Insight Magazine - Winter 2021

How to Navigate Your IPO

Surviving the New Normal Busy Season

Building a Firm That Lasts Supersize Year-End Charitable Giving

Upcoming Audit Changes

Changing the Face of the CPA Profession

Exploring the issues that shape today’s business world.

Kristie P. Paskvan, CPA, MBA

ILLINOIS CPA SOCIETY

550 W. Jackson Boulevard, Suite 900, Chicago, IL 60661 www.icpas.org

Publisher/President & CEO

Todd Shapiro

Editor Derrick Lilly

Assistant Editor

Hilary Collins

Creative Director

Gene Levitan

Copy Editors

Mari Watts | Jennifer Schultz, CPA

Photography

Derrick Lilly | iStock

Circulation

John McQuillan

ICPAS OFFICERS

Chairperson

Thomas B. Murtagh, CPA, JD | BKD CPAs & Advisors

Vice Chairperson

Mary K. Fuller, CPA | Shepard Schwartz & Harris LLP

Secretary

Deborah K. Rood, CPA, MST | CNA Insurance

Treasurer

Jonathan W. Hauser, CPA | KPMG LLP

Immediate Past Chairperson

Dorri C. McWhorter, CPA, CGMA, CITP | YMCA Metropolitan Chicago

ICPAS BOARD OF DIRECTORS

John C. Bird, CPA | RSM US LLP

Brian J. Blaha, CPA | Wipfli LLP

Jennifer L. Cavanaugh, CPA | Grant Thornton LLP

Pedro A. Diaz De Leon, CPA, CFE | Kemper Corporation

Kimi L. Ellen, CPA | Benford Brown & Associates LLC

Stephen R. Ferrara, CPA | BDO USA LLP

Jennifer L. Goettler, CPA, CFE | Sikich LLP

Scott E. Hurwitz, CPA | Deloitte LLP

Joshua D. Lance, CPA, CGMA | Lance CPA Group

Enrique Lopez, CPA | Lopez & Company CPAs Ltd.

Stella Marie Santos, CPA | Adelfia LLC

Brian B. Stanko, PhD, CPA | Loyola University

Richard C. Tarapchak, CPA | II-VI Inc.

Mark W. Wolfgram, CPA, MST | Bel Brands USA Inc.

BACK ISSUES + REPRINTS

Back issues may be available. Articles may be reproduced with permission. Please send requests to lillyd@icpas.org.

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Insight is the magazine of the Illinois CPA Society. Statements or articles of opinion appearing in Insight are not necessarily the views of the Illinois CPA Society. The materials and information contained within Insight are offered as information only and not as practice, financial, accounting, legal or other professional advice. Readers are strongly encouraged to consult with an appropriate professional advisor before acting on the information contained in this publication. It is Insight’s policy not to knowingly accept advertising that discriminates on the basis of race, religion, sex, age or origin. The Illinois CPA Society reserves the right to reject paid advertising that does not meet Insight’s qualifications or that may detract from its professional and ethical standards. The Illinois CPA Society does not necessarily endorse the non-Society resources, services or products that may appear or be referenced within Insight, and makes no representation or warranties about the products or services they may provide or their accuracy or claims. The Illinois CPA Society does not guarantee delivery dates for Insight. The Society disclaims all warranties, express or implied, and assumes no responsibility whatsoever for damages incurred as a result of delays in delivering Insight. Insight (ISSN1053-8542) is published four times a year, in spring, summer, fall, and winter, by the Illinois CPA Society, 550 W. Jackson, Suite 900, Chicago, IL 60661, USA, 312.993.0407. Copyright © 2021. No part of the contents may be reproduced by any means without the written consent of Insight. Send requests to 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.

CPA PAC

The Illinois CPAs for Political Action (CPA PAC) serves as a strong collective voice for CPAs and CPA firms and provides a foundation for successful legislative advocacy. Good citizenship is promoted through the personal and financial participation of Illinois CPA Society members and others in the elective process at the state level of government.

CPA PAC is a respected nonpartisan political action committee that contributes and supports candidates for state offices who support the legislative goals of the profession.

Illinois CPAs for Political Action recognizes the following firms for their support of the CPA PAC.

Thank you to Illinois CPA Society members and their organizations for continued support of the CPA PAC through financial contributions.

ICPAS would also like to recognize Crowe and EY for their continued support of our advocacy efforts.

SUPPORT CPA PAC

Your support makes these legislative achievements possible. We encourage you to donate to CPA PAC and contribute to future successes.

CPA PAC accepts individual and corporate donations. Contributions may be sent to: Illinois CPAs for Political Action 524 S. Second Street, Suite 504, Springfield, IL 62701-1705

A copy of our report(s) filed with the Illinois State Board of Elections is available for viewing at www.elections.il.gov or for purchase from the State Board of Elections, Springfield, IL.

INSIGHTS FROM TODD SHAPIRO, ICPAS PRESIDENT & CEO @Todd_ICPAS

Rewriting the Book on Culture

Can we keep moving CPAs toward being the most trusted and strategic business advisors despite the post-pandemic workforce becoming more transactional?

ack in 2019, way before the COVID-19 pandemic, we formed a strategic plan focused on the future of the CPA profession. As part of that plan, we developed seven predictions for what we thought the profession would look like by the year 2027 that we later detailed in our 2020 Insight Special Feature, “CPA Profession 2027: Racing for Relevance.” One of those predictions was that worker demands would dramatically change. Keep in mind that most employees worked in traditional offices versus remote situations in 2019. Few businesses had embraced remote work environments, though some businesses were dipping their toes in the water. Our prediction for the coming years was that the trend toward greater flexibility would continue under increasing demand.

Shortly after developing our strategic plan, one of the worst pandemics in our world’s history struck. One outcome of the pandemic was a rapid and dramatic acceleration of our worker demands prediction. Within weeks, if not days, many businesses became fully remote and found that workers could still be efficient and productive. The questions I had: What would happen when the pandemic passed, and what would the impact be on company culture in the wake of the biggest management experiment of our lifetime?

While the pandemic ebbs and flows, worker demand for flexibility and remote work will not recede. In one study, 70 percent of respondents stated they want flexible work options to continue, while 42 percent plan to quit if they can’t work remotely at least part-time. This growing demand for flexibility is taking place in an environment where 40 percent of the global workforce is considering leaving their employer this year. Firm leaders regularly tell me that staffing is their number-one issue, with some staff quitting even if they don’t have another job. The bottom line is that remote work is here to stay—at least for the foreseeable future.

So, what’s the impact of a remote workforce on culture? I can’t tell you how many times I’ve been engaged in conversations on this topic. I hear people of all ages say that remote work allows them to be more productive and to do their job more efficiently as they aren’t interrupted by others. My response is that we need to define what “job” means. Is one’s job merely the completion of a set of tasks, or are those interruptions actually part of the job?

I’m concerned that the remote environment, with its lack of informal collaboration and conversation, is creating an isolationist, task-based workforce that views their employer merely as a transaction (paycheck) that one can get anywhere. One of my staff recently told me that someone she previously worked for said “you want your employees to be homeowners, not renters,” implying homeowners feel more invested in the organization. An isolationist, task-based workforce of “renters” who view their engagements with their employers merely as transactions can have far reaching implications, from a lack of long-term commitment and staff development, to challenges with being collaboratively innovative and creative.

To highlight the above, a senior partner in a top 15 firm recently shared with me that in a recent staff climate survey, approximately 95 percent of the firm’s staff said they were engaged, yet 40 percent said it wouldn’t take much to get them to leave.

We at the Illinois CPA Society believe that if the profession is to remain relevant, we need to move CPAs beyond compliance services and toward being the most trusted and strategic business advisors to clients and companies. When much of this transition is driven by formal and informal collaboration, how do we successfully move in this direction when we’re experiencing a clear shift in both defining what one’s job entails and securing “homeowners” in our organizations?

While I have my opinion on the long-term impact of a remote workforce, I don’t profess to have the answers. I do strongly believe that, for the CPA profession to remain relevant, it’ll need to provide a higher level of service—service that’s not based on the completion of compliance tasks but service that’s focused on strategic thinking and advice that’s best accomplished through teamwork. Can this be done effectively and efficiently in a remote environment? Only time will tell. I believe the book on the long-term impact of a dramatically changed work environment and culture is still being written.

capitolreport

LEGISLATIVE INSIGHTS FROM MARTY GREEN, ESQ., ICPAS VP OF GOVERNMENT RELATIONS @GreenMarty

Dissecting the New Restrictions on Employment Agreements

uring the spring legislative session, the Illinois General Assembly unanimously passed legislation amending the Illinois Freedom to Work Act, which has been signed into law by Gov. J.B. Pritzker. The changes may significantly impact your firm’s employment agreements and restrictive covenants of non-compete and non-solicitation, so let’s review the new restrictions.

Public Act 102-0358 expands the Freedom to Work Act by codifying case law and noting when courts will or will not enforce restrictive covenants in employment agreements. The legislation also expands the applicability of the act from employees earning less than $13 an hour to employees earning or expected to earn $75,000 or less per year. Similarly, non-solicitation agreements may not be entered into by employees earning or expected to earn $45,000 or less per year.

Aside from expanding the earnings threshold, the act broadens the calculation of employees’ earnings by now including bonuses, commissions, tips, and other benefits, such as 401(k) plans and flexible spending accounts. Employee earnings thresholds are also escalated, increasing every five years through June 1, 2037, at which time the threshold will be a maximum of $90,000 for noncompetes and $52,500 for non-solicitation covenants.

As with any employment agreement, enforcement by the courts is central to resolving contract disputes. The newly added provisions specify that non-compete and non-solicitation covenants will only be enforced if the employment agreement fits within the following parameters: The employee receives adequate consideration (which means either the employee works for the employer for at least two years after signing the covenant, or receives adequate financial and professional benefits); the agreement itself is ancillary to the employment relationship; the agreement is not more restrictive than is required by the employer’s legitimate business interests; the agreement does not impose undue hardship on the employee; and finally, the agreement is not damaging to the public interest. There are specified areas where the expanded restrictions do not apply, such as the sale of a business, confidentiality agreements relating to trade secrets, or to certain construction positions such as management, engineering, architectural design, or sales functions.

The expanded act includes provisions for enforcement and resolution of controversy. While legal precedent allows judicial reformation of overly broad restrictive covenants, the amended act now includes a list of non-dispositive discretionary factors in reforming non-competes and non-solicitation provisions and allows employees to recover reasonable attorney’s fees if they prevail in claims filed against them by their employer. Employers in this instance are treated differently in that the statute does not adopt a prevailing party standard, but rather can only recover attorney’s fees if there is a contractual provision that allows for employer recovery. The attorney general is authorized to pursue investigations and civil enforcement actions where there is “a pattern and practice” prohibited by the act.

These new restrictions go into effect on Jan. 1, 2022, and only apply to agreements entered into after that date. These changes are part of a nationwide progressive movement to remedy abuses and prevent the stifling of competition. There has been similar movement on the federal legislative and regulatory levels. In early 2021, the Workforce Mobility Act would have restricted noncompetes at the federal level. While the federal legislation failed to advance, President Biden signed Executive Order 14036 on July 9, 2021, encouraging the chairman of the Federal Trade Commission to exercise the commission’s statutory rulemaking authority to curtail the unfair use of non-compete clauses and other clauses or agreements that may unduly limit worker mobility. While the president’s executive order does not prohibit non-competes, it does highlight a heightened level of review by regulatory authorities and casts a national spotlight on their use.

Here in the Illinois CPA Society’s government relations office, we opposed an across-the-board prohibition of restrictive covenants some states have adopted. I anticipate that this issue will continue to be at the forefront of consideration, and we could see further restrictions in the future. In the meantime, I recommend that you consult with your employment lawyer on anticipated expiring agreements that include these restrictive covenants and review your existing employment offer letters and related documents for compliance purposes.

A new Illinois law limits non-compete and non-solicitation covenants and could have major implications for CPA firms. Here’s what to know.

Changing the Face of the CPA Profession

Even as CPA candidate numbers dwindle, these vibrant new CPAs are making the profession their own.

BY DEL WRIGHT

uch has been made of the projected scarcity of certified public accountants (CPAs), and for good reason. The National Association of State Boards of Accountancy reported that 95,654 candidates took the Uniform CPA Examination in 2017. By 2019, that number was down to barely 83,000, with 2018 reflecting a 10-year low in new CPA candidates. The Illinois CPA Society (ICPAS) devoted this year’s Insight Special Feature, “A CPA Pipeline Report: Decoding the Decline,” to an in-depth analysis of this trend, as well as potential strategies for helping future accountants recognize the benefits of earning their CPA.

But with all this talk of who isn’t pursuing the credential, what about those who are becoming CPAs? What has led them down a path so many of their peers are forgoing? Five young CPAs share their unique journeys to the credential—and beyond.

THE POWER OF INTEGRITY

For one emerging CPA, it started with a television show. Jalaj Haryani was a junior in high school when she came across the immensely popular Korean drama “Chief Kim.” The show’s central character is a CPA who solves financial crimes. During one episode, a snippet of dialogue caught Haryani’s attention: “Numbers don’t lie, people do.”

“It was a simple line, but it made me think a lot about the power of the people behind the numbers,” she recalls. “I thought that if we had more honest people in the profession, the world could rid itself of a lot of corruption.”

Because of “Chief Kim,” Haryani came to see CPAs as agents of integrity and trust—though she wasn’t always interested in the actual credential. “Throughout undergrad, I remember telling my friends that there was no way I was taking the exam,” she recollects. “However, at my first internship they spoke so highly of the credential and how much trust comes with it.”

Haryani, an ICPAS member and now an associate consultant with HKA, says that even when she studied abroad, professors would encourage their students to pursue the CPA credential. By her senior year, the credential she thought she’d never pursue had come to symbolize the very traits that attracted her to the profession in the first place.

“This credential is vital in gaining the trust of your colleagues and it helps attest to the reliability of your work. My whole goal was to join the profession, to be an honest member, and to have people trust my work,” she says. “So, I went for it.”

Haryani also found value in another aspect of the CPA credential: versatility. When she landed her CPA in late 2021, she didn’t just

earn the confidence of the U.S. public accounting industry, but of financial professionals across the globe. It remains to be seen whether she’ll remain in consulting or transition to another industry, but she’s ready to join the next generation of CPAs who’ll transform the profession. “I think the profession is ever-changing,” she says. “Accountants are no longer just recordkeepers, they’re analysts and translators. Accounting is the language of business and accountants are the most fluent in it.”

THE PROMISE OF A GROWING FIELD

In 2017, the AICPA reported that CPAs with less than a year of experience earned an average of $66,000 per year. Furthermore, the U.S. Bureau of Labor Statistics projects that employment of accountants and auditors will grow 7 percent from 2020 to 2030. All research points toward today’s emerging CPAs having fertile ground in which to grow their careers and establish a solid financial future for themselves.

ICPAS works tirelessly to ensure that motivated students have access to the resources that allow them to catch the attention of future employers. These efforts include the CPA Exam Award, a scholarship for individuals who have achieved their required 150 credit hours and applied to sit for the exam in Illinois. The scholarship reimburses recipients for up to $900 in testing fees. Recipients are typically either students or recent graduates, so this much-needed financial assistance allows them to focus on test prep, college coursework, or finding their footing at their first postcollegiate job.

The prestigious Mary T. Washington Wylie Internship Preparation Program is another way in which ICPAS works toward diversity, equity, and inclusion in the accounting profession. Named for the Chicago native who became the country’s first Black female CPA in 1943, the program provides a $500 scholarship, resume and interview coaching, access to a network of mentors, and the opportunity to interview for paid internships.

Landing both a CPA Exam Award and a spot in the Mary T. Washington Wylie Internship Preparation Program, Starletta Keene epitomizes the next generation of hard-working CPAs. A college advisor recommended accounting as a potential major during her freshman year “because it combined my strengths of math and attention to detail with my desire to work in the corporate world,” she recounts. “From there, the Mary T. Washington Wylie Internship Preparation Program did a great job of introducing me to the CPA credential and what it would take to achieve it.”

Keene’s last semester of college was especially grueling. “It was pretty difficult for a span of about five months, trying to accumulate course hours, making sure that I was ready to take the exams, along with staying on track to graduate,” she says. Once she graduated and was approved to sit for the exam, Keene had to balance test preparation with the responsibilities of her new job. “Finding time to study takes a lot of discipline and focus, especially if you’re working all day,” she says.

Currently working as a tax consultant with Deloitte and planning to submit her application for licensure any day now, Keene is excited about the opportunities that the CPA credential will unlock for her. The credential is a requirement for promotion within her current division, and she knows it will advance her professionally in the long run. “I saw how much money I would be leaving on the table throughout my entire career if I didn’t pursue the CPA,” she says.

PERSEVERANCE THROUGH A PANDEMIC

But what happens when you work hard to achieve the certification, only for a pandemic to bring your professional momentum to a

screeching halt? That was the case for ICPAS member Kiara Schuh, who finally received her CPA license in September 2020 after months of delays. She applied for licensure in January 2020, submitted some requested additional documents soon after, then waited nine months for her file to be processed. “Between March and August there wasn’t a lot of movement with my application,” she remembers.

Perseverance was nothing new to Schuh: She’d been embodying it her whole college career, balancing the responsibilities of being a self-supporting student with her demanding course load. “I worked in various capacities around campus and over the summer to be able to support myself through college,” she says. “During my fourth year at the University of Illinois, I was earning my master’s in accounting, serving as a teaching assistant for an undergrad accounting class, and working as a resident assistant in one of the dorms. On top of that, I was studying for the CPA exam.” A senior consultant in Deloitte’s risk and financial advisory practice, Schuh is now using her can-do attitude, accounting acumen, and hardwon CPA credential to help her clients.

THE NONTRADITIONAL PATH

But young CPAs aren’t just making their mark in the public accounting and corporate finance worlds: Two women within ICPAS have forged their own paths toward management in the nonprofit sector.

While in college, Alisa Caruso, ICPAS’ accounting manager, realized that as a young, single mother, she’d need to have a stable career. Caruso’s sister suggested accounting, and her professors and advisors at North Central College were instrumental in providing excellent content knowledge, as well as helping her stay on track with both coursework and the certification process. After college, Caruso took a Becker CPA review course, passed her certification exam, and was licensed within a year of joining ICPAS as a staff accountant in 2015.

Prior experience working for a hedge fund helped Caruso realize that she didn’t want to work in a traditional, corporate environment. “The nonprofit world aligned with my personal and professional goals,” she says.

Heather Lindquist, ICPAS’ assistant director of peer review and professional standards, has similar praise for her alma mater. She credits Illinois Wesleyan University’s accounting department staff, as well as the anecdotal student-to-student knowledge of her peers, with demystifying the CPA certification process. Upon earning her CPA, Lindquist recalls feeling “armed with the level of confidence symbolized by the credential” as she launched her career. She joined ICPAS’ peer review department in 2016, excited by the unique opportunity to merge accounting with education. She savors the teaching aspects of her position as well as encouraging the firms within the program to learn from each other.

The future of the CPA credential lies in expanding the idea of what a CPA is. In the corporate realm, the nonprofit world, and beyond, the new generation is doing just that—blazing new trails and inspiring peers who may have never thought of themselves as CPAs. As we look for ways to attract more people to the credential and ensure a strong pipeline of future talent for the profession, it’s worth noting what is already working. The trust and versatility that accompanies those three letters has remained constant, and young professionals like these women are taking the certification and running with it.

Del Wright is an Insight contributor and ICPAS’ customer service and corporate outreach coordinator.

Seven Strategies to Supersize Year-End Charitable Giving

After record charitable contributions in 2020, the threat of increasing income and estate taxes should have advisors and their clients looking to maximize the tax benefits of their giving.

BY DANIEL F. RAHILL, CPA, JD, LL.M., CGMA

was a difficult year for many, but not without its bright spots. One of those bright spots was the fact that charitable giving in the United States broke records, up 5.1 percent from 2019 levels to reach $471.44 billion. Three of the four major sources of giving grew year-over-year in 2020: Individual giving rose by 2.2 percent, bequest giving rose by 10.3 percent, and giving by foundations increased by an astounding 17 percent. Only giving by corporations declined (6.1 percent)—perhaps a reflection of the year’s business challenges and uneven recovery.

So, what’s in store for 2021 charitable giving? As you’d expect, pandemic challenges will likely continue to drive charitable giving, but another factor may also spur another record-setting wave of generosity. In October 2021, Democratic leadership announced a framework deal on the Build Back Better Act. This proposal would impose a tax surcharge on high-income individuals of 5 percent on income over $10 million plus an additional 3 percent on income in excess of $25 million; expand the 3.8 percent net investment income tax, limit the current reduced qualified small business gain exclusion, and make permanent the disallowed business loss limitation; plus many other tax increase proposals.

While many legislative steps remain to turn these tax increase proposals into law, these proposed increases may make charitable

giving more attractive than ever this year as the value of a deduction grows alongside tax rates. To counteract higher taxes, taxpayers will likely incorporate giving strategies into their tax planning and may prefer to transfer appreciated property to charity rather than pay higher capital gains taxes on a sale. Estate planning will also be affected, as high-wealth individuals increase their charitable giving to maximize their tax benefits.

As long as natural disasters, pandemic repercussions, and tax perks continue to proliferate, we’re likely to see the kinder side of human nature expressed through generosity and philanthropy. And as CPAs and financial strategists, we’re also likely to ask ourselves: How can we make the biggest impact with charitable giving? Here are seven strategies to make donations really count.

SEVEN STRATEGIES TO MAXIMIZE GIVING:

1. Qualified charitable distributions: While the 2021 Consolidated Appropriations Act extended some tax breaks, it did not extend the 2020 waiver of required minimum distributions (RMDs) from retirement accounts. That means RMDs must be made in 2021, and for taxpayers taking the standard deduction, a qualified charitable distribution is an attractive option. Individuals over age 70.5 can donate up to $100,000 from their IRA. This

satisfies the RMD requirement, but the gift must go directly to a charity, not to a donor-advised fund or private foundation.

2. Charitable gift annuity: A charitable gift annuity is a contract between a donor and a charity under which the charity, in return for the donor’s gift, agrees to pay a fixed amount to the donor (and one more individual if the donor chooses) for the donor’s lifetime. Such payments include the earnings on, and a part of, the principal in the reserve account. The issuing institution guarantees the income, as it becomes a legal obligation of the charity. The creditworthiness of the charity is important as the donor will rely on the charity for income. The benefits include a lifetime stream of income plus a charitable deduction in the year of the gift equal to the net present value of funds estimated to remain for the charity at death.

3. Pooled income funds: A pooled income fund is a trust composed of pooled gifts that are invested together and maintained by a public charity. Income from the fund is distributed to both the fund’s participants and named beneficiaries according to their share of the fund. Donors to the fund choose the other income recipients to receive quarterly payments for life. Upon a donor’s death, the value of the assets will be transferred to the beneficiaries.

4. Charitable remainder trusts: A charitable remainder trust (CRT) is an irrevocable trust typically funded with highly appreciated assets. The CRT is structured so that there is a current beneficiary—either the donor or a named individual—and a remainder beneficiary, which is a 501(c)(3) charity. The CRT makes annual distributions to the donor in either a fixed amount or as a percentage of the value of the trust. These are paid for a period of years that can either be for the donor’s life or for a set period not to exceed 20 years. The remainder value of the CRT is then distributed to the charity.

The tax benefits of a CRT include a potential charitable deduction in the year of the transfer equal to the amount that will remain for charity, as estimated based on the donor’s life expectancy. In addition, a CRT is exempt from tax on its investment income. Thus, a trustee of the CRT can sell appreciated assets and reinvest the full proceeds, allowing diversification from a concentrated position in a tax-efficient manner. If created under a will, a CRT allows for estate tax savings with the value of the remainder interest passing to the charity. A CRT can be an effective strategy for retirement planning as the trust can provide income distributions that do not commence immediately. For example, the trustee can sell the appreciated assets, reinvest the proceeds, defer payment of tax, and delay distribution until the donor is age 65 (and perhaps in a lower tax bracket).

5. Charitable lead trusts: A charitable lead trust (CLT) is an irrevocable trust that provides a fixed amount or a percentage of the trust’s assets to a charity for a set period or for the life of an individual or individuals. The remainder interest is either retained by the donor or given to a non-charitable beneficiary, usually a family member. A CLT is often created for lifetime giving and for estate planning purposes.

In many cases, the income tax benefits of a CLT may not be as significant as the estate and gift tax benefits. For income tax purposes, a CLT can be structured as a grantor trust, meaning the income earned by the trust is taxable to the grantor, or a nongrantor trust, meaning the income earned by the trust is taxable to the trust. If the contribution to the CLT is made during the donor’s lifetime, then the donor will also be eligible for a

charitable tax deduction for the interest going to charity. If the remainder beneficiary is not the donor, then the donor could be subject to gift tax on the actuarial value of the remainder interest.

6. Donor-advised funds: A donor-advised fund is a program of a public charity that allows you to make irrevocable contributions to the charity, become eligible to take an immediate tax deduction for the full value of the contribution, and then make recommendations for distributing the funds to qualified nonprofit organizations. Donor-advised funds often accept many types of assets, allow donors to name successors to continue family involvement, and afford donors the right to remain anonymous. A donor-advised fund can be a good giving vehicle if the donor wants simplicity in grant-making, is comfortable serving in only an advisory role, wants higher charitable deduction income limitations, and wishes to support multiple charities.

7. Private foundations: A donor-advised fund is often compared to a private foundation, another vehicle for making lifetime grants to charity. A private foundation is formed by a family or an individual who must then apply for tax-exempt status with the IRS. Contributions to a private foundation are deductible—up to 30 percent of a donor’s adjusted gross income for cash and 20 percent for appreciated securities.

As year-end approaches and tax changes near, now is the time to review smart charitable giving strategies—both to address philanthropic goals and to maximize tax benefits.

Illinois CPA Society member Daniel F. Rahill, CPA, JD, LL.M., CGMA, is a managing director at Wintrust Wealth Management. He is also a former chair of the Illinois CPA Society Board of Directors and a current board member of the American Academy of Attorney-CPAs.

Surviving the New Normal Busy Season

Last year’s tax season was one for the history books. Take these lessons learned the hard way to make the upcoming busy season a success.

BY JEFF STIMPSON

ndless hours, burning eyes, aching shoulders, clients who still can’t seem to get their paperwork to you before the week of the filing deadline: Tax season is closer than you think. How can you start preparing now?

“Every tax season is stressful, with the last two being exceptionally stressful due to COVID-related legislation, rules being issued on the fly, and the challenges of learning to function remotely. As far as the upcoming tax season, the primary stressor right now is uncertainty,” says former Illinois CPA Society Chairperson Geoff Harlow, CPA, a partner specializing in business and personal tax at Wipfli LLP in Lincolnshire, Ill.

“The unknown is always more stressful than the known,” says Neil Keller, CPA, tax partner at Sikich in Milwaukee. “We’re very confident that new tax law is coming. The problem is, we don’t know how it will look, when it will pass, or what time periods it will affect. And I don’t think many of us want another year of a nontraditional due date.”

With another busy season and unknown changes right around the corner, here’s how to get set for success, no matter what challenges await.

Keep Up With Change

Last-minute pandemic tax relief changes heightened stress last season, and research from the National Association of Tax Professionals (NATP) shows that many firms expect this to persist into the next busy season.

“Will tax legislation pass Congress before year-end? Will COVID be less of an issue in the coming six months? Will my current staff stay, and will I be able to add staff?” Harlow wonders. “It could be a more normal tax season, or it could be another nightmare.”

“The best sources for tax changes include updates from key members of Congress,” says Tom Kinder, CPA, managing partner in Plante Moran’s Chicago office. “News media, including traditional newspapers, social media, tax-specific publications, industry groups, and other sources, like accounting and law firms, are also worth following.” The AICPA also offers a tax season hub with subjects ranging from cryptocurrency compliance and contacting the IRS to state-by-state Paycheck Protection Program tax treatment and the Employee Retention Credit.

“I recommend reading everything you can lay your hands on, especially on COVID-related programs,” Harlow says. “A great resource is the continuing education offered by the Illinois CPA Society.”

In a time of rapid change, clients also need timely information. NATP’s research found that many tax preparers plan to include more information in e-newsletters and on their websites than they did prior to the pandemic.

But there’s reason to believe this tax season won’t be quite as hectic as last.

“As legislation takes shape, it appears that most changes will not take effect until 2022, with a few notable exceptions,” Kinder says. “This should make 2021 tax return preparations less complex than many fear. The direct impact of new tax changes is expected to be initially felt during year-end planning in late 2021, while the full impact of changes will be spread over the course of 2022.”

Combat Overload

It wouldn’t be busy season without a time crunch and work overload. How can CPAs duck this double whammy?

To maximize your time, catch problems while they’re still small. “When I’m at my best, I’m able to be more efficient by addressing small items and issues—those that take less than two minutes—immediately so they don’t balloon into something larger,” says Damien Martin, CPA, partner with BKD CPAs and Advisors in Chicago.

Another timesaving move: Discuss filing extensions with clients as soon as possible. While this often just postpones the work until the fall, more time during busy season can be invaluable.

“Make it a goal to have all audit and year-end tax planning done by December 31, if not earlier,” Kinder adds. “Also, set expectations and timelines with clients. If the client won’t have materials ready for their audit or tax preparation at the agreed time, work with them to develop a realistic timeline that’s efficient and effective.”

Perhaps most importantly, weed out the clients who only compound the frustration and exhaustion of an already overwhelming busy season. “Consider firing that difficult client no one wants to work with,” Harlow advises.

“When I worked in national CPA firms, we always had this crazy, frantic, last-minute, all-night type of schedule,” says industry blogger Eva Rosenberg, EA, MBA. “In my own practice, I cut all clients off two weeks before the deadline. Period. Clients had to comply or go elsewhere. Try it next year. It works.”

Master Staffing

NATP’s research found that 67 percent of firm owners made no changes to their staffing levels last busy season in response to the

COVID relief acts, though in hindsight they said they would’ve hired more staff given the season’s complexities. More firms plan to increase their staffing this busy season, but finding talented workers remains a major challenge.

Personal referrals and networking remain the best tools for finding new staff but focusing on your existing employees should always come first: Retention is a lot easier than replacement. “Do everything you can to retain the staff you already have,” Harlow says. “Paying more is one approach, but often overlooked is doing nice things that make them feel appreciated. Ask them what would make their lives better. Upgrade your internet and systems. Make sure they have the support they deserve.”

“In the short term, look to hire seasonal staff, and be creative with where you find them,” Kinder says. “For example, think about staff who left your firm or retired recently and ask yourself if they’d consider part-time or temporary work—especially if it could be remote.”

Recent research from ZipRecruiter found that 60 percent of workers preferred a job that lets them work from home. After COVID made remote work commonplace, accounting firms can’t afford to enter busy season without work-from-home flexibility.

“The pandemic showed us that certain tasks can be completed remotely without a significant loss in effectiveness,” Kinder says. “But we know that working remotely isn’t the right answer for all situations or for relationship-building over the long term. At Plante Moran, we’re focused on a hybrid model that allows for added flexibility when appropriate, while developing our staff and serving our clients.”

The flexible work options that can attract and retain staff are more than a matter of policy: You need a solid IT infrastructure. “For many, including my firm, the remote desktop is identical to the one in the office. Remote staff are able to be just as productive and communicate just as easily as being in the office,” Harlow says. “If

your firm can’t say the same, you should probably upgrade your systems and consider moving to cloud-based software.”

Firms must also focus on replicating the benefits of in-office connection to make remote work successful. “The flexibility of being able to work remotely can be great, but it’s not without its challenges,” Keller says. “You have to be very intentional with communication and collaboration since it often doesn’t happen as naturally as when everyone is in the same office. Employees need to err on the side of overcommunicating when working remotely.”

“Meeting people where they are in terms of their preferred mode of communication is essential to successful remote work,” Martin concludes.

Create Downtime

And what about when those eyes do start burning while the IRS updates and client excuses won’t let up? Firms have long offered busy season perks—on-premises chefs, massages, childcare—but tax season veterans recommend actually stepping away from the workplace to recharge.

“For me, the best way to manage stress is to carve out time, even if only a few hours here and there, for things besides work,” Harlow says. “Have family dinners, go to a hockey game, follow your favorite college basketball team, work out when you can, have a date night with your significant other. And every once in a while, take an evening or weekend off. Many of us can get more work done in six days than in seven.”

Keller echoes this sentiment: “Find time in your day to take breaks. Schedule fun plans—especially with coworkers—to give you something to look forward to. This will help you recharge your batteries and clear your mind.”

Kinder notes that team camaraderie can lessen the stress and exhaustion of a long busy season. “In the past, we’ve held anything from happy hours and staff lunches to partner-prepared breakfasts and professional head and neck massages,” he says. “And when we can’t be together in an office, we look for other creative ways to build rapport, like virtual happy hours and online cooking parties.”

“Whether you’re in an office or working remotely, you need to find your stride,” Keller says. “That means finding a work setting and schedule that allows you to be as efficient and effective as possible. Tax season is a marathon and not a sprint, so find your stride to avoid burnout and stay productive.”

Stay Positive

The upcoming busy season is bound to be challenging, but there’s still time to map out how to navigate it successfully. Ultimately, time is a tool if you use it correctly: In the short term you should use it to prepare for the coming busy season, and in the long term you should use it to keep perspective. After all, Kinder notes, “It’s important to remember that a busy tax season is a sign of a successful firm.”

Jeff Stimpson is a New York-based writer covering tax concerns for more than 20 years for various industry publications, including Accounting Today and Financial Advisor.

BY ANNIE MUELLER

The inevitable outcome of building a successful CPA firm is handing the reins to the next leader. Three experts share their insights into making that transition a success.

Change is difficult, even when it’s desired. In fact, change in the workplace can be more challenging than major traumatic life events like bereavement and divorce, according to research from Development Dimensions International Inc. And transitioning leadership to the next generation is a huge change looming on the horizon of every successful CPA firm. Yet, research from the Exit Planning Institute shows that most firm owners have very little, if any, transition planning in place. “Firm leaders need to recognize the inevitable and acknowledge they have a responsibility to their stakeholders,” says Dan McMahon, CPA, founder and managing partner of Integrated Growth Advisors. According to Pew Research, baby boomers have stayed in the workforce longer than prior generations, but that time is ending. “The pandemic caused many senior partners to accelerate their thinking in terms of transition,” says Dr. Mark L. Frigo, CPA, distinguished professor emeritus, founder of the Center for Strategy, Execution, and Valuation in the Kellstadt Graduate School of Business at DePaul University, and lead instructor in the Illinois CPA Society’s Strategy Academy. So, while the struggles of transition to the next generation are perennial, a high number of firms are building their transition plans right now—and those that aren’t should be. Because the only thing as important as building a successful firm is building one with sustainable value for the next generation of leadership.

Transition Means Letting Go

While everyone in the firm plays a part in a successful transition, the retiring partner must take the lead. But even when eager to release the demands of firm ownership, exiting partners often struggle to let go. “In our industry, partners may retire on paper and even give up their equity, but keep working and continue to own the relationships with clients. The firm isn’t really transitioning,” explains Kristen Rampe, CPA, managing principal at Rampe Consulting.

For a partner who’s struggling to really step back, framing the transition as a leadership responsibility may help. “Partners have an obligation to their clients and the people who have worked with them for many years,” McMahon says. “Without a solid transition, you’re leaving them at risk.”

“The biggest risk for retiring partners is to do nothing, which can negatively impact the firm and all of its stakeholders,” Frigo stresses.

To kick off a successful next-gen transition, exiting partners should start here:

Implement a timeline. “If the firm wants to move forward successfully, it needs a timeline,” Rampe says, which should include determining the firm’s value, choosing partner candidates, setting readiness standards, implementing a trial period, finalizing the new partner agreement, and transferring client relationships.

Be aware of generational differences. “Recognize that there will be differences in mindsets between the current leaders and the new generation of leadership,” McMahon says. Find common ground and set objective standards so exiting partners can trust new ones to take over operations and valued client relationships.

Be open to change. “The major barrier to transition success for a firm is often resistance to flexibility and change,” Frigo notes. “In addition to generational gaps and new standards of employee engagement, client needs have changed.” Exiting partners must accept that incoming leaders may be better at spotting new opportunities and may prioritize different business strategies.

Clarify the vision. “From a leadership perspective, exiting partners must have a vision and be able to articulate that vision to the people that follow them,” McMahon explains. This clear, articulated vision

can be transferred to incoming leadership, giving the firm strategic continuity throughout the transition.

Guided by Governance

If the vision is the starting point, firm governance is how you accomplish that vision even as leadership changes and team members juggle multiple priorities. “It’s extremely important to still be able to pursue a sales opportunity or a potential new client, because that’s how the firm sustains itself,” McMahon explains. “At the same time, you’ve got to keep your existing clients satisfied, even in the midst of a leadership transition.” A defined vision translated into good governance keeps everyone in the firm aligned and functioning through external and internal change. “The intergenerational transfer of ownership within the accounting profession is very much at the core of why governance matters,” McMahon says. He notes that steady firm governance is built on these three principles:

Clearly outlined roles and responsibilities. Even in the flurry of a next-gen transition, keeping up with the work that made the firm successful in the first place is a must. A clear delineation of responsibilities makes this possible. “The staff should focus on serving clients and getting their work done, while managers and partners need to juggle multiple tasks,” McMahon explains. “The firm’s leaders must build a team they can delegate tasks to; a big part of leadership is developing the people around you.”

Clearly communicated policies and procedures. “Design sound policies and procedures around quality control, efficient processes, and human resources-related matters,” McMahon advises. These will keep things running smoothly even in the busiest of times. Foregrounded goals and metrics. Everyone in a firm, including partners, managers, and staff, should know exactly what they need to do to maintain and build on the firm’s success. “Be clear about what’s important to the firm and what the firm needs,” Rampe says. “Spell it out.”

Strategic Valuation

Timely firm valuation is necessary for two reasons: to determine the exiting partner’s buyout and to measure steps the firm is taking to grow its value. Governance makes the former possible, as financials tell only part of the story. Defined roles, responsibilities, and clear metrics fill in the blanks, from putting a number on intangible assets to identifying shortfalls. “There are value gaps between what a firm could be and what it actually is,” McMahon explains. “These are areas of risk which could directly impact the firm’s valuation.”

Many firms start and stop there, with a single valuation process at the time of transition. “While accounting firms may do valuations for their clients, they don’t actually value themselves very often,” Frigo says. “They need to develop and describe a firm strategy to create greater value for their clients as well as for their stakeholders, their partners, their staff, and the firm as a whole.” An ongoing, strategic approach to valuation provides more insight and opportunities for growth. It’s an intense but important undertaking. “The value of your firm is more than just a theoretical price tag. It’s the single most important indicator of your success as a collective team of partners,” McMahon says.

Here’s how to get started with strategic valuation:

Use a framework. “I recommend that CPA firms apply a strategic valuation approach to their clients in order to understand their present and future needs and also concomitantly apply it to themselves as a CPA firm,” Frigo says.

Identify value gaps. “For leadership getting the next generation ready to take over, transparency is important,” McMahon explains.

“Be transparent about how the firm operates, how it executes, and what its strengths and weaknesses are.”

Understand your intangible assets. “There are three intangible assets every accounting firm should analyze: the managerial assets and skills of its people, the knowledge-building capacity of its culture, and its ability to adapt,” Frigo says.

Focus on the right clients. “Some clients don’t create value,” Frigo explains. “Rate clients on a one to 10 scale, with 10 being ‘They highly value the unique services we provide,’ then focus on the clients who rate an eight or higher. Figure out how to create more value for those clients.”

Prioritize offerings. “Look at the portfolio of services you offer to clients and analyze how valuable those are,” Frigo says. “Commoditized offers are always a risk; focus on expanding offers that are more innovative.”

Do more outsourcing. “Many CPA firms outsource not just accounting and tax services, but also services relating to valuation, investor information memorandum, financial due diligence, audit support, and M&A support work. These are premium value-creating services,” Frigo explains.

Develop strategic partnerships. “One of the biggest opportunities is to differentiate between what the firm should continue to do internally and what it should start doing externally,” Frigo notes. “Strategic partnering can provide quality at the same level while being effective, efficient, and capable. It’s the need of the hour for many CPA firms.”

Relationships and Readiness

Strategic valuation will determine how the firm can grow as a sustainable and transferable firm: which clients to serve, which services to prioritize, and which opportunities to pursue. Then it’s about identifying and developing the right people to pursue those opportunities. “A CPA firm competes for clients based on the quality and capabilities of its people,” McMahon says.

For a successful next-gen transition, consider the right fit for new leadership based on emerging opportunities and what current staff and managers need from a firm leader. “Blind spots in this area can cause a lot of damage,” Rampe warns. “If you bring in someone without the right leadership skills, or who is great at client work but disinterested in strategy, you get partners who are dissatisfied because the new person is not pulling their weight.”

To avoid a mismatch, set clear criteria for an incoming partner. Here are Rampe’s recommendations:

Have a solid client base. “A partner should have a sizable amount of client work or soon be able to develop it and have the ability to source their own business.”

Show business development sense. “Aptitude and achievement are good; with new partners, showing promise can be sufficient.” Demonstrate leadership skills. “You need someone to do the necessary work of leading a firm: setting strategy and goals, holding partners accountable, and holding himself or herself accountable to take on the initiatives that the firm needs.”

Be a team player. “Do you need someone who is really good sitting in their office with the door closed, or someone who is an influencer, with morale- and culture-building expertise?”

Fit in the firm. “Maybe the firm has plenty of work and people in place to develop more. In that case, a partner who excels in client work but doesn’t need to bring in business could be the right fit for the firm.”

From Trial to Transition

The retiring partner bears the most responsibility for a successful transition, but incoming partners also need to step up. “What should be happening in parallel is the new partner asking questions and making decisions,” Rampe says. “They should examine the kind of firm it is, the governing rules, the clients, and the standards. Sometimes there are factors they need to work through.”

As McMahon points out, incoming partners often know their own strengths and skills better than anyone and should examine and articulate what they can offer to lead the firm into the future. “As a next-generation partner, you have many opportunities to demonstrate leadership skills,” McMahon says. “If you can see that there’s a hole, step up and fill that gap.”

Once the right person is found, transition forward with these steps: Set up a trial period. “Our standard recommendation is a one-year period as a non-equity partner,” Rampe says. “It gives everyone time to adjust and make sure nothing goes awry with the full transition.”

Set up managers and staff for success. “How skilled is the management team within the accounting firm? The team may have skill gaps to fill,” Frigo notes. Identify and discuss gaps and opportunities with both managers and the incoming partner, updating roles and responsibilities as needed.

Graciously hand off client relationships. “The relationship transfer needs to happen,” Rampe confirms. “Figure out what that timeline is for moving on.”

For partners who’ve built thriving firms that they’re immensely proud of, handing the reins to the next leader can be challenging but ultimately deeply satisfying. “Firms that are committed to building a sustainable and transferable business sometimes find it overwhelming,” McMahon notes. “But those who succeed not only achieve higher performance, but they also increase the valuation of their firms for both the current leadership and the next generation of partners.” After all, a partner who pulls off a successful next-gen transition has created a legacy that may continue for decades to come.

Annie Mueller is a Puerto Rico-based financial writer and a frequent contributor to various industry publications.

How to Navigate Your

BY NATALIE ROONEY

In the wake of record initial public offerings in 2020 and 2021, many leaders may be thinking about taking their companies public. Here’s how to ensure a smooth IPO process.

Initial public offering (IPO) activity has seen a record-breaking surge that began in 2020 and rolled into 2021. In the third quarter of 2021, 94 U.S. companies went public, raising a total of $27 billion. It was the busiest July-September period for IPOs since 2000, according to a report from Renaissance Capital. Worldwide, more than 2,000 IPOs raised a combined $421 billion as of September 30, marking another record high.

If you’re one of the many leaders considering taking your company public, you may be feeling daunted by the complexity and difficulty of the process. CPAs who’ve been through the IPO process—either at their own companies or as client advisors—share their expertise and guidance.

The Timeline to IPO

Going public is a challenging, time-consuming process. A private company planning an IPO must file massive amounts of financial disclosures and other paperwork with the Securities and Exchange Commission (SEC) and prepare for an exponential increase in public scrutiny.

Meghan Depp, CPA, professional practice director of SEC services for BDO, says the general timeframe from the first all-hands meeting to the closing of the IPO is typically four to six months, assuming everything runs smoothly. However, the timing will depend heavily on the size and complexity of the organization, the structure of the transaction, and the status of the audited historical periods to be included in the IPO, among other factors. “Suppose the company hasn’t historically been audited in accordance with the standards of the Public Company Accounting Oversight Board (PCAOB), or by an accounting firm registered with the PCAOB,” she explains. “In that case, the timeline may be longer.”

Assembling the IPO Team

A successful IPO relies upon having the right people in the right roles at the right times—and experience matters, says Richard Tarapchak, CPA, vice president, corporate controller, and chief accounting officer for II-VI Inc., who has recently guided two companies through the IPO process. Consultants may seem expensive, but Tarapchak says it is money well spent. “As much as you think you know, you need outside resources and people who have gone through the IPO process before and who understand the dynamics,” he says. “What you think you’ll save will cost you tenfold. You cannot do this on your own.”

