Insight Magazine - February / March 2010

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26 All Tied Up

B y C a r o l yn Ta n g Are taxes handicapping corporate America?

30 The Director ’s Cut

B y K r i st i n e B l en k h o r n Ro d r i g u ez

Boards of directors traditionally take a more active role in a company ’ s story in turbulent economic times. Now is no exception.

34 This Way Please

B y N a d i r a M Sa a fi r, C PA a n d B a r r y Ja y E p st ei n , Ph D /C PA Private companies point the way to IFRS adoption

10 Fraud House of Cards

B y Sel en a C h a vi s

Mortgage fraud wreaked havoc on US real estate markets Lesson learned

12 Technology Are You Being Served?

B y D a n i el D er n

More and more small businesses are learning what SaaS can do for their mobility, productivity, IT security and budgets

16 Property Free Money

B y G Sa m u el Sc h a u n a m a n II, JD a n d C h r i st o p h er S Jen sen , C PA Unclaimed property laws put cash in the right hands

20 Investing Emotional Rescue

B y Si d n ey A B l u m , Kevi n Pa u l sen a n d Mi c h a el T h o m p so n How do emotions influence the investing public?

22 Retirement Empty Nest

B y Ma r k J Gi l b er t , C PA /PF S

Has retirement funding lost its feathers?

24 Tax Carried Away

B y H a r vey C o u st a n , C PA

A 2009 act expands and raises questions about the ability to carry back net operating losses

4 First Word

A message from the Illinois CPA Society ’ s President & CEO

5 Board Nominations

Nominations for the Illinois CPA Society ’ s Board of Directors & Officers

News bytes, sound advice and practical business tips 38

A shout out for the efforts and expertise of Illinois CPA Society members

Garelli

FIRST WORD

Publisher/ICPAS President & CEO Elaine Weiss, JD

Editor-in-Chief/Director of Publications Judy Giannetto

Creative Services Director Gene Levitan

Creative Services Manager Rosa Garcia

Publications Specialist Derrick Lilly

National Sales & Advertising

Angie VanGorder

The YGS Group

3650 West Market Street

York, PA 17404

Phone: 800 501 9571, ext 176

Fax: 717 825 2171

angie vangorder@theygsgroup com

Circulation/Member Services Director Ron Jankowski

Editorial Office

550 W Jackson Blvd , Suite 900 Chicago, IL 60661

Chairperson, Lee A Gould, CPA/ABV, JD, CFE, CFF Gould & Pakter Associates LLC

Vice Chairperson, Sara J Mikuta, CPA

The Leaders Bank

Secretary, Charles F G Kuyk III, CPA Crowe Horwath and Company LLP

Treasurer, Robert E Cameron, CPA Cameron Smith & Company PC

Immediate Past Chairperson, Sheldon P. Holzman, CPA, CFE, CFF

Baker Tilly Virchow Krause LLP

I C P A S B O A R D O F D I R E C TO R S

Brent A Baccus, CPA, Washington Pittman & McKeever

Therese M Bobek, CPA, PricewaterhouseCoopers LLP

William P Graf, CPA, Deloitte & Touche LLP

Reva B Steinberg, CPA, BDO

Cara C Hoffman, CPA, Blackman Kallick LLP

James P Jones, CPA, Edward Don & Company

Charlotte A Montgomery, CPA, Illinois State Museum

Elizabeth A Murphy, PhD, DePaul University

Annette M O’Connor, CPA, RR Donnelley & Sons Company

Michael J Pierce, CPA, RSM McGladrey Inc

Marian Powers, PhD, Northwestern University

Daniel F Rahill, CPA, KPMG LLP

Lawrence H Shanker, CPA, Shanker Valleau Accountants Inc

Edward H Stassen, CPA, Recycled Paper Greetings Inc

Everyday, someone’s reporting on our economic outlook Any good news is qualified w i t h w o r d s l i k e “ h o w e v e r ” a n d “ b u t ” b ec a u s e , t r u t h f u l l y, n o o n e c a n p r e d i c t t h e f u t u r e . We c a n , h o w e v e r, u s e w h a t w e ’ v e learned from the past to guide it

For more than a year now CPAs, like everyone else, have been challenged by the realities of a new financial landscape We’ve shared our experiences at Town Hall Forums and, fortunately, discovered the ability to adapt both professionally and personally. Smaller firms have found strength in flexibility Large firms have reevaluated their strategies or expanded into new and growing areas like forensics, healthcare and sustainability And everyone has a new appreciation for the old idea of networking to stay connected, better informed and alert to new opportunities.

The tools we’ve gained such as a better sense of what’s of value, flexibility and creativity, and forethought before taking action –should make us better prepared to take on both old and new issues in the months ahead IFRS may be back on track, financial reform legislation is on the horizon, tax changes like the First-time Home Buyers Tax Credit continue, and, locally, there’s voluntary disclosure of peer review results, as well as Illinois’ transition to one-tier licensing

Although taped over the summer, the people I interviewed in this year ’s Street Sense video (posted on icpas org), reveal the sheer variety of opinions on our economic conditions Is the worst over or still ahead? The bottom line, as I’ve already said, is that no one really knows where we’re headed.

Nevertheless, drawing on our skills, know-how and experience, and sharing what we’ve learned with our clients and peers, all go a long way towards getting us where we need to be.

INSIGHT is the official magazine of the Illinois CPA Society, 550 W Jackson, Suite 900, Chicago, IL 60661, USA Its purpose is to serve as the primary news and information vehicle for some 23,000 CPA members and professional affiliates 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 (ISSN-1053-8542) is published six times a year, in February/March, May/June, July, August, September/October, November/December, by the Illinois CPA Society, 550 W Jackson, Suite 900, Chicago, IL 60661, USA , 312 993 0393 or 800 993 0393, fax: 312 993 0307 Subscription rates for non-members: $30 US, $40 Canada and international addresses, $42 Mexico Copyright © 2010 No part of the contents may be reproduced by any means without the written consent of INSIGHT Permission requests may be sent to: Publications Specialist, at the address above Periodicals postage paid at Chicago, IL and at additional mailing offices POSTMASTER: Send address changes to: INSIGHT, Illinois CPA Society, 550 W Jackson, Suite 900, Chicago, IL 60661, USA

BOARDNOMINATIONS

Charles F. G. Kuyk lll

Secretary, Board of Directors

Illinois CPA Society

550 W Jackson Blvd , Suite 900 Chicago, IL 60661

Dear Mr Kuyk:

December 3, 2009

As provided in Article V of the Illinois CPA Society's Bylaws, the Nominating Committee hereby presents its unanimous nominations for Officers, Directors and Affiliate/Public Members We are also indicating our nominee for AICPA Council State Society Representative

OFFICERS

(To hold office for one year April 1, 2010 - March 31, 2011)

Chairperson Sara J Mikuta

Vice Chairperson Robert E Cameron

Secretary Daniel F Rahill

Treasurer James P Jones

CONTINUING DIRECTORS

To succeed Lee A Gould

To succeed Sara J Mikuta

To succeed Charles F G Kuyk lll

To succeed Robert E Cameron

(To hold office for new one-year term April 1, 2010 - March 31, 2011)

Brent A Baccus, Cara C Hoffman

(To hold office for second year of a two-year term June 1, 2009 - March 31, 2011)

William P Graf, Annette M O’Connor

(To hold office second year of a three year term June 1, 2009 - March 31, 2012)

Elizabeth A Murphy, Michael J Pierce, Edward H Stassen, Reva Steinberg

NEW DIRECTORS

(To hold office for three years April 1, 2010 - March 31, 2013)

Edward J. Hannon, John A. Hepp, Geralyn R. Hurd, Leif L Jensen, J Bradley Sargent

Lee A Gould, Chairperson, becomes a Director for one year beginning April 1, 2010 to March 31, 2011, in accordance with Section 4 2 of Article IV of the Bylaws.

In accordance with Section 4.2 of Article IV of the Bylaws, an affiliate member or a representative of the public may be elected as a director.

PROFESSIONAL AFFILIATE DIRECTORS

(To hold office for one-year term April 1, 2010 - March 31, 2011)

None at this time

AICPA COUNCIL State Society Representative

(To serve for one year October 2011 – October 2012

Sara J Mikuta

RETIRING DIRECTORS

Theresa M. Bobek, Sheldon P Holzman, Charlie F G

Kuyk lll, Charlotte A Montgomery, Marian Powers, Lawrence H Shanker

All of the aforementioned nominees have consented to serve if elected

The Nominating Committee has ascertained that all nominees to be elected are qualified in accordance with the provisions of Section 4 4 of Article IV of the Bylaws, and information on nominees for the membership as required by Section 5 3 of Article V thereof, is set forth following this report (available at icpas org)

SUBMITTED BY THE NOMINATING COMMITTEE:

Daniel P Broadhurst

Debra Hopkins

Lester H McKeever Jr ,

Kimberly R Rice

Michelle M Scheffki

Joyce M Simon

Sheldon P Holzman, Chairman

Lee A. Gould, ex-officio

SEEN H E A R D

Finance Salary Predictions

The 2010 Salary Guides from Robert Half International [rhi com] project that businesses seeking financial professionals will offer starting salaries that reflect an average increase of 0 5 percent

Positions with the best salary increase prospects include:

n Tax Accountant: Those with one to three years of experience at large companies (more than $250 million in sales) can expect an average national starting salary of $46,500 to $61,500

n Compliance Director: Needed for compliance with SEC mandates and new regulations, and to prepare for IFRS transition, this position can expect starting salaries at a small company (up to $25 million in sales) in the range of $83,750 to $108,500.

n Credit Manager/Supervisor: Credit and collections specialists who can evaluate credit risk, manage delinquent payments and help to improve cash flow can demand base compensation between $42,500 and $57,500 in small companies

n Senior Financial Analyst: A senior financial analyst at a midsize company ($25 million to $250 million in sales) is expected to earn a starting salary of $57,750 to $74,000

Five Tech Don’ts

According to CPATrendlines com, if you ’ re only worried about your computer and network security then you ’ re still not seeing the big IT picture Here are five of the top technology areas not to be overlooked:

1.Wireless Network Connection Security: Use protection like Wired Equivalent Privacy (WEP), Wi-Fi Protected Access (WPA), WPA2, or a Virtual Private Network (VPN) When you ’ re not using your wireless connection turn it off

2 Social Media Tools: For CPAs, Facebook, Twitter and LinkedIn are too important to ignore Firms need to establish policies and integrate the use of social media into everyday work practices

3.Instant Messaging Applications: AOL, Microsoft, Google and Yahoo provide popular IM applications that can be used as effective and expedient means of internal communications

4. Mobile Phones: Many fail to embrace devices like BlackBerrys, iPhones or Smartphones What ’ s more, mobile phones are sometimes irresponsibly used to store confidential information such as client data, Social Security numbers and passwords

5 Security for Portable Media: When it comes to USB drives, SD cards and laptops, every accounting office should supply encrypted and authenticated devices

61 percen t

Per c en tage o f C F O s w h o bel i ev e c o m pan i es w i l l n o t invest in IFRS conversion readiness activities without a clear date for IFRS adoption Source: Deloitte

Get Your Firm on the Map

Google Maps Optimization (GMO) is a valuable tool for businesses looking for ways to attract new clients through the web at low or no cost

Because it attracts local consumers, GMO is a powerful compliment to other search engine optimization strategies. And unlike sponsored search engine links, listing your firm or business on Google Maps is free

In addition to increasing visibility, GMO increases your general search ranking and the overall credibility of your business

To register with Google Maps, visit Google’s Local Business Center at google com/local/add

Source: Theprogressiveaccountant com

Prepare for a Comeback

According to a recent survey by Ajilon Finance Solutions [ajilon com], companies could do more to ready themselves for the economic recovery Here are tips to help finance professionals prepare for a brighter future

n Focus on Talent Management: As workloads begin to increase, it ’ s critical to ensure your firm has highquality employees ready to take those workloads on. Think about adding temporary workers to balance peak workflows and ensure your existing staff doesn’t feel overwhelmed or burnt out Recognize star performers and openly acknowledge their contributions

n Improve Information Flow: Look into Enterprise Resource Planning systems that bridge communication gaps. Ensure information is passed on quickly and accurately to support key decisions

n Take a Transformational Approach: Focus on strategic and structural improvements that create a more scalable and sustainable cost infrastructure

n Consider Partnering for New Solutions: Partnering with a company in a complimentary industry can help to spread out risk and costs, and can help you gain access to new markets.

iPhone Travel Tips

Planning an overseas business trip or vacation? Don’t come home to a sky-high iPhone bill AT&T offers these tips:

n Turn Data Roaming “Off ”

n Use WiFi instead of 3G/GPRS/EDGE; it ’ s available in most hotels, restaurants and airports

n Turn “Fetch New Data” off so you can control the flow of data to your phone

n Reset your “Data Usage Tracker ” to zero, so you can track exactly what you use

n Consider purchasing a monthly international data plan, which will significantly reduce your data usage fees while overseas Once you ’ re back on home soil you can cancel the plan if necessary.

