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GLOBALIZATION Page 2 INTERNATIONAL BUSINESS STRATEGIES
Page 4 HOW CPAs CAN GO GLOBAL
Page 6 GLOBAL KNOWLEDGE: IS A CPA LICENSE ENOUGH?
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CONVERGENCE OF GLOBAL ACCOUNTING STANDARDS
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contents J U LY/A U G U S T 2 0 1 7
THE MAGAZINE OF THE NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS
2 International Business Strategies RALPH ALBERT THOMAS, CGMA Chief Executive Officer & Executive Director rthomas@njcpa.org ELLEN C. McSHERRY, CGMA Chief Operating Officer emcsherry@njcpa.org DON MEYER Chief Marketing Officer dmeyer@njcpa.org RACHAEL BELL Managing Editor rbell@njcpa.org KATHLEEN HOFFELDER Content Editor khoffelder@njcpa.org MARC L. REIN Multimedia Specialist mrein@njcpa.org
THE NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS 425 EAGLE ROCK AVENUE SUITE 100, ROSELAND NJ 07068 973-226-4494 | NJCPA.ORG #NJCPAMAG READ NEW JERSEY CPA DIGITAL AT NJCPA.ORG/ NEWJERSEYCPA DESIGN/ P RODUC T I ON / ADVERTISIN G THE YGS GROUP 3650 WEST MARKET STREET YORK, PA 17404 Advertising Contact: JASON VRANICH, ACCOUNT EXECUTIVE 717-505-2357 jason.vranich@theygsgroup.com
What’s the best strategy for global growth? Merge or acquire a foreignbased corporation? Some businesses prefer corporate inversion, while others repatriate profits.
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How CPAs Can Go Global
The international marketplace offers a lot of opportunities. But hurdles remain on how the CPA credential is recognized worldwide, the state of global business conditions and how to approach marketing.
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10 ACCOUNTING, AUDITING & ATTEST
14 FIRM & PRACTICE MANAGEMENT
Preparing Clients for an Audit
Seven Best Practices for Client Meetings and Proposals
11 ADVOCACY & LEGISLATIVE ISSUES
New Appointments and Polling 12 BECOMING A CPA
The CPA Exam: Getting It Scheduled
16 LAW & ETHICS
Four Ways Data Can Improve Profits
Having globally recognized credentials can open a variety of doors for accountants in all kinds of industries. Find out what’s available.
Convergence of Global Accounting Standards
International Financial Reporting Standards are used in about 120 countries, but the SEC says U.S. GAAP and FASB’s standard-setting process still suits the needs of U.S. financial reporting.
15 GOVERNMENTAL & NONPROFIT
How to Make the Most of Your Annual Form 990 Filing
13 CORPORATE ACCOUNTING
Global Knowledge: Is a CPA License Enough?
Update on Commissions and Contingent Fees 18 PROFESSIONAL DEVELOPMENT
Three Skills You Need to Lead a Firm of the Future
19 TAX
Navigating the New Jersey Division of Taxation 20 TECHNOLOGY & INFORMATION MANAGEMENT
Beyond QuickBooks 21 NJCPA NEWS
yy New NJCPA President is Getting the Society Ready for the Future yy 2017/18 Chapter Presidents 23 CLASSIFIEDS 24 MEMBER STORY
Rory Gannon, CPA
New Jersey CPA (ISSN 1534-6692) is published six times per year by the New Jersey Society of Certified Public Accountants, 425 Eagle Rock Avenue, Suite 100, Roseland, NJ 07068. Issue No. 62 Copyright © 2017 New Jersey Society of Certified Public Accountants. Annual membership dues include $9 for a one-year subscription to New Jersey CPA magazine. Members may not deduct subscription price from dues. Periodicals postage paid at Roseland, NJ, and at additional mailing office. POSTMASTER: Send address changes to New Jersey CPA, 425 Eagle Rock Avenue, Suite 100, Roseland, NJ 07068-1723. The materials and information contained within New Jersey CPA are offered as information only and not as practice, financial, accounting, legal or other professional advice. The opinions expressed herein are those of the authors and not necessarily those of the New Jersey Society of CPAs. Publication of an advertisement in New Jersey CPA does not constitute an endorsement of the product or service by the New Jersey Society of CPAs.
INTERNATIONAL BUSINESS STRATEGIES
When thinking about growth opportunities, many businesses today come to a standoff between expanding domestically and expanding abroad. While many companies want to consider domestic growth, they often come to a realization that there are international consumer markets that can benefit from their products and/or services just as much. Therefore, many companies decide to go the international route.
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More and more companies are planning their international business strategies with specific results in mind: increase profits by a combination of increasing sales and decreasing expenses, including tax expenses. Some of the international strategies that large businesses are using include repatriation of funds and corporate inversion. REPATRIATION VERSUS CORPORATE INVERSIONS Through the practice of repatriation, businesses with operations in foreign countries will send profits back to the country in which its international headquarters is located. The concept of double taxation has to be considered when using repatriation, since the United States will also tax the profits received from foreign operations. Through the practice of corporate inversion, corporations with significant operations in foreign countries will decide to move their headquarters to a different country where tax laws are more advantageous to their operations and to hopefully avoid double taxation, where businesses are taxed on foreign income abroad as well as when the income is repatriated to the country in which the company’s global headquarters is located. Other businesses, both large and small, are using a more basic format of conducting international business, such as exporting or selling through the use of a foreign agent abroad. Some businesses will also merge with or acquire a foreign-based corporation in order to accomplish this
more effectively and more quickly. In other instances, two U.S.-based companies may agree to merge and then jointly decide to relocate their headquarters to a foreign country. Some businesses will try to justify this relocation by believing that corporate inversion is the best approach in order to remain competitive against foreign-based competitors that are located in countries with lower corporate income tax rates. Corporations have been increasing their customer bases and market shares by expanding into international markets ever since the start of globalization. Not every company, though, will decide to have operations in each region where its target customers are located. This is because of the costs associated with having operations abroad, which include operational costs, corporate governance costs, regulatory costs and tax costs. Some businesses will declare that foreign profits are permanently reinvested in overseas operations in order to avoid double taxation and keep their profits abroad. This will also allow the business to further expand their foreign operations. Additionally, the company would use its U.S.-earned profits to expand their domestic operations. Unfortunately, by not repatriating the foreign earned income, the business may not be able to repurchase common stock or issue, declare and pay as much of a dividend than if it had decided to repatriate the foreign-earned income. By repatriating foreign-earned income, the
cash reserves in its U.S. bank account could increase significantly. MAKING USE OF TAX HOLIDAYS There are certain times, though, when it becomes more advantageous for businesses to repatriate their foreign profits rather than keep the profits permanently reinvested in their foreign operations. These times are referred to as “tax holidays.” When tax holidays are granted, businesses are able to temporarily repatriate profits from foreign operations at a significantly lower corporate tax rate than the normal corporate income tax rate. During these holidays, more and more businesses decide to repatriate their foreign profits and either expand their operations in their home country, purchase stock, pay dividends or keep the cash deposited in the businesses’ U.S. bank accounts. It is important to note, though, that these tax holidays do not exempt the foreign-earned income from being taxed in the United States; it only reduces the statutory tax rate that would be applied to the foreign-earned income. These tax holidays also encourage businesses to wait until they repatriate rather than repatriate each month, quarter or year. Many businesses will decide to wait to repatriate when the tax laws favor it and to pay a lower tax expense. If the international tax law ever makes it more advantageous for businesses to repatriate profits from foreign operations by lowering the repatriation tax rate on a more permanent basis, more and more businesses may decide to repatriate more quickly and reinvest the funds in expanding operations in their home country. Under the current international tax law, it is estimated that approximately $2.6 trillion is kept abroad rather than being repatriated back into the United States. This means that the U.S. government is not receiving the tax income that it would receive if the businesses decided to repatriate their foreign earnings. This tax income could result in hundreds of billions of dollars in tax revenue for the United States, depending on the business’ tax rate and any foreign tax credits that may apply. When a tax holiday is granted, the amount of funds kept abroad is significantly reduced, but
when the tax holiday ends, the amount of funds kept abroad quickly and significantly increases again. When considering repatriation rather than inversion, businesses need to keep in mind that for many their effective tax rate is considerably lower than their home country’s statutory tax rate, which may reduce the benefit of the tax holiday. It is also possible that future international tax laws may include a tax rate for foreign income that is kept abroad even if it is not repatriated. That tax rate may be lower than the tax rate if the funds were repatriated, but it is important for each business
with foreign income to study the advantages and disadvantages of each strategy and make the best decisions that fit their strategy. If there is such a tax rate in the future that would tax income kept abroad and not repatriated, it may even be cheaper during future tax holidays to repatriate rather than keep the foreign-earned income invested abroad.
LEARN MORE SEPT. 18, 2017, ISELIN INTERNATIONAL TAXATION Register at njcpa.org/events
NEW JERSEY CPA | JULY/AUGUST 2017
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HOW CPAs CAN GO GLOBAL By SEAN STEIN SMITH, CPA RUTGERS SCHOOL OF BUSINESS
Increasing revenue, attracting new customers and business, and engaging more with existing customers provide businesses with much needed top-line growth. Increases in customers and business options result in increased profits and cash flows. This all sounds good, and is ultimately the goal of any entrepreneur, but there is often a market that is overlooked by CPAs. 4
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Whether we are advising our clients and potential clients, or simply trying to expand our practices and businesses, the international marketplace offers a tremendous opportunity. It is important to note, however, that while the international market is, by default, larger than any single domestic or national market (including the regional New Jersey or U.S. market), there are certain obstacles that can trip up even the savviest entrepreneur and businessperson. HURDLES After even a cursory review of news headlines, social media channels and professional updates, it is abundantly clear that attempting to start a business overseas, or even expanding to a national presence, presents a host of challenges. First is the fact that not every international market has, or even recognizes, the CPA credential. This will have ramifications for practitioners seeking to expand practices overseas, and practitioners providing business advice to clients undergoing an international expansion. Second, the increased uncertainty surrounding the state of global business conditions adds layers of potential complexity that are virtually
impossible to accurately interpret. Going global to a specific market or trade region may, at first, seem like an opportunity only to be upended a short time later due to headline events. International business practices and trade policy are not the focus of this article, however there are resources available, such as the World Bank Group’s Doing Business rankings and the U.S. Commerce Department (export.gov), which provide a good base to start gathering information on doing business internationally. The third hurdle facing those seeking to expand internationally is a lack of awareness on how to approach marketing and brand building on a national or international scale. Attracting new clients, building new business with existing customers and expanding market share require upfront investments and continuous maintenance over time. Going global, for that reason alone, is something that seems out of reach for many, but there are methods and practices that can be used to help jumpstart these efforts. Before diving in, however, it is important to remember that even the most cost-effective tools still require effort, maintenance and commitment.
TECHNOLOGY Everywhere you look, read or even hear, it is clear that technology is rapidly becoming integrated into every aspect of business, including business development and business growth. When applied to a global expansion, the potential benefits of being technology savvy are clear. Cloud computing, which is basically just outsourcing your server purchasing and maintenance, provides an excellent stepping stone and opportunity for CPAs with global ambitions. Ease of access from virtually anywhere, lower IT costs, and improved data security for you and your clients are just a handful of the benefits that come to mind with cloud computing. This enables you to work concurrently with clients across the country, or across the globe, with ease of access and confidence that your information is secure. Even better is that with increasing amounts of business conducted on mobile platforms, the ability to communicate and deliver information across distances is easier than ever. For example, and if you are willing to put a little bit of effort into the process, you can service clients anywhere by offering a suite of advisory services in addition to your current core business offerings. Even something as simple as building out an online presence with a website
or social media can help CPAs expand business and offer new business services across state or even national lines. SOCIAL MEDIA When the term social media comes up in conversation, it is usually met with a combination of groans, eyerolls and confusion. Adding to this confusion is the reality that, for the most part, CPAs are not usually regarded as experts when it comes to social media, but that is no reason why it should not be included in your toolkit. The staples of social media, including Facebook, Twitter and YouTube, are free to set up, free to upload content to and can provide you a global reach without having to leave your office. When setting up social media accounts, especially for business and marketing purposes, keep the following in mind: 1. Have a headshot and brief bio ready. There are few things worse than a social media profile with no biographical information or a picture. How are potential clients supposed to know who you are? 2. Imitate the best. Find a person or organization that has a social media profile of which you are envious, and try to emulate what they have done.
3. Automate if possible. Posting and engaging with other individuals and organizations on social media can rapidly consume a tremendous amount of time. With a few quick searches, a host of tools will come up that will help you automate, streamline and better manage your social media campaign. GOING GLOBAL Every business needs high-quality quantitative information in order to make better decisions, and CPAs are well positioned to provide these services. Expanding business, even overseas, is often a top priority for practitioners and entrepreneurs but can appear daunting at first glance. With a little bit of technology and social media added to the mix, however, the challenges can shrink while the opportunities and possibilities grow larger. Business is global, accounting is global, and your business can be global. Sean Stein Smith, CPA, DBA, M.S., M.B.A., CMA, CGMA, is an assistant professor at Rutgers School of Business, Camden. He is a member of the NJCPA Content Advisory Board, Student Programs & Scholarship Committee, Emerging Leaders Council, Nonprofit Interest Group and Accounting & Auditing Standards Interest Group. He can be reached at drseansteinsmith@gmail.com.
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GLOBAL KNOWLEDGE : IS A CPA LICENSE ENOUGH? By SUSAN CINNELLA-FIRRIOLO, CPA
CGB, INC.
While the CPA license remains highly respected and carries great value, CPAs have additional internationally recognized credentialing options available when evaluating opportunities in the global market.
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The world has become a fascinating setting for professional growth. Technology has given us the ability to seamlessly connect to places around the world and beyond. In today’s data-driven world, the ability to instantly exchange information across continents drives worldwide transactions. Facilitating the processing of worldwide transactions leads to globalization — the process of interaction and integration among people, businesses and governments of different nations. The process is promoted by technology and powered by international trade and investment, and it is producing new opportunities for CPAs. Some of the credentials that can assist a CPA in a global market are briefly described below. ASSOCIATION OF INTERNATIONAL CERTIFIED PROFESSIONAL ACCOUNTANTS (THE ASSOCIATION) The Association (aicpaglobal.org) is an international body of professional accountants, combining the strengths of the American Institute of CPAs (AICPA) and the Chartered Institute of Management Accountants (CIMA). The Association represents 650,000 members and students in public and management accounting and offers the following designation: yy Chartered Global Management Accountant (CGMA). The CGMA designation distinguishes professionals who have advanced proficiency in finance, operations, strategy and management. More than 150,000 accounting and finance
professionals hold the CGMA, making it the most widely held management accounting designation in the world. The experience and exam requirements to become a CGMA vary depending upon whether the candidate is already a CPA. ISACA Formed in 1967 by a group of computer system auditors, today ISACA (isaca.org) serves IT governance professionals and has over 140,000 members in over 180 countries. Members work in all industries as information systems auditors, consultants, security professionals, regulators, chief information officers, internal auditors and educators. ISACA sets the standards for IS auditing and control. ISACA professional certifications include the following: yy Certified Information Systems Auditor (CISA). CISA is a globally recognized accreditation for IS audit professionals. There are approximately 118,000 CISA holders who have demonstrated an in-depth knowledge of and experience with information systems control environments, securitization procedures, validation methods and auditing activities. Certification is awarded after passing a five-part, four-hour exam and obtaining five years of professional IS auditing, control, security or similar work experience. yy Certified Information Security Manager (CISM). CISM is the globally recognized standard for professionals who design, build and manage
information security programs. CISM is the leading credential for information security managers. There are approximately 28,000 CISM holders, and it has been ranked one of the highest-paying and most in-demand IT certifications. Certification is awarded after passing a four-part, four-hour exam and obtaining five years of professional information security management experience. yy Certified in Risk and Information Systems Control (CRISC). CRISC (pronounce see-risk) is a global certification for professionals with the skills to design, implement, monitor and maintain effective risk-based IS controls. Introduced in 2010, approximately 20,000 professionals have earned the CRISC designation. Certification is awarded after passing a four-part, fourhour exam and obtaining three years of IT risk management, design and control implementation work experience. yy Certified in the Governance of Enterprise IT (CGEIT). CGEIT is a globally recognized standard for professionals who are certified in the governance of enterprise IT principles and practices. CGEIT holders are trained to identify critical issues surrounding IT governance and strategic business alignment. Certification is awarded after passing a five-part, four-hour exam and obtaining five years of managing or supporting the governance of enterprise IT. THE INSTITUTE OF MANAGEMENT ACCOUNTANTS (IMA) The IMA (imanet.org) was founded in 1919 by a group of cost accountants who wanted to provide business knowledge and promote professional practices. Formerly known as the National Association of Cost Accountants, the IMA is now a worldwide association of accountants and financial professionals that has over 85,000 members and focuses on advancing the professional excellence of the accounting and financial professions throughout 140 countries. IMA certifications include the following: yy Certified Management Accountant (CMA). The CMA is a globally recognized credential issued to professionals who have demonstrated proficiency in
financial analysis, budgeting, strategic assessment and other skills. Certification is awarded after passing a two-part, nine-hour exam. In addition, candidates must have a bachelor’s degree and two years’ experience in financial management or management accounting. yy Certified in Strategy and Competitive Analysis (CSCA). The CSCA is a specialty credential intended to expand on the strategic planning and analysis skills associated with the CMA certification. The CSCA identifies CMAs who are senior finance leaders and have mastered the concepts of organizational strategic planning processes. Certification is awarded after passing a three-part, three-hour exam. CSCA certification holders must also maintain an active CMA designation and comply with Ethical Professional Practices. ASSOCIATION OF CERTIFIED FRAUD EXAMINERS (ACFE) Founded in 1988 by an accountant turned FBI agent, the ACFE (acfe.org) is the largest professional anti-fraud organization in the world. The ACFE has 80,000 members whose mission is to reduce incidences of fraud and white collar crime. ACFE offers the following certification: yy Certified Fraud Examiner (CFE). Individuals holding a CFE designation are considered experts in fraud detection and deterrence in business, government and academic entities. Certification is awarded after passing a four-part, 10hour exam and obtaining two years of professional experience. In order to be eligible to take the exam, candidates must be an Associate member of the ACFE and have a four-year college degree.
INTERNATIONAL FEDERATION OF ACCOUNTANTS (IFAC) IFAC was founded in 1977 to strengthen the global profession of accounting in the public interest through international corroboration. IFAC began with 63 members from 51 countries and presently includes 175 members representing 130 countries. IFAC offers no individual designations, as their membership consists of professional accountant organizations (PAOs). Membership is obtained by developing an understanding of the obligations of affiliation, obtaining a sponsor who is an existing member and other requirements. The mission of the IFAC is to serve the public interest and strengthen the profession of accounting. Internationally accepted financial certifications typically have specific skills to be gained through their attainment; requirements for education, examination and experience; costs associated with obtaining and maintaining accreditation; and continuing education requirements. CPAs should consider these factors along with career goals when determining the benefit of additional certifications. Susan Cinnella-Firriolo, CPA.CITP, CGMA, CISA, is the chief financial officer at CGB, Inc. She is a member of the NJCPA Accounting and Auditing Standards Interest Group and can be reached at 973-223-8473. For a list of additional organizations and the designations they administer in more distinct areas of expertise, visit njcpa.org/newjerseycpa/julyaug17.
NEW JERSEY CPA | JULY/AUGUST 2017
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CONVERGENCE OF GLOBAL ACCOUNTING STANDARDS By P. JEFFREY CHRISTAKOS, CPA
MONMOUTH UNIVERSITY
International Financial Reporting Standards (IFRS) are becoming the global standard for preparation of public company financial statements. Will U.S. GAAP and IFRS ever fully converge?
The International Accounting Standards Board (IASB) developed IFRS standards which are either permitted or required for domestic listed companies in approximately 120 countries. Approximately 90 countries have fully conformed to IFRS as promulgated by the IASB. In the U.S., full IFRS implementation is only allowed for private companies. Japan has allowed voluntary adoption of IFRS but has not established a mandatory transition date. India has significantly converged their standards for domestic companies. China has stated that they will converge their standards at some future date. WHY NOT HAVE A SINGLE WORLDWIDE STANDARD? There have been many articles written on the pros and cons of a complete merger of the standards. Significant investment opportunities for U.S. investors exist outside the U.S. Currently, knowledge of IFRS standards is required to complete financial analysis on the companies. A single set of standards can aid in comparing domestic and international investment options.
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Many merger and acquisition opportunities reside outside the U.S. as well. Understanding how the mergers and acquisitions will affect reporting requirements may be a key part of the decision-making process. Unification of standards may help here. On the negative side, the lack of competition between the standards setters could lead to rules that are not appropriate for all parties involved. In the United States, the Securities and Exchange Commission (SEC) relies on the Financial Accounting Standards Board (FASB) to establish and improve accounting standards to insure that investors get the financial information necessary to make informed investment decisions. The SEC controls the process and monitors conformity by public companies. They can require additional disclosures for public companies, if necessary. A switch to IFRS reporting transfers the authority to a foreign authority. The goals of the companies in the international business community may not be consistent with those of U.S. companies. The funding structure is another area of concern. IASB is largely a privately funded organization. Funding comes from various
public funding programs and private corporations on a voluntary basis. There can be potential biases with this structure. If they have an interest in changing the structure, there are many alternatives that can be considered. Economic and political independence should be key components in the new structure. Conversion can be costly for companies. Changes in technology, tax reporting requirements and compensation systems are a few of the many areas that may be cost prohibitive. Key metrics have to be converted as well. WHERE HAVE WE BEEN? In 2002, the IASB and FASB signed the “Norwalk Agreement.” This memorandum of understanding committed their organizations to (a) make their existing financial reporting standards “fully compatible as soon as is practicable” and (b) “coordinate their future work programs to ensure that once achieved, compatibility is maintained.” The standards would not be identical. However, they would be aligned. In November 2007, the SEC eliminated the requirement that a foreign issuer using IFRS must present a reconciliation of IFRS measures of profit or loss and owner’s equity to amounts that would have been reported under U.S. GAAP. Private companies are allowed to follow IFRS. In May 2008, the AICPA’s governing council approved amending Rules 202 and 203 of the Code of Professional Conduct to recognize the IASB as an international standards setter. In May 2009, the AICPA Board of Examiners announced changes in the CPA exam content which made IFRS eligible for testing on the Uniform CPA Exam starting in 2011. The SEC issued release nos. 33-9109 and 34-61578, Commission Statement in Support of Convergence and Global Accounting Standards on February 24, 2010. This release reiterated their position that a single set of high-quality globally accepted accounting standards would benefit U.S. investors. In order to further encourage the convergence of U.S. GAAP and IFRS, they called for a development of a work plan that would increase public transparency
and the understanding of the SEC’s direction. The combination of the completion of this work plan and other previously identified and agreed upon convergence projects between the FASB and IASB would permit the SEC to make a final determination. The SEC staff issued the Final Staff Report on the Work Plan for the Consideration of Incorporating International Financial Reporting Standards into the Financial Reporting System for U.S. Issuers on July 13, 2012. No specific course of action was recommended by the SEC. WHERE ARE WE NOW? In 2016, SEC Chief Accountant James Schnurr reported that the SEC staff will hold discussions with SEC commissioners regarding regulatory changes related to adding supplementary IFRS information to U.S. GAAP financial statements. The information could range from a full set of IFRS financial statements to selected data. A reconciliation could potentially be included as well. In a keynote address before the AICPA Conference on Current SEC and PCAOB Developments on December 5, 2016, Chief Accountant Walter R. Bricker reviewed the convergence issue. He stated that it was his belief that for at least the foreseeable future, U.S. GAAP and the FASB’s independent standard-setting process will continue to best suit the needs of those relying on financial reporting by U.S. issuers. Mr. Bricker also encouraged the FASB and IASB to continue to work toward eliminating the differences in their standards. He also said that he believes that the SEC
should continue to consider Mr. Schnurr’s proposal to allow domestic issuers to provide IFRS-based information as a supplement to GAAP financial statements. RECENT CONVERGENCE EFFORTS In May 2014, the FASB and IASB issued their converged standard on revenue recognition, Revenue from Contracts with Customers. The revenue standard, as amended, is effective for calendar year-end companies in 2018 (2019 for non-public entities following U.S. GAAP). The new model is expected to eliminate many of the existing differences in accounting for revenue between the two frameworks. There are other convergence projects in various stages with the goal of making financial statements more usable for all parties worldwide. P. Jeffrey Christakos, CPA, CFP, is a partner with Christakos & Co., PC, and a specialist professor of accounting at Monmouth University. He is a member of the NJCPA Content Advisory Board and the Accounting & Auditing Standards Interest Group and serves on the Union County Chapter Board. He can be reached at pchrista@monmouth.edu.
LEARN MORE AUG. 9, 2017, ISELIN ACCOUNTING AND AUDITING UPDATE FOR SMALL BUSINESSES OCT. 30, 2017, ISELIN 2017 A&A HOT TOPICS: GETTING A GRASP ON THE BIG ISSUES FACING THE INDUSTRY Register at njcpa.org/events
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ACCOUNTING, AUDITING & ATTEST
Preparing Clients for an Audit BY JOSHUA CHANANIE, CPA, SAX LLP
When it comes time to audit a client’s financial statements, do you find yourself wasting valuable facetime discussing why they’re not ready, discovering the same mistakes from last year, or explaining why they even need an audit? Whether for bank compliance, bondholders, shareholders or not-for-profit regulations, the audit itself is inevitable. But there are steps you can take to help your clients be better prepared, including setting up-front expectations, proactive planning, establishing accountability, sharing knowledge and providing timely feedback. SETTING UP-FRONT EXPECTATIONS Accountants are naturally deadline driven. Without internal and external deadlines, work would carry on indefinitely. An efficient audit process begins with the audit team and client establishing a timeline of expectations. Determine when deliverables will be due from the client and when the client can expect deliverables from you. Make sure the timeline is communicated to your entire audit team as well as the client’s accounting department (and board, if applicable). Setting up-front expectations will help to keep everyone on task and lay the foundation for accountability. PROACTIVE PLANNING CPAs don’t limit tax planning or advisory services to certain times of year, so why view audit services that way? No longer confined to January through April, the audit season is a 12-month process that includes proactive steps we can take throughout the year to plan and prepare. Some fieldwork can be performed in the “off-season” to lessen the burden on the audit team and client during the height of the audit season. At quarterly client meetings, discuss how to shift work out of “busy season” and identify any potential audit issues that may arise. Many times, the issues uncovered during these sessions can be resolved prior to the yearend work commencing.
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ESTABLISHING ACCOUNTABILITY Just as we hold our partners and staff accountable for their performance, we should hold clients accountable for their responsibilities in the audit relationship. As service providers, we are accustomed to honoring deadlines and adjusting our schedules to accommodate changing needs, but we often don’t ask for the same professional courtesies in return. Too often, auditors go into the field and the client is not ready, forcing the team to piecemeal the job together. This is especially common when the client work is planned for January and February. In addition to delaying the process and putting pressure on the staff with overlapping engagements, this situation increases the risk of inefficiencies and significant overruns. Nothing frustrates an owner or board more than paying extra for staff inefficiencies or notifying financial statement users that the audit will be delayed. With clear expectations and accountability on both sides, the audit team can partner with the client to prevent that from happening. SHARING KNOWLEDGE CPAs are consistently sharpening their skills because of licensing requirements and increased competition, but what about clients’ professional development in the areas of accounting and finances? Rather than proposing the same journal entries and correcting client schedules year
after year, educate your clients on their errors and areas of improvement, as well as accounting pronouncements and changes that directly affect them. Taking advantage of these teachable moments will elevate the client experience, build your credibility with their staff and result in a much smoother audit process. TIMELY FEEDBACK The exit conference at the conclusion of the audit should include not only the required communications but also recommendations for improving procedures. The audit is an ever-evolving process, with feedback from both sides being an integral part of continually enhancing it. Being an effective audit provider goes beyond simply preparing schedules and a financial statement. Helping your clients prepare, learn and improve in this area will go far in building trust and adding more value to your year-round relationship. Joshua Chananie, CPA, is a partner at Sax LLP and specializes in audit, accounting and advisory services for the manufacturing and distribution industry and not-for-profit organizations. He is a member of the NJCPA Nonprofit Interest Group and can be reached at jchananie@saxllp.com. READ MORE AUDITING ARTICLES AND RESOURCES njcpa.org/topics/auditing
ADVOCACY & LEGISLATIVE ISSUES
New Appointments and Polling News BY JEFFREY KASZERMAN, NJCPA GOVERNMENT RELATIONS DIRECTOR
NEW APPOINTMENTS TO HOUSE FINANCIAL SERVICES COMMITTEE Former Congressman Scott Garrett, who lost his seat in the November elections, was the only member of the New Jersey Congressional Delegation who sat on the House Committee on Financial Services. This is a key committee for CPAs and the business community. It has jurisdiction over issues pertaining to the economy, the banking system, housing, insurance, and securities and exchanges. Additionally, the committee has jurisdiction over monetary policy, international finance and international monetary organizations. It is also responsible for providing oversight for the Dodd– Frank Wall Street Reform and Consumer Protection Act and the Public Company Accounting Oversight Board (PCAOB). Fortunately, Garrett’s successful opponent — Congressman Josh Gottheimer — was appointed to the committee, as was Congressman Tom MacArthur from south Jersey. Therefore, there are now two representatives from New Jersey who sit on the committee. This is good news for New Jersey CPAs. NJCPA representatives met with them in May at the AICPA Spring Council meeting in Washington, DC. NJCPA RAMPS UP POLLING OF ITS MEMBERS ON PUBLIC POLICY ISSUES As part of its efforts to raise the Society’s public policy profile and increase its impact on the legislative process, the NJCPA has ramped up its polling of Society members on public policy issues important to CPAs, businesses and individual taxpayers. The poll results are shared with lawmakers and the media. Please take the time to participate in these polls whenever you receive one, usually via email. They generally only take a few minutes to complete. It’s important for decision makers to be aware of what the CPA profession is seeing and thinking because CPAs have an objective and trained birds-eye view
of all the factors that contribute to New Jersey’s economic climate. CPAs are in the trenches, serving over one million Garden State businesses and individuals and have a pulse read of their concerns and day-to-day realities. CPAs have a unique perspective that no other profession or group has. Below are summaries of the most recent NJCPA polls, which were cited in various media outlets and shared with lawmakers. CPAs OPPOSE RAISING TAXES ON MILLIONAIRES TO FUND PUBLIC PENSIONS
A March 2017 NJCPA poll revealed that more than 56 percent of the 1,374 respondents opposed raising taxes on New Jerseyans who make more than $1 million in annual income — often referred to as the “millionaires’ tax” — to fund the state’s public employee pensions. Just over 33 percent support the concept and nearly 10 percent were unsure. Those who were opposed to the tax overwhelmingly (72 percent) cited the need for New Jersey state government to focus on shrinking government, not imposing more taxes, and already having the most highly taxed citizens in the nation (70 percent). Another concern was that the increase would prompt wealthy residents and businesses to leave New Jersey. The survey was conducted in response to a Quinnipiac University poll fielded in early 2017 that said 70 percent of the 1,098 respondents would support the millionaires’ tax to help fund public employee pensions, but would not favor raising funds on all New Jerseyans to shore up the fund. CPAs SHIFT ADVICE TO CLIENTS IN THE WAKE OF THE ELIMINATION OF THE ESTATE TAX
In a December 2016 survey of NJCPA members, more than one-third of respondents indicated they will change their advice to clients following passage of legislation that will phase out New Jersey’s estate tax by 2018.
NJCPA members were asked: In light of the changes to New Jersey’s estate tax, will you continue to advise Garden State clients to relocate out of the state? yy 28 percent said yes, New Jersey’s tax climate and cost of living still make relocation the best option for many clients. yy 36 percent said no, eliminating the estate tax is an important first step in making New Jersey more affordable. yy 36 percent aren’t sure. They believe there are still many unanswered questions, including whether or not the estate tax might be restored under a new administration. In a 2015 survey of NJCPA members, 74 percent of respondents indicated that they had “advised a client to consider relocation due to New Jersey’s estate and inheritance taxes.” While NJCPA’s newer survey shows that CPAs are now less likely to advise clients to relocate, many are concerned about whether the estate tax repeal will be restored under a new administration. READ MORE NJCPA LEGISLATIVE ACTION CENTER njcpa.org/advocacy
NEW JERSEY CPA | JULY/AUGUST 2017
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BECOMING A CPA
The CPA Exam: Getting It Scheduled BY MITCHELL A. FRANKLIN, CPA, MADDEN SCHOOL OF BUSINESS AT LE MOYNE COLLEGE
For those taking the CPA exam, there is no such thing as a stress-free experience. As we move through 2017 and students are taking a newly changed exam, the stress only increases for the current exam cohort. When working through a stressful experience such as the CPA exam, success is based on more than just getting through content; it’s about having the emotional readiness and confidence to be successful. A high level of confidence reduces stress, and a low level of confidence increases stress. The proper sequence in scheduling parts of the CPA exam can build the confidence needed to maximize the probability of exam success.
If you have been unsuccessful at a particular part more than once, move on to another part, pass it, build confidence then go back to re-attempt the previous part.
WHICH PART TO TAKE FIRST In addition to the pressure to pass all four parts of the exam, there’s the fact that once the first part is passed, the clock is running to complete the additional parts before the credit is lost. So it’s vital to select the right part of the exam to sit for first. Before you begin to study and set an exam preparation plan, carefully examine the content of all exam parts and think about your college experience. You should start with the part that has the content that comes easiest to you. Then schedule the remaining parts so that the one you think will be hardest is your final section. By sitting for the easiest part of the exam first, you have the greatest chance of passing that section. This will help you develop an “I can do it” attitude. You’ll feel good about yourself and become motivated and emotionally prepared to tackle the next part which might be slightly more difficult. By the time you reach that last and most difficult part, you’ll be confident, you’ll know how it feels to pass, and you can fully focus on getting the part done without the burden of thinking about the remaining parts to follow. There is little value to starting with the most difficult part of the exam as some may suggest. This can result in failure and lost confidence, and it can significantly delay completion of the exam. There is not one concrete hard or easy part; it depends on your background and experience.
EMOTIONAL READINESS The CPA exam is not easy, and there is much more to exam success than simply being good with the material. You not only
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PRE-EXAM ACTIVITIES Take the day or two prior to sitting for the exam to do something fun and unrelated to the exam. Going into the exam room relaxed will help you focus on the task at hand in a more confident manner. Examples of pre-exam activities include going to a museum, seeing a fun movie or anything that will take your mind completely off of the impending exam.
need the technical and critical thinking competence to meet the demands of the exam, but also the emotional readiness. Mitchell Franklin, CPA, Ph.D., is program director and assistant professor of accounting at the Madden School of Business at LeMoyne College. He is a member of the NJCPA Content Advisory Board and can be reached at franklma@lemoyne.edu.
READ MORE CPA EXAM REGISTRATION AND APPLICATION njcpa.org/cpaexamregistration
SAMPLE EXAM QUESTIONS njcpa.org/sampleexamquestions
CPA EXAM FAQS njcpa.org/cpaexamfaqs
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CORPORATE ACCOUNTING
Four Ways Data Can Improve Profits BY BRIAN FITZ-GERALD, CPA, AKSESHEN LLC
Essential to running a successful business is knowing which customers are profitable and which are not. Many businesses perform customer profit assessments but are unaware of errors or misstatements distorting true customer profitability. Adopting a data-driven approach greatly reduces the chances of these errors and provides a more accurate and detailed view of customer profits. Here are four ways a data-driven approach can reduce the time it takes to turn insight into action to improve profits. 1. ACTIONABLE AND ACCURATE Data-driven customer profit analyses are action oriented because they use transaction-level information which can be quickly aggregated. The user can easily toggle between high-level observations and very detailed transactional data. Drilling into desired customers or products reduces the cycle time to turn insight to action and improve profits. The transactional approach also results in more accurate gross profit calculations. The traditional customer profitability assessment uses summarized information and allocates costs which limit the level of detail and accuracy of the calculations. This traditional method uses three primary types of financial information — sales data, cost of goods sold and overhead information — and is typically summarized by quarter or year and higher-level revenue and expenses. This process obscures the details needed to yield actionable insights and also exposes data to a number of possible errors which can misstate the true economics of a particular customer or product. Most of these errors occur in the allocation of costs such as labor, raw materials, rent and so on. This significantly distorts profitability calculations because allocations apply average costs to all products and customers. In reality, not all products cost the same to manufacture and not all customers cost the same to serve. A transactional approach traces costs to specific products and customers without
allocation. The result is a more accurate and insightful look into which products and customers drive profitability and which are mounting losses. 2. BREAK DOWN DATA SILOS Traditional customer profit analyses only tell a small part of a customer profitability story while the data-driven approach tells the whole story. The traditional method relies heavily on data collected from disconnected departments or systems, and the data provided is often poor quality due to inconsistencies and insufficient data or blank values. In practice, these data issues can be as seemingly benign as multiple naming conventions for the same customer depending on which department collected and analyzed certain data. In a data-driven approach, relationships between silos of data are thoroughly mapped through relational tables or algorithms which uncover duplicated data and inconsistencies. Once these relationships are correctly mapped out, the business has the ability to connect all these disparate data sources in a powerful manner. The ability to trace any transaction from raw material through a company’s procurement, manufacturing and sales processes for each customer is powerful and insightful. 3. INCLUDE ALTERNATIVE DATA SOURCES Typically, the data housed in operational and financial systems represents only 20 percent of a business’s information. The remaining 80 percent is unstructured, held in forms such as email, documents and intranet pages. Customer profitability analyses are greatly enhanced when combined with these unstructured data types. For instance, consider the insights businesses can gain from not only knowing which customers are most profitable but which are satisfied and will repeat as customers by blending customer survey scores into the data.
It is now standard practice to include geo-targeted information with sales data to produce maps to easily visualize sales data by geography. For example, a business can blend internal supply chain and product distribution information with key demographic and consumer data. This dataset can produce an insightful map of the company’s areas of product supply compared to areas of demand. 4. EXPLORATORY ANALYSIS A data-driven analysis enables business users to quickly perform what-if analyses on key variables. A traditional profitability analysis may lead a business to discontinue products and customers that accumulate sustained losses. However, in a data-driven approach, rather than discontinue an entire product line, businesses can see the exact combination of production and sales circumstances which resulted in the loss. This approach is much more nuanced and focuses on resolving the root cause to restore profitability. COST TRANSPARENCY Many businesses lose money because management cannot see when errors and bad data distort or misstate their customer profit analyses. Data-driven analyses enhance the accuracy of profit analyses and provide transparency into the profit and cost drivers of a business. Management can easily spot issues and then perform complex what-if analyses in a simple way to ensure every business process and decision is profitable. Brian Fitz-Gerald, CPA, is the founder and CEO of Akseshen LLC. He can be reached at brian@ akseshen.com.
LEARN MORE OCT. 19, 2017, ROSELAND K2’S BUSINESS INTELLIGENCE, FEATURING MICROSOFT’S POWER BI TOOLS Register at njcpa.org/events
NEW JERSEY CPA | JULY/AUGUST 2017
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FIRM & PRACTICE MANAGEMENT
Seven Best Practices for Client Meetings and Proposals BY EILEEN MONESSON, CPC, PRCOUNTS, LLC
Meetings give you the chance to enrich a relationship with a client or prospect. Provided you prepare, focus on the individual’s needs and deliver value, meetings can present a business development opportunity. Here are seven best practices: 1. Prepare for the meeting a week in advance. Even if you have worked with the client for years or know the prospect, review their website. They may have launched a new brand, introduced a new product or service, expanded their facilities or hired key personnel. Read recent press releases to ensure that you know what they are doing and why. Take the time to investigate strategies to help them save money or work more efficiently. Look at industry trends and government regulations that might impact their company. Owners of small and mid-sized companies do not have the time to keep updated on everything. They rely on you to do this for them. You can add value by coming to a meeting with recommendations to help them grow their business or solutions to potential issues. 2. Know who you are meeting with. Most people will read an individual’s biography and/or social media profile(s) before a meeting. Take it a step further and Google them. You will be amazed at what you might find out about the person. Information on social causes, charities and volunteer work will come up, as well as published articles, media mentions, seminars, strategic relationships and family news. You can use this information to develop a stronger connection with the person. Consider setting a Google Alert (google.com/alerts) on key individuals to keep abreast of what they are doing. 3. Send an agenda. It is advisable to have an agenda for every meeting to ensure
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that the right topics are discussed. An agenda will also serve to keep you on track. Send it to everyone a few days beforehand to help them prepare. If someone is expected to contribute to a conversation, add their name after the topic. If applicable, also include a summary of what was discussed in previous meetings and what people were supposed to do for this meeting. 4. Be professional. You have less than seven seconds to make a good impression. Show up early, start and end the meeting on time, and dress appropriately. Consider investing in a portfolio and nice pen. Organize supporting documentation according to the agenda for easy reference. Package participant handouts in a branded folder. Allow people to express their ideas within limits. Be respectful of them and other people’s time. “Park” ideas for a future discussion, if appropriate. 5. Listen to what the client has to say. Let the client or prospect talk for 80 percent of the meeting. He or she will give you everything you need to know if you ask the right questions and allow them to talk. Resist the urge to take over the conversation with all the information you know.
pect if everything is correct to ensure that everyone is on the same page. If you are meeting with a prospect who asks for a proposal, focus it on the points discussed and what you learned. Present your services and solutions around their pain points. Emphasize how they will benefit from working with you instead of how wonderful you are. Clients and prospects are impressed when they know you can help them. Everyone wants a return on their investment. Present the value you bring to a relationship, and you will have a client for life.
6. Take notes. Many topics can be discussed during a meeting. Make sure that you remember all points addressed by taking notes on who said what, what was said and who offered to do something. If someone has a side conversation with you after the meeting, write down a summary of that discussion. It could serve you well if an issue arises.
Eileen Monesson, CPC, principal with PRCounts, is a strategic marketer and coach. She can be reached at 848-459-3130 or emonesson@prcounts.com.
7. Send a synopsis of what you heard after the meeting. Include what was discussed, assigned tasks, deliverables and due dates. Ask the client or pros-
READ MORE CLIENT ACQUISITION & RETENTION ARTICLES njcpa.org/topics/clients
GOVERNMENTAL & NONPROFIT
How to Make the Most of Your Annual Form 990 Filing BY MICHELLE S. MARTIN, CPA, KLATZKIN & COMPANY LLP
Form 990 (Return of Organization Exempt from Income Tax) is an information return open to public inspection. Nonprofit organizations also use it as a marketing tool to attract donors. To get the most out of Form 990, you’ll want to not only comply with IRS regulations, but also take into account the organization’s marketing and operating objectives. Here are some things to consider: yy Involve the organization’s marketing professional or grant writer. Ask him or her to write or update the program descriptions. This is a great opportunity for the organization to showcase their accomplishments. If appropriate, change the mission statement to make it more compelling yet still in alignment with the organization’s exempt purpose. Ensure that the board approves any changes. yy Watch the public support percentage reported on Schedule A (Public Charity Status and Public Support). In most instances, the IRS requires it to be at least 33.3 percent. Savvy donors look at this percentage when deciding which organizations to support. Since it is a five-year average, increasing this percentage takes time. Often it can be raised by securing numerous smaller donations instead of relying on a few large donors. yy Encourage detailed record keeping of fundraising events. Revenues and expenses for each event should be recorded separately to allow for the proper presentation on Schedule G (Supplemental Information Regarding Fundraising or Gaming Activities). In-kind donations of auction items, room rentals, catering or other items must also be accounted for. Ideally, these requirements should be discussed up front so that the chart of accounts can be adjusted to capture the necessary information. yy Take an in-depth look at the need to disclose transactions with interested persons on Schedule L (Transactions
With Interested Persons). In 2014, the IRS expanded the definition of interested persons to include the creator or founder of the organization and substantial contributors. However, the trigger questions on Form 990, Part IV, have not yet been updated. When considering if such disclosures are needed, refer to the Schedule L instructions instead of the trigger questions. yy When a nonprofit organization has a “Donate Now” button on their website, the organization must consider the possibility of additional state filings. An organization may need to register in a state if it: 1) encourages residents of a certain state to give or 2) receives contributions from a state on an ongoing, repeated or substantial basis. This concept, called the Charleston Principles, was released in 2001 by the National Association of State Charity Officials. These principles are guidelines for states to follow, not law. Some states follow the principles while others do not. BE PROACTIVE Before new programs, projects, rentals or business agreements begin, discuss in detail if unrelated business taxable income (UBTI) could be an issue. A little planning can go a long way. For example, agreeing to lease 20 percent of the organization’s building could create UBTI, while leasing 10 percent of the building might not create any tax. Other potential UBTI triggers include merchandise sales, sponsorship income and advertising income. Involve the organization’s tax professional during the decision-making process so that any tax consequences are considered from the outset. WHAT’S NEW? For taxable years starting after December 31, 2015, Form 990 extension will be a single automatic six-month extension instead of two three-month extensions.
In January 2017, the IRS released a new online version of Form 990-EZ. This new version has pop-up information to help filers provide more accurate information on their annual return. LOOKING TO THE FUTURE Since 1954, the Johnson Amendment has prohibited 501(c)(3) organizations from participating directly or indirectly in any political campaign on behalf of, or in opposition to, any candidate. On May 4, 2017, President Trump signed an Executive Order directing the IRS to exercise discretion in the enforcement of the Johnson Amendment. Look for additional developments in the reporting of political and lobbying activities. Michelle S. Martin, CPA, is a manager with Klatzkin & Company LLP. She is a member of the NJCPA and can be reached at 609-890-9189 or mmartin@klatzkin.com.
LEARN MORE OCT. 30, 2017, VOORHEES FORM 990: MASTERING ITS UNIQUE CHARACTERISTICS Register at njcpa.org/events
NEW JERSEY CPA | JULY/AUGUST 2017
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LAW & ETHICS
Update on Commissions and Contingent Fees BY JOSEPH F. SCUTELLARO, CPA, COHNREZNICK LLP
In every New Jersey Law & Ethics course I teach for the NJCPA, I ask if anyone in the audience has ever entered into a commission or contingent fee arrangement with a client. Surprisingly, the number is always very small. I believe this is due to the conservative nature of CPAs and the fact that up until the 1990s, commissions for the referral of a client to a third party were prohibited by the American Institute of CPAs Code of Professional Conduct (AICPA Code) and the New Jersey State Board of Accountancy (State Board). Even though it has been almost 30 years since these rules changed in New Jersey, there is still a healthy fear of commission and contingent fee arrangements among the state’s CPAs. Here are some recent changes and major issues to be aware of. PROHIBITED SERVICES Any discussion of commissions and contingent fees must always start with prohibited fee arrangements. Prohibited services generally include an audited or reviewed financial statement and an examination of prospective financial information. However, there is a difference between what the State Board and the AICPA Code include as prohibited services. The State Board prohibits commissions and contingent fees even on a compiled financial statement accompanied by a report. Conversely, the AICPA Code
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allows a commission or contingent fee if you issue a financial statement accompanied by a compilation report. The AICPA now allows CPAs to prepare internal-use financial statements without an accompanying report; such financial statement preparation work should not prohibit a CPA from receiving a commission or contingent fee from such clients under either the AICPA Code or State Board regulations. Both the State Board and the AICPA Code now prohibit accepting a contingent fee for the preparation of an original or amended tax return as well as a claim for a tax refund unless the CPA can demonstrate a reasonable expectation of substantial review of such returns by the taxing authority. Similarly, Treasury Circular 230 (Circ. 230) section 10.27 prohibits contingent fee arrangements in connection with any matter before the IRS, even if there is an expectation of substantial review, except in connection with the IRS’s examination or claims related to the assessment of interest and penalties. However, in the Ridgley case, the court held that the Treasury lacked statutory authority to promulgate contingent fee restrictions on practitioners preparing and filing ordinary refund claims. Although this court ruling has broad implications for Circ. 230 and the Treasury’s ability to regulate tax preparers, including CPAs, it does not affect the State Board or AICPA Code’s prohibi-
tion on contingent arrangements related to original or amended tax returns. COMMISSION ARRANGEMENT CONSIDERATIONS When a CPA is considering a commission arrangement, there are two main considerations. First, there are specific disclosure requirements. Both the State Board and the AICPA require disclosure to the client of any commissions paid to the CPA for referring a product or service to such client. Such disclosure must be in writing contemporaneously with or prior to the referral and should be signed and dated by the client. There is no specific requirement to disclose the amount or rate of the commission just the fact that the commission will be paid. Second, the CPA must have the required credential and/or license to accept such commissions. This is especially true when it comes to commissions related to investment advisors and insurance. There are both federal and New Jersey security and insurance regulations requiring specific licenses to give advice and receive a commission on the purchase of such products. RELATED PARTIES Another confusing aspect of accepting commissions for referring products to clients is when related parties are involved. State Board regulations do not address
LAW & ETHICS
related-party issues when it comes to commissions for referring products; however, the AICPA Code does, and, in the absence of State Board regulations, New Jersey CPAs can rely on the AICPA Code. AICPA Code section 1.520.030 allows a member’s spouse to receive a commission for referring products to or from a client for whom the member performs a prohibited service, including attest financial statements, if both of these criteria are met: yy The activities of the member’s spouse are separate from the member’s practice yy The member is not significantly involved in the spouse’s activities Also under AICPA Code section 1.520.050, a member may receive a commission for referring an investment advisory service to an owner, officer or employee of a client for whom the member performs
a prohibited service. This includes an employee benefit plan that is sponsored by a client for whom the member performs a prohibited service, as long as the member does not provide such prohibited services directly for the employee benefit plans. In all of these related-party situations, the CPA should also consider the conflict of interest interpretation under the integrity and objectivity rules in AICPA Code section 1.100. If you are presented with a potential commission or contingent fee opportunity in your practice and are concerned about any of these rules, contact the AICPA Ethics Hotline at ethics@aicpa.org or 888-777-7077. Joseph F. Scutellaro, CPA, is a partner with CohnReznick LLP. He is a member of the NJCPA Federal Taxation Interest Group and Strategic Planning
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Committee, treasurer of the NJ-CPA-PAC, and a former member of the Professional Conduct Committee. He can be reached at joe.scutellaro@cohnreznick.com. 1 Ridgely, jr. v J. J. Lew, Dist. Ct D.C Civil action no. 1:12 cv-00565-CRC, 7/17/14 2 State Board Regulation 13:29-3.12 (f) 1) has always required such disclosure be in writing; however, AICPA Code 1.520.080.01 did not make the requirement for a written disclosure effective until January 31, 2017 READ MORE COMMISSIONS AND CONTINGENT FEES njcpa.org/topics/commissions LAW AND ETHICS njcpa.org/topics/ethics
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We’ll shake on that. NEW JERSEY CPA | JULY/AUGUST 2017
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PROFESSIONAL DEVELOPMENT
Three Skills You Need to Lead a Firm of the Future BY RACHEL ANEVSKI, MATTERS OF MANAGEMENT, LLC
According to Albert Einstein, “the measure of intelligence is the ability to change.” This speaks not only to the soft skills you will need to lead a firm of the future but also to the most important skill you will ever require in business: adaptability. CPA firms today have many challenges: fee pressure, succession, talent acquisition, technical changes and politics, as well as rapid and continued advancements in technology. Therefore, being able to adapt quickly remains key in having an advantage. For some, having to transform, especially in the field of professional services, is worse than lying on a bed of nails. Undeniably, many CPAs enter this profession because they are attracted to finding the hard and fast answer to problems. Change is unknown, unfamiliar and uncomfortable, but it also leads to possibilities, revolutions and paradigm shifts. Here are three soft skills you will need to lead a firm of the future: 1. EMBRACE CHANGE The leader of the future isn’t married to one particular notion; he or she is free to choose the best option that makes the most sense for the firm without hesitation. Firms that lack this soft skill are stuck in the mud. Even if they have a transformational leader in charge, if the majority of the partners are averse to change, the firm will stay complacent. You can inventory your firm’s existing leaders and future leaders to measure the likelihood of change with a simple behavioral tool, such as DISC analysis. This measure will give you the core of whether or not your firm requires a major or minor intervention so that you may plan your course of action. 2. FOSTER CREATIVITY “There is a way to do it better…find it,” said Thomas Edison. Creativity becomes second only to change and, in fact, to quote Einstein yet again, “creativity is intelligence having fun.” So they are pretty much in lock-step with one another. To lead a firm of the future, you will need the ability to be
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creative. Creativity means that you can — alone or in a group — come up with ideas that other firms haven’t yet dreamed of, or develop new tools so that the industry can perform more efficiently. Perhaps your creativity will lead you to a new-found way to engage future CPAs to modify roles in accounting that will create advanced opportunities for diversity and conscientious gender parity. Creativity is the reason some firms have high rates of success through acquisition or can successfully grow in a specific niche or geographic location. Creativity at its best brings clients to your doorstep and a waiting list like Google has of hopeful career applicants. Look for creativity in each one of your accountants on staff, give opportunities to explore and celebrate this attribute, and if you feel underrepresented in this area, find it: recruit it and/or acquire it. It’s critical. 3. BE RESILIENT The fighter proverb sums up the final soft skill: fall down seven times and get up eight. It’s resiliency that will allow future leaders to go on even when they are down for the count. With new ideas flying around and members of the firm committing to
trying new things, there will likely be some failures. After all, there is no accounting for how many times the Wright Brothers got their flying machine wrong or how many times it took Edison to come up with the light bulb. But if they didn’t persist, they would never have succeeded. The ability to stay present, calculate, leave room for error and rebound will certainly justify your place as a leader in the years to come. Perhaps when you read the title of this article, you expected it to cover soft skills such as leadership, rainmaking and communication. While those skills are still vital, as we move forward, the only constant requirement for firms of the future will be the ability to change, create and rebound. How well will you and your firm fare? Rachel Anevski, MAOB, PHR, SHRM-CP, is the founder and CEO of Matters of Management, LLC, a consulting and talent acquisition firm specializing in professional services. She can be reached at rachel@mattersofmanagement.com.
LEARN MORE OCT. 19, 2017, WEBINAR HOT TOPICS: SOFT SKILLS Register at njcpa.org/events
TAX
Navigating the New Jersey Division of Taxation BY NEIL BECOURTNEY, CPA, COHNREZNICK LLP
Practitioners often have the need to contact taxing authorities on behalf of their clients. There are various mechanisms in place to communicate with the New Jersey Division of Taxation. TAX REFUND STATUS If your individual client wants to know the status of their gross income tax refund, you can either call 800-323-4400 and follow the voice mail prompts (Social Security number, filing status, refund amount) or go to the Division’s website, state.nj.us/ teasury/taxation, click on the Check Your Refund tab, and enter the Social Security number and refund amount. TAX PRACTITIONER HOTLINE When you are dealing with a more significant issue such as a tax notice that does not reflect credit for certain estimated payments made or nonresident partner tax paid, your best bet is to contact the Division’s Tax Practitioner Hotline, 609-6336657. After responding to the recorded prompts such as type of taxpayer and ID number, a Division representative will field the call and attempt to assist you. Unlike the IRS practitioner hotline, there is rarely any wait time encountered. In most instances a practitioner should not need to execute the Appointment of Taxpayer Representative, Form M-5008-R. IDENTITY THEFT Identity theft is a growing problem nationally. The Division of Taxation created Form IDT-100, Identity Theft Declaration, a few years ago for victims to file. This form parallels the Federal Form 14039, IdentityTheft Affidavit. Similar to Form 14039, you must submit a photocopy of the taxpayer’s driver’s license, passport or other government-issued identification along with the completed form in order for the Division to provide assistance. ONLINE PORTAL While many of us are accustomed to responding to tax notices in writing, within
the past year the Division of Taxation has allowed for responses to be made electronically. This is done at njportal.com/DOR/ OnlineNotices. The documents that are desired to be submitted, such as cancelled checks for tax payments, W-2 forms, K-1s, etc., are set up as a PDF and then the PDF is uploaded and submitted with the response that includes a Document Locator Number (DLN) and various other identifying information. OFFICE OF THE TAXPAYER ADVOCATE Did you know that the Division of Taxation has an Office of the Taxpayer Advocate (OTA)? The OTA provides an avenue of independent review for taxpayers with New Jersey tax problems that they have been unable to resolve through normal channels as a result of action or inaction by the Division of Taxation. The OTA can only assist taxpayers whose problems fall within the Division of Taxation’s jurisdiction. The following guidelines are used to identify cases eligible for OTA assistance: yy You face a threat of immediate adverse action for a disputed liability, or you believe that you did not receive adequate notification of the Division’s actions or that the Division’s actions are unwarranted, unfair or illegal. yy You have experienced a delay of more than 75 days to resolve a tax account problem or in receiving a response to an inquiry to the Division. yy You are experiencing undue hardship or are about to suffer undue hardship. If the taxpayer’s situation meets the above criteria, Form NJ-OTA-911, Request for Assistance from the Office of the Taxpayer Advocate, is to be completed. WEBSITE USE The Division of Taxation’s website contains a wealth of resources that practitioners can often make use of. You can find information on a variety of subjects including the Division’s Voluntary Disclosure Program for non-filers; installment payment plans
for deficiencies; the Division’s organizational chart; field office locations in Camden, Fair Lawn, Neptune, Newark, Northfield, Somerville and Trenton; and, of course, a multitude of tax forms and various tax publications. If a taxpayer seeks guidance on a particular matter, in the Contact Us section of the website is an electronic correspondence template that can be completed anonymously. Depending on the time of year that the guidance is sought, the response might be generated in as little as one week. The practitioner selects the topic area from a dropdown menu, provides their contact information including their PTIN and enters a narrative message spelling out the issue. Neil B. Becourtney, CPA, is a tax partner at CohnReznick LLP. He is a member of the NJCPA Federal Taxation and State Taxation interest groups and can be reached at neil.becourtney@ cohnreznick.com. READ MORE STATE TAX ARTICLES AND RESOURCES njcpa.org/topics/statetax
NEW JERSEY CPA | JULY/AUGUST 2017
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TECHNOLOGY & INFORMATION MANAGEMENT
Beyond QuickBooks BY PETER J. RENZULLI, CPA, BOOKKEEPERS2GO
When speaking with fellow accountants, it seems that everyone is complaining about fee pressure and the inability to gain a competitive advantage. This is not surprising, as most accountants only offer consulting, support and accounting services based on the QuickBooks software. Thus, a blue ocean strategy (Blue Ocean Strategy by W. Chan Kim and Renee Mauborgne) CPAs should consider is to offer services based on different software. The key is understanding the types of accounting software and how they add value to the client. Accounting software can be classified into three categories: integrated, non-customizable and apps. Each category has its distinct advantages and disadvantages, which the accountant must balance to add value for the client. INTEGRATED SOFTWARE Integrated software allows a client to combine their accounting systems with customer support and communications. Many accountants believe that this software is either cost prohibitive or too complicated, or both. By linking the client relationship management (CRM) and accounting systems, business owners are able to understand how their customers contribute to the organization’s financial health. The CPA is uniquely positioned to assist in the implementation and with integrating the software functionality with operations, sales and accounting. This will position the CPA for a long-term high-value relationship with the client. Examples of this type of integrated software is Zoho, Netsuite and FinancialForce. NON-CUSTOMIZABLE SOFTWARE Non-customizable software is usually simpler to use than the integrated solutions and can fit the needs of many small businesses. The focus of this type of software is bookkeeping and historical accounting, so many of the tools for budgeting, analytics and CRM are not included. Also, non-customizable software is not very sophisticated. QuickBooks falls into this category, but
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there are other options. By understanding the alternatives to QuickBooks, the CPA can add value by being able to present options that may be a better fit for the client. Software such as Sage and Xero are very similar to QuickBooks, but the differences may be of real value to the client. APPS A great way to add value for clients using non-customizable software is to implement apps that work with it. The apps range from sophisticated inventory systems that can easily handle FIFO, purchasing and shipping, or financial forecasting and reporting. Some apps even tie back to other CRM software such as SalesForce or Dynamics. The selection, installation and maintenance of these apps is another great value add for the CPA when working with a client. THE CPA’S ROLE IN SOFTWARE SELECTION, INSTALLATION AND MAINTENANCE The starting point for adding value during the software selection phase is to establish an integrated team at the client’s office. By understanding how the client’s operations, sales and financial functions work and who will be using the software, the CPA will be able to hone in on the most appropriate software options. Focus on the non-bookkeeping functional requirements, such as inventory, CRM and analytics. This phase should be an engagement on its own with clear deliverables and outcomes as wells as clearly articulated client responsibilities. The next engagement is the planning and implementation phase. During planning, the client will need to understand if they need computer programmers and/ or a specialized implementation team. If so, the CPA will still add value by being the project manager and ensuring that the implementation is done correctly and timely. The CPA can also play a part in training the different stakeholders and users of the software. The final phase is maintenance. There is no one better suited to assist the client in
managing the daily accounting functions for the organization than the person who assisted in the selection and implementation of the software. Instead of the highly competitive, low-value-add model of closing the books once a month or once a quarter, the CPA will be in the position to act as the controller or CFO. By leading the integration of software and business processes, the CPA will easily accomplish the goal of being an integral part of management, creating a competitive advantage, growing their firm and increasing hourly rates. Peter J. Renzulli, CPA, is the president of Bookkeepers2Go. He is a member of the NJCPA Content Advisory Board and can be reached at renzulli@bookkeepers2go.com.
READ MORE ACCOUNTING SOFTWARE ARTICLES AND RESOURCES njcpa.org/topics/software
LEARN MORE NOV. 13, 2017, ROSELAND K2’S QUICKBOOKS ONLINE AND OTHER TOP ACCOUNTING SOFTWARE FOR SMALL BUSINESSES Register at njcpa.org/events
NJCPA NEWS
New NJCPA President is Getting the Society Ready for the Future BY DON MEYER, NJCPA CHIEF MARKETING OFFICER
Recently inaugurated NJCPA President Edward I. Guttenplan, CPA, CGMA, MBA, has a lot to be happy about these days. Not only did he recently welcome respected colleague Gail Rosen, CPA, to his firm, Wilkin & Guttenplan P.C., but the firm was also recently recognized by NJBIZ as the fifth Best Place to Work in the small/medium category, the top spot among accounting firms in the category. “Having a successful company culture is about listening to ideas and suggestions from every level of employee at the firm and embracing change,” says Guttenplan, who resides in Highland Park with Bonnie, his wife of 38 years. I recently spoke with Guttenplan about his goals for 2017/18 and the importance of listening to the next generation. HOW DID YOU BECOME INVOLVED WITH THE NJCPA? When I left Price Waterhouse (now PwC), I went to work for a medium-sized firm in central New Jersey. The firm partners and staff were actively involved in the Middlesex/Somerset Chapter. Many of the people I looked up to were part of the chapter and encouraged me to participate. I served as the chapter’s program chair, treasurer and president and participated on several state-level committees. Eventually I was ready for something new, and, as managing partner of a mid-sized firm, I needed to be a role model, give back to an organization that helped me and be engaged with it. I went on to serve on the NJCPA Student Programs and Scholarship Committee, Scholarship Fund Board and two terms on the Board of Trustees, serving as secretary before accepting the nomination to serve as the Society’s 96th president. WHAT ARE YOUR PRESIDENTIAL GOALS? My passion is developing young professionals. I want to provide meaningful opportunities for staff at our firm and
emerging leaders of the Society, but that can only happen through active engagement. At Wilkin & Guttenplan, we achieve this through both formal and informal initiatives. For example, we have a Future Council program where everyone on our staff from supervisor level and below is included. The topics of discussion center on the view of the firm five to 10 years out. We also have NexGen, which is an experiential learning program for partners to take younger team members on new business opportunities or client meetings. As company and NJCPA leaders, we need to demonstrate a willingness to change the paradigm so young professionals can see what their future could be. We need to reach down and bring them up. We should not wait for them to ask or raise their hands. ANY FINAL THOUGHTS? Many members don’t get involved in the NJCPA’s advocacy efforts because they think that they’re only one person and one CPA can’t have an impact on such weighty issues. But the collective voice of hundreds or thousands of engaged CPAs can help the Society advance public policy outcomes that are important to businesses and New Jersey residents. I believe that the NJCPA’s research capabilities and relationships with key lawmakers had a profound impact on the debate about the Transportation Trust Fund and Tax Relief Package, a bill that eliminated the state’s onerous estate tax. We need to rally around the NJCPA efforts to be a voice in protecting our profession and the clients we serve. Personally, I’ve learned a lot about what’s going on in Trenton through my involvement with the Society’s advocacy program. The legislative and regulatory updates that I participate in raise my level of political awareness. Also, I’m better able to advise clients because I have an enriched understanding of the state’s business and legislative climate.
Edward I. Guttenplan, CPA Our advocacy efforts are part of the NJCPA’s Image Evolution initiative, one of four initiatives in the Society’s new strategic plan (njcpa.org/strategicplan). I plan to continue to support the ongoing roll out of the plan, as we work to make the NJCPA an even more meaningful and valuable destination for young and seasoned professionals.
WATCH MORE MEET YOUR 2017/18 NJCPA PRESIDENT njcpa.org/board
NEW JERSEY CPA | JULY/AUGUST 2017
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NJCPA NEWS
2017/18 NJCPA Chapter Presidents ATLANTIC/CAPE MAY
BERGEN
ESSEX
HUDSON
DIANE GITTO, CPA
KATHLEEN BERNARD, CPA
JESSE M. HERSCHBEIN, CPA
SALVATORE M. GRASSO, CPA
Friedman LLP
Lota & Bernard, LLC
LFL Veritas, LLC
Grasso & Company, LLC CPAs
MERCER
MIDDLESEX/SOMERSET
MONMOUTH/OCEAN
MORRIS/SUSSEX
RUSSELL A. SCHWARTZ, CPA
FAUSTO B. DIAZ, CPA
CHRISTINE M. DARCY, CPA
MICHELLE C. SHAPIRO, CPA
HBK CPAs & Consultants
CohnReznick LLP
Darcy & Connolly, CPAs, LLC
Untracht Early LLC
PASSAIC COUNTY
SOUTHWEST JERSEY
UNION COUNTY
MARSHALL E. SAUNDERS, CPA
NORA V. JONES, CPA
GARY S. MANNUZZA JR., CPA
Turnkey Sports & Entertainment
Mannuzza & Lamela, LLC
Learn more about our chapter presidents and the activities taking place in their chapters at njcpa.org/chapters. 22
JULY/AUGUST 2017 | NEW JERSEY CPA
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MEMBER STORY
and later helped his co-workers at Smolin sponsor a family in need at CPC Behavioral Healthcare.
father, Edward Rory Gannon (right) and his
Keeping Law and Order in the Family BY KATHLEEN HOFFELDER, NJCPA CONTENT EDITOR
When Rory Gannon, CPA, MST, was just five years old, he realized the courtroom was something special — not because of all the people in the room but the judge. To Rory, going to court was the time he would get to see his dad in action — the late Superior Court Judge Edward V. Gannon. What he didn’t know then was that he would return to court many years later as a senior forensic accountant for Smolin Lupin. Growing up as a Gannon was anything but typical. Rory’s uncle is Morris County Sheriff James M. Gannon. In a family of judges and sheriffs, Rory was surrounded by discussions of keeping law and order at a young age — even during family gatherings, such as baseball trips, Giants games and vacations. These events typically expanded to include retired judges and courtroom staff who had become “family” to the Gannons over the years. This expansion was natural since, dating back to the 1990s, his father served on the bench in three counties: Morris, Sussex and Passaic.
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JULY/AUGUST 2017 | NEW JERSEY CPA
One particular childhood memory gives a glimpse into how all-encompassing law enforcement was in the Gannon household: A routine Boy Scout meeting at his home turned out to be a lesson in what judges often have to deal with on a daily basis — criminal threats. Armed guards were protecting the Gannon property with rifles due to courtroom activity earlier that day. SAVING TROUBLED YOUTH Protecting the public, particularly troubled youth, has always been high on the Gannon family agenda. According to Rory, his dad “wanted to deter youths from doing wrong,” so he helped set up juvenile work programs in Morris County, and assisted Sussex and Passaic County youth. Rory continued that tradition by participating in a variety of charitable initiatives geared towards helping youth as well as entire families. He participated in Habitat for Humanity and Knights of Columbus
CONNECTING THE DOTS Rory’s interest in accounting can also be traced back to his family’s involvement with the law. “There are lots of connections between forensic accounting and law,” he says, noting that both rely on what he calls a “questioning mind.” Both law firms and accounting advisories are looking to enhance litigation support services, but Rory says only as a forensic accountant does one get to sink one’s teeth into uncovering “big data” transactional problems, for example, or even calculating what value can be placed on wrongful death cases to assist clients in court. It’s only fitting that Rory works in a firm whose slogan is “We’re not your average CPA firm,” as clearly Rory is not your average CPA. “Not a lot of forensic accountants have a tax background,” explains Rory, who received his Masters in Tax from Rutgers University. He rejoined Smolin after two years in investment banking, where he gained practical knowledge on valuing Real Estate Investment Trusts and performing net asset value calculations, purchase price allocations and various litigation support services. He also obtained his Series 7, Series 79 and other licenses from the Financial Industry Regulatory Authority. As satisfying as investment banking was, Rory still felt something was missing — the opportunity to unravel employee fraud cases, find unrecorded cash or determine what assets may be undervalued. So, Rory opted to return to Smolin where he felt he truly “belonged.” Family, understandably, means a lot to Rory, which is why he enjoys working at Smolin and the role he plays there. “While we may get into disagreements with another expert in litigation regarding an approach, a cap rate, a normalizing adjustment, we as forensic accountants are one giant family working to assist the client, not ourselves,” he said. “It is this family atmosphere that helps me to relate to the prestigious men in the Gannon household who I grew up under.”
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