Guy Gross, CPA, Great Lakes SEC practice leader with RSM US LLP, says the most important first step is to hire a firm to perform an IPO readiness assessment to analyze the company’s position and identify potential shortfalls. “An outside firm can augment the company’s accounting and finance departments, which are likely already at full capacity so they can’t also do everything needed for a successful IPO,” he advises.

Gross also suggests hiring another accounting firm that’s registered with the PCAOB and is independent under the rules and regulations of the PCAOB and the SEC to help them through the IPO process: “This firm would help with accounting position papers, drafting the necessary IPO documents, and providing assistance in financial reporting and the overall management of the IPO process.”

Depp adds that companies should ensure all parties, including the independent accounting firm and legal advisors, are reputable, have experience in the industry, and have the necessary resources to meet the company’s goals and timeline. Next, it’s time to IPO.

Seven Steps to IPO

The first step of the IPO process requires the company to select an investment bank registered with the SEC to act as an underwriter. These underwriters are specialists who work alongside the company issuing the IPO to help determine the initial offer price, buy the shares from the issuing company, and then sell the shares to investors. When choosing an underwriter, consider their reputation, quality of research, industry expertise, network distribution reach, any prior relationship with the investment bank, and past relationships with other companies.

Underwriting an IPO can be a long and expensive process. It requires time, money, and a team of experts, but a good underwriter can be the difference between a successful IPO and a failure.

Choose an Underwriter Perform Due Diligence

Brace for the most time-consuming part of the IPO process: the mass quantities of paperwork that must be completed by the company and the underwriters. This is also when the issuing company must register with the SEC.

The following contracts between the company and the underwriter should be completed during due diligence, as well:

Firm commitment: This agreement states the underwriter will purchase all shares from the issuing company and resell them to the public.

Best efforts agreement: The underwriter doesn’t guarantee a dollar amount but will sell the shares on behalf of the issuing company.

Syndicate of underwriters: Sometimes IPOs come with large risk and the underwriting bank is unwilling to take on all of it. In this case, a group of banks will come together under the leading bank to form an alliance, allowing each bank to sell part of the IPO and decrease their risk exposure.

Engagement letter: There are usually two parts of an engagement letter: the reimbursement clause stating that the issuing company will cover the underwriter’s out-of-pocket expenses, and the gross spread, also known as the underwriting discount, typically used to pay the underwriter’s fee and/or expenses.

Letter of intent: There are three parts to the letter of intent: the underwriter’s commitment to the company, the company’s agreement to provide all information and cooperate, and the company’s agreement to offer the underwriter a 15 percent overallotment option.

Red herring document: This is a preliminary prospectus that includes information about the company’s operations and prospects except for key issue details, such as price and number of shares.

Underwriting agreement: Once a share price is determined, the underwriter is legally bound to purchase the shares at the agreedupon price.

S-1 registration statement: This document is required to be submitted to the SEC and contains two parts: the prospectus and supporting documents. The prospectus is a legal document provided to potential investors. It must clearly describe the company’s business operations, financial state, operations results, risk factors, and management and must include audited financial statements. Supporting documents may include additional information and exhibits that the company isn’t required to deliver to investors but must file with the SEC.

Arrange a Roadshow

An IPO roadshow is a traveling sales pitch where the underwriter and issuing company travel to various locations to present their IPO and gauge investor interest. Based on this information, the underwriter can better estimate the number of shares to offer.

The COVID-19 pandemic has shifted many roadshows to a virtual format, from week-long, face-to-face events to travel-free events completed in about half the time. Given the time and cost savings, experts anticipate virtual roadshows will remain the norm for the foreseeable future.

Set the Share Price

Once approved by the SEC, the underwriter and company will set the effective date, number of shares, and the initial offer price. Typically, the price is determined by the value of the company. This is done via the valuation process and occurs before the IPO process even begins.

Considerations when pricing an IPO include the value and reputation of the issuing company, the outcome of the IPO roadshow, the issuing company’s goals (i.e., the amount of money to raise), and the condition of the economy.

Let the Market Take Over

This is the final stage of the IPO process. After the quiet period, the underwriter and analysts can publish new research on the company, including earnings estimates and share price targets, which can have an impact on the stock. Everything is now public and out of the underwriter’s hands. The underwriter can move into an advisory role as the company’s shares fluctuate in the public market.

Common IPO Pitfalls

Even with a lot of planning and a top-notch team, challenges crop up. Here are three of the most common mistakes companies make.

Underestimating the timeline: Tarapchak says developing the prospectus is just one example of how time-consuming the IPO process is: “You’re telling the entire story of your business and all its risk factors. It took us many months of meetings to walk through it, meet with the investment bankers and attorneys, and publish it.”

The process with the SEC is rarely one-and-done. “You submit and the SEC will come back with questions. If you do a lot of work up front, the process is easier,” Tarapchak says. He has seen IPO submissions receive as many as 60 comments. Issues can range from how executive compensation is addressed to questions about how the pro formas are put together.

Underestimating resources: Tarapchak says the need for resources quickly becomes all-encompassing. “You’re taking the financial team and the management of a company and dedicating those folks to the IPO for a significant period of time,” he explains.

Having tunnel vision: Depp says it’s a mistake for leaders to simply focus on getting through the IPO, thinking things will soon calm down. “If you focus all your time and attention solely on the shortterm goal—the IPO—it can be easy to lose track of the day-to-day or the ongoing reporting obligations post-IPO.” To avoid this, think long term: Plan for the IPO, but also plan for post-IPO reporting and governance obligations.

Beyond the IPO

During the execution of the IPO itself, Tarapchak says companies need to be thinking ahead to getting up and running as a public company. Under the Sarbanes-Oxley Act of 2002, companies are required to review their internal controls over financial reporting and declare whether they’re “effective” or “ineffective.” “It’s a huge endeavor for those who haven’t had to be 404-certified before,” he says.

Go Public Observe the Quiet Period

It’s finally time! On the agreed-upon date, the underwriter will release the initial shares to the market.

There’s a short window where the underwriter can’t influence the share price. During the “quiet period,” insiders and underwriters involved in the IPO are prevented from issuing any research reports, earnings estimates, or new information about the company that could impact the share price or falsely inflate the company’s valuation for a set period per SEC regulations.

Depp reiterates that the need for IPO resources extends to the time, effort, and tools that it takes to be a public company once the process is complete: “The resources required, both internally and externally, are significant. Proper planning to execute both the short-term and long-term goals of the company will go a long way in easing the process.”

But for leaders who are willing to do the hard work up front while keeping a long-term view in mind, the path to IPO can end with a company more solid and successful than ever before.

Rooney is a freelance writer based in Eagle, Colo. A former vice president of communications for the Ohio Society of CPAs, she has been writing for state CPA societies for more than 20 years.

Natalie

SAS 134-140: A Review of Upcoming Audit Changes

As the effective date of SAS 134-140 arrives, auditors should prepare for the biggest changes to the audit process and auditor’s report.

In light of challenges arising from the coronavirus pandemic, the implementation of SAS 134-140 was effectively delayed by one year. According to SAS 141, “Amendments to the Effective Dates of SAS Nos. 134-140,” SAS 134-140 are effective for audits of financial statements for periods ending on or after Dec. 15, 2021. As auditors prepare to implement SAS 134-140, here is a summary of the most significant changes to the auditor’s report and the audit process.

SAS 134: AUDITOR REPORTING AND AMENDMENTS, INCLUDING AMENDMENTS ADDRESSING DISCLOSURES IN THE AUDITED FINANCIAL STATEMENTS

SAS 134 changes the layout and the content of the auditor’s report to align more closely with the standards of the Public Company Accounting Oversight Board and the International Auditing and Assurance Accounting Standards Board. The new standard suggests reporting the content in the following sequence:

The auditor’s report suite supersedes several AU-C sections in their entirety and introduces AU-C Section 701, “Communicating Key Audit Matters in Independent Auditors Report.” The communication of key audit matters (KAMs) is optional and included in the auditor’s report following the “Basis for Opinion” paragraph only when those charged with governance have engaged the auditor to report on KAMs.

The determination of KAMs is a matter of professional judgment, and therefore the reporting of KAMs will vary between entities even within the same industry, as well as from period to period for the same entity. In determining which matters to report when engaged to report on KAMs, the auditor should evaluate matters that required significant attention during the audit, such as areas of high assessed risk of material misstatement, significant risks, areas requiring significant auditor judgment, and the impact of significant transactions and events. Auditors should note that an item reported as a KAM should not also be included in an emphasis-of-matter or other-matter paragraph in the auditor’s report.

There is a new statement under the “Responsibilities of Management for the Financial Statements” section of the auditor’s report, making it clear that management has the responsibility for evaluating going concern.

The “Auditor’s Responsibilities for the Audit of Financial Statements” section has been expanded to include descriptions of the following:

Andrea Wright, CPA Partner, Johnson Lambert LLP awright@JohnsonLambert.com

• Reasonable assurance.

• Circumstances that may prevent material misstatements from being detected.

• Materiality.

• Requirement to conclude on the entity’s ability to continue as a going concern.

• Exercising professional judgment and maintaining professional skepticism.

• Required communications with those charged with governance.

SAS 136: FORMING AN OPINION AND REPORTING ON FINANCIAL STATEMENTS OF EMPLOYEE BENEFIT PLANS SUBJECT TO ERISA

SAS 136 applies to audits of employee benefit plans that are subject to the Employee Retirement Income Security Act of 1974 (ERISA) and will impact both auditors and administrators of ERISA plans, and addresses the following:

• Changes to the form and content of the auditor’s report, including when management elects to have an audit performed pursuant to ERISA Section 103(a)(3)(c), formerly known as “limited scope.”

• Conforming modifications to the engagement letter, communications to those charged with governance, and management’s representation letter.

• New audit procedures related to audit risk assessment and response.

• Considerations related to the IRS Form 5500 filing.

The most significant change of SAS 136 is to the auditor’s opinion. After implementation of SAS 136, when management elects to have auditors exclude testing of certain investment information prepared and certified by a qualified institution as described in 29 CFR

2520.103-8, this will no longer constitute a scope limitation and thus eliminates the disclaimer of opinion.

THE AUDITOR’S RESPONSIBILITY FOR “OTHER INFORMATION”

Many organizations issue annual reports that include other information, defined as financial and non-financial information other than financial statements and the auditor’s report. When other information is included in an annual report and the annual report is available before the auditor’s report is issued, the auditor’s report is required to include an “Other Information” section. This section is required to detail management’s and the auditor’s responsibility regarding the other information included in the annual report and a statement that the auditor’s opinion does not cover the other information. The new standard defines “annual report” and provides examples of reports which do not meet the definition, such as IRS Forms 990 and 5500.

THE CALL FOR INCREASED COMMUNICATIONS

As a result of the changes to the auditor’s report under SAS 134 and 136, changes will have to be made to audit engagement letters, communications with those charged with governance, and management’s representation letter. Auditors will be required to communicate to those charged with governance any significant risks identified when planning the audit and any expected modifications to the auditor’s report. Worth mentioning is that several amendments were made to direct the auditor’s attention to the notes on the financial statements throughout the audit process. As we gear up for adoption, take the time to carefully review and effectively implement these auditing standards changes to ensure that we all uphold the integrity of the profession and the quality of the audit process.

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

Four Tips to Snuff Out Burnout

An increasing rate of employee burnout is among the far-reaching consequences of the global pandemic we’ve been weathering. According to the most recent Future of Benefits Pulse Survey from The Hartford, 61 percent of workers said they were experiencing burnout. Even more alarming, the burnout rate among women reached 68 percent, significantly higher than the 52 percent of men reporting burnout.

What is burnout? Although the term is widely used, it’s not always well-defined. The World Health Organization defines burnout as a syndrome “resulting from chronic workplace stress that has not been successfully managed.” It’s characterized by energy depletion, exhaustion, negativity, cynicism, and reduced professional efficacy.

The implications of burnout are enormous, including significant detrimental effects on physical and mental health. The business ramifications are monumental, too. Elevated rates of burnout increase the risk of employee turnover. In The Hartford study, 71 percent of workers who indicated they were likely to look for a new job within the next six months said they always or often feel burned out.

It’s your responsibility as a leader to address the risk of burnout, first for yourself and then for your team. Here are four tips to guide you.

REVISIT YOUR VISION AND PURPOSE

The best organizations have a clear vision—so do the best leaders. Vision answers the question, “Where are you going?” Now is an excellent time to revisit that question, refocusing on the compelling destination or state you want to reach at some point down the road. What will your life be like, personally and professionally, as you approach that destination? Looking forward will boost your optimism, lifting you above the forces that cause burnout.

As you refresh your vision, remind yourself of the purpose behind it. Purpose answers the question, “Why is this vision important?” Purpose reveals motivation and offers meaning. Viktor Frankl, a psychiatrist who survived three years in Nazi concentration camps, once said, “Ever more people today have the means to live, but no meaning to live for.”

The pandemic has been a reminder that the road to your vision is full of twists and turns, not to mention potholes at inopportune places. There are countless detours and ways to veer off course. It’s tempting to give up. At times like these, you’ll lean on your purpose to keep going. What gets you up in the morning and makes it worthwhile to keep pursuing your vision? Find or create an image that serves as a visual reminder of your purpose.

ESTABLISH HEALTHY BOUNDARIES

Pandemic-induced factors, along with current labor shortages, have elevated the volume and intensity of work for many leaders, especially those serving in “working management” roles. If you shifted to working remotely, there’s a good chance you replaced your commuting time with more working hours. The convenience of a home office may tempt

The post-pandemic rise of employee burnout should have savvy leaders taking these preventative steps to protect themselves and their teams.

you back into work mode more often than a traditional office you leave at the end of the day. Longer work hours carry an increased risk of burnout.

Regardless of your work environment, it’s essential to establish healthy boundaries between your work and life outside of work. When possible, create a clean break at the end of your workday, closing your office door and declaring that you’re finished working for the day. Consider setting blackout hours when you don’t check email or answer work-related calls. Prioritize your schedule and workload to avoid overcommitting to more projects or assignments than you and your team can handle. Coordinate these efforts with your boss and team members to navigate the tensions between meeting business needs and preventing burnout.

DOUBLE DOWN ON SELF-CARE

You can’t draw water from an empty well. If you don’t prime the pump, the water stops flowing and the basin dries out. There’s no water left to refresh yourself or others. The same is true of self-care: If you neglect it, you invite burnout. When you’re burned out as a leader, it has a ripple effect on your team. Interestingly, a Predictive Index survey found that among the respondents who said their manager was burned out, 73 percent said their teammates also seemed burned out.

I often ask leaders about their go-to approaches to self-care during training and coaching sessions. Three staples show up nearly every time: eating right, exercising regularly, and getting enough sleep. Other typical responses include sports, working on cars, cooking, baking, gardening, painting, playing music, and reading. Some more creative suggestions include salsa dancing, scuba diving, horseback riding, and solving puzzles.

Block time on your calendar, set reminders, or find an accountability partner. Do whatever it takes to keep yourself on track in your selfcare practices.

CARE FOR YOUR TEAM

As a leader, you carry an elevated responsibility for addressing the risk of burnout. It’s not just for yourself but your team members as well, so encourage them to refresh their vision and purpose, establish healthy boundaries, and double down on self-care as you provide a good example for them. Watch them for signs of burnout, like uncharacteristic tardiness, absenteeism, missed deadlines, disengagement from teammates, or irritability. Check in regularly with each team member individually. Consider a red-yellow-green scale to ask whether burnout factors are getting better or worse.

You need to be even more intentional if you lead in a remote work environment. You don’t have the subtle communication advantages of an in-person environment, like impromptu conversations in the hallway, over the cubicle wall, and at the coffee pot or water cooler. Replicate these informal, unstructured conversations with regularly scheduled check-ins or set reminders on your calendar to reach out to team members periodically.

Unfortunately, many employees say that their managers’ communication skills need work. The Predictive Index survey presented workers with a list of common management skills and asked them to identify those most lacking in their managers. The most frequent response was “effective communicator,” followed by “drives team morale”—both risks when trying to minimize the potential for burnout.

This is the time for leaders to step up, recognize the risks and warning signs of burnout, and take preventative measures to protect yourself and your team members from it.

DIRECTOR’S

STRATEGIES FOR TODAY’S CORPORATE FINANCE LEADERS

Organizations should enter 2022 with plans to act on the issues that their stakeholders care about.

Kristie P. Paskvan, CPA, MBA Board Director, First Women’s Bank and SmithBucklin Leadership Fellow, National Association of Corporate Directors kppaskvan10@gmail.com

ICPAS member since 1984

We’ve spent the better part of the last 20 months pulling back from social interactions and reacting to the consequences of COVID-19, including human capital disruptions, business shutdowns, governmental mandates, and recovery programs. The natural reaction for some companies has been to cut costs and delay capital investing. Others have accelerated digital technology innovation. Our conversations are still preoccupied with when—or if— we’ll return to “normal.”

But perhaps the biggest change, and the one that will have impacts for years to come, is the rapidly evolving demands of the workforce. A wide array of human capital matters are at the forefront of all conversations as businesses compete for talent and address a structural shift in a workforce that’s demanding flexibility and an alignment of values with their employer. That’s where we’ll spend the bulk of this conversation, focusing on people, purpose, and how companies will need to make innovative changes to integrate the beliefs and needs of their workforce into business as usual.

PEOPLE-FIRST POLICIES

While the concept of “people first” sounds simple, it places a focus on employees over other stakeholders, a concept that many management teams still struggle to reconcile and a situation I don’t think is temporary.

Employees have been indicating for years that purpose, impact, and diversity are critical components of a desirable work environment. While money and time conflicts are certainly some of the reasons employees are resigning, the mass exodus is also driven by employees who want to be part of an organization where they feel valued and can have a real impact. Individuals have spent the pandemic evaluating how they want to live in accordance with their values, and they’re willing to take a leap to find that visionary alignment. Companies can embrace transparency and share their strategic planning process and future vision with their employees to better align with their employees’ expectations and create excitement about what can be achieved together. And the employees must be part of the planning, not just the implementation.

EMBRACING EMPLOYEE ACTIVISM

voices, forgetting that in today’s social media world anyone’s post can be a reputational hit to a business. Companies that recognize the need for employee input have adopted a formal policy and process for keeping communication open with employees and listening to outspoken representatives. Megan Reitz, John Higgins, and Emma Day-Duro wrote about the “optimism bubble” in “The Wrong Way to Respond to Employee Activism” in the Harvard Business Review, their term for the phenomenon where leaders underestimate the challenges employees face while overestimating the degree to which employees feel safe to speak up. Among other actions, the authors advise resisting a rush to quick fixes. Instead, they recommend the implementation of reverse mentoring and shadow boards that can help get the voices of activist employees in front of company leaders. Early communication creates an opportunity for mutually beneficial communication and action instead of misunderstandings.

DEI INITIATIVES

Diversity, equity, and inclusion (DEI) initiatives are about more than just benefit programs and pay. DEI is expected by employees at all levels, but it can only be achieved with very intentional policies and procedures that are patient, seek potential as much as experience in an employee, and are focused on building an ongoing pipeline. Where policies and programs are misaligned with values and vision, cultural norms must shift. Regular reporting on internal statistics and ongoing conversations with employees about their experiences are essential parts of an effective DEI program. Managers need to resist the urge to always bring the same person into projects, rather than the person with great promise who hasn’t benefited from the same experience. Sometimes the right person is within arm’s reach, but their potential hasn’t been highlighted. However, employees themselves may not see where they can fit into another part of the organization, so an active evaluation of current and future positions combined with training will reach a greater percentage of employees looking for advancement. Build flexibility into role definitions to ensure that employees aren’t overlooked because of a lack of current experience.

ESG EXPANSIONS

Environmental, social, and governance (ESG) policies and regulations will continue to escalate in importance. Climate change is driving an emphasis by all stakeholders on holding firms accountable for their sustainability decisions in investments, vendors, DEI initiatives, and customer/client choices. For instance, CVS stopped selling tobacco in 2014 and has continued to expand efforts on smoking cessation and prevention by working with insurers on Medicaid plan policies. Walgreens is currently evaluating a similar effort.

Banking is also looking beyond internal sustainability initiatives. ING, a global banking leader with a mainly European base, has focused on financing billions in green energy projects—including issuing green loans, green bonds, and other innovative products— as it plans to reach a client portfolio with net zero greenhouse gas emissions by 2050. Expect to see other influential big businesses make major ESG moves in the coming years as their stakeholders demand it.

MENTAL HEALTH

If there’s one benefit area to focus on, it’s mental health programs. Demand for therapists has spiked so much during the pandemic that therapists have waitlists of 10-15 people each. There has been a proliferation of online mental health apps such as Talkspace, Headspace, Mindshift, Calm, and My3.

The Wall Street Journal recently reported that some investors in startups are pledging an additional percentage above seed money funds to support the founder’s wellbeing, hoping that the entire organization will benefit in the long run. Overall, companies are becoming more open to discussing mental health matters in seminars and group meet-ups. Being honest about personal mental health matters sets the stage for employees to feel comfortable talking about their own challenges.

GAMIFICATION

Gamification has become an ethical minefield after the recent review of Robinhood’s investing platform brought criticism of its gamification of orders and trading. While gamification has been around for a while and can lead to greater sales in almost every form, there needs to be an ethics discussion around its application. Does the end always justify the means? Is there a difference between using gamification to solicit donations for a charity versus incentivizing individuals to trade more or gamble longer? Expect to see further conversations about this topic and make sure you’re aware of where gamification is used or is planned to be used at your company.

Overall, 2022 will see us all moving forward with new and deepening understanding of the human issues that surround us and the realization that these issues don’t disappear when we cross the threshold into the office. Organizations that commit resources to their employees and look for innovative ways to respond in these important areas will impress their stakeholders and make real headway in the battle for human capital and innovation. Now is not the time to stand still.

Art Kuesel President, Kuesel Consulting art@kueselconsulting.com

How to Build a Client Base You Love

Take these four steps to build a client base that you love working with and that appreciates you deeply as well.

Last I checked, we all have a say in the clients we choose to work with. We all have the right to serve clients that respect us, listen to our advice, are prepared when we need them to be, and pay us on time. But this should be the bare minimum: We should also seek out clients that allow us to grow and develop our expertise in targeted areas, which in turn increases our value to them.

I know that some clients don’t check all these boxes, and sadly some check very few. It’s these clients that hold us back from finding and serving those who do check all the boxes. Additionally, this kind of nonideal client base exacerbates the effects of fatigue, burning out and potentially driving out the very team we’ve worked so hard to hire and retain.

Bottom line: We are not, cannot be, and should not feel as if we are a victim of our client base. It’s time to do something about it. Here are four simple steps to build a client base you love:

1. Evaluate your client base. Set up a matrix of criteria, including minimum fees, realization rate, referral generation, within your sweet spot of services or preferred industry, timeliness with payments and requests, number of services used, and more. Remember that every dollar of revenue is not created equal. A client that pays you $5,000 and checks all the boxes is worth more than five $1,000 clients who don’t. And make sure to bring your staff in on this exercise. Why? You’ll undoubtedly have a few more excuses for your clients’ behavior than your staff who interact directly with them.

2. Determine who’ll be cut from the firm and how. Some clients will simply need to go due to chronic bad behavior (these are the easiest to spot). The next tier of clients may simply be too small to effectively service, or the fee too low to be worthwhile. Perhaps you refer these out to a smaller practitioner. Remember though, it’s probably not enough just to raise fees until your clients leave, because some nonideal clients will simply stay and pay more. Further, don’t use a hatchet with this exercise—use a scalpel and make precise and deliberate moves to cut the client roster.

3. Establish a new filter to prevent this from happening again. If you don’t actually make changes to what clients you choose to work with, you’ll end up with the exact same problem a few months or years down the road. Implement a new, higher minimum fee and number of services used requirement each new client must meet to ensure you only serve your defined ideal client. Your billing rates should keep up with your staff raises and overhead costs: A good target is three to five times compensation and overhead.

This will enable you to capture the true cost of serving each client, help to purify your realization rate, and make sure you’ll love serving each and every one of these new clients!

4. Repeat annually. You should see immediate results, and you’ll love more and more of your client base every year.

A final note: Don’t fear a revenue decrease. In fact, in the worstcase scenario, expect revenue to remain flat. But more often, you’ll see your revenue increase. The time you free up by ejecting nonideal clients can be redeployed toward your ideal clients and

can result in additional projects that offer more value and greater goodwill (which often includes referrals of other ideal clients). And by creating more room on your plate, you’ll have the capacity to serve those new ideal clients when they come your way.

Bottom line: Serving a client base that you love and that loves you back is every practitioner’s dream. But it doesn’t have to be a dream—you can make it a reality. While not necessarily an easy exercise, the outcome of cutting your client base can be significant. And you, your staff, your firm, and your dream clients will all be the beneficiaries of the outcome.

Elizabeth Pittelkow Kittner

CPA, CGMA, CITP, DTM Head of Finance, International Legal Technology Association

Eight Ways to Ethically Deal With Difficult People

You likely have a supervisor, coworker, or client you find challenging. Here are eight ways to navigate difficult relationships without compromising your ethics.

If you have been in the workforce for any amount of time, you most likely have dealt with difficult people. It can be challenging to stay true to your own ethics and values when dealing with these personalities, but the way you behave around difficult people matters to your character and can impact your career. Let’s examine ways to be effective in these fraught interactions.

First, how do we define “difficult” people? A 2020 Psychology Today article defines it: “A personality is difficult when the individual does not honor and engage in the usual rules and social conventions taught by society for fairness and mutual respect. Difficult personalities can take many forms, including: engaging in a passive-aggressive communication style, being overtly hostile or verbally aggressive, having a bad temper, trying to split allegiances and loyalties of those around them, feeling threatened when someone seems too competent or strong, and getting defensive or even combative when someone holds them accountable for inappropriate behavior.”

Other traits that make for challenging interactions with a coworker, supervisor, or client may come to mind, and it is good to be aware of the characteristics you find difficult. Being aware of these characteristics allows you to consider some positive strategies to enable you to keep your cool and maintain your ethical standards even when dealing with difficult people. Here are eight effective techniques:

1. Be calm and collected: A sure way to add fire to a heated interaction is to become agitated. Staying calm enables you to deescalate emotion and move to a place where solutions can be discussed. Think about a duck on the water: Ducks look graceful gliding across the water, but hidden underneath the surface, their feet are paddling with gusto! Similarly, you may feel tension, irritation, and anxiety, but your expressions, tone, and body language can be calm and controlled. Use body language tips to reduce stress, such as moving your tongue to the bottom of your mouth and pushing your shoulders back, which can help release dopamine (a happy hormone) and reduce cortisol (a stress hormone).

2. Have generous assumptions: You can ease your own negative emotions by assuming that others are trying their best and that difficult people are acting out because something difficult is happening to them. Since it is unlikely that you will ever fully understand why someone is acting poorly, giving them the benefit of the doubt will help you feel compassion for them.

3. Build camaraderie and respect: Some difficult people are easier to work with when you connect with them about what is meaningful to them outside of work. When people feel cared about and respected, they are more likely to do the same for others. If someone does not want to share much about their personal life, think about some topics they might feel

comfortable discussing, like their favorite sports team or what they are proud of in their career. Keeping the questions positive and open-ended helps lead to positive and in-depth conversations. Consider your body language here, too: It is good to keep your arms open instead of crossed and your eye contact directed at the person instead of looking elsewhere (like your phone).

4. Understand their position and express empathy: We each have unique experiences and individual personality traits that influence our attitudes and actions. Building camaraderie helps to understand where people are coming from. If you do not understand why someone is acting in a particular way, ask questions in a genuine attempt to understand. Even if you do not agree with or fully understand their position, asking them questions may help them to feel more understood, and may help you answer their opposition or objections. Reflective listening may help in this situation, too. You can incorporate phrases like, “If I may summarize, I believe you said ______, am I understanding that correctly?”

5. Explain your position: Helping someone understand your perspective may help them to understand your intentions. People like to know the rationale or the why behind decisions, which helps with buy-in. You can also explain how their behavior affects you and others. To a large extent, we get the behavior we accept. If we explain that certain behaviors are unacceptable, we are not likely to see them as much in our interactions.

6. Do your work well: When you are dependable and produce high-quality work, you build armor against difficult people who are negative toward you or the work you are doing. Reflect upon how others interact with you and if you are doing anything that

can be improved. Perhaps a change to your behavior—like incorporating more reflective and empathic listening—will reduce negative behavior toward you.

7. Bring the issue to the appropriate people: If a difficult person is acting unethically, discuss it with the right authority, which could be HR, a supervisor, an owner or officer, or a governmental agency. Leaders may want to consider if that person is the right fit for the organization or if they need additional coaching or performance improvement to continue moving forward. If this person’s difficult behavior crosses the line into sexual harassment or discrimination, you can report this to the Illinois Department of Human Rights or the appropriate authority. You can also go to other people if you feel it would be helpful to document it or if someone else could speak with the difficult person to influence their behavior. Additionally, the difficult person may be dealing with challenging circumstances and may need additional support that HR could help facilitate.

8. Ask a trusted mentor to coach you: Discussing problematic interactions you have with other people may help you learn other techniques. Being heard by someone can also help you manage your emotions and find a way forward.

If after trying these strategies, the difficult person is still unwilling or unable to change, try to reduce your interactions with them, up to and including leaving the organization. Strive to surround yourself with people who have keen emotional intelligence in their interactions or who are willing to be coached. Regardless of your title or role, you can be a leader within your organization who leads with respect, empathy, and a desire to do well and help others.

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

Annuities: Not Your Father’s Product

When I first started out as a fee-only financial planner in the 1990s, a mentor of mine was fond of saying, “Nobody ever bought an annuity … they were always sold them.” And is it any wonder? In those days, the term referred to multiple products that confused consumers with lengthy legal documentation while charging high fees and broker commissions. It was unfortunate, because the basic concept behind an annuity—an insurer agrees to provide lifetime income to a consumer in exchange for a sum of money—has always made sense as a way to reduce one’s financial risk. However, as is often the case in the financial services industry, a good idea in theory became a bad one when put into practice.

Still, over the years, technological enhancements, fee compression, and a move toward more transparency in all aspects of financial services have resulted in much better annuity products than existed a generation ago. While there’s still confusion among consumers over annuities, I’m happy to report—as a fee-only financial planner seeking low-cost investment products for my clients—that today’s annuities are much more consumer-friendly.

So, what’s so great about annuities? Annuities are versatile products that can fulfill a variety of needs. Like any financial product, it’s prudent to think of an annuity as just one component of a person’s holdings, like a certificate of deposit, an equity mutual fund, or long-term disability insurance. According to DPL Financial Partners, an independent insurance broker based in Louisville, Ky., there are four reasons why an annuity might make sense as a financial planning product: It can serve as a source of guaranteed income for a retiree, an alternative to fixed income for wealth accumulation purposes, a method to derisk an investor’s equity positions, or a way to obtain tax-deferred growth for investment assets. Let’s examine the first reason: the guaranteed income aspect of annuities. I’ve learned from years of working with clients that as they approach and attain retirement age, they generally appreciate some income sources that aren’t subject to market volatility. For example, Social Security, which may cover less than one-third of a retiree’s cash flow needs, is important to most retirees because it’s not subject to market risk. Those who are fortunate enough to be covered by a traditional employer-based defined benefit pension plan highly value the steady flow of predictable retirement income those plans provide. For the rest of us, there are annuities.

An annuity can turn a 401(k), 403(b), or any other pool of money into a predictable income stream for the account owner and his or her beneficiaries. In periods of high market volatility, clients appreciate that stability. With that source of predictable retirement income, I believe clients are more likely to invest the rest of their investment portfolio for the long term, which

Annuities used to be confusing, costly, and legally complex, but they’ve evolved into effective and versatile tools for retirement planning.

usually leads to greater returns than if the client conservatively invests more of his or her wealth in order to make up for the lack of guaranteed income.

Experts at The American College of Financial Services, Morningstar, and other organizations largely agree that any individual’s optimal personal financial capital structure in retirement includes a mix of portfolio assets and lifetime income streams such as Social Security, pensions, and annuities. Anecdotally, I’ve found that the financial plans that I develop for clients almost without fail predict better outcomes for maintaining and growing wealth when a given amount of cash flow is generated through a guaranteed, predictable source.

Instead of buying an annuity, a person could, on his or her own, build a low-risk investment portfolio that targets a certain level of income. If the portfolio consists of U.S. Treasury bonds, you could even argue that the cash flows are effectively guaranteed. However, this person should plan for full life expectancy and beyond in order to protect against running out of money. This will almost certainly require a larger cash outlay than would be required with the annuity to achieve the same goal of providing lifetime income.

Of course, the devil is in the details when deciding if an annuity is the right option for obtaining lifetime retirement income. However, today’s products are available without front-end loads, back-end loads, or contingent deferred sales charges. Depending on the flexibility of investment choices within the annuity contract, there might be rider charges to protect the lifetime income options, but these charges pay for the insurance component of the product, not sales commissions. In other words, the annuity holder is getting something in exchange for the rider fee.

Finally, a word about the guarantees that annuities provide: While there’s no federal agency akin to the FDIC to provide insurance for these products, there are agencies in each of the 50 states which provide some level of protection. Most likely, the guarantees will be met by the insurer that issues the annuity, or by a successor insurer if a state must take control of a failing insurance provider.

Annuity products have improved and become more consumer-friendly. They have, in fact, become a recommended source of lifetime retirement income among personal financial researchers and other experts. Even if you’ve never used or recommended them before, they deserve a closer look.

Are you controlling your future, or is the future controlling you?

Dealing with issues like AI, RPA, the future of client services, employee expectations, and firm succession planning, you may be asking yourself:

What do we do? Where do we go next?

To

Keith Staats, JD Executive Director, Illinois Chamber of Commerce Tax Institute

Jumpstarting Illinois’ Electric Vehicle Industry

New legislation seeks to make Illinois a green transport hub with tax incentives for electric vehicle manufacturers and their suppliers.

In the last weeks of 2021, Gov. J.B. Pritzker signed the Reimagining Electric Vehicles in Illinois Act into law. HB 1769, intended to establish Illinois as a leader in a growing green transportation industry, provides extensive tax incentives and subsidies to manufacturers of electric vehicles, related parts, and their power suppliers. Eligible manufacturers will enter into these incentive agreements with the Illinois Department of Commerce and Economic Opportunity (IDCEO). The agreements will look much like the Economic Development for a Growing Economy (EDGE) tax credits. Let’s review the basics of this new program.

ELIGIBILITY

Projects eligible for the various credits and exemptions include the manufacturing of electric vehicles, electric vehicle component parts, and electric vehicle power supply equipment.

In order to qualify for tax incentives under the legislation, electric vehicle manufacturers must make a minimum investment of $1.5 billion in capital improvements which must be “placed in service,” as defined in the Internal Revenue Code, within 60 months of application approval and must also create at least 500 new full-time employee jobs. The electric vehicles must be plug-in vehicles and can’t be hybrid electric vehicles or extended-range electric vehicles that are also equipped with conventional fueled propulsion or auxiliary engines.

For electric vehicle component parts manufacturers, the qualifications include a minimum investment of $300 million in capital improvements which must be placed in service within 60 months of application approval. The company must manufacture one or more parts primarily used for electric vehicle manufacturing and create at least 150 new full-time employee jobs.

An electric vehicle manufacturer, electric vehicle power supply manufacturer, or electric vehicle component part manufacturer that doesn’t qualify under the standards outlined above may also qualify with a minimum investment of at least $20 million in capital improvements that are placed in service within 48 months of application approval and the creation of at least 50 new full-time jobs.

Electric vehicle manufacturers or vehicle component parts manufacturers with existing operations in Illinois that intend to convert or expand an existing facility for the manufacture of electric vehicles, electric vehicle component parts, or electric vehicle power supply equipment may also be eligible. For these manufacturers, the minimum investment is $100

million in capital improvements that must be placed in service within 60 months. The project must create the lesser of 75 new full-time jobs or new full-time employee jobs equivalent to 10 percent of the number of the applicant’s existing full-time employees.

The legislation also makes clear that taxpayers aren’t eligible for addresses and locations that currently hold active EDGE agreements but clarifies that they may apply after they terminate their EDGE agreement.

The duration of the agreement with the IDCEO for vehicle and component parts manufacturers, either new or existing, who wish to convert to electric vehicles and component parts is a maximum of 15 years or 10 years for power supply manufacturers. The jobs created by these projects must have a total compensation equal to or greater than 120 percent of the average wage paid to full-time employees in the county where the project is located.

The incentives have a clawback provision: If a taxpayer that has entered into an incentive agreement ceases operations prior to the end of the agreement, the entire credit amount awarded is clawed back. The IDCEO will begin awarding credits on Jan. 1, 2022, and the program has a sunset date of Dec. 31, 2027.

TAX INCENTIVES

The credits can be taken against the regular income tax (not the personal property tax replacement income tax) for tax years beginning on and after Jan. 1, 2025. The legislation provides that excess credits may be carried forward for five years from when they’re earned, meaning there’ll be a limited carry-forward period for credits earned in 2022 through 2024, because the five-year carry-forward period begins during years in which those credits cannot be utilized. Taxpayers can elect to use the income tax credits against the income tax withholding obligations in lieu of claiming the credit against the regular income tax, but the credit against the withholding tax can’t be utilized until after Dec. 31, 2024.

The basic annual credit against the regular income tax may not exceed the sum of 75 percent of the incremental income tax attributable to new employees at the applicant’s project and 10 percent of the eligible training costs of the new employees. The income tax credit is increased for facilities located in an “underserved area” (in simple terms, an impoverished area) to a maximum of 100 percent of the incremental income tax attributable to new employees at the applicant’s project. The credit for eligible training costs can be increased by an additional 15 percent if the new employees are recent graduates, certificate holders, or credential recipients from an institution of higher education or apprenticeship program located in Illinois and approved by the U.S. Department of Labor’s Office of Apprenticeship.

If a company agrees to hire the required new employees as well as retain existing employees, it may also receive a credit for retained employees. The maximum amount of the credit can be increased by an amount not to exceed 25 percent of the incremental income tax attributable to retained employees, or 50 percent if the project is in an underserved area. (I’m not sure how you have incremental income tax from a retained employee, but I suppose it’s considered incremental because, absent the credits, those jobs would cease to exist.)

The legislation also authorizes a construction jobs income credit, which may be up to 50 percent of the incremental income tax attributable to construction wages paid in connection with

construction of the project facilities, or up to 75 percent if the project is in an underserved area.

The act also creates utility tax exemptions, an investment tax credit, a sales tax exemption for building materials, and property tax exemptions. As I understand it, the utility tax exemption would cover the electricity excise tax, the gas revenue tax, and the telecommunications excise tax, but not locally imposed and collected utility taxes. The investment tax credit would offer 0.5 percent of the basis of a qualified property placed in service for a project against regular Illinois income tax for the tax year in which the taxpayer invests. Excess credits can be carried forward for five years. The building materials sales tax exemption can’t extend for more than five years and appears to apply to state and local sales taxes. The property tax exemptions allow a taxing district, upon a majority vote of its governing body, to abate any portion of real property taxes on a facility owned by an electric vehicle manufacturer, electric vehicle component parts manufacturer, or an electric vehicle power supply manufacturer while the manufacturer is in an agreement with the IDCEO.

Whether this legislation, which sped through the General Assembly and onto the governor’s desk, will accelerate the creation and growth of Illinois’ lost manufacturing jobs remains to be seen, but on the surface, the generous tax incentives show Illinois is committed to becoming a haven for the electric vehicle industry.

Five Lessons From My Journey to Entrepreneurship

BY ALEX CORRAL, CPA

Like many CPAs, I kicked off my career at a Big Four accounting firm, convinced I would be an audit partner in 1215 years. I had interned at the firm for the previous two summers and felt incredibly proud and grateful to join a prestigious firm. Then the first and second busy seasons came and went … along with my enthusiasm for the audit work that I was doing. After that second busy season, a previous manager approached me about a role at Groupon—an exciting opportunity as the company had just gone public. Although I was very nervous about leaving such a great firm and my first real job, I ultimately knew that audit was not my calling.

I made the leap into corporate accounting, again convinced that I would climb the corporate ladder to controller within 10 years. At Groupon, I learned what a quality accounting process looked like, and the importance of accurate accounting information in all aspects of business, while working with some amazing mentors. After a few years, I craved a new challenge to continue broadening my skill set and, coincidentally, was approached by another Big Four accounting firm for an M&A advisory role.

Again, I joined the new firm convinced that I would become a partner in the practice in the years ahead; third time’s the charm, right? While the environment was fast-paced and challenging, all the experiences in my previous roles contributed to my success at the firm and, ultimately, I was promoted to director. I was incredibly excited … but soon felt the familiar itch to try something new.

Entrepreneurship always seemed like a romantic venture to me, but I never thought that a conservative accountant like myself could make the leap. However, with the confidence from previous mentors and my wife (also a CPA), I launched The Accountrepreneur, an outsourced controller and CFO services firm specifically geared toward emerging consumer packaged goods businesses. When I look back on this adventure so far, here are my five key takeaways:

1. Just start: I don’t want to generalize, but we CPAs tend to be a bit risk-averse and very analytical. Whether it be an entrepreneurial journey or a new role at an exciting business, it can be easy to get caught in the paralysis by analysis cycle. I promise, once you jump into any situation with both feet, you’ll learn to handle the challenges, discomfort, and obstacles as you face them.

2. Take pride in your work: I firmly believe that if you take care of the work, the work will take care of you. Above all else, whatever role you’re in, make sure you give it 100 percent and deliver work that you’re proud of each and every day. I promise this will take you far.

3. Be nimble and open to new experiences: My journey has been vastly different than what I expected because I embraced change, challenges, and new skills. Always be open to learning and working on new projects, whether that be in your current role or by making the leap to another.

4. Your network is your net worth: In each role I’ve had, there have been amazing people to learn from. Make the effort to seek out and maintain those relationships—they’ll benefit you more than you can imagine.

5. Stay scared: If an opportunity doesn’t scare you a little bit, then you’re not going big enough!

Your career is a series of experiences, obstacles, people, and pivots. Take time to enjoy all the lessons along your journey and forge your own path toward work that fulfills you. As CPAs, we may all start out on similar paths, but it’s up to you where you end up.

Our career paths are not always a straight line: Sometimes we have to take a detour to find the work that fulfills us.

Alex Corral, CPA is the founder and principal of The Accountrepreneur LLC.

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www.icpas.org/insight | Winter 2021 39

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INSIGHTS FROM THE PROFESSION’S INFLUENCERS

Forty-one years after John W. Cromwell Jr. became the first Black CPA in 1921, David Kelly became the 76th. He helped pave the way for Black accountants to eventually earn the coveted CPA credential—including six within his own family.

Kelly was born into a loving, large family in Chicago, a city where he would spend most of his life. “I’m in Indiana now, but only as an afterthought,” he jokes. He chose accounting as a profession after being told by a counselor that he should be either a musician or an accountant. “I chose accounting because I have musicians in the family and I know how they make a living: barely,” he notes.

Kelly’s sense of humor and realism are the driving force behind his achievements, as not only one of the first 100 Black CPAs but one of the first Black partners at a major firm when in 1976 he became a partner with Arthur Andersen. But his path wasn’t free of obstacles: After receiving his accounting degree from Roosevelt University in 1960, he discovered that accounting firms would not interview Black candidates. He ended up accepting a job with the IRS—not his first choice but an experience he learned to value. “I had a chance to deal with businesspeople who wanted to save on taxes, so they were forced to deal with me straight up,” Kelly explains. “They couldn’t just wave me off like, ‘This guy is Black, he doesn’t know anything.’”

David Kelly, CPA, JD

BY HILARY COLLINS

Kelly soon found ways to hold the door open for other Black professionals. One example is as an IRS instructor training new IRS agents, he discovered that his fellow instructors thought that the first Black female trainee needed to be terminated. After comparing her grades to four of her white male classmates and finding them very similar, Kelly proposed terminating all five of them. “They weren’t about to kick those other guys out of class,” Kelly remembers. “I sat down with the lady and told her, this is what you’ve got to learn, and you’ve got to do it on your own. And she did. She became the first Black female internal revenue agent in Chicago.”

Completing law school in 1967, Kelly later solidified his place at Arthur Andersen, where he would spend the bulk of his career. Working at a firm that had yet to promote any Black people to leadership roles, he says he learned to not allow racial issues to weigh him down: “Color was always going to be an issue. No matter what I did, I couldn’t change that. So why should I harp on it to my own dismay? Instead, I looked at my objectives and found ways to meld them with the objectives of the group I’m working with.”

Looking back on his career, Kelly says he’s most proud of his honesty and his habit of stepping up to do the right thing. His legacy will live on in his family, where six of his relatives followed in his footsteps and became CPAs. His daughter and one of his cousins have a practice together, and a nephew and three other cousins have earned the credential and joined the profession. “I told them, if I can do it, you can do it,” he says.

As for the future, Kelly says the next generation of Black CPAs should take the chance they have to transform the profession: “You are bringing something new from a new generation, from a new perspective, and you need to cultivate that.”

A trailblazer looks back on his achievements and his legacy as the 76TH Black CPA in the United States.