1 out of 7

Number of midcap companies that pose a potential credit risk to their suppliers

Source: CFO Financial Benchmarks

Job Dissatisfaction on the Rise

Adecco Group North America's [adeccousa com] latest A merican Workplace Insights Survey indicates that 75 percent of workers are looking for another job in today's tightening labor market. According to the survey, companies seeking to retain their employees need to start addressing three key areas of dissatisfaction: compensation, career growth and retention efforts Specifically, the survey revealed that 66 percent of American workers are not satisfied with their compensation; 76 percent are not satisfied with future career growth opportunities at their company; and 78 percent are not satisfied with their company ' s overall retention efforts

What ’ s more, 48 percent of workers are dissatisfied with the relationship they have with their bosses, and 77 percent disprove of the strategy and vision of the company and its leadership

If you sense employee dissatisfaction within your ranks, these tips may help to boost loyalty and morale:

n Make Retention Efforts Visible: Staff won't feel valued if your efforts to retain them aren't apparent Retention efforts begin with mutual dialogue and trust building In other words, engage your employees fully

n Reward Employees and State Your Reasons: If increasing compensation isn’t possible, reward employees through an awards program or team contest Improving morale by recognizing good work can help to ease compensation complaints

n Communicate Growth Paths for Employees: Managers need to map out a growth plan for employees and communicate it to their teams in order to build confidence

House of Cards

L e ss o n l e a r n e d

By Selena Chavis

A$43 million community bank hires a mortgage loan officer to generate business for a new loan program, intended to benefit individuals with poor or no credit histories Over time, the loan officer provides credit to individuals who are using false or stolen Social Security numbers. The loan officer also accepts and generates false or questionable documents to support the loans, including false rental and utility payment histories The bank is alerted to the problem only when another institution, which is purchasing some of these loans, conducts due diligence and discovers the falsified information The result? The bank has to repurchase these loans with expectations of further exposure.

In another case, a small community bank discovers inflated appraisals on residential properties when the borrowers default on their debt. Later it determines that one of the borrowers owned the appraisal firm preparing the documents The borrowers worked in collusion with bank loan officers to finance the properties at inflated values The combined fraudulent appraised value totaled approximately $2 million After the defaults, these properties were reappraised at less than one-third of their original value

These are only two of the many examples of mortgage fraud the Federal Deposit Insurance Corporation (FDIC) cites The epidemic racked up national losses to the tune of more than $1 billion at its height in 2005

“There has been a lot of mortgage fraud in recent years that has caused significant losses to many banks,” says Charles Kuyk, a CPA and Certified Fraud Examiner with Crowe Horwath’s Financial Advisory Services. “Going forward, banks need to be aware of the typical mortgage fraud schemes and institute internal controls to prevent and detect these frauds ”

Extending well beyond mortgage fraud, the credit market collapse, which was driven

Top Scams & Schemes

Source: 2008 Financial Crimes Enforcement Network (FinCEN) report, Mortgage Loan Fraud - An Update of Trends Based Upon an Analysis of Suspicious Activity Reports [FinCEN gov]

by the real estate crisis, has severely impacted many financial institutions, says Kuyk, including Citibank, UBS and Bank of America, which together racked up well over $100 billion in losses

A n d w i t h t h e i n c r e a s e d a w a r e n e s s a n d exposure created by these losses, the numb e r o f s u s p i c i o u s a c t i v i t y r e p o r t s ( S A R s ) filed with the Financial Crimes Enforcement Network (FinCEN) has risen steadily, climbing from less than 4 percent in 2004 to 9 percent in 2008 and 2009

P u t t i n g m o r t g a g e f r a u d i n i t s h i s t o r i c a l perspective, mortgage and real estate executive Curt Novy explains that the mortgage industry evolved dramatically after the turn of the century New loan options and practices intended to make home buying easier simply got out of hand; abuses with subprime loans and property investment practices resulted

“That’s what led to this massive investment in real estate. It was very easy money,” he states. “The lending just got too liberal. People started getting into trouble, and then the whole economic cycle kicks in. It’s had devastating effects.”

F i n C E N d e f i n e s m o r t g a g e f r a u d a s a “material misrepresentation or omission of i n f o r m a t i o n w i t h t h e i n t e n t t o d e c e i v e o r

mislead a lender into extending credit that likely would not be offered if the true facts were known ” Michael Pakter, a Certified F

Gould and Pakter Associates, explains that in its most basic form mortgage fraud comes down to “someone making a false statement in the application process.

“Companies need to know their borrowers,” he emphasizes “Fraud prevention happens at the point of source.”

The outcome of mortgage fraud isn’t always injury to another party, says Novy “Sometimes, when a person is investigated for an attempt to defraud, which is defined as causing injury or loss to a person by deceit, there may be no actual loss or injury to another person during the investigation. This is one of the hardest things for a person who is being investigated to comprehend It’s essential that people involved in any way in the real estate industry understand how the FBI investigates and classifies mortgage fraud, and what has and has not been deemed to be fraud ”

M o r t g a g e f r a u d f a l l s u n d e r t w o p r i m a r y c l a s s i f i c a t i o n s , s a y s Kuyk: Fraud for housing and fraud for profit

Perpetrated to obtain a house, fraud for housing tends to center on misrepresentations of employment, income, assets and debts

This type of fraud may involve forged or fraudulent documents, ID fraud and misrepresentations of the borrower ’s intent to occupy the property

M o t i v a t e d p u r e l y b y f i n a n c i a l g a i n , f r a u d f o r p r o f i t o f t e n involves a number of players, including straw buyers, mortgage brokers, real estate agents, appraisers and settlement agents, with t h e f o c u s b e i n g i n f l a t e d a p p r a i s a l s , a n u n d i s c l o s e d o r f a l s i f i e d owner or a falsified intent to occupy the property

While the vast majority of mortgage fraud involves misrepresentations of income, assets and debt during the application process, many other schemes have received their fair share of media attention. For one, there’s “flipping,” or the selling of a property at a low price, only to have it quickly improved (or simply dressed up) and put back on the market at an inflated price based on an inflated appraisal The property is then resold to a buyer who is unaware of the inflated price, and the income is pocketed The bank is ultimately left with a mortgage that is equal to more than the property’s fair market value

“Ba nk s we re n’t look ing a t this v e ry c lose ly,” Nov y a c k nowledges “It was all about making money and everyone winning ”

Another common scheme involves a straw buyer, where someone other than the real buyer provides a stronger credit profile and assists with getting a bigger loan The straw buyer receives a kickback, and the financial institution is left holding a high-risk mortgage.

“Equity skimming” is also a popular scheme, and involves an investor using a straw buyer, false income documents or a false credit report to obtain a loan in the straw buyer's name Subsequent to closing, the straw buyer signs the property over to the investor in a “quit claim deed,” which relinquishes all rights to the property and provides no guaranty of title The investor doesn’t make any mortgage payments and rents the property until foreclosure takes place several months later

“It’s easy to make a quick $200 or $300 by putting together a statement that a person is employed or involved in a particular activity,” Novy cautions “Finance professionals need to have full knowledge of their clients and their businesses. In terms of liability, there’s always that potential Investigations are looking at all parties involved.”

Are You Being Served?

By Daniel Dern

For companies of all sizes, SaaS, or S o f t w a r e - a s - a - S e r v i c e , i s a r a p i d l y growing software alternative

"SaaS is a new generation of web-based business applications that can be acquired via the Internet on a subscription basis, and can be accessed by multiple users simultaneously, so they can more easily collaborate and coordinate their activities," says Jeffrey M Kaplan, managing director of THINKstrategies, Inc , a strategic consulting firm

In other words, the software is on the provider's servers, not on your desktop, notebook, or server computers and can even be accessed from a BlackBerry, iPhone or other mobile device. The data is stored with the SaaS vendor or their third-party data center. And you pay for using the service, much as you would for using a utility

"We use SaaS for CS Professional Suite f r o m T h o m s o n R e u t e r s , " e x p l a i n s J o d y L Padar CPA/MST at James J Matousek CPA, L t d I n M o u n t P r o s p e c t , I l l " We p a y a m o n t h l y f e e a n d h a v e a c c e s s t o a l l t h e i r u p d a t e d p r o g r a m s o n l i n e I l o g i n t o m y ' d e s k t o p i n t h e s k y ' a n d d o a l l m y w o r k . And they're storing all our data, including our email, and our Word and Excel documents. Now all I need is a browser and an Internet connection, and all our data and software is accessible "

SaaS Benefits

From a technology perspective, SaaS is part i c u l a r l y b e n e f i c i a l t o s m a l l e r c o m p a n i e s with limited onsite IT expertise, and those companies that want to minimize their IT s t a f f i n g a n d i n v e s t m e n t s . B y u s i n g S a a S , companies no longer have to worry about insta lling a nd a dministe ring softwa re a nd associated servers, or storing and maintaining data

"The anywhere, anytime access to data and the software is the main difference," states Heather Kirkby, product and market-

Volunteer for an Illinois CPA Society Appointed Committee or Task Force

Use your skills, knowledge and leadership to help govern and guide the work of your Illinois CPA Society.

From developing new member services, to upholding quality assurance standards, to responding to technical issues, your service helps to enhance the value of the CPA profession.

Committee & Task Force service is open to all Illinois CPA Society regular and affiliate members. Positions are limited and all requests may not be able to be accommodated.

Visit www.icpas.org/GetInvolved.htm for full descriptions and to apply. Applications due March 15, 2010

Questions:

Please contact Kimberly Johnson at 800-993-0407, ext. 220

Committee & Task Force Opportunities:

Professional Practice

> Not-For-Profit Organizations

> Regulation & Legislation

> Taxation - Business

> Taxation - Estate, Gift & Trusts

> Taxation - Flow-Through Entities

> Taxation - Individual

> Taxation - Practice & Procedures

> Taxation - State & Local

Quality Assurance & Public Protection

> Accounting Principles *

> Audit & Assurance Services *

> Ethics*

> Governmental Accounting Executive*

> Governmental Report Review

> Peer Review Report Acceptance*

Programs/Special Issues

> CPA Exam Award Task Force

> Outstanding Educator Award Task Force

> Outstanding Leadership In Advancing Diversity Award Task Force

> Women’s Executive

> Women’s Initiatives Task Force

> Young Professionals Group

Education

> Conference Planning

Society Operations

> Committee Structure & Volunteerism Task Force

> Finance & Treasury Management

We need you at the table.

Advice for Newbies

Before you leap into SaaS and a specific vendor, here are some helpful hints

Understand the Selection Process "Write down your business requirements and priorities,” suggests Intacct's Druker “ To find the solution that best solves your business problem, you have to know what your business is Make an RFP (request for proposal), do a demo and a trial Look for happy clients and references, and find out about support Also check out the company ' s operational record as a cloud vendor " In other words, the company ’ s record as a vendor for cloud computing, or computing involving scalable and usually virtualized resources that are offered as a service over the web

Don’t Underestimate The Value of Credentials "Check to make sure the SaaS provider is properly certified," states THINKstrategies'

Kaplan There are two types of certification to look for, he adds: PCI DSS (Payment Card Industry Data Security Standard) and SAS70 (an auditing standard developed by the AICPA, “representing that a service organization has been through an in- depth audit of their control objectives and control activities,” according to sas70 com ) Note that these are security and process management standards, respectively, not SaaS - specific credentials

Put SaaS in Perspective. Don’t avoid Software as a Service simply because it's unfamiliar to you or seems like a radical departure from your previous methods "SaaS is mature and becoming mainstream," says Kaplan "And SaaS will become even more so, not just because it's becoming more advanced from a business model standpoint, but because the new generation workforce has been brought up on the web and is comfortable using web-based apps "

ing leader for QuickBooks Online. "You may be traveling, have multiple locations, but you can still work with your accountants With SaaS, an accountant no longer even needs to bring a laptop along, as long as they have access to an Internet-enabled computer.”

"Our research with the AICPA shows a 50-percent productivity i m p r o v e m e n t f o r a c c o u n t i n g f i r m s t h a t s w i t c h t o S a a S p l u s roughly a doubling in proactive consultation hours," says Daniel Druker, Senior VP at Intacct [intacct com] "And firms can serve around 10 percent more clients with the same staff, by reducing time for travel and error fixing "

SaaS also enhances collaborative capabilities, enabling CPAs and clients to exchange files and work on current data for business intelligence, reporting and other purposes.

SaaS Leaders

Among the country’s leading SaaS accounting/business software p r o v i d e r s a r e C C H , F i n a n c i a l F o rc e , I n t a c c t , I n t u i t , N e t S u i t e , Peachtree and Thomson Reuters familiar names in the accounting technology world

A c c o u n t i n g a n d b u s i n e s s S a a S o f f e r i n g s f r o m C C H [ t a x c c hgroup.com], for example, include income tax, document management and other workflow tools, as well as information pertaining to tax and accounting workloads. Components of its ProSystem fx suite include Portal (for exchanging data with clients), Document (for document management), Workstream (workflow and notification) and Practice (time and billing, et cetera).

FinancialForce [FinancialForce com] provides "a unified multidimensional multiledger financial accounting system that users can split into ledgers based on what a business needs to do," explains Jeremy Roche, chairman and CEO "For example, an AP/AR ledger, or a ledger for people, projects sales, shipping, et cetera."

While FinancialForce applications provide broad accounting capabilities, they also link to other line-of-business applications so that data won’t need to be re-entered "FinancialForce applications

Intacct focuses on "the core accounting and financial applications," says Druker. And, indeed, the company’s client list speaks for itself: Intacct has been selected by the AICPA and its subsidiary CPA2Biz as "its preferred provider of financial applications "

"We have two products," Druker explains "Intacct Accountant Edition is for accounting firms, for working with their clients, providing the accounting application used simultaneously via the net both by you and your clients, so both of you can collaborate on the same financial data at the same time Intacct Accountant Edition is used by CPA firms to serve small-business clients with 5 to 100 employees. Here, the CPA firm is in control in terms of determining how the system works and who has access "

Intacct's second offering, simply called Intacct, is "for businesses that have outgrown QuickBooks or as a direct replacement for mid-market on-premises applications like those from Microsoft or Sage," says Druker "Intacct is typically used by companies with 25 to 1,000 employees Their accounting firms and auditors can just login as users Here, the business owns the system and controls who gets access."

Household name Intuit [intuit.com] offers many of its well-known accounting and business programs for installation or for access via the web In fact, the company's Connected Services represented 57 percent of its FY 2009 revenues Today, Intuit has a number of online services relevant to accounting, including QuickBooks Online, ProLine Tax Online, and Intuit Online Payroll for Accountants

Yet another well-known SaaS provider, NetSuite [netsuite com] offers SaaS-only software, and is, according to Craig Sullivan, VP of International Products, "A business management suite, encompassing all the functions you need to run your business, including

, marketing, lead generation, prospecting, etc), ERP (accounting, f i n a n c e , i n v e n t o r y a n d p r o d u c t i o n m a n a g e m e n t ) , a n d e C o m -

m e rc e , w h i c h r e q u i r e s i n t e g r a t i o n i n t o t h e E R P a n d w h i c h w e have, right out of the box."

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Free Money

U n c l a i m e

d p ro p e r t y l a w s p u t c a s h i n t h e r i g h t h a n d s

By G. Samuel Schaunaman II, JD and Christopher S. Jensen, CPA

According to The Wall Street Journal, Illinois collected approximately $226 million in unclaimed property in fiscal 2006, and held about $1.7 billion in unclaimed property as of June 2006 “The 50 states collectively held roughly $35 billion in unclaimed property as of June 2006,” the publication explained

The Illinois State Treasurer [treasurer il gov] defines unclaimed property as “money o r a s s e t s t h a t h a v e b e e n s e p a r a t e d f r o m their owner for at least 5 years ” Generally s p e a k i n g , u n c l a i m e d p r o p e r t y h a s f o u r characteristics:

1. It is intangible personal property, such as uncashed checks, outstanding customer credit balances and unclaimed stock certificates (Note, though, that many states claim a few limited types of tangible personal property, such as the contents of safe deposit boxes )

2. The whereabouts of the apparent owner is unknown

3. The property has remained unclaimed for a prescribed “dormancy” or “abandonment period.”

4 The holder owes a “fixed and certain obligation” to the owner

I f u n c l a i m e d p r o p e r t y i s i n d e e d b e i n g held, determine which jurisdiction is entitled to receive the funds Under the rules of j u r i s d i c t i o n ( w h i c h w e r e p r o m u l g a t e d b y the US Supreme Court in the seminal case Te x a s v N e w J e r s e y ) , t h e s t a t e o f t h e o w n e r ’s l a s t - k n o w n a d d r e s s h a s t h e f i r s t r i g h t t o c l a i m t h e p r o p e r t y I f t h e h o l d e r doesn’t have the last-known address, then t h e s t a t e o f t h e h o l d e r ’s “ d o m i c i l e ” c a n c l a i m t h e p r o p e r t y U n d e r t h e 1 9 9 5 U n iform Unclaimed Property Act, the holder ’s d o m i c i l e i s d e f i n e d a s “ t h e s t a t e o f t h e h o l d e r ’s i n c o r p o r a t i o n f o r c o r p o r a t i o n s , and principal place of business for holders other than corporations ” While seemingly s t r a i g h t f o r w a r d , d e f i n i t i o n s o f d o m i c i l e vary according to jurisdiction

Unclaimed property audits have increased significantly in recent years, due in part to low rates of compliance with the law, as well as state budget shortfalls Triggers for a u d i t s m a y i n c l u d e m e rg e r s a n d a c q u i s itions, increased publicity about a company, c o m p a n y s i z e , i n v o l v e m e n t i n a s p e c i f i c industry or possession of certain property t y p e s , f i l i n g r e p o r t s w i t h o u t t h e r e q u i s i t e i n d u s t r y p r o p e r t y t y p e s ( f o r e x a m p l e , o i l a n d g a s c o m p a n i e s f a i l i n g t o r e p o r t uncashed royalty payments), and even the filing of zero (or negative) reports.

W h a t s e t s u n c l a i m e d p r o p e r t y c o m p l iance apart is the fact that, generally, there i s n o s t a t u t e o f l i m i t a t i o n s f o r p o t e n t i a l l y reportable unclaimed property This means that, unlike a tax audit, unclaimed property audits in some states can reach back more than 20 years Amounts deemed immaterial i n a n y g i v e n y e a r t h e r e f o r e c a n b e c o m e material, given the cumulative effect of the unclaimed property audit liability (as well as penalty and interest assessments) over a 5-, 15-, or even 20-year period

In terms of the Illinois Uniform Disposition of Unclaimed Property Act, CPAs need to be familiar with three areas: Key provis i o n s , r e p o r t i n g a n d r e m i t t a n c e r e q u i r ements, and exempt property types

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Key Provisions

The Illinois Uniform Disposition of Unclaimed Property Act is broad in scope, and several sections detail the types of property covered For example, the Act defines “reportable property” as “property, tangible or intangible, presumed abandoned under the Act that must be appropriately and timely reported to the Office of the State Treasurer under this Act ” [765 ILCS 1025/1, Sec 1(l) ]

The breadth of categories is expansive In fact, the Instructions for Filing the Annual Report and Annual Remittance Detail of Unclaimed Property (Reporting Instructions) on the Illinois State Treasurer website lists approximately 100 unclaimed property categories (“reportable abandoned property”), including “inactive savings and checking accounts, unpaid wages or commissions, stocks, bonds and mutual funds, money orders and bill overpayments, paidup life insurance policies, and safe deposit box contents ”

Reporting & Remittance

A l m o s t a l l h o l d e r t y p e s a r e c o v e r e d u n d e r t h e A c t ’s r e p o r t i n g r e q u i r e m e n t s . T h e A c t c o n t a i n s a b r o a d d e f i n i t i o n o f t h e t e r m “holder” as “any person in possession of property subject to this Act belonging to another, or who is trustee in case of a trust, or is indebted to another on an obligation subject to this Act.” [765 ILCS 1025/1, Sec.1(d).] “Person” is defined as “any individual, business association, financial organization, government or political subdivision or agency, public authority, estate, trust, or any other legal or commercial entity.”

The Reporting Instructions indicate that the annual report is due on May 1 for life insurance companies, business associations and utilities, and on November 1 for banking and financial organizations, insurance companies other than life insurance companies, and government entities.

In terms of the reporting process itself, the Act allows amounts due to owne rs tha t indiv idua lly a mount to le ss tha n $25 to be reported in the aggregate According to the Reporting Instructions, Illinois requires holders to file a negative or zero report, and, like most other states, requires missing owners to be notified before their property is reported to the State Treasurer

The Reporting Instructions also indicate that, “If the holder has not communicated with the owner at his last-known address at least 120 days before the deadline for filing the annual report, the holder shall mail, at least 60 days before that deadline, a letter by first-class mail to the owner at his last-known address if any address not shown to be inaccurate is known to the holder ” The instructions further state that, “No contact (is) required on accounts less than $10 ”

Exempt Property

There are, however, several property types that are exempt A “limited exemption,” for example, exists for certain gift certificates and gift cards According to the Illinois State Treasurer, “Gift certificates and gift cards are required to be turned over as unclaimed property if they have expiration dates or service fees If an expiration date is specified, the balance is presumed abandoned 5 years from the date of purchase If they are rechargeable, they are considered abandoned 5 years from the date of the last owner-initiated transaction ”

Furthermore, gift certificates or cards that were issued prior to “

f t h i s a m e n d a t o r y A c t o f t h e 9 3 r d G e n e r a l Assembly” generally will qualify for exemption if “it is the policy and practice of the issuer of the gift certificate or gift card to honor

the gift certificate or gift card after its expiration date” and “it is the policy and practice of the issuer of the gift certificate or gift card to eliminate all post-sale charges and fees, and the issuer posts written notice of the policy and practice at locations where the issuer sells gift certificates or gift cards ” [765 ILCS 1025/10 6; see also P.A. 93-945, Sec. 5, eff. Jan. 1, 2005.]

Illinois also has enacted a statutory business-to-business exemption effective March 23, 2000, whereby amounts held for missing business associations are exempt from being reported and remitted as unclaimed property Specifically, the provision states that, “any property due or owed by a business association to or for the benefit of another business association resulting from a transaction occurring in the normal and ordinary course of business shall be exempt from the provisions of the Act ” [765 ILCS 1025/2a(b) ] The term “business association” is defined as “any corporation, joint stock company, business trust, partnership, or any association, limited liability company, or other business entity consisting of one or more persons, whether for profit or not for profit.” [765 ILCS 1025/1(b).]

What’s more, a leading Illinois Federal court case, Commonwealth Edison Co v Vega, ruled that unclaimed amounts emanating from an ERISA-covered pension plan need not be turned over to the State Treasurer as unclaimed property, due to federal pension law (ERISA) preemption

So how can you minimize risk and ensure compliance with the law? The easy answer is to establish an unclaimed property program, the vital elements of which include:

n Identifying Unclaimed Property Exposure. Conducting a thorough review of a company’s books and records will help to identify and perform any required due diligence. If left unresolved, report any outstanding unclaimed property liability to the proper jurisdiction

n U n d e r s t a n d i n g S t a t e Vo l u n t a r y C o m p l i a n c e I n i t i a t i v e s Become familiar with state unclaimed property voluntary disclosure programs or amnesty initiatives

n Setting the Tone at the Top. Integrate unclaimed property policies into the corporate culture. The policy should be rolled out by an appropriate management representative and disseminated throughout the organization

n Developing and Implementing Detailed Procedures. Also retain records in accordance with state law provisions and educate staff in unclaimed property procedures.

n Conducting Regular Internal Audits. This will confirm that the policy and procedures are effective

n Forming an Unclaimed Property Committee. Creating this committee is integral to the success of any compliance initiative It should consist of various c-suite leaders and management executives.

Unclaimed property is a key revenue source for the states, and, u n d e r s t a n d a b l y, e n f o rc e m e n t e f f o r t s c o n t i n u e F o r C PA s t h i s means an opportunity to enhance a company’s compliance and e n s u r e t h e p r o p e r p r o c e d u r e s a r e i n p l a c e f o r i d e n t i f y i n g a n d r e p o r t i n g u n c l a i m e d p r o p e r t y I t a l s o m e a n s t h e o p p o r t u n i t y t o assess whether a company’s financial statements accurately reflect its potential unclaimed property exposure.

G Samuel Schaunaman II, JD [ sam schaunaman@thomsonreuters com]

i s a seni or manager of Uncl ai med Property at Thomson Reuters Chri stopher S Jensen, CPA [ chri stopher j ensen@thomsonreuters com]

i s a seni or consul tant of Uncl ai med Property at Thomson Reuters

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Emotional Rescue

H ow d o e m o t i o n s i n f l u e n c e t h e i n ve s t i n g p u b l i c ?

By Sidney A . Blum, Kevin Paulsen and Michael Thompson

Ask anyone about their financial goals, and you get a glimpse into not only the way they spend their money, but also something far more personal how they see themselves Financial planning is inextricably linked to emotion positive emotions when returns are high, negative emotions when returns are low.

Emotional intelligence is a learned skill, hinging on the concept of four basic emotions glad, sad, mad and scared that guide our actions and decisions These emotions determine just how risk averse a client will be

A s w e s a i d , p e o p l e r e a c t emotionally to market downturns. The first emotion to hit t h e m m a y b e f e a r ( s c a r e d ) , followed by anger (mad) and dejection (sad). When a pers o n i s e x p e r i e n c i n g t h e s e emotions, it’s all too easy to lose perspective, focusing too c l o s e l y o n s h o r t - t e r m s a l v e s that may have a negative impact in the long term

At the other end of the spectrum, when there’s a market upturn, optimism reigns so much so that investors may be lulled into the belief that things will always be this good They’re so caught up in their euphoria (glad) that they lose sight of their underlying strategy and goals, perhaps even buying shares that are, in fact, overpriced.

Furthermore, pulling out of the market to protect temporary downside losses in value means not participating in the upside, which eventually will come around From the major d o w n t u r n i n t h e s p r i n g o f 2009 to the fall of 2009, for

example, the market recovered better than 3 5 p e rc e n t T h o s e w h o p u l l e d o u t o f t h e market and stayed out missed out.

People also lose sight of the fact that fund investments are made in actual companies, some of which survive and some of which fail. There are no guarantees when it comes to return on investment That said, a certain amount of volatility is normal, and, in fact, it’s the price we pay for the opportunity to earn a higher return than “safe” investments would give us

And how safe are safe investments, anyw a y ? I f t h e y ’ r e e a r n i n g 1 p e r c e n t w h i l e i n f l a t i o n i s r u n n i n g a t 3 p e r c e n t , y o u ’ r e losing purchasing power A bucket with a slow leak will still end up empty.

H o w d o e s a n a d v i s o r h e l p t o k e e p i n v e s t o r s f o c u s e d o n t h e r i g h t s t r a t e g y, rather than reacting emotionally to market c o n d i t i o n s ? T h e a n s w e r i s t o g i v e t h e m perspective Markets tend to return to the n o r m , w h a t e v e r t h e c u r r e n t d o w n t u r n M a r k e t c o n d i t i o n s a r e f l u i d a n d a s s u c h s u b j e c t t o c h a n g e T h i s s e n s e o f n a t u r a l and cyclical ebb and flow brings with it a s e n s e o f e m o t i o n a l s t a b i l i t y t h a t a l l o w s investors to make studied rather than reactionary financial decisions After all, it’s far m o r e p r o d u c t i v e t o k e e p y o u r e y e s o n your goal, not on the dollar value of your portfolio In the end, your net worth is not the same as your self-worth

Sidney A. Blum, CFP®/ CPA / PFS / ChFC, a practicing CPA since 1975 and a member of the Illinois CPA Society, is the founder of GreatLight Fee Only Advisors, LLC (GLFOA) in Chicago Kevin Paulsen, CFP®/ RPA, a member of the GLFOA team, is an expert in executive deferred compensation and consults on life, disability and long-term care insurances Michael Thompson, Ph D , CEC/ CEIC holds a doctorate in Clinical Psychology and is a frequent lecturer and speaker on the topic of emotional intelligence

Empty Nest

H a s re t i re m e n t f u n d i n g l o s t i t s f e a t h e rs ?

By Mark J. Gilbert, CPA/PFS

Th e l a s t 1 8 m o n t h s h a v e l e f t t h e investing public scared, worried and angry Many more people now reco g n i z e t h e u n c e r t a i n t y o f t h e i r f i n a n c i a l f u t u r e s T h e i r n e s t e g g s a r e s m a l l e r a n d they’ve got far less job security than before the economic crisis hit The Great Recession has seen the highest unemployment rates in a generation, meaning that workers are contributing less to their 401(k)-type accounts

W h a t ’s m o r e , r e t i r e m e n t a c c o u n t s h a v e b e e n t a p p e d b y p r e - r e t i r e e s w h o ’ v e l o s t their jobs or are under-employed and have no other option

The downside of a smaller nest egg isn’t s i m p l y l e s s m o n e y a t r e t i r e m e n t M a n y investors now have a lower investment risk tolerance and a stronger desire to hold large amounts of low-yielding cash. These people may be investing too conservatively in order to accomplish their long-term goals.

E v e n w o r s e , t h e y m a y h a v e g i v e n u p o n investing in the markets altogether.

True enough, virtually every major investment asset class stocks, bonds, commodities, real estate is well under the highs of 2007 and earlier Only short-term treasuries

a n d c a s h e q u i v a l e n t s l i k e m o n e y m a r k e t f u n d s h a v e k e p t i n v e s t o r s f r o m l o s i n g money But strong global market returns in 2 0 0 9 h a v e r e c o v e r e d s o m e o f t h e e a r l i e r losses, which should convince most investors of a place for at least some equities in their portfolios

T h e b r i g h t e r s i d e o f s m a l l e r r e t i r e m e n t accounts here in the United States is that personal savings apparently are up Through August, in fact, 2009 monthly savings rates varied from 3 to 6 percent, compared to 1 t o 3 p e rc e n t b e t w e e n 2 0 0 5 a n d 2 0 0 8 . I t seems that the average consumer is making a c o n s c i o u s e f f o r t t o r e d u c e s p e n d i n g . I n addition, people seem to be pursuing more r e a l i s t i c r e t i r e m e n t g o a l s , e x p e c t t o r e t i r e later, spend less once retired, work part-time rather than retiring completely, or find supplemental work

F o r C PA s , w o r k i n g w i t h t h e s e c l i e n t s p o s e s o b v i o u s c h a l l e n g e s F o r o n e , i t ’s increasingly difficult to reconcile what an investor needs with what an investor is willing to do. In other words, clients will tend t o w a n t t o i n v e s t m o r e c o n s e r v a t i v e l y because of their concerns over stock market volatility, but may face low returns that don’t meet their financial goals Many will h a v e t o l e a v e t h e i r i n v e s t m e n t c o m f o r t zones and take on more risk.

Communication is absolutely key to the a d v i s o r- c l i e n t r e l a t i o n s h i p W h e n i n v e s tment returns are high, clients won’t feel as m u c h n e e d f o r t h e i r C PA a d v i s o r ’s f e e db a c k B u t w h e n r e t u r n s f a l l , c l i e n t s w i l l w a n t e x p e r t a d v i c e t o h e l p t h e m m a k e sense of the conflicting financial and economic reports they’re hearing, and to plot t h e r i g h t c o u r s e t o w a r d s t h e i r f i n a n c i a l goals On the other end of the spectrum, h o w e v e r, c l i e n t s ’ e f f o r t s t o s c a l e b a c k o n expenses may mean that they are, in fact, less engaged with their advisors

Either way, a growing number of clients will seek out investment products that carry some type of guaranteed return or income stream While insurance products that offer s e c u r i t y h a v e b e e n a r o u n d f o r y e a r s , mutual fund companies are now developing their own line of guaranteed products

H o w s h o u l d a C PA a d v i s o r h a n d l e t h e c h a l l e n g e s o f t h e s e r e c e s s i o n - h i t c l i e n t s ?

F i r s t , p r e p a r e t h e m f o r a m u c h d i f f e r e n t financial and economic environment than they’ve experienced in the past an environment that involves lower growth, higher income taxes, and possibly higher inflation

In my opinion, to enjoy both growth and lower portfolio volatility, US-based investors will need to diversify away from predominantly US-based stocks and towards foreign equities, foreign and US bonds, and commodities

Also encourage clients to set more realistic lifestyle and retirement goals, and dis-

Read the first in a series of new columns on the topic of retirement, authored by ICPAS member and personal financial planning expert Mark J Gilbert

c o u r a g e t h e m f r o m i n v e s t i n g t o o c o nservatively The fact is simply that they w i l l n e e d i n v e s t m e n t g r o w t h t o o v e rcome price inflation Most people will b e n e f i t f r o m i n v e s t i n g i n g r o w t h - a n dincome-oriented portfolios, or in portfolios balanced between equity and fixed income investments.

Finally, expand your professional netw o r k I n p a r t i c u l a r, g e t t o k n o w s o m e q u a l i f i e d p e r s o n a l C PA f i n a n c i a l a d v is o r s t o w h o m y o u c a n r e f e r c l i e n t s i f t h e y n e e d m o r e h a n d s - o n o r o n g o i n g attention than you’re willing to give

Mark J Gilbert, CPA/PFS is a principal in the financial advisory firm of Reason Financial Advisors, Inc His 25-plus years of finance and accounting experience includes 13 years in personal financial planning A member of the Illinois CPA Society since 1982, Mark currently serves in the Society’s IA/PFP Member Forum Group and on its Committee on Structure and Volunteerism He can be reached at mgilbert@reasonfinancial com

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Strategic Risk Management: Aligning Strategy and Performance Measures with ERM

Mark Frigo, PhD, CPA, CMA Director, The Center for Strategy, Execution and Valuation, Kellstadt Graduate School of Business, DePaul University

February 16, 2010 - Chicago, IL

February 18, 2010 - Oak Brook, IL

February 23, 2010 - Northbrook, IL

Networking Breakfast: Influencing without Authority

Steve Garrett, CPA, MBA

Principal, Garrett Consulting, Chicago, IL

March 18, 2010 - Rosemont, IL Controllers Conference

By Harvey Coustan, CPA

The Homeownership and Business

A s s i s t a n c e A c t o f 2 0 0 9 g r e a t l y expands the number of taxpayers eligible to increase the carryback years for a n e t o p e r a t i n g l o s s ( N O L ) E a r l i e r i n 2 0 0 9 , t h e A m e r i c a n R e c o v e r y a n d R e i nv e s t m e n t Ta x A c t ( A R R A ) l i b e r a l i z e d t h e c a r r y b a c k p e r i o d t o t h r e e , f o u r, o r f i v e y e a r s , b u t o n l y f o r e l i g i b l e s m a l l b u s in e s s e s ( E S B s ) ( t h o s e w i t h a n n u a l g r o s s r e c e i p t s o f $ 1 5 m i l l i o n o r l e s s ) T h e Homeownership and Business Assistance Act, on the other hand, extends this elect i v e b e y o n d E S B s , t o t a x p a y e r s w h o s e annual gross receipts exceed $15 million. The language of the Act, however, has left some unanswered questions Revenue Procedure 2009-52, issued in November 2009, has answered a number of them, including when and how to elect in three situations: Taxpayers that have not claimed a deduction for an applicable NOL, taxpayers that previously claimed a deduction for an applicable NOL, and taxpayers that previously filed an election to forgo the carryback period

Ta x p a y e r s g e n e r a l l y a r e allowed to carry back NOLs to each of the two years preceding the year in which the l o s s i s s u s t a i n e d ( t h e “ l o s s year”) Certain life insurance

c o m p a n i e s a r e a l l o w e d a three-year carryback period, a n d u n d e r t h e A c t t h e s e c o m p a n i e s a r e a l s o a l l o w e d a n e x t e n d e d c a r r y b a c k period for losses from operations

In addition, after applying the NOL in those two or three years, taxpayers other t h a n l i f e i n s u r a n c e c o m p a n i e s c a n c a r r y any excess NOL to each of the 20 years

f o l l o w i n g t h e l o s s y e a r. L i f e i n s u r a n c e

companies can carry the losses forward to each of the 15 years after the loss year.

Taxpayers (including life insurance comp a n i e s ) c a n o p t t o f o rg o t h e c a r r y b a c k period and carry NOLs forward only Those that elected to forgo a carryback period for a l o s s y e a r e n d i n g b e f o r e N o v e m b e r 6 , 2 0 0 9 c a n r e v o k e t h a t e l e c t i o n b e f o r e t h e due date (including extensions) for filing a return for the last taxable year beginning in 2009 An application for a tentative carryback (“quickie”) refund on Form 1139 for corporations and Form 1045 for other taxpayers is considered timely if filed before the due date.

U n d e r t h e e a r l i e r A R R A p r o v i s i o n , a n ESB can apply an NOL in either the fifth, fourth or third year that precedes the loss y e a r E l i g i b l e l o s s e s a r e t h o s e t h e E S B i n c u r r e d i n y e a r s b e g i n n i n g o r e n d i n g i n 2008 The Act extends this benefit for NOLs sustained in a taxable year ending after calendar year 2007, and beginning before calendar year 2010.

Both the ARRA election and the election u n d e r t h e A c t g e n e r a l l y c a n b e m a d e f o r o n l y o n e t a x a b l e y e a r H o w e v e r, a n E S B that has made or makes an ARRA election can also make an election for another year, as long as the NOL was sustained in a year that falls within the stated period. To carry an NOL to the fifth preceding year, the NOL applied to that year cannot exceed 50 percent of the taxable income in that year (calc u l a t e d b e f o r e t h e N O L i s a p p l i e d ) T h e excess NOL then can be carried to taxable y e a r s a f t e r t h e f i f t h p r e c e d i n g y e a r i n chronological order.

If the NOL is a minimum tax NOL, the 5 0 - p e rc e n t l i m i t a t i o n i s s e p a r a t e l y c a l c ul a t e d o n t h e A M T t a x a b l e i n c o m e i n t h e fifth preceding year An ESB’s ARRA election is not subject to a 50-percent taxable income limitation, and TARP recipients are n o t a l l o w e d t o e l e c t t h e p r o v i s i o n c o ntained in the Act.

Under the Act, the election can be made on a statement attached to the taxpayer ’s federal income tax return for the loss year. If a return has already been filed, the statement can be attached to an amended return

To qualify, the election statement must confirm that the taxpayer is electing under Internal Revenue Code Section 172(b)(1)(H) or Section 810(b)(4) (life insurance companies) under Revenue Procedure 2009-52 Also, it must indicate that the taxpayer is not a TARP recipient or, in 2008 or 2009, an affiliate of a TARP recipient. And it must specify the length of the NOL carryback period elected (3, 4, or 5 years)

T h i s e l e c t i o n s t a t e m e n t m u s t b e f i l e d w i t h t h e o r i g i n a l o r amended return for the loss year on or before the due date (including extensions) For example, a taxpayer that has filed a return for loss year calendar 2008, but has not filed a claim for a refund, can file the election statement with an amended 2008 calendar year r e t u r n , a s l o n g a s i t i s f i l e d b e f o r e t h e 2 0 0 9 c a l e n d a r y e a r r e t u r n d u e d a t e ( i n c l u d i n g e x t e n s i o n s ) A c o p y o f t h e election statement must be filed with the claim for refund for the year to which the loss is applied The due date for filing a quickie refund claim is extended to the d u e d a t e ( i n c l u d i n g e x t e n s i o n s ) f o r t h e taxpayer ’s last taxable year beginning in 2 0 0 9 o r S e p t e m b e r 1 5 , 2 0 1 0 ( i f f u l l y extended) in the example

I n l i e u o f t h i s , R e v e n u e P r o c e d u r e 2009-52 permits the election to be made i n a c l a i m f o r r e f u n d o r q u i c k i e r e f u n d application If this is the case, the statement must include the same information as that used to make the election in the loss-year return Also, it must adhere to the same due dates

W h a t ’s m o r e , t a x p a y e r s c a n r e v o k e a prior claim for refund or application for a quickie refund, unless the claim or applic a t i o n w a s m a d e u n d e r t h e A R R P E S B program. The procedures are the same as those followed by taxpayers that have not claimed deductions for applicable NOLs, with the exception that the election statem e n t m u s t c o n f i r m t h a t t h e e l e c t i o n amends a previous refund claim or carryb a c k a p p l i c a t i o n D u e d a t e s a r e a p p a re n t l y a l s o t h e s a m e . A M T N O L r e f u n d c l a i m s a r e a l s o e l i g i b l e a n d , a g a i n , t h e same rules apply

If an election has been made to forgo a carryback for an applicable NOL with a taxable year ending before November 6, 2009, the election can be revoked, and a n e l e c t i o n f o r a n e x t e n d e d c a r r y b a c k

carryback waiver and electing to apply §172(b)(1)(H) or §810(b)(4) (life insurance companies) Once again, the statement must be filed before the due date (including extensions) for the taxpayer ’s last taxable year beginning in 2009.

The process for filing for an extended NOL carryback period is straightforward, since Revenue Procedure 2009-52 is more taxpayer friendly than the guidance published for ESB refund claims under ARRA: Revenue Procedures 2009-19 or 2009-26. And although the election itself is irrevocable, the due date for making the election allows plenty of time to make an informed decision.

Harvey Coustan is an Ernst & Young retired partner. He is presently c o n s u l t i n g o n s u b s t a n t i v e t e c h n i c a l a n d p r o f e s s i o n a l s t a n d a r d s issues and has been an expert witness in a number of cases.

ALLTIEDUP

Are taxes handicapping corporate America?

By Carolyn Tang

Areport issued by the Organization for Economic Cooperation and Development (OECD) in 2008 shows that the US corporate tax rate is significantly higher than that of the rest of the industrialized world And as other countries cut corporate rates in an effort to stimulate foreign investment, the United States continues to impose a combined federal and state corporate tax of 39 1 percent Japan is the only other country in the world with a higher combined tax rate, at 39 5 percent

The OECD also contends that corporate tax is the most harmful tax to economic growth, essentially starting a domino effect of negativity: First, it impacts capital accumulation, which in turn s t u n t s p r o d u c t i v i t y, w h i c h t h e n p l a c e s d o w n w a r d p r e s s u r e o n gross domestic product (GDP)

In 2009, Canada, the Czech Republic, Korea and Sweden all cut their corporate tax rates, lowering the average statutory corporate rate of all OECD nations to 26.5 percent. And in the European Union, more than 15 countries have legislated reductions in the p a s t f i v e y e a r s . I n 2 0 0 8 , f o r e x a m p l e , b o t h G e r m a n y a n d t h e United Kingdom reduced their rates from 40 percent to 30 percent, and 30 percent to 28 percent, respectively By contrast, the United States has not lowered its tax rate in the last decade, and, in fact, the last time the country adjusted its top federal tax rate it was an increase from 34 to 35 percent back in 1993

On top of the federal tax rate companies are also subject to state taxes The United States is one of just eight countries that impose corporate tax rates at the state and local levels And while the burden of these taxes is offset somewhat by federal tax deductions, they do add complexity to multistate and multinational businesses

According to the Tax Foundation, Iowa imposes the highest corporate tax rate of 12 percent, followed by Pennsylvania at 9 99 percent and Minnesota at 9.8 percent. The median top rate is 7 percent.

“US businesses have become increasingly hobbled by federal tax policy during the last 20 years, both domestically and on the global stage,” says K. Thomas Stevens, principal of Chicago-based Stevens and Associates, practicing in both the United States and the United Kingdom. “Ironically, our federal government’s efforts to better position US business in the competitive global arena are in turn hobbled by 50 independent actors ”

Stevens believes that state-level corporate taxes present an additional challenge by diluting the vision of policy makers “Parochial concerns may be magnified, focus may be lost, and the value of the global presence of US business may be too abstract and too distant,” Stevens explains.

The corporate tax rate, however, isn’t the only factor influencing business decisions The tax structure itself also plays a part “The United States operates on a worldwide tax system. What the United States does is tax all of the income earned by multinational corporations at the US corporate tax rate no matter where that income is earned,” explains Rosanne Altshuler, co-director of the UrbanBrookings Tax Policy Center So, if a US multinational earns income in France or Singapore, that income is taxed by the US government However, taxes are not due until the income is repatriated.

That said, “The United States does provide a foreign tax credit to prevent the double taxation of foreign income,” adds Altshuler

“US multinationals are very good at avoiding taxes. Tax avoidance is not illegal; tax evasion is And we do have this deferral system where you don’t pay tax until you bring the money home So while our system looks uncompetitive, the fact that we have deferral makes it more competitive,” Altshuler notes

For companies to take full advantage of the US tax code, they need to perform a significant amount of meticulous tax planning, the cost of which potentially lowers their net taxable income This translates to less revenue for the government.

A 2006 study conducted by the World Bank and PricewaterhouseCoopers reported that, “High tax rates do not always lead to high tax revenues. Between 1982 and 1999, the average corporate income tax rate worldwide fell from 46 to 33 percent, while corporate income tax collections rose from 2 1 percent to 2 4 percent….A better way to meet revenue targets is to encourage tax compliance by keeping rates moderate,” the report concluded

Indeed, according to The Wall Street Journal, Pfizer ’s effective tax rate on worldwide income for 2008 was a mere 17 percent, and General Electric’s effective rate was even lower at 5 5 percent Both Hewlett Packard and Cisco left their money overseas and didn’t repatriate it, thereby cutting their effective tax rates by more than 16 percent Coca-Cola, in the meantime, slashed its effective tax rate by 14 4 percent

N o t e v e r y c o r p o r a t i o n h a s t h e a b i l i t y t o d o t h i s , t h o u g h . H i g h growth “new economy” corporations are unable to claim many of the tax credits available to multin a t i o n a l c o m p a n i e s N e w e c o no m y f i r m s t y p i c a l l y g e n e r a t e s o f t assets such as ideas and services, s o t h e i r p r o f i t s a r e d e r i v e d n o t f r o m a t r a d i t i o n a l m a n u f a c t u r i n g environment, but from intellectual property and licensing.

For these types of organizations, t h e i n a b i l i t y t o d e p r e c i a t e l a rg e plant and equipment costs increases vulnerability to the full statutory tax rate As such, many seek to relocate their headquarters to countries with a more forgiving tax rate and tax system. Given the nature of today’s global marketplace, in which capital flows are unhindered, it’s fairly easy for a company to shift its capital around to take advantage of the best tax rates.

This phenomenon was illustrated in 2008, when Google moved its European operation from London to Switzerland to lower its tax bill, and in 2009 when McDonald’s announced it would do the same England’s relatively high tax rate combined with its worldwide tax system has caused an exodus of firms and the same could be true of the United States in the future.

According to the OECD report, “Lowering statutory corporate tax rates can lead to particularly large productivity gains in firms that are dynamic and profitable, i.e. those that can make the largest contribution to GDP growth ”

Douglas Stransky, an international tax partner at the law firm of Sullivan & Worcester LLP, explains why he thinks the high US corporate tax rate impacts the ability of US multinationals to compete in the global marketplace

“Their overall costs are higher than comparable companies conducting the same activities in other countries For example, if a US company earns $100 of profit in the United States, that company will pay a combined federal and state corporate tax of approximately 39 percent ($39), thereby realizing an after-tax profit of $61 In contrast, a company located in an OECD country, where the average statutory tax rate is approximately 26.5 percent, will r e a l i z e a n a f t e r- t a x p r o f i t o f $ 7 3 5 0 o n t h a t s a m e $ 1 0 0 , ” h e explains “As such, a high US corporate tax rate is a disincentive for US companies to invest in the United States and to conduct high-profit activities in the United States ”

Altshuler adds that the corporate statutory tax rate entices companies to shift their income from one country to another “So the fact that the US corporate tax rate is high gives the US multinational a real incentive to shift as much income as possible outside the United States,” she explains

PLLC, agrees “In order to price their goods and remain competitive with their foreign counterparts, US companies must look elsewhere to locate their operations,” he says.

And they don’t have to look far In its quest to make its corporate tax system the most competitive among G7 countries, Canada dropped its federal corporate income tax rate from 22 1 percent to 19 5 percent in January 2008, and is expected to further reduce it to 15 percent by 2012.

There are, however, significant benefits to keeping a company headquartered in the United States. For starters, consider the knowledge curve involved in setting up a foreign presence, the logistics of integrating and managing that overseas presence, and concern over the organic nature of taxes; namely, tax policies here and abroad may change over time

And, says Stevens, there may be an element of patriotism involved “Certainly since World War I, there has been a strong sense among US companies of being ‘good corporate citizens,’” he explains. “That is a real thing, evidenced in expansion of domestic industry in the face of possibly cheaper overseas operations through to corporate philanthropy But over the last 20 years or so, US tax policy has been rather consistently hostile.”

Why, then, does the US corporate tax rate remain high?

In Koss’ opinion, there’s no doubt that the high budget deficit plays a key role “In addition, politicians view raising taxes on individuals as political suicide Corporations generally don’t have a ‘face’ and are not voters per se, so they are viewed as an easier target for raising revenue,” he contends

Stevens agrees that political will certainly does come into play. He says that although US businesses enjoy the benefits of lobbying efforts, trade unions and other groups that also lobby heavily, in the end the business is not enfranchised. It never casts a vote. “It may be unfair to generalize, but there is an American notion, among some, that lower corporate tax rates and otherwise lessened gross obligations represent a corporate handout or corporate welfare,” Stevens explains

All the same, to some it may seem counterproductive to keep corporate tax rates so high given the country’s current economic condition, slow wage growth and high unemployment A lower corporate tax rate potentially would increase productivity, create jobs, spur foreign investment and stimulate a flagging economy Furthermore, a 2007 Treasury Department study estimates that a country with a tax rate 1 percentage point lower than its competitors attracts 3 percent more capital

Koss recalls the 1986 tax cut, when Former President Ronald Reagan lowered the federal corporate tax rate from 46 percent to 34 percent “Individuals running corporations believe that by lowering US corporate tax rates, their corporations can be more comp e t i t i v e , m a n u f a c t u r e i n t h e U n i t e d S t a t e s a n d k e e p o r e v e n increase jobs here,” he states.

“ I f w e w e r e t o l o w e r t h e c o r p o r a t e s t a t u t o r y r a t e , w e w o u l d make the United States a more attractive place for investment for foreign countries,” Altshuler adds. “And we would decrease the incentive for investing abroad ” D

The Director’s Cut

B o a r d s o f d i r e c t o r s t r a d i t i o n a l l y t a k e a m o r e a c t i v e r o l e i n a c o m p a n y ’ s s t o r y i n t u r b u l e n t e c o n o m i c t i m e s . N o w i s n o e x c e p t i o n . B y K r i s t i n e B l e n k h o r n R o d r i g u e z

As Messrs Frank and Dodd work to persuade their respective government bodies to pass their versions of financial re-regulat i o n , m a n y i n t h e f i n a n c e s e c t o r p a u s e . T h e r e i s a s e n s e o f , “We’ve been through this before ” The Sarbanes-Oxley Act was a reaction to the hubris of Enron et al. In 1988, the Insider Tradi n g a n d S e c u r i t i e s F r a u d E n f o rc e m e n t A c t w a s c r e a t e d i n response to junk-bond magnate Michael Milken’s illegal activit i e s A n d e v e n t h e i n t r o d u c t i o n o f t h e 1 9 3 4 S e c u r i t i e s a n d Exchange Act was a response to the stock market crash of 1929

Here we are in the 21st century, still trying to cure what ails u s a s A I G a n d B e a r S t e a r n s b e c o m e p o s t e r c h i l d r e n f o r i r r esponsible risk.

Tr y a s w e m i g h t , t h e m a g i c f o r m u l a s e e m s t o e l u d e b o t h finance wizards and legislators. There are unintended consequences, and loopholes abound, despite best efforts to design bullet-proof legislation.

“SOX, despite its good intentions, was like a magnet,” says Jay Conger, author of Boardroom Realities: Building Leaders Across Your Board (Jossey-Bass, 2009) and number five on BusinessWeek’s list of the world’s top 10 management educators “It drew boards of directors to attend to very focused areas of compliance So boards watched over the CEO’s and the executive team’s shoulder around compliance issues. You can push for compliance, but if your top executives don’t clearly understand the products in the most recent wave of Wall Street debacles, the financial products your company is dealing in well, you do the math. You have a board that on technical issues kept the company compliant, but failed miserably on strategy and risk oversight ”

“When you see boards that missed questioning paper making 12 percent in a 5-percent interest rate environment, you have to r e a l i z e t h a t t h e y m u s t h a v e b e e n f o c u s e d o n o t h e r i s s u e s because, otherwise, healthy skepticism would absolutely have

r e i g n e d , ” s a y s K e n D a l y, p r e s i d e n t a n d C E O o f t h e N a t i o n a l Association of Corporate Directors (NACD) and KPMG’s former lead partner for its national risk management practice.

It’s not just legislation and regulation that prompts increased board activity. Turbulent economic times make any sane board of directors a bit jumpy, no matter how successful their corporate charge is.

“Over the last 10-plus years, the trend has been toward boards becoming more involved,” says Northwestern University Professor and former Bell & Howell Chairman/CEO William J White

“Obviously, in the last two years, they didn’t do a good enough job of understanding risk/reward tradeoffs. Increased involvement only helps if you’re focused on the right areas ”

Traditionally, board membership has been like getting into a private club, says Milan Moravec, CEO of management consulting firm Moravec & Associates. “The membership, particularly of elite boards, has been very difficult to change Those choosing board members tended not to ask the right kinds of quest i o n s I f y o u m i n d e d y o u r p ’s a n d q ’s , d i d n ’t r e a l l y q u e s t i o n things and had good industry connections, you’d get a board seat You can imagine the consequences of creating a board with those qualifications ”

Tr a d i t i o n a l b o a r d m e m b e r s t e n d e d t o s e r v e o n m u l t i p l e boards But those days are over, says Daly “The involvement of boards is going to pick up. There’s no question about that. They will be more engaged and better resourced But the days of people serving on four or five boards at a time are gone. The number-one risk nowadays is a reputational one Serve on the board of a failed company and you gain the kind of celebrity you’d p r o b a b l y r a t h e r a v o i d Q u a l i f i e d p e o p l e w i l l s e r v e o n f e w e r boards because the demands of being a board member have increased exponentially ”

...Which brings us to GM

No story on boards in today’s environment would be complete without mention of GM

“GM is a great example of a board that wants to continue in oversight but is forced into a management role,” explains Daly. “When things go bump in the night, as they have at GM, boards are pressed into managerial areas they’re usually ill-prepared to take on, simply because they don’t have sufficient time to function as management Nor should they have to in a well-run company ”

When boards become part of management, caution is key, says White “There is a danger that GM is getting close to going over the edge in certain areas The most obvious example is having the chairman of the board appear in TV commercials Traditionally, even the CEO does that only rarely.”

White cites the Opel deal as an instance where the board exercised its oversight right in a healthy way “Management may not have done a thorough job of analyzing the total situation, including the long-term strategic impact. The resulting dialogue that occurred as part of considering a major deal is what should happen. When you’re looking at recapitalization or divestiture, a board needs to ask the tough questions and step in if necessary, even if, publicly, it’s slightly awkward ”

Most boards could be more aggressive in the way they oversee management without overstepping their bounds, says Stephen M Davis, Ph D , senior fellow at Yale University School of Management’s Millstein Center for Corporate Governance and Performance. “Many boards don’t step in because their accountability to owners is weak. For many boards, the accountability between directors and owners is so frayed Boards traditionally have been insulated from owner backlash But GM is different because it has faced a dramatic break from its past with exposure to an impatient new owner: the US government, a.k.a. the American public.”

And with an impatient new owner comes the onus to act swiftly, which worked to the detriment of former GM CEO Fritz Henderson Henderson’s brief eight-month stint in the lead role at GM is unusual, but so is the situation, says Conger. “From the standpoint of board dynamics, it’s unusual for a CEO to be ousted so quickly Many board members are usually former or current CEOs, so the empathy factor is in play Usually, a chief executive gets a honeymoon period and the benefit of the doubt that accompanies it.” Conger speculates that Henderson’s quick oust was based on several major decisions the board felt went awry in this case, GM’s string of divestitures

Davis applauds the move in theory “Although it may have looked from the outside like Mr. Henderson was taking GM in a positive direction, the insider ’s view must have been different This independent group of directors acted very swiftly to head off what they thought were problems That’s the way it’s supposed to work, proactively instead of reactively. That’s a board doing its job.”

The new board member

The effect of our current economic environment and the failure of several household names is multifaceted One major result? A new type of board member

While we mentioned that board members most likely will no longer serve on several boards at one time, an even more effective modifier exists: Proxy

On July 1, 2009, the SEC voted to approve an amendment to New York Stock Exchange Rule 452, eliminating broker discretionary vot-

ing of uninstructed shares in uncontested director elections The amendment became effective January 1 of this year, and applies to all publicly held companies

Kimberly K Rubel and Jae En Kim, of the Corporate Securities and Practice Group of Drinker, Biddle & Reath LLP, explain the ruling succinctly in a July 2009 Securities Alert: “Shareholders can hold shares of public companies directly or indirectly in ‘street name’ through a financial intermediary, such as a broker These intermediaries seek instruction from beneficial owners who hold shares indirectly as to how to vote on items put forth at a meeting of shareholders. NYSE Rule 452 permits brokers to exercise discretion to vote on routine items if they have not received voting instructions from the beneficial owner of the shares at least 10 days prior to the meeting. Previously under Rule 452, uncontested director elections were considered routine items, but the amendment recategorized [sic] them as non-routine items, meaning that, beginning with meetings held on or after January 1, 2010, brokers can no longer vote shares without instructions from the beneficial owner.”

Rubel and Kim go on to describe the consequences for public companies: “Historically, brokers that have not adopted proportional voting have tended to vote uninstructed shares in favor of the board slate of director nominees New Rule 452 will likely result in fewer votes ‘For ’ board nominees, and for companies with majority voting, this could make it more difficult for the nominees to achieve the majority ‘For ’ vote required for election ”

In essence, the amendment no longer allows brokers to give companies votes that belong to investors who do not exercise those votes This action could make dissenting campaigns more impactful and in some cases make it harder to achieve a quorum

The amendment’s impact was already felt late last year, when entities such as American Funds sent out voting materials with “PLEASE VOTE NOW” and “YOUR VOTE IS VERY IMPORTANT VOTING NOW HELPS YOUR FUNDS LOWER OVERALL PROXY COSTS AND ELIMINATES PHONE CALLS ”

Davis is not surprised by the pleading tone “It’s not just the amendment that’s changing the game The rise of social networks in addition to this amendment, I think, will have a huge impact in board elections The Obama campaign’s successful use of social networking is proof that it is a powerful tool Social networking has begun an epic migration into the capital markets and the collective power of individual investors will begin to be felt through that channel, especially since the previously inactive shareholder votes now can’t automatically be counted as a win for the company’s agenda ”

Davis cites organizations such as ShareOwners org as game changers that foreshadow what’s to come. The nonprofit organization’s website tells visitors it “was founded to create a voice for the average retail investor, who has not been heard in the corporate boardroom, Washington policy debates, or by the decision-makers in large financial institutions, including mutual funds.”

Davis sees organizations such as this being a force for positive change. “If you look at the garden-variety proxy statement, bearing in mind that this is the principal communication between a board and investors, it’s almost impenetrable, even to a very intel-

White sees the change to the proxy process as a deterrent to some would-be board members. “It will be too easy for shareholders to nominate candidates who represent special interests or are not fully qualified We could end up with a lot of beauty contests ”

Moravec is not a fan of the change either “I don’t think people out there can really get organized to set up a worthy challenge to current board members It’s a joke You have to be extremely wealthy to do that. Instead, it’ll pick up fringe groups that have one cause to promote.”

Daly is a proponent of the proxy process, with certain conditions “I don’t think anyone wants politicking with the proxy process The NACD recommends proxy access that lines up with the nominating governance committee That committee knows the talent around the table and they know how it fits with company strategy It prevents someone from getting on a board with a hidden agenda unionizing, for example. That’s not proper. It also prevents the opportunistic candidates from applying successfully the equities fund manager who wants to jack up the stock price to get rid of the company and profit ”

Davis, too, sees the upside to the proxy process change “If the post-crisis rules and regulations truly go into effect, it will fundamentally alter the accountability of boards to investors for the better Assuming majority rule is required for a director to be elected, for the first time in US history, every public company board member will be vulnerable to ouster. Previously it was almost impossible to vote out a director Boards will now be exposed to investors in a way they never have been before ”

This exposure will require board members who are seasoned enough to withstand standard, documented individual evaluations on a regular basis, says Conger “In the future, the board will not be able to stand or fall together. Shareholders will start to hold individual board members more responsible for their action or inaction on key items.”

Conger also sees more insiders being added to boards, despite the push for outside directors “You’ll see more CFOs and COOs, and possibly heads of HR on the board, because members are realizing that if the CEO is the only voice and puts on his or her best face all the time, they’re not really getting an accurate picture of the company or where it’s headed.”

The new chair

If a new type of board member is important, then a new-generation chair is imperative.

Moravec uses the example of a chair he knew who was called in to take over a distressed company “He realized the way the board had operated in the past didn’t work He didn’t want a gentlemen’s club where everyone whispered He welcomed dissension and wanted negotiation over differences He had two people on the board who had different opinions regarding the company’s strategy both very vocal. After they had argued it out for some time, he said, ‘Now you two be silent. I want everyone else in the room to tell me what you heard these two say and where you sit on the issue ’ The only questions he allowed other b o a r d m e m b e r s t o a s k w e r e c l a r i f y i n g o n e s n o t h i n g t h a t required elaboration These two parties ended up getting new insights into the issue and came up with a third solution that was more innovative and a bigger risk.

“This chair changed the tone of board meetings and took a previously dormant session, where things were decided in the

And the survey says

For its 2009 Public Company Governance Survey, the National Association of Corporate Directors surveyed over 600 public company board members and used the proxy statements of some 3,750 public companies Among its findings:

• Strategic planning is the top concern among board members, followed by corporate performance and valuation

• Risk oversight became a much bigger issue than in past surveys, jumping from fourteenth to sixth place In 58 5 percent of boards surveyed, the audit committee has primary responsibility for risk oversight The full board is responsible in only 29 8 percent of the cases And approximately 5 percent of companies have a risk committee in charge of this area

• Separate roles for the board chair and CEO have risen over the past four years, with 49 1 percent of boards implementing this strategy

• Management and finance experience are in high demand for board members, clocking in as the top two desired areas Marketing and external audit experience were also identified as key competencies

men’s room, to a useful exercise for the company Now that’s a properly coached chairman, and every company now needs one.”

“You don’t want insider outsiders as your chair,” says Conger. “By that I mean someone along the lines of a retired CEO, a banker with close company ties or the audit firm’s most senior partner Splitting leadership roles on a board is a good thing You don’t want a board dominated by a CEO who also serves as chair. You really want a lead director and a non-executive chair in order to invite a much more active board ”

Conger goes out on a limb to say that in 10 years, we’ll see nonexecutive chairs in 80 to 90 percent of US companies, compared to the 17 to 18 percent currently in S&P companies “We’ll look a lot more like boards in the United Kingdom in the next decade, in that respect,” he says

Crisis as opportunity

In all his years of consulting, Moravec says the moments of true leadership among board chairs do stand out. He cites a recent experience, in which the chairman of a new board challenged the members to help the Midwestern manufacturing company in question to succeed He did so simply by saying, “You never want a serious crisis to go to waste, ladies and gentlemen. This is an opportunity to do things we could not do before The fact that our industry is mired in the worst recession in a decade allows us to confront problems that have festered for years ”

What this chairman realized, says Moravec, is that the company’s failures had created it anew. “People need to recognize that broken organizations are new organizations,” he explains “When a company breaks or is unable to perform, you have to recreate it Going back to the old and tinkering with it a bit doesn’t work If you have an ice hockey team and you lose four key players, then the next season it’s a different team You plan differently You play differently The team performs differently It’s the same with companies An astute chair realizes that If only we had more of them over the past decade, things might have turned out differently for some very big names ”

THIS WAY PLEASE

By Nadira

In recent years, the IASB (International Accounting Standards Board) and the FASB (Financial Accounting Standards Board) have made strides towards eliminating, or at least minimizing, remaining differences between International Financial Reporting Standards (IFRS) and US Generally Accepted Accounting Principles (GAAP) While there are only a handful of significant distinctions between them, neither can truly be said to offer a clearly “simplified” financial reporting alternative

The unstoppable trend has been towards worldwide adoption of IFRS, now mandated in over 100 nations and permitted or encouraged in many others. By 2011, it’s predicted that there will be 150 national adopters

T h r e e d e v e l o p m e n t s m a k e t h e c o n t i n u a t i o n a n d even acceleration of this trend likely. First is the SEC’s landmark decision to allow foreign private issuers to file fully compliant IFRS-based financial statements without t h e p r e v i o u s l y r e q u i r e d r e c o n c i l i a t i o n s t o U S G A A P. Second is the SEC’s subsequent decision to permit and, perhaps, require all domestic issuers to file under IFRS

And third is the AICPA’s May 2008 action to recognize IFRS as a legitimate basis for US financial reporting

Notwithstanding these favorable developments, the appeal of IFRS adoption among domestic companies may be dampened by the fact that its application isn’t necessarily less onerous than that of US GAAP even discounting the inevitable learning curve and conversion costs of IFRS adoption This, however, may soon change US-based private companies have tilted the playing field in favor of IFRS adoption, thanks to the July 2009 AICPA publication of IFRS for Small and Medium-Sized Entities (IFRS for SMEs).

M. Saafir, CPA and Barr y Jay Epstein, Ph.D./CPA

Coupled with the AICPA governing council’s recognition of the IASB as an international accounting standard-setter, this abbreviated financial reporting rule book is expected to have great appeal (IFRS for SMEs has only 230 pages versus approximately 2,500 pages of full IFRS and 25,000 pages of US GAAP guidance )

US private companies and not-for-profit organizations now have the option of employing either full IFRS or IFRS for SMEs when preparing their general-purpose financial statements. This potent i a l l y p l a c e s s m a l l e r e n t i t i e s i n t h e v a n g u a r d o f U S b u s i n e s s e s abandoning US GAAP for IFRS, providing the impetus for public companies which were expected to be the first to adopt to then follow suit.

IFRS for SMEs was developed to provide a simplified, self-contained set of accounting principles derived from the full IFRS, but with a reduced range of acceptable alternative accounting methods and less onerous disclosure requirements It is intended for entities that don’t have public accountability; namely those entities that fail to meet either of two conditions: Having issued debt or equity securities in a public market, or holding assets in a fiduciary capacity for a broad group of outsiders as their primary purpose of business. This means that banks, insurance companies, securities broker/dealers, pension funds, mutual funds and investment banks, as well as publicly traded companies, cannot employ IFRS for SMEs Although created with a focus on the needs of a typical mid-sized company, IFRS for SMEs may be used by a nonpublicly accountable entity of any size.

There are many reasons why a US private company or not-forprofit might prefer IFRS and, in particular, IFRS for SMEs over US GAAP For one, the enterprise might be owned by a foreign parent, be a supplier to foreign companies, or have a foreign investor, which means it is involved in international commerce

What’s more, as business activities become ever more global, it’s increasingly important for smaller, private entities to have a cost-effective and efficient means of facilitating cross-border busi-

ness development, including capital flows Using IFRS for SMEs may enable companies to present financial statements comparable to those of foreign companies that are competing for the same c u s t o m e r s , v e n d o r s a n d c a p i t a l . E l e c t i n g I F R S f o r S M E s w o u l d reduce the volume of disclosures versus full IFRS or US GAAP

Perhaps the paramount consideration, however, is that IFRS for SMEs offers a significantly simplified financial statement preparation process. Features include:

n Accounting for investments in financial assets, a particularly complicated area, has fewer categories and therefore fewer s p e c i f i c a c c o u n t i n g r e q u i r e m e n t s u n d e r I F R S f o r S M E s I t allows only for accounting at fair value through profit or loss and amortized cost. There is no available-for-sale classification, and therefore no option to display unrealized gains or losses directly in equity, which many users find ambiguous and confusing

n Intangible assets and goodwill are to be amortized over their useful lives, unless reliable estimates of useful lives cannot be determined, in which case an arbitrary period of 10 years is prescribed By contrast, indefinite-lived intangibles and goodwill are not amortized under US GAAP, making it necessary to use cumbersome annual impairment testing. Under IFRS for SMEs, impairment testing is only performed when certain indicators are present

n There is no requirement to account for embedded derivatives separately from the host contract. Accounting for compound financial instruments, including derivatives, has been challenging for preparers, auditors and users alike, often resisting obvious explanations

n Under the IFRS for SMEs standard, the impairment of a financial instrument measured at amortized cost is defined by the difference between the asset’s carrying amount and the present value of estimated cash flows, with required reversal in future periods if the impairment is ameliorated. US GAAP pre-

scribes several different impairment models for instruments measured at amortized cost, depending on whether they are classified as loans held for investment, held-to-maturity securities, or available-for-sale securities

n IFRS for SMEs offers simplified revenue recognition criteria. For example, it has limited industry specific guidance, unlike US GAAP, which has specific guidance related to software revenue recognition, sales of real estate, and many other types of transaction Also, detailed prescriptive guidance on the separation and allocation consideration in multiple-element arrangements is not included in IFRS for SMEs, in contrast to US GAAP

n For financial assets and liabilities measured at fair value, the entity applying IFRS for SMEs must disclose only the basis for determining fair value, the carrying amount of each category of financial assets and liabilities, and information that enables financial statement users to evaluate the significance of financ i a l i n s t r u m e n t s f o r t h e i r f i n a n c i a l p o s i t i o n s a n d p e r f o r mances US GAAP, on the other hand, requires numerous quantitative and qualitative disclosures regarding the fair value of f i n a n c i a l a s s e t s a n d l i a b i l i t i e s , i n c l u d i n g a c o m p r e h e n s i v e analysis of the inputs used to determine fair value, as well as their classification into a three-level hierarchy.

Not only does IFRS for SMEs imply a more cost-effective and efficient alternative to US GAAP and to the full IFRS but it also promises the preparer relative stability compared to other GAAP.

The IASB plans to update the SME standard approximately every three years, which means users will have a moderately stable platform of requirements to stand on. New IFRS and US GAAP rules a r e i s s u e d i r r e g u l a r l y b u t o f t e n , t y p i c a l l y w i t h m a n y n e w p r onouncements each year.

While the benefits of converting to IFRS for SMEs are apparently many, qualifying US companies should cautiously evaluate the conversion’s impact. In particular, consider:

n The financial statement users’ willingness to accept financial statements prepared in accordance with IFRS for SMEs.

n The availability of information needed for conversion, as well as the best timing for the conversion.

n The conversion’s impact on any subsidiary or parent company. For example, if the parent company is a public entity w h o s e f i n a n c i a l s t a t e m e n t s a r e b a s e d o n f u l l I F R S o r U S GAAP, then the parent would have to convert the subsidiary’s results from IFRS for SMEs to full IFRS or US GAAP for consolidation purposes

n The cost and time needed to make the conversion

n The conversion’s impact on some categories, such as fixed assets. For instance, smaller private companies and not-forprofits don’t always maintain the best records IFRS requires component-level fixed asset depreciation, and this level of detail may not have been maintained under earlier standards

n How the conversion will affect the entity’s reporting systems and controls

n T h e a v a i l a b i l i t y o f o u t s i d e p r o f e s s i o n a l s ( s u c h a s a u d i t o r s ) who can assist in the transition and have the knowledge and expertise necessary to provide ongoing service

If, as seems quite possible, private businesses and other entities do find IFRS for SMEs an attractive financial reporting alternative, these entities may well lead US adoption of IFRS, with broad implic a t i o n s f o r e x p a n s i o n o f t r a d e a n d r e d u c e d b a r r i e r s f o r c r o s sborder capital flows. This could propel a rising economic tide that would indeed raise all business boats, and reinforce the already widely accepted fact that small businesses do serve as the essential engines for domestic fiscal growth

Nadi ra M Saafi r, CPA i s a member of the IFRS consul ti ng team at Russel l Novak & Company L L P [ rnco.com] . ICPAS member Barry Jay Epstei n, Ph D /CPA i s a partner at Russel l Novak & Company

L L P, and co- author of Wiley IFRS 2010 and Wiley IFRS for SMEs He i s a consul ti ng ex pert on GAAP, audi ti ng standards and fi nanci al reporti ng matters

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ACCOUNTING OPPORTUNITY

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Whether your passion is helping kids, militar y personnel, families, or small not-for-profit organizations, the ICPAS has assembled a wide range of volunteer oppor tunities to help you help others

A Big Thank You!

CityArts Grants Panelists

La s t f a l l , t h e C h i c a g o D e p a r t m e n t o f Cultural Affairs conducted their triennial s e l e c t i o n p r o c e s s t o a w a r d C i t y A r t s grants to artistic and cultural organizat i o n s C i t y A r t s g r a n t s p r o v i d e m u c h needed general operating funds to artsbased not-for-profits of all sizes around the city of Chicago, and funding support f o r s o c i a l s e r v i c e a g e n c i e s t h a t o f f e r artistic programs

Seven ICPAS members lent their accounting and finance expertise to serve as Grant Selection Panel members. Thank you to Jane I Ames, Tina Bloom, Anna Liza Cuison, Katrine Vange Keller, Lori M Paris, Barbara Remme, and John P Simon for taking part

CPAsPI Workshop Presenters

The Illinois CPA Society ’ s CPAs for the Public Interest (CPAsPI) offers low - cost w o r k s h o p s f o r n o t- f o r- p r o f i t o r g a n i z ations that are seeking practical training to improve their financial management structures and practices. Member volunteers facilitate workshops throughout the y e a r o n t o p i c s s u c h a s N o t- f o r- Pr o f i t Audits, Financial Management Responsibilities for Not-for-Profit Board Members, Fundraising Rules and Regulations, a n d S e t t i n g U p a n A c c o u n t i n g S y s t e m with QuickBooks

Thank you to our members who volu n t e e r e d t h e i r t i m e t o p r e s e n t C PA s P I workshops in 2009: Tom Brean, Bridget Roche, Susan Budak, Clifford Shapiro, F l o y d Pe r k i n s , K i m Wa i t e , J i m Q u a i d and Susan Zdebski.

For more information contact Jill Wiles, I C PA S c o m m u n i t y ser vi c e m a n a g er, a t wilesj@icpas org or 312 993 0407 ext 277 A lternatively, visit the IC PA S online at icpas org/volunteer

Your Help is Needed...

CPAs are uniquely qualified to give struggling families in Illinois the helping hand they need during these difficult economic times The Illinois CPA Society has assembled a variety of volunteer opportunities for its members No previous experience is required, and training is available

Military Tax Preparation

Volunteer to provide pro -bono personal income tax return preparation to members of the US Armed Forces who have recently returned from or are still on active duty in a combat zone or qualified hazardous duty area The Illinois CPA Society provides orientation materials and IRS resources specific to military service

Tax Preparer for Low -income Families

Help low -income individuals and families receive all the tax credits available to them. The Illinois CPA Society's CPAs for the Public Interest and the Center for Economic Progress are recruiting volunteer tax preparers for the 2010 tax season Volunteers can earn CPE credit and enjoy convenient tax preparation site locations across the state Hours are flexible

College Financial Aid Application Assistance

Help high school students pay for college by assisting them with the Free Application for Federal Student Aid (FAFSA) form, which determines a student's eligibility for scholarships, grants and loans This form has grown in length and scope over the past several years, and college -bound students and their parents often have questions about how to accurately complete the necessary sections The Society ’ s CPAsPI, in partnership with the Ladder Up organization, has volunteered to help navigate the financial questions at FAFSA workshops offered at sites across Chicago

Mar k Your Calendar!

Contr oller s

Mar ch 18 – Rosemont

Government

April 26 – Springf ield

Government

April 27 – Oak Br ook

Taxation on Real Est at e

May 13 – Chicago

Business Valuation Symposium

May 14 – Chicago

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May 18 – Chicago

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May – Chicago

For ensic Accounting Half-Day

June 2 – Chicago

Business Tax

June 10 – Chicago

Business Tax

June 15 – Springf ield

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June – Chicago

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ATTENTION CPAs:

Are you licensed? If not, you must be registered.

Illinois law requires all CPAs who are not licensed but hold themselves out to the public in Illinois in any way as a CPA, must register with the Illinois Department of Financial and Professional Regulation. This would include anyone who uses the CPA designation on resumes, business cards or letterhead, or in any other manner.

Please note: Although the original deadline was October 1, 2006, it’s not too late to be registered.

Special accommodations are in place for out-of-state CPAs meeting certain criteria. Visit www.icpas.org for more information.

How Registration Works:

>$90 for initial registration and $90 every three years after that to renew your registration.

>Registration does not require CPE or experience.

>Beginning July 1, 2010, all CPAs who have not previously registered or have not renewed their registration will have to be licensed in order to use the CPA designation, and will be subject to all license requirements, including CPE.

Register

To download the registration form, and for help in filling it out, visit www.icpas.org

Please share this with other CPAs in your firms and companies.