New Jersey CPA - July/August 2019

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EYE ON ADVISORY: HOW TO EXPAND THE RIGHT WAY Page 4

THE LEARNING CURVE FOR ADVISORY SERVICES

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8 FAST-GROWING SERVICE AREAS FOR CPAs

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THINKING ADVISORY: WHAT CPAs NEED TO CONSIDER

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INDEPENDENCE AND LIABILITY ISSUES FOR ADVISORY SERVICES

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contents J U LY/A U G U S T 2 0 1 9

THE MAGAZINE OF THE NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS

RALPH RALPH ALBERT ALBERT THOMAS, THOMAS Chief CPA Executive (DC), CGMA Officer Chief & Executive Executive Director Officer &rthomas@njcpa.org Executive Director rthomas@njcpa.org ELLEN C. McSHERRY Chief ELLEN Operating C. McSHERRY Officer Chief emcsherry@njcpa.org Operating Officer emcsherry@njcpa.org DON MEYER ChiefDON Marketing MEYER Officer Chief dmeyer@njcpa.org Marketing Officer dmeyer@njcpa.org RACHAEL BELL RACHAEL Managing Editor BELL Managing rbell@njcpa.org Editor rbell@njcpa.org KATHLEEN HOFFELDER KATHLEEN Content HOFFELDER Editor khoffelder@njcpa.org Content Editor khoffelder@njcpa.org MARC L. REIN Multimedia MARC L.Specialist REIN Multimedia mrein@njcpa.org Specialist mrein@njcpa.org

4 The Learning Curve for Advisory Services

8 Thinking Advisory: What CPAs Need to Consider

6 8 Fast-Growing Service Areas for CPAs

10 Independence and Liability Issues for Advisory Services

Adding on advisory services is one of the fastest-growing ways for CPA firms to increase revenue. However, no clear-cut pathