organizations have included sustainability and environmental, social, and governance (ESG) practices into their value systems for years, in today’s global economy, it’s becoming more than just a feel-good initiative—it’s a mandate coming from employees, investors, and stakeholders. Soon, the federal government may also be of influence on the matter, as it considers requiring companies to report their climate-related disclosures.

This October, the United States Securities and Exchange Commission (SEC) is expected to act on its proposal to bring forward standardized criteria for climate-related disclosures.

Specifically, the SEC could potentially require public companies to disclose details on carbon emissions, climate-related risks, targets and goals, and related governance.

Reporting standards are also beginning to unfold around the world.

Most recently, the European Commission adopted the European Sustainability Reporting Standard for companies meeting the applicable criteria, and the International Sustainability Standards Board issued new standards featuring a global baseline for reporting requirements.

These ESG frameworks help companies measure their financial and non-financial performance, including “sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s prospects.” When companies are said to be operating sustainably, it generally means they’re working to strike a balance between generating profits and promoting social and environmental well-being.

While these frameworks and regulatory efforts are a positive step forward on the sustainability front, they haven’t necessarily translated to lasting change just yet. The May-June 2021 Harvard Business Review article, “Overselling Sustainability Reporting,” called out that increases in ESG reporting haven’t had much of an impact on curbing carbon emissions.

Today, however, there’s more precedent to drive change. To actually succeed and make lasting progress, organizations need to find the balance between what’s being required of them by their stakeholders and what their ESG strategies can actually do to support their long-term business goals. Here, ESG experts offer insight into how organizations can create lasting ESG strategies that truly make an impact on the world—and their businesses.

Setting an Example for Others Although mandatory climate-related reporting hasn’t yet come to fruition in the U.S., many organizations have voluntarily established ESG strategies for their stakeholders and clients.

reality is, environmental stewardship has become a significant cost containment measure for organizations, which enables them to invest more into other areas, like people, technology, and innovation.

Bridging the Gap From Voluntary to Mandatory While organizations of all sizes have been incorporating ESG values into their operations and reporting on a voluntary basis, the business climate is shifting it from a values-based goal to a business imperative.

Increasingly, professional service firm clients are asking what firms are doing to be environmental stewards. At the same time, both current and prospective employees are keen to examine firms’ commitments to the environment and other values.

In particular, millennials and younger populations are valuesoriented and care deeply about ESG. Firms looking to attract and retain the best talent, and the best clients, need to meet people where they are and ensure what they’re doing is aligned with their individual beliefs.

While awaiting the SEC’s final actions, organizations trying to get a head start have been facing some headwinds over how to align their voluntary ESG goals with standardized sustainability reporting guidelines.

Currently, those who are already generating internal reports are creating their own processes and publishing their data on their websites and in investor questionnaires, proxy statements, sustainability reports, annual reports, and other places. Of course, the challenges for them will come when it’s time to gather their data and report it in the format the SEC eventually requires.

Impact on Smaller Private Companies While the proposed SEC requirements are directed at public companies, the new climate reporting standards may also impact private organizations that do business with them if the standards flow downstream.

Some ESG experts say the prospects of future reporting requirements are already causing a ripple effect, and suppliers should anticipate needing to have ESG strategies in place and be ready to provide their environmental data to satisfy their publicly traded clients’ reporting requirements.

Sloan encourages companies to cast a wide net, analyze their entire stakeholder community, and devise strategies for determining how to respond to requests for data related to their environmental practices, including requests from their suppliers.

One of them is Grant Thornton LLP (GT), one of America’s largest audit, tax, and advisory firms, who’s been weaving strategies around ESG into their business practices for over two decades.

“We advise larger companies to think broadly in terms of their full supply chain, including their suppliers and customers, the end consumer of their products, the community’s perception of their organization, and who they do business with,” Sloan says.

“ESG is really at the core of what we do,” says Elizabeth Sloan, CPA, GT’s managing director of ESG and sustainability services. “Every program we offer is built around how we’re keeping our people and stakeholders engaged and safe, so that we can retain them— people are our business.”

Even for organizations that won’t fall under the SEC’s reporting requirements, adopting ESG programs and voluntary reporting is simply a good business practice moving forward.

One area of new focus for entities is developing a well-defined environmental strategy for evaluating their carbon footprints. An activity most organizations can alter to make a positive environmental impact is business travel.

For instance, organizations could develop travel policies with measurable data points for reducing their carbon emissions. The 24

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Matt Pelton, senior director at Riveron, a national business advisory firm in Chicago, is responsible for assisting clients with ESG strategy and reporting. He says the companies that act on ESG initiatives will differentiate themselves from their competitors.

“Gathering data from activities like cutting carbon emissions, donating volunteer hours, and activating transparency around governance will put power behind their performance. This will help

them see the pathway to improvement in those areas and show their stakeholders they’re making progress,” he says.

To start, Pelton suggests organizations create a value proposition that includes the ways their values impact the success of their business.

“To demonstrate their progress on ESG initiatives, they can do a materiality assessment that states the things they care about, along with their goals, and design a program that tracks and measures data,” Pelton says. “To simplify the process, identify a few goals to focus on over six to 12 months, set strategies for where you want to be in a year, and from there, build a roadmap to a stronger sustainability strategy and platform.”

Sloan adds that all organizations—small, large, private, and public— can make a strong business case for tracking their sustainability goals, even if they don’t fall under the SEC’s future mandate. Overall, it’ll lead to greater employee loyalty and a stronger organization.

“When we looked at our business internally, we realized our employees really wanted to work for a firm that has a strong purpose they feel connected to and rooted in,” Sloan says. “This also helps with our employee retention, and it absolutely matters to our clients as well.”

Despite the challenges that may lie ahead as the SEC prepares to put its reporting requirements in place, those that put ESG into their value proposition and think through how it makes sense for them as an organization are going to be the most successful.

One place to start is by examining the policies and procedures that are already in place. Sloan says this process may show that the basic, sound, cost-cutting measures that have always seemed like common sense actually fall under the social responsibility umbrella.

“Some organizations already have ESG practices woven into their day-to-day practices but might not even think about them in those terms,” she says.

With the learning curve and the additional workload the SEC reporting requirements will likely bring to the table, setting goals and tracking data now makes good business sense. In addition to complying with reporting mandates, sustainability reports will be useful in making business decisions and ensuring that every initiative is linked to value.

“Overall, your ESG strategy will be most effective if it integrates into your overall organizational strategy,” Sloan says. “Rather than considering it as just one more thing you’re required to report on, view ESG initiatives and sustainability reporting as a way to create a stronger, more profitable company.”

Building Sustainability Reporting Expertise As sustainability reporting evolves, the process is making its way to finance departments where it’s viewed as a natural fit for accounting professionals who already have the skill sets to report data that’s complete, accurate, and delivered in a timely way, Sloan stresses.

Teri Saylor is a Raleigh, N.C.-based writer with experience covering a range of topics from business to lifestyles.

“The knowledge and skills that CPAs possess will be important as ESG reporting requirements increase—and they’ll be widely valued as firms work to get this data in place,” she adds.

Notably, these new reporting standards could require compiling data and building reports from information accountants likely have never gathered before. Therefore, some organizations are considering upskilling employees and building new teams specifically to tackle ESG reporting, which will take time to develop.

Professional services firms, like GT and Riveron, are already helping their clients get ready for more robust ESG reporting. However, whether hiring for ESG expertise, upskilling employees, or reaching out to consultants or auditors for help, Pelton predicts that filling the void will be challenging for organizations.

“Once the SEC rules for reporting are in place, there will be a big educational and recruiting effort,” he predicts. “Firms will be seeking and cultivating talent with deep climate expertise, and without a wealth of professionals who have experience working in sustainability, we’ll have to start thinking about ways to create interdisciplinary trainings to prepare people for mandatory reporting.”

Pelton forecasts that some organizations are likely to take an interdisciplinary approach by forming in-house consultancies with various corporate professionals that can bring their own expertise to the table. For example, a company’s chief financial officer might be able to think about ESG reporting in terms of how to create business value, and their general counsel might review disclosures that go to stakeholders and investors and think of ways to mitigate risk with the information that goes out into the marketplace.

Additionally, the accounting team can focus on creating confidence in the audit rating data as well as internal auditing and controls. www.icpas.org/insight | Fall 2023

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Accounting for DEI Active Choices Drive Results To drive meaningful change when it comes to creating a diverse and inclusive accounting profession, organizations must put their DEI initiatives into real action—including expanding efforts beyond race and gender.

BY CASSANDRA MORRISON

www.icpas.org/insight | Fall 2023

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ver the last 50 years, diversity, equity, and inclusion (DEI) has moved from a niche concept to a mainstream initiative, especially in the workplace. According to a 2021 survey

by WorldatWork, 83% organizations in the United States have implemented DEI initiatives.

Yet, despite these efforts, many organizations, including CPA firms, still fall behind on real change—but why?

The leading theme to come out of the Illinois CPA Society’s (ICPAS’) 2022 Insight Special Feature, “A CPA Diversity Report: Uncovering the Barriers to Success,” is that the accounting profession’s continued lack of DEI hinders meaningful change. Simply put, the environment in the accounting profession isn’t statistically diverse or meaningfully inclusive.

In examining the racial makeup of U.S. CPA firms alone, progress has been proven slow. According to the AICPA’s “2021 Trends” report released in early 2022, CPA firms exhibited only a representation of 14% Asian or Pacific Islanders, a mere 2% attributed to the Black community, only 5% for Hispanic or Latino individuals, and another 2% for those identifying as multiethnic. In contrast, the white population comprised a significant 77% of CPAs. This distribution becomes even more skewed at the partner level within U.S. CPA firms, where 82% of partners are reported to be white.

These statistics make it clear: The accounting profession has work to do on moving the DEI needle forward. But according to DEI experts, it’s more than just getting diverse individuals through the door—it’s about taking real, meaningful action as well as expanding the conversation on what comprises diversity today.

Viewing Employees as Valued Customers The accounting profession can sometimes be hesitant to embrace new ideas and perspectives. To overcome this barrier, organizations need to find ways to give space for new viewpoints— and perhaps, completely upend how they view their employees.

We live in a world where the customer is always right, and Dorri McWhorter, president and CEO of YMCA Metropolitan Chicago, believes that by applying this approach to employees, organizations can move beyond simply identifying diversity problems. “To drive meaningful change, organizations must view their employees with the same care and attention as their customers,” she says.

McWhorter adds that soliciting employee feedback, addressing their concerns, and taking decisive actions based on this feedback is paramount. “This approach not only enhances workplace culture but also extends to DEI efforts,” McWhorter says. “Understanding employee needs and prioritizing their well-being cultivates an environment of trust and collaboration.”

share their backgrounds, diverse professionals may feel isolated and disheartened. While it’s vital for organizations to actively seek out diverse talent, it’s just as vital to ensure they feel supported and have the opportunities and guidance they need to thrive.

ICPAS has committed significant resources to programs aimed at helping diverse students and young professionals enter the accounting profession, only to learn many of them confront several barriers and setbacks afterward. In the report, Kari Natale, CAE, vice president of the CPA Endowment Fund of Illinois, acknowledges, “While we were so focused on increasing the pipeline of diverse talent heading into the profession, we lost sight of what was happening once these individuals were hired.”

LaToya C. McKinney, CPA, MSAA, vice president of NABA Inc. Chicago Chapter, shares Natale’s concerns: “We do a good job of getting people in the door, but what are we doing about the retention of these people? I think part of the problem is that companies seem to be focused on short-term inclusion instead of long-term inclusion.”

“It’s one thing to say that we’re going to hire more diverse talent, but what are the metrics to prove that it’s actually working? If you still have high turnover because of a lack of internal resources, then it’s not really effective,” she challenges. “You’re not doing what you claim to be doing.”

A good starting point to combating this blind spot are mentorship and sponsorship programs. Pairing diverse employees with experienced mentors can provide guidance, encouragement, and a sense of camaraderie and belonging. These relationships can prove invaluable in building confidence and resilience, which are crucial for long-term success.

To support successful mentoring, there are a number of steps organizations could consider taking. A September 2021 Journal of Accountancy article, “The impact of mentoring: How to build on success,” recommends: • Assigning formal mentors with intention. They should be well regarded, influential, and in a position of power in the firm. The relationship should also be welcomed by both parties. Formal mentors should support mentees in developing critical job skills and provide help with technical issues.

• Mandating early sponsorship. Sponsorship should begin in the first year on the job and should open doors to high-profile and challenging assignments.

Supporting Long-Term Inclusion

• Supporting establishment of informal mentors. Provide social networking opportunities with senior leaders so diverse professionals have opportunities to establish relationships with these groups.

One of the leading barriers to advancement of racial and ethnic minorities in the accounting profession that ICPAS uncovered was that many survey respondents believed they were receiving inadequate feedback and development. Without role models who

Although mentoring has proven to be beneficial in retaining employees, McKinney notes it’s not a perfect system—there are still barriers to entry for mentors to participate in these programs, including their own imposter syndrome, time, and resources.

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“For the people who actually are ready and willing to be the mentor, to help with the development, it’s basically taking on another job— an unpaid one,” McKinney stresses. “It’s often not that someone doesn’t want to be a mentor, it’s that their job values production over this type of relationship building. If organizations can put metrics and internal value on employees using time this way, it can create more opportunities for mentors and mentees.”

Leaders Must Lead the Charge, Influence Behavior For DEI initiatives to truly make meaningful change, leadership— from top to bottom—must foster an environment that values and encourages inclusivity. Without leadership recognizing the importance of DEI, an environment of bad behavior that hinders progress can cultivate.

McWhorter warns about the power of bad leadership on teams: “On the individual front, we tend as a society to put influencers in leadership positions and then call them leaders. So, when these ‘leaders’ showcase bad behavior, it indicates to individuals that they can do the same thing.”

Leaders should vocalize the steps they’re taking internally on DEI. “They should be intentional about the actions they’re taking and the policies they’re implementing, and they should publicize them to their teams. Make sure your employees know what you’re doing to address and increase DEI at your organization and ask them to be a part of it,” McWhorter suggests.

When employees are aware of their employer’s efforts, they’re more likely to engage and contribute. By fostering open dialogue, organizations can encourage employees to become active participants in the DEI journey.

While solving insular problems in the workplace should be worked on individually, it’s a problem the whole industry must act on together, McWhorter says: “The DEI challenges facing organizations symbolize the challenges facing society as a whole. This isn’t a challenge any single company created or that any single company can solve. We have to start at a broader level, at a societal level, to begin making real progress.”

Expanding the DEI Conversation Until recently, the conversation surrounding DEI has primarily been focused on race and gender. Now, organizations are looking at diversity from a much larger lens, expanding the DEI pie to sexual orientation, gender identity, age, disability, neurodivergence, mental health, socio-economic status, religion, educational background, and more.

“Accounting firms have been talking about how to increase diversity and bring people from more backgrounds to the table since before I started my career. That’s not new,” McWhorter says. “But what has evolved is the number of dimensions of diversity we recognize. It’s important to welcome people and include people for all aspects of who they are.”

ICPAS President and CEO Geoffrey Brown, CAE, echoed this sentiment during the society’s SUMMIT23 conference in August,

encouraging the profession to look at a broader spectrum of diversity issues, including opportunities for neurodivergent accountants.

According to a 2021 review from The McKenzie Delis Foundation, organizations that take a holistic approach to diversity and inclusion often have success on expanding their DEI efforts—they understand that a human being’s identity is made up of different, intersecting aspects. By taking a more holistic approach, it sends a message to everyone in the organization that all unique differences are seen, valued, and appreciated.

McKinney suggests that confronting our own unconscious biases can also help open the doors to expanding the DEI conversation.

She notes that unconscious biases can make organizations unintentionally miss out on great talents.

“From a recruitment standpoint, I hear from students that they’re being overlooked because they’re coming from smaller schools,” McKinney says. “So, when you’re interviewing someone, are you discounting them because you don’t think their curriculum was good enough? Because of their background? Because they didn’t go to the same college that you did? Because you don’t have an affinity with them? I think this happens a lot where we’re putting our own judgments on someone before they can speak for themselves and prove that they’re worthy.”

Breaking the Mold of Complacency True DEI requires action. It requires leaders and employees to treat each other with kindness and explore solutions with an open mind.

“We’ll never policy our way out of this situation—or any situation.

Policies are certainly a tool to help drive outcomes, but you can’t create policies to change mindsets or behaviors,” McWhorter stresses.

Listening is where it all starts, McKinney says. She suggests taking an extra step to find out how someone is feeling about their day or current events helps individuals start to understand each other— because above all, we’re all connected by the human experience.

“Listen to comprehend and not just talk back. As a society, we don’t do a really good job at checking in with each other,” McKinney says.

“To me, being open to hearing what someone is saying is the best way to be open-minded. Take the initiative and be genuine.”

While there’s no easy process to solving the DEI challenges that we’ve identified as problems, McWhorter says it’s up to every person and organization to make intentional changes to provide an equitable and inclusive workplace for everyone: “I fundamentally believe that humans are kind and compassionate by nature.

Kindness is the default, and everything else is learned, which means it can be unlearned.”

Cassandra Morrison received her MFA in creative non-fiction from Roosevelt University in Chicago, after attending The University of Tennessee-Knoxville. Interested in the intersection of business and culture, her work has appeared in The Washington Post, Entropy, Longform, and many others. www.icpas.org/insight | Fall 2023

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GROWTH PERSPECTIVES

The Future for Accounting Firms Is Advisory Services It’s time for the accounting profession to look forward and embrace the expanding landscape of advisory services.

Brian J. Blaha, CPA Growth Partner, Wipfli LLP bblaha@wipfli.com ICPAS member since 2011

Complex regulation, labor force changes, generational demographic shifts, and technological advancements are making things challenging for all business leaders today. Finding the right talent to run the accounting and finance function, specifically, is a growing hurdle most small and mid-size businesses are struggling to overcome. To get over or around the seeming impossibility of finding experienced talent in all areas of accounting and finance, business leaders are increasingly turning to outsourcing. Of course, there’s an upside to this trend— it’s dramatically elevating the roles of certified public accountants (CPAs) and providing growth opportunities for their firms.

Traditional outsourcing has typically targeted the bookkeeping function, centered on taking inputs and creating outputs. However, business leaders outsourcing work to today’s CPAs are looking for more insight into their financial results, which provides more opportunities than ever for CPAs to bring their experiences, advisory skills, and unique perspectives forward to deliver higher levels of service and expertise. These realized and valued skill sets have led accounting firms to invest heavily in what’s being termed client accounting services (CAS) 2.0, an expanded offering of traditional preparation of monthly, quarterly, and annual financial reporting packages; billing and accounts payable; controllership functions; and chief financial officer (CFO)-level strategic advisory services and resources.

What’s important to understand is that a CAS 2.0 practice functions best when the client is at the center of the service wheel and the CPA advisory team revolves around them. Firms moving into this space will need to focus on serving clients through a more holistic approach and be more proactive about sharing information across teams.

Of course, data should drive the CAS practice—data needs to be properly structured, complete, and brought together in a manner that allows for analysis beyond the financial statements. For example, linking customer churn information with sales data allows us to better understand the customer experience and the volume of sales necessary to achieve revenue plans.

When done well, the engagement team will be able to identify additional business opportunities (e.g., tax specialty services, enterprise resource planning implementation, change management, etc.) to better serve clients.

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MOVING FORWARD REQUIRES CHANGE While the CPA profession is in a unique position to capitalize on CAS 2.0, firms and practitioners seeking long-term success with this new business model will need to transform how they work and truly embrace change. Consider the emergence of generative artificial intelligence (AI), which is speculated to replace much of the entry-level work CPAs develop skills from. CPAs starting out in their careers will need to essentially skip ahead and develop the skills necessary to analyze AI-produced information and extract strategic insights from it, while also developing deeper knowledge of the industries being served.

To make this shift, the technical training provided by CPA firms and through our university structure needs to incorporate stronger soft skills (e.g., communication, social intelligence, curiosity, and problem solving). Often these skills are honed over decades of experience, but newer generations of CPAs need to bring them to the fold much earlier in their careers.

Historically, the typical career path in a CPA firm would revolve around tracks in audit, tax, and eventually consulting. With CAS 2.0 requiring new skill sets that are aligned to the specific services the client values most, new career paths are emerging within firms. Advisory-focused paths are becoming highly sought after by high performing talent and will be key to attracting the next generation of talent. I believe this shift will redefine how CPAs are viewed and valued.

talent in complex situations to learn and feel part of the team.

This is a contributing factor in retaining talent.

• A flexible and entrepreneurial environment. CAS offers an opportunity to be innovative, propose new ideas, and implement creative financial strategies to benefit clients. It also provides for the freedom to take ownership of one’s work.

• A value-driven approach. By embracing the vision of a team of advisors rather than relying on a singular individual, you can enhance your financial decision-making skills and better unlock new possibilities for your clients.

• Greater client satisfaction. In catering to small and mid-sized businesses, CAS plays a crucial role in driving their success and growth. Your clients will benefit from a forward-looking approach, in-depth financial discussions, and access to resources that bring value beyond the capabilities of an in-house controller or CFO. CAS 2.0 is a significant step in the evolution of the CPA profession.

The opportunity to address many of the needs that clients are struggling with expands the relevance of our profession and broadens the career opportunities for all. It’s time to embrace this change and ensure the next generation entering the profession knows of the career opportunities CAS offers and has the knowledge, skills, and abilities to truly achieve the reputation as a most trusted and strategic business advisor.

VIEWS FROM THE NEXT GENERATION One key to successfully implementing a CAS 2.0 practice is to make it engaging and meaningful to the next generation of high performing CPAs. For insights on this, and in the spirit of the Illinois CPA Society chairperson’s theme of “tap someone on the shoulder,” I invited feedback from some of my colleagues at Wipfli LLP who’ve transitioned into our CAS practice.

Kat Maddi, CPA, a senior manager, as well as my mentee in our yearlong female executive program, made a career pivot from audit to CAS. “As I contemplated my future, I began delving into topics like blockchain and AI, pondering their potential impact not only on my audit career, but also on CPAs,” Maddi says. “While my audit background offered a strong foundation, stepping into this new realm [the CAS practice] felt like a fresh beginning—a chance to redefine my path.”

Senior Associate Jonathan Acevedo, CPA, also transitioned from audit to CAS. “I wanted to be a part of something new and exciting.

I always wanted to be a controller or CFO. When I heard Wipfli had a CAS opening, I jumped at the opportunity,” Acevedo says. “As I navigated this transformation, I immersed myself in comprehending the intricacies of the services I aspired to excel in, and with each learning, I experienced an invigorating sense of purpose.”

Overall, Maddi and Acevedo say entering the CAS practice has offered them invaluable career benefits and insights: • Continuous on-the-job experience and skill development.

Outsourced CFOs or controllers are often tasked with solving complex financial problems and making strategic decisions. This aspect of the job appeals to individuals who enjoy analytical thinking and want to play a pivotal role in shaping the financial future of businesses. At Wipfli, we tend to strategize as a group and have a continuous improvement mindset. We include young www.icpas.org/insight | Fall 2023

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LEADERSHIP MATTERS

How to Become a Better Delegator Here’s how to enhance your leadership skills and elevate your team by using more effective delegation skills.

“I’m terrible at delegation,” said an emerging leader in one of my recent leadership development programs. At least she was honest. Many leaders are in denial about their delegation skills—they think they delegate well, but their team members would tell you otherwise.

Jon Lokhorst, CPA, PCC Executive Leadership Coach, Lokhorst Consulting jon@lokhorstconsulting.com

The problem is, ineffective delegation is a leadership limiter. Leaders who don’t effectively delegate end up performing tasks that would be better handled by other team members, taking valuable time from crucial leadership functions like strategic thinking, critical problem solving, and staff development. Leaders who don’t delegate also stunt their team members’ growth, keeping them from developing essential skills.

To elevate your delegation skills, you must eliminate the barriers getting in your way. Only then can you develop a clear plan to help you become a more consistent delegator.

ELIMINATE THESE BARRIERS Whether you say them out loud or silently to yourself, these common statements are barriers that prevent you from elevating your delegation skills.

• “I can do it better myself” or “I can do it faster myself.” If you feel like these nearidentical statements are almost always true, they’ll always be that way if you continue to hang on to tasks that could be delegated. Break the cycle by recognizing the value of having team members gain the experience needed to become as good and fast as you in completing those tasks. Who knows, they might eventually become better and quicker than you. And, even if your team members only get to 80% of your speed and expertise, it still frees you to focus on activities more suitable for your leadership role.

• “I don’t have time to teach them how to do it.” This statement is shortsighted. It denies the return on investment (ROI) of your upfront time to teach one of your team members skills they’ll inevitably need and that your team can benefit from. For example, in one coaching session, a client performed a ROI calculation on the time required to teach and coach one of his team members to take over a routine weekly report. He learned that within six to eight weeks, he would recoup his upfront investment of time, freeing up nearly an entire afternoon every week.

• “If I delegate too much, I won’t have enough work to do.” Unless your team is a welloiled machine with no room for process improvement, all your customers or clients are solid, and your staff development is pristine, this statement is false. Arguably, in my experience, there are countless opportunities to focus on value-added activities that’ll expand your leadership and benefit your organization. In other words, there’s always plenty of work for effective leaders to do.

DEVELOP A CLEAR PLAN Once you’re ready to break through these barriers, you can start developing a plan for more effective delegation. I recommend following these seven steps: 32

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• Plan ahead. If you wait until the last minute to consider delegating a task, you’re likelier to ditch that idea and do the job yourself. Watch your calendar for upcoming projects that’ll work well for potential delegation opportunities. This will allow enough time for the delegation process to take shape. Encourage your team to do the same as they become familiar with recurring projects and workflow.

• Define the task. Before picking who you’ll delegate the task to, be sure you’ve clearly defined it. It’s crucial to know your deadline, desired outcome, and the steps needed to get there to set your team members up for success. Also, consider breaking larger projects into smaller chunks and whether sharing them among multiple team members is better.

• Pick the right person. Ensure the team member has the right skills and experience for the job, in addition to the capacity to complete the task based on your deadline and their workload.

At the same time, don’t limit your options by choosing your typical go-to team members or star players. Consider whether the project is a viable stretch assignment to help someone else grow and expand their capabilities.

• Clarify your expectations. Help your team member see what constitutes success for the project, spelling out the desired outcome and deadline. Explain the sequence and execution of tasks to the extent that there’s a singular or limited path to your desired outcome. Then, invite your team member to creatively think about how the job can be completed successfully using an alternative path.

• Confirm their understanding. Don’t hand off the task or project without confirming their understanding of what’s needed is consistent with yours. Begin by simply asking them to describe the project to you. Then, ask about the areas they have questions on or where they anticipate potential sticking points as they proceed.

• Offer resources. Let your team member know where to go for help when needed. That could be in the form of prior year files, similar projects for other departments or clients, professional literature, other staff, etc. Encourage resourcefulness while providing guidance on how long you want the team member to struggle on their own before seeking help.

• Follow up on progress. Ask your team member to provide status reports on their progress with the project. Additionally, schedule reminders on your calendar to follow up in case they drop the ball. The frequency of these check-ins will vary depending on the complexity of the task and the team member’s experience level. Identifying problems midstream will enable you to avoid negative surprises and redirect efforts as needed.

Like most leadership skills, it’s easy to respond to the call for better delegation by deciding you’ll “try harder.” Instead, be more specific—what does better delegation look like to you? Perhaps your next step is to schedule a recurring calendar block to plan for delegation, or maybe you can invite your team members to approach you for opportunities to take on tasks you’ve typically done yourself. For the next 30 days, practice delegating to elevate you and your team, assess progress, and reset your intentions for the next 30 days. If you build this cycle into your routine, you’ll find yourself saying you’re excellent at delegating during your next leadership development program.

www.icpas.org/insight | Fall 2023

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EVOLVING ACCOUNTANT

DEI: Meaningful Change Requires an Ecosystem Cultivating a diverse and inclusive workplace requires commitment. Is your organization up to the challenge?

Andrea Wright, CPA

The concept of diversity, equity, and inclusion (DEI) can be traced back to the civil rights movement of the 1960s, where advocates fought for equal rights and an end to racial segregation. The nonviolent protests of this pivotal era sparked conversations about justice, fairness, and inclusion in all aspects of society, including the workplace. Over the subsequent decades, DEI evolved and expanded beyond racial diversity and equity to include gender, sexual orientation, age, disability, and more.

Partner, Johnson Lambert LLP awright@JohnsonLambert.com ICPAS member since 2010

The murder of George Floyd in May 2020 ignited the societal DEI conversation in a way that we hadn’t seen since the 1960s. In the weeks and months that followed, DEI became the cornerstone of business practices, aiming to create a workplace environment in which every employee feels valued, respected, and empowered, regardless of their background.

During this time, managing partners and CEOs signed DEI pledges, companies hired DEI consultants, chief DEI officers were hired en masse, recruiting and training budgets were increased, and much more. Fortunately, after three years of intense focus, we’ve learned a few things: • The journey toward DEI is long and evolving, rooted in historical context and societal shifts.

• Employees haven’t been satisfied with a “lip service” approach to DEI. • While representation and training are important elements of a healthy DEI environment, they represent only a small section of the DEI ecosystem.

If these lessons have taught us anything, it’s that DEI is a continuous endeavor—it can’t be done piecemeal. However, there’s one strategy that organizations can adopt to drive meaningful DEI changes—a commitment to building a DEI ecosystem.

In the United States, colleges and universities are leading the pack on this strategy, concentrating on systemic DEI efforts. They’re thinking about the implications of DEI as a holistic shift in how they exist and how they engage within their local communities and society overall. While colleges and universities may have been among the first groups to think of DEI as an ecosystem, corporations also see the value in this. For example, Donald Fan, Walmart’s former senior director of the Global Office of Culture, Diversity, Equity, and Inclusion, once challenged companies to take their DEI journeys seriously, stating that “a culture change only happens when organizations go beyond check-the-box programs and invest in an ecosystem cultivating a diverse and inclusive workplace.”

Of course, building a DEI ecosystem won’t be without its challenges. Employees who view these efforts as forced or unnecessary will resist, and unconscious biases and deeply ingrained cultural norms can hinder these initiatives. For some organizations, acknowledging the need for change and fostering an environment of open dialogue will

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be their first steps toward creating a more inclusive workplace.

Though, I believe that organizations who’re ready and willing to “level up” on their DEI efforts can get there.

So, how can organizations build a DEI ecosystem? I believe it starts with these foundational steps: • Transforming systems, policies, and practices. Review and update your policies and practices to ensure they’re fair and inclusive for all employees. This may include flexible work arrangements, family support, parental leave, and/or accommodations for individuals with disabilities.

• Training and coaching staff. Provide ongoing training opportunities to raise awareness about unconscious biases, stereotypes, and microaggressions. This training should empower employees to recognize and address these issues.

Additionally, these trainings should include a robust coaching program that provides support and training for employees from underrepresented groups to ascend into leadership positions, fostering a more diverse leadership team.

• Equipping the C-suite with inclusive leadership skills. Having a top-down strategy for DEI is critical. Senior leadership must demonstrate a genuine commitment to DEI through their actions, policies, and decisions.

• Managing DEI fatigue, overwhelm, cynicism, and shame. Your organization should anticipate these feelings and sentiments and have a plan to manage them. Being clear with employees about a particular DEI issue your organization is facing, setting small goals with realistic expectations, and empowering your employees to take actions that move your DEI initiatives forward are all ways that can help you be prepared and respond to these matters.

• Building employee resource groups (ERGs). Establish ERGs based on shared identities or interests to provide space for your employees to connect, share experiences, and offer insights to one another.

• Recruiting and retaining underrepresented talent. Revise and broaden your recruitment strategies to attract diverse candidates. To achieve this, consider expanding recruitment methods to include nontraditional sources, such as social media, alumni clubs, and affinity groups.

• Surveying employees. This can serve as a benchmark to measure progress from your employees’ viewpoints. By conducting periodic surveys, you can track the effectiveness of your DEI initiatives and make an assessment as to whether those initiatives are having the desired effect.

• Having transparent metrics and accountability. Set measurable DEI initiatives and regularly communicate progress to your entire organization. Take this step seriously and hold leaders accountable for achieving the goals set by the organization.

• Encouraging open communication. Create safe spaces for your employees to discuss DEI, including their concerns and experiences.

The DEI journey is just that—a journey. It’s ongoing and requires steadfast attention and effort to be meaningful. As your organization prepares for the changing demographics and disruptive trends that societal evolution promises to bring, operating within a DEI ecosystem may just be the competitive advantage you need to cultivate a diverse and inclusive workplace. www.icpas.org/insight | Fall 2023

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FINANCIALLY SPEAKING

3 SECURE 2.0 Changes to Discuss With Financial Planning Clients To ensure your clients are set up for retirement success, familiarize them with these three SECURE 2.0 provisions to start.

Mark J. Gilbert, CPA/PFS, MBA President, Reason Financial Advisors mgilbert@reasonfinancial.com ICPAS member since 1982

After nearly one year since its enactment, there’s still a lot to unpack from the SECURE 2.0 Act. Signed into law on Dec. 29, 2022, the act updates and enhances the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 by offering even more provisions for better retirement outcomes for Americans.

Let’s unpack three important provisions and look at how they’ll impact your personal financial planning (PFP) clients.

1. CHANGE IN RETIREMENT AGE One of the most significant changes outlined in SECURE 2.0 is the required minimum distribution (RMD) age increase for the holder of an individual retirement account (IRA)— other than an inherited IRA—or a participant in a qualified retirement plan. The age of the initial RMD has been increased from age 72 to: • Age 73 (if the individual’s date of birth is before Jan. 1, 1960).

• Age 75 (if the individual’s date of birth is after Dec. 31, 1959).

Other pre-SECURE 2.0 rules regarding RMDs remain in place. This means a participant in an employer-sponsored retirement plan who reaches a RMD age isn’t required to take that year’s RMD while still employed by the employer unless they own 5% or more of the company. Additionally, the first year’s RMD from a qualified plan may be deferred into the next year at the participant’s choosing.

From my perspective, this retirement age change is a good thing—it should permit greater opportunities for meaningful income tax planning with a larger number of clients. Here’s why: taken together with the initial RMD age increase from 70 ½ to 72 per the 2019 SECURE Act, the further extended period before RMDs must begin will likely result in either full deferral over the extended period for some clients, or periodic pre-RMD withdrawals to fund Roth IRA conversions, set aside monies in other after-tax accounts, or meet additional living expenses for most clients.

Admittedly, some critics argue against the overall economic benefits of this SECURE 2.0 provision. Christine Benz, director of personal finance at Morningstar is one of them, tweeting that “delaying RMDs to age 75 is truly a solution in search of a problem, IMO.” The way I see it, however, is that these tax planning opportunities can result in greater client financial resources to meet future retirement and long-term care costs.

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2. 529 PLAN CHANGES SECURE 2.0 provides an attractive solution for 529 plan owners and beneficiaries who, for one reason or another, don’t use the entire account balance for its intended purposes of “qualified education expenses.” Previously, unused funds could be withdrawn from a 529 account at a cost of a 10% penalty and income taxes on the earnings. Effective in 2024, SECURE 2.0 permits 529 plan account owners to convert a portion of the unused funds into a Roth IRA for the benefit of the 529 plan account beneficiary. Though, there are several limitations that come into play: • The lifetime conversion limit is $35,000.

• Pension-linked emergency savings accounts. Also starting in 2024, lower wage employees will have the option to contribute up to $2,500 per year (as long as the plan permits) to Roth-type savings accounts within the employer-sponsored retirement plan. Distributions to the employee must be permitted at least monthly, effectively giving workers near-term access to their retirement accounts.

These changes, whether effective in 2023 or later, represent some of the more common provisions to be reported in the general press.

Therefore, these provisions may be on the minds of your financially focused clients. I encourage you to become more familiar with the legislation and to reach out to your clients about its benefits.

• The 529 plan account must be open for at least 15 years.

• Only funds deposited in the 529 plan account for more than five years prior to conversion may be converted.

• The annual limit on conversion is equal to the account holder’s respective IRA contribution limit.

I know my clients who’ve overfunded 529 plan accounts will be pleased to know that some portion of these funds can be converted to Roth IRAs for their beneficiaries.

Notably, this piece of the legislation has removed most of the objections I hear from parents and grandparents about opening new 529 plan accounts. Most of their concerns revolved around questions like “what if the child doesn’t go to college?” or “what if the child receives a scholarship and doesn’t need all the money in the 529 plan account?” Until now, my response to these types of questions has been to remind clients that the funds can be used for more than one beneficiary and can be applied toward certain trade or vocational school programs. Now, beginning in 2024, I expect my reluctant clients will be more open to establishing 529 plan accounts knowing any funds not used for college can otherwise be used to help the young adults in their families begin to accumulate long-term wealth through Roth IRAs.

3. EXPANDED ROTH ACCESS In response to the growing popularity of Roth IRAs, Jeff Bush, a professional speaker and public policy expert at The Washington Update, called the SECURE 2.0 Act an example of the “Rothification of the U.S retirement system.” The 529 plan account provision described above is one example supporting Bush’s claim.

Here are some other examples of the expanded use of Roth-type accounts available to individuals: • Savings Incentive Match Plan for Employees (SIMPLE) IRA, Simplified Employee Pension (SEP) IRA, and employer matching contributions in employer retirement plans. Under SECURE 2.0, these plans and accounts can now hold or be made in after-tax dollars. Although the provisions are effective in 2023, employers must first amend plan documents. This strikes me as a legitimate effort to increase the attractiveness of funding employer-sponsored retirement accounts to more workers.

• Catch-up contributions. Starting in 2024, workers aged 50 and older who earn more than $145,000 in the prior year and who choose to make catch-up contributions in their employersponsored retirement plans must do so in Roth, rather than pre-tax, accounts. While some financial planning experts believe it’s in a client’s best interest to direct more contributions to Roth accounts and make fewer contributions to tax-deferred accounts, I’d prefer that clients have the flexibility to make that choice year by year. www.icpas.org/insight | Fall 2023

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CORPORATE INSIDER

3 Benefits of Strong Supplier Relationships Corporate leaders who build strong working relationships with their suppliers can help their businesses drive productivity, innovation, and create growth.

Shifra Kolsky, CPA Senior VP, Chief Accounting Officer, Controller, Discover Financial Services shifrakolsky@discover.com ICPAS member since 2017

My colleague, Todd Podell, senior vice president and chief procurement and corporate services officer at Discover Financial Services, says companies often have robust supplier bases that can be tapped for knowledge, expertise, and steering their businesses toward healthier bottom lines.

To learn more, I sat down with Podell to hear his thoughts on effective supplier relationship management and how corporate leaders can make the most out of these relationships. He says there are three key benefits to maintaining strong working relationships with suppliers.

1. REACHING PRODUCTIVITY GOALS Suppliers can help companies reach their productivity goals and objectives. Of course, a well-planned focus on productivity requires an investment in some expertise and rigor to look at specific cost areas. Therefore, companies may implement short-term planning measures to reduce costs, especially during a crisis. These measures may include slowing down hiring processes, managing quantities of technology licenses, or scaling back travel— all of which require decisions about risk tolerance levels and trade-offs of implementing a cost-saving measure. This is especially true in areas such as real estate, marketing, and technology implementations, which often require projects spanning 18 to 36 months where it may be counterproductive to implement these short-term measures.

For long-term planning, Podell says to make sure there’s a competitive landscape for bidding when contracts expire. For example, owning your intellectual property, understanding the qualifications of the available suppliers, and staying ahead of understanding future needs all factor in to shaping the demand management of specifications.

Additionally, a strong sourcing team will leverage their internal finance team to help identify opportunities through advanced cost reduction analytics. Remember, finance teams have the ability and knowledge to determine what goods or services should cost. They’ll have insightful cost analysis based on a deep understanding of suppliers’ cost base, levers of investment, margins, and goals. Having this knowledge will help a strategic sourcing team negotiate cost vs. price. For example, in the labor category, the sourcing team will understand the level of the people doing the work and the tasks they’ll be performing.

They’ll also understand the quantity of tasks and the rate that people are being paid relative to the amount the customer is asked to pay for the services. This knowledge, combined with strong supplier relationships, allowed Podell’s team to effectively negotiate with their 38

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suppliers during the COVID-19 pandemic—they were able to agree on pricing that reflected more even loss sharing than might otherwise have been achieved.

2. FOSTERING INNOVATION Podell notes that while cost is important, it shouldn’t be the only focus. An important step in creating strong supplier relationships is recognizing the potential to grow sales and innovation that exists within your supplier base. For example, suppliers can help companies be innovative and cost effective in their core business functions and opportunities.

Notably, Podell’s team had a supplier who helped them reduce their production costs for a 30-second commercial spot by crowdsourcing the material. Multiple small shops were able to submit their own original ideas to Podell’s team that met their ad criteria, which resulted in highly creative spots that were on point and cost a fraction of a highly produced one.

Additionally, a strategic sourcing team can look for innovation in the marketplace and find technologies that support cost management objectives. In almost every category there are analytical tools that can help. For example, technology that aids with tracing digital ad placements, construction and space planning, or software license counts can all lead to smarter deals.

In many companies, supplier spending is collectively the single largest block of expenses. It encompasses all the products and services that a company buys from third parties, covering everything from manufacturing materials, equipment, and logistics, to marketing, consulting, technology, employee travel, insurance, outside counsel, office supplies, real estate, and so much more.

Top procurement and sourcing teams usually return more than $5 in savings for every $1 invested in procurement overhead. Thus, it’s a wise investment to have a strong procurement organization that can leverage the company’s scale to maximize the value of enterprise-wide supplier spending.

As you can see, maintaining strong working relationships with your suppliers is crucial to your business practices. By working together with your suppliers, you can streamline processes, reduce costs, and create a healthier bottom line. As Podell says, “The power of accessing the people and expertise across your suppliers can lead to breakthroughs that you may not get to alone.”

The opinions presented in this article are those of the author and other contributors, in their individual capacity, and not necessarily those of Discover.

Podell has seen this in action working with a supplier that was a startup software company. Using their software, the supplier helped Podell’s team trace dollars spent on digital ad placements by providing information on the ads’ exact media placements, the times they aired, and the audiences they reached. This information allowed for better analysis of whether the money spent on advertising had the intended outcomes in terms of audience and relevance. Through this information, Podell’s team was able to make better informed decisions about the allocation of the marketing dollars, whether that resulted in cost savings or simply more targeted advertising.

3. ENABLING GROWTH Supplier relationships can also have a significant impact on company growth—whether because of perfecting core goods and services or expanding the company’s expertise. Podell shared two examples where he’s seen impressive partnerships with suppliers that resulted in sales growth for the company: • A health care company had a product that was not only medically sound but also market leading in terms of the problem it could solve for patients. However, the product wasn’t gaining usage and adoption the way the company anticipated. The team pulled together a supply chain workshop for the people responsible for manufacturing the components of the product, along with doctors, sellers, and customers. By working together with folks up and down the supply chain, the company was able to learn what wasn’t working and what would fix it. They retooled the product to design it better, which ultimately increased sales.

• A technology company that was essentially competing with a “Goliath” to their “David-like” size, partnered with their suppliers to create a joint venture that went on to tap into the expertise of that supplier and several of their other customers. Through this joint venture, innovations and developments were achieved that none of the partners could’ve done alone. This led the smaller technology company to a market share increase of seven times what they had prior to the joint venture. www.icpas.org/insight | Fall 2023

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TAX DECODED

Illinois’ Sales Taxes: A Deeper Dive on Exclusions and Exemptions Exclusions and exemptions may sound the same, but when it comes to Illinois’ sales taxes, they’re actually quite different.

Keith Staats, JD Executive Director, Illinois Chamber of Commerce Tax Institute kstaats@ilchamber.org ICPAS member since 2001

Once again, I’m diving back into a familiar topic that affects all of us—Illinois’ sales taxes. This time, however, I’m taking a deeper dive into the exclusions and exemptions from the taxes.

But first, let’s do a quick refresher on Illinois’ different sales taxes. As I’ve highlighted in previous Insight columns (the fall 2022 issue, to be exact), you may remember that the Illinois sales tax consists of a combination of four taxes: • The Retailers’ Occupation Tax: This is a tax on tangible personal property (TPP) sold at the retail level (generally by Illinois-based sellers to end users).

• The Use Tax: This tax is imposed on purchasers of TPP (e.g., purchases made from websites of out-of-state online sellers).

• The Service Occupation Tax: This tax isn’t what the name implies (i.e., a tax on services).

Rather, it’s a tax on TPP that’s transferred in the course of a sale of service (e.g., the selling price of the parts when your car is repaired).

• The Service Use Tax: This is a tax on TPP that’s transferred in the course of a sale of service that occurs outside of the state (e.g., your business orders items that are custom printed from an out-of-state printer and are delivered to Illinois recipients).

Now, let’s get into how exclusions and exemptions apply to these taxes. Although exclusions and exemptions sound the same, they’re quite different (legally speaking). Here, I’ll explain.

EXCLUSIONS Exclusions are transactions outside the scope of the sales tax (i.e., the types of transactions that are taxed vs. those that aren’t). Illinois’ sales taxes are imposed on sales of TPP, not intangibles—but, as you can imagine, there are recurring debates over what’s considered “tangible.”

Unlike many other states, Illinois’ sales taxes don’t generally impose taxes on services (hence, the definition above on the Service Occupation Tax). For example, when your car is repaired and the mechanic gives you a bill that breaks down the charges for services and parts, you’ll notice that the parts are taxed but the services aren’t. That’s because the only services that Illinois currently taxes (via other tax acts) are telecommunications, hotels, and car rentals, among others.

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Other exclusions include leases. Illinois generally doesn’t tax rentals of TPP except for automobiles and certain rent-to-own transactions.

On the other hand, the City of Chicago, through the Personal Property Lease Transaction Tax, taxes rentals of items that fall within the city’s definition of personal property. The details of this Chicago tax are a subject for a future column.

EXEMPTIONS Over the years, Illinois’ sales taxes have been amended many times to exempt various types of sales and transactions. Exemptions are transactions that fall within the scope of the tax—for example, sales of TPP—but the law carves out these transactions from being taxed.

of proving a transaction is non-taxable differs as a legal matter between exclusions and exemptions. In the case of exclusions, generally the courts strictly construe the statutes in favor of nontaxability and the burden is on the taxing authority to make an initial showing that the transaction is subject to tax. In the case of an exemption, generally the courts strictly construe the statutes in favor of taxability and the burden is on the taxpayer to demonstrate that the transaction is exempt under the law and that they complied with all the legal requirements to claim the exemption.

As you can see, there are deep legal waters to dive through in Illinois’ sales taxes, especially for exclusions and exemptions.

Knowing the nuances is critical for you and your clients.

A classic exemption is the sale or purchase of an item for resale.

Illinois law carves out sales of TPP under the Retailers’ Occupation Tax and purchases of TPP under the Use Tax. In order to qualify for the exemption, the items can either be resold in the same form or resold in a different form as an ingredient or component of a manufactured item. Additionally, the manufactured item could also likely be sold for resale to another manufacturer (think of an auto parts manufacturer that sells to an automobile manufacturer) or to a retailer who will make a taxable sale to an end user.

Other common Illinois exemptions include: • Charitable, religious, educational, or government organizations.

However, exemptions for charitable organizations vary in scope and requirements. For example, before being authorized to make sales tax exempt purchases, Illinois requires that a charitable organization apply to the state, submit required documentation, and receive a tax exemption identification number. Other states tie the exemption to federal status under Section 501(c)(3) of the Internal Revenue Code.

• Manufacturing machinery and equipment. Most states have some form of an exemption to manufacturing machinery. Notably, Illinois has a broad definition for this exemption.

• Interstate commerce. For example, a purchase from an Illinois retailer that’s shipped by the retailer to an out-of-state location.

Of course, these types of transactions are likely to be subject to a use tax in the state where the item is being shipped—unless it’s one of the handful of states without sales and use taxes.

• Planes, trains, trucks, etc. used as rolling stock. The requirements for this exemption aren’t uniform between the various types of conveyances and vary from state to state.

While exemptions for medicines and food are common in many states, Illinois handles it a bit differently. Illinois taxes medicines and food at a lower tax rate and provides all the proceeds of the tax to local governments.

Overall, it’s critical to understand the particular exemption rules of the state in which your client is doing business. This is because exemptions must be documented to the satisfaction of the taxing authority. Of course, documentation requirements vary from state to state.

EXCLUSION VS. EXEMPTION So, why does it matter if a particular transaction is excluded or exempted from tax? There are a couple of reasons. First, as previously noted, there are generally eligibility and documentation requirements under the law for claiming an exemption from tax.

Second, in the event of a dispute with a taxing authority, the burden www.icpas.org/insight | Fall 2023

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ETHICS ENGAGED

The Ethics of DEI: Cultivating a Positive Workplace Committing to diversity, equity, and inclusion initiatives is more than an ethical consideration—it leads to stronger organizations and workplace cultures.

Elizabeth Pittelkow Kittner CPA, CGMA, CITP, DTM Vice President of Finance, GigaOm ethicscpa@gmail.com ICPAS member since 2005

While there continues to be significant ethical considerations about diversity, equity, and inclusion (DEI) in the workplace, and in society as a whole, the benefits of these initiatives are clear. When organizations spend time focusing on DEI, they create more positive and collaborative environments for themselves and others. The merits of effective DEI initiatives will lead to better decision-making, more innovation, improved employee satisfaction, enhanced brand reputation, and positive social and community impact.

The foundation of DEI relates to the ethical principle of upholding the equity of every individual’s contributions and their right to equal respect. The intent is to preserve the value of each individual and identify the right opportunities for personal and professional growth.

Let’s examine the three components of DEI (i.e., diversity, equity, and inclusion).

• When organizations value diversity, they acknowledge the dignity and unique contributions each person brings based on their experience, background, race, gender, and other characteristics. It is important for your organization to assess and determine if it has the diversity needed to make it stronger in decision-making and more representative of the markets it serves. Your organization should also examine whether it is effectively contributing to DEI in its interactions with others.

• Regarding equity, your organization should ensure its people have equal access to professional development, leadership experiences, and career advancement opportunities. Each person in your organization will likely take a different journey to learning, development, and promotion. Therefore, your organization should consciously engage in individual discussions to outline what each person’s journey looks like.

• Inclusion is the element of DEI that creates an environment for both diversity and equity to succeed. Your organization should ensure your people feel valued, heard, and respected. Your people should be able to contribute their perspectives, experiences, and talents openly and with encouragement—after all, inclusion aligns with values of dignity, autonomy, and equality.

To champion a successful DEI environment, your organization should consider these ethical guidelines: • Engage the leadership team. Ethical leadership teams are accountable for talking about DEI efforts, working toward a welcoming and productive culture, and ensuring policies

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and behaviors align with corporate values. Your leadership team should be open and clear about its DEI goals and consistently report on the progress toward those goals to help support action throughout the organization.

• Offer continuous education. Keeping a persistent focus on DEI includes ongoing education and providing opportunities to ask questions. An all-hands meeting or a diversity panel dedicated to this topic can be helpful in creating this type of environment.

Consider asking your own people to lead these sessions to bring personal storytelling to the education or ask external speakers to help facilitate discussions.

• Build cultural competence. Cultural competence exists when individuals can effectively collaborate with people from different backgrounds; it promotes the idea of seeking to understand others and respecting their views, even if you may not agree with them. Employee resource groups (ERGs) may be helpful in achieving this goal since they can provide chances for people to share their perspectives and offer awareness regarding cultural representations.

• Serve as a mentor. Find someone in your organization to mentor.

You can advocate for their professional development and advancement by getting to know them and understanding their unique skills and aspirations. You can also empower them to have a voice in their career.

Ethical leadership and an evaluative mindset by individuals and organizations significantly contribute to the success of DEI initiatives. To cultivate a positive and inclusive culture, leaders should commit to self-awareness, learning, and action through discussion and teaching. For yourself, think about what you can do personally and organizationally to take the next steps. Remember, an ongoing and deliberate commitment to DEI creates and sustains an inclusive and equitable workplace that seeks, welcomes, and celebrates diversity.

• Promote positivity and well-being. Organizations that care about their people look out for their overall physical and mental well-being. Initiatives regarding mental health (like employee assistance programs), professional development, and charitable work show an ethical commitment to the people working for you and the communities you serve. A healthy organization starts with healthy people.

• Survey your people. Organizations that care about providing an ethical and positive environment that prioritizes DEI also provide ways for people to give feedback, including anonymous feedback. Feedback may present your organization with key insights into what it is doing well and what it can be doing differently to promote the culture it wants. You may also consider facilitating a “crazy ideas board,” where people can submit ideas to your leadership team for consideration regarding product offerings, culture events, charitable work, and more.

Individual employees play an instrumental role in promoting DEI throughout an organization. As an employee, consider these ethical guidelines: • Develop self-awareness. Identify what biases you may have in your own beliefs and assumptions—knowing biases is the first step to addressing them. Consider how you can show up in interactions to increase your open-mindedness.

• Learn about others. Be brave and respectful in asking people about their backgrounds and experiences. Research different groups and learn about them, including their histories and customs, and offer to teach and talk about your own culture.

• Practice generous assumptions. When someone’s behavior does not make sense, give them the benefit of the doubt, and ask them directly about it. It is fair for you to tell them how their behavior makes you feel and the impact it has on the team.

Remember, someone’s behavior may be due to their background (e.g., someone who is neurodiverse may approach a situation differently than someone who is neurotypical) or social preference (e.g., extroversion or introversion).

• Participate in DEI initiatives. The more people engage in an organization’s DEI initiatives, the more DEI will become ingrained in the culture. Encourage your organization to keep focusing on DEI and working to make the culture better. www.icpas.org/insight | Fall 2023

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PRACTICE PERSPECTIVES

Have It All: Better Profit Margin, Work-Life Balance, and Clients Three key steps can transform your accounting practice’s business model and make it work for you.

Picture this: You’re running a small accounting practice and consciously decide to reduce your revenue by 20%, trimming the least profitable accounts. At the same time, you eliminate weekend hours in all but a very few cases, and even work fewer Fridays in the summer. From there, you come out making similar money with better work-life balance and a higher average profit margin. As an extra bonus, this transformation positions your practice to be more competitive in many ways going forward.

Art Kuesel President, Kuesel Consulting

I know what you’re thinking—is this scenario even possible? Well, I’m here to tell you that the answer is yes, yes, yes—and yes!

art@kueselconsulting.com

Financially, there’s never been a better time in history to be an accountant. The last several years have seen strong gains in earnings for accounting professionals. Public accounting firms have seen double digit revenue (and profit) growth for two years in a row. But with this good comes some bad. We’ve worked harder than ever before, and thanks to a dearth of qualified talent amid strong demand for services, the cycle shows no sign of letting up.

So, let’s take a stab at creating a more sustainable model for the foreseeable future. Here are three steps you should consider to transform your practice’s business model.

1. TRIM YOUR LEAST PROFITABLE CLIENTS While it may be concerning to deliberately cull clients (and their precious revenue), we all know that not every client is created equal, and not every dollar earned is worth it. You know that by just looking at the work in progress vs. billings—some clients earn a high realization rate (i.e., a better profit margin) and some clients earn a low realization rate.

Imagine if your first hour of the week is spent on your high-margin clients but your last hour of the week is spent on your low-margin clients. Well, that’s not your imagination, it’s more likely closer to reality.

Here’s an overly simplified hypothetical to help explain. Let’s imagine that CPA Firm ABC & Co., which is a solo practitioner, has $600,000 in revenue, 1,800 in billable hours, $324,000 in profits (partner income), and a client stratification that fit these profiles: 20% of clients or $180,000 of revenue: • Average fee $5,000/year with a profit margin of 75% • Profits earned from most profitable 20% of clients = $135,000 60% of clients or $360,000 of revenue: • Average fee $4,000/year with a profit margin of 50% • Profits earned from the next 60% of the practice = $162,000 20% of clients or $180,000 of revenue: • Average fee $3,000/year with a profit margin of 15% • Profits earned from the last 20% of the practice = $27,000 44

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In this scenario, we would trim the least profitable revenue of $180,000 and our profits would go down by only $27,000.

2. REDUCE YOUR BILLABLE HOURS WORKED TO MATCH YOUR SMALLER CLIENT BASE Remember, we’re starting with 1,800 billable hours. Therefore, cutting 20% ($180,000) of our least profitable work should equate to cutting 20% of your billable hours, or 360 hours from your schedule. With this change, you’re now sitting at a much more comfortable 1,440 billable hours.

To reach this goal, start with cutting the weekend hours during busy season and then cut into the workweek—perhaps the Fridays in July and August. How liberating! Maybe you even add another week of paid time off in the summer. Remember, cutting these 360 hours will only cost you $27,000 in profits. These hours weren’t worth that much to begin with! Notably, some of you might even be satisfied with making a little less in exchange for fewer billable hours. But if you need to get back to your original profit total, continue to step No. 3 below.

3. SPEND MORE NON-BILLABLE TIME ON YOUR HIGH-POTENTIAL CLIENTS Now that your schedule is much more in balance, take advantage of the opportunity to spend more of your non-billable time (and previously billable time at low margin) with those high-potential

clients in the 75% margin bucket. In theory, you’ll likely pick up some special projects and extra work to offset the $27,000 in lost profits.

However, since these billable hours will now be at a 75% margin instead of 15%, it’ll take you considerably fewer new billable hours to arrive at the same total profitability as you were before you started the exercise.

Of course, there’s a caveat to the three steps mentioned above— they’re oversimplified scenarios. You should anticipate some pushback. For example, some of your clients may not accept being trimmed, or you may not have the heart to trim some of your clients.

Additionally, some of your clients may accept a considerably higher fee to stay even if they remain at a lower than ideal margin. You also may not be able to cut down all weekend hours due to compression of the season. There’s also your recordkeeping, which may not support access to this data. And lastly, your high-margin clients may not need any extra services.

But even in the worst-case scenarios, seeking improvements in these areas will yield results. And the bonus? Your “new” practice will create similar or possibly more profit margin with less hours— and this means you could reinvest your time and profit elsewhere, having a more valuable asset on your hands when retirement looms.

Can you see it more clearly now? Are you ready to head out on this journey with me? I hope your answer is yes, yes, yes—and yes.

www.icpas.org/insight | Fall 2023

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Andrew Guerrero, CPA Manager | Adelfia LLC

Why: The Most Powerful Three-Letter Word If you find yourself moving through your life and career with too many questions and too few answers, ask yourself “why.”

I WAS JUST A KID from Florida soaking up the sun and living the dream. I rarely stopped to think about where I’d be in the years ahead. I had great weather and a great tan, so why would I? Of course, time has a way of catching up to oneself. I blinked and high school was over. I walked across the stage to grab my diploma and seemingly woke up the next day to be confronted by the beginning of college. College was over in a flash. I had an accounting degree without a plan or roadmap telling me where to go next. It was terrifying. It felt like I was being forced to take a deep dive into an ocean ahead of me—and I wasn’t ready. But what I quickly came to realize is that while the ocean may be vast and full of unknowns, it’s also filled with endless answers.

A year after I graduated college with my bachelor’s degree, I accepted my first job as a staff accountant with a small, minorityowned firm in Chicago. I know what you’re thinking: Why would you move from Florida to Chicago? A few reasons: 1) I had an opportunity to work with people of the same ethnicity as me, 2) I desperately wanted to move out of my parents’ house, and 3) why not?

In the beginning, my leap of faith paid off. However, within two years of being on the job, I started to question myself again: Why did I choose accounting? Why can’t I find my niche? Why am I doing any 46

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of this? I shifted my journey of self-discovery into overdrive and, fortunately for me, the path forward was paved with people who wanted me to succeed. I had mentors who took time out of their days to answer my questions, provide advice, and just lend their ears when I needed them. They helped me start to answer my “whys.” It was like a switch flipped on, and it was then that I realized I can do the same for others.

Now, this didn’t happen overnight, but I was so excited and motivated that not long after, I dove right in and began to forge myself a parallel path within my profession. I joined my first professional association—the International Society of Filipinos in Finance and Accounting (ISFFA)—whose mission is to train and mentor minority professionals. With some encouragement, I began volunteering as the vice president of Student Relations. This felt like my first true step toward finding my why.

As time went on, it became more evident why I was doing what I was doing. For the first time, it felt like my future had a purpose— I’d make it my mission to help guide younger generations toward the accounting profession. As I continued to volunteer and grow, I eventually became president of ISFFA. I also joined the Illinois CPA Society (ICPAS) and its Young Leaders Advisory Council, where I have more opportunities to help guide young professionals and college students. Being able to help others—not only in their professional lives, but also in their personal lives—helps me to always keep a fresh perspective on life. I’ve learned that making a difference in other people’s lives is just as satisfying, if not more satisfying, than my own achievements.

Looking back, I’m glad I took that dive to try to find my why.

Volunteering and mentorship have inspired me to delve deeper into who I am—and the accounting profession—each day. To every young professional and college student out there: challenge yourself, explore, reach out to others, find your passion, and never stop asking “why.” I can assure you, you won’t be alone on your journey, and you’ll find purpose in your life and profession.

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LaToya C. McKinney, CPA, MSAA Driven by a passion for giving back, this 2023 Lester H. McKeever Jr. Advancing Diversity Award Winner wants to show all diverse accounting students that there’s a place for them in the profession.

BY AMY SANCHEZ hile most wouldn’t dream of leaving paradise, Illinois CPA Society (ICPAS) 2023 Lester H. McKeever Jr. Advancing Diversity Award Winner LaToya C. McKinney, CPA, MSAA, says moving away from her childhood home in Oahu, Hawaii, was a good change.

“Over the years, I’ve come to realize that the move exposed me to more opportunities, career-wise, and I gained a lot of direction through it. I don’t know if I would’ve gotten that if I stayed in Hawaii,” McKinney admits.

McKinney, who serves as the senior business process and control analyst in Abbott’s Rapid Diagnostics Division, says although she doesn’t make it back to visit Hawaii very often, she does appreciate the lessons that the islands have instilled in her.

“In Hawaii, you get a lot more community, even outside of just family—everyone’s kind of looking out for each other,” McKinney notes. “That aspect of community has translated into my current life here where I try to keep the relationships I’ve built extra close.”

Soon after moving to Chicago, McKinney attended the University of Illinois Chicago where she would find a hidden passion for accounting. As a self-proclaimed suspense novel fan, McKinney set her original sights on a career in psychology.

“I was really into ‘Law & Order’ and ‘CSI’ at the time, so I really thought I was going to be a forensic psychologist,” she laughs. “But the classes weren’t connecting with me, so I switched over to business and soon found my way into accounting.”

McKinney says accounting immediately felt like a natural fit: “I liked how there was structure to it, and as a stereotypical introvert, I was intrigued by learning about financial statements and journal entry transactions.”

As McKinney gained more exposure to the profession, she began a pathway into nonprofit accounting. “It was always a career driver of mine. I knew I wanted to give back to the community in some capacity,” McKinney notes. “Though naively, I didn’t think I needed to be a CPA because I wasn’t intending to go the public route—but low and behold.”

A big part of McKinney’s collegiate and professional journey was her student involvement with Sigma Gamma Rho Sorority Inc., a service-based organization. There, she gained exposure to other service areas where she was able to grow both personally and professionally. “Getting the foundation with this organization really 48

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helped me see how I could get involved in other areas, including with accounting.”

Ultimately, this experience drove a passion in McKinney to advocate for and help diverse students like her find success in accounting. Specifically, McKinney wants to give students something she feels is most needed and missing from the profession—knowledge and exposure.

“As a profession, I don’t know if we do enough things to highlight all the positives that you can do,” McKinney says. “I think we’re often siloed into thinking there are two options after graduation—audit or tax. But there’s so much more, and usually minority groups don’t have as much access and resources to learn this.”

Beyond her student advocacy efforts, McKinney is also a champion for moving the needle forward on diversity, equity, and inclusion (DEI) within the accounting profession. One of the driving factors for this was the cultural shock she experienced when moving away from Hawaii. “I’m half Filipino and grew up in a primarily Filipino community. And being half Black, I already felt different there,” McKinney says. “But moving from Hawaii to Chicago, it was even more obvious to me that I was a minority. It really opened my eyes into the disparities of minority people on the mainland.”

Throughout her career, McKinney admits to struggling with feelings of “tokenism” and being the “only” in the room—all of which have played a large role in her becoming an active participant for change. Currently, she serves on Abbott’s finance diversity and inclusion team and the communications committee of Abbott’s Black Business Network Chicagoland Chapter. She’s also vice president of NABA Inc. Chicago Chapter, and is an active member of ICPAS, where she often volunteers for various DEI initiatives, like the Mary T. Washington Wylie Internship Preparation Program and the Scholarship Selection Committee.

Of course, a more significant driver in McKinney’s DEI efforts are her two daughters. “In large part, accounting is still a white, maledominated profession, and it’s a little disheartening to see that progress is slow,” McKinney admits. “As my daughters are growing up, I want them to see that their opportunities are limitless. No matter what professional areas they’re looking at, I want them to see themselves in those areas. I don’t want them to question if they can do something. If they can see their mom doing this and other minority women holding high-power roles, my hope is that it won’t be a question or hesitation for them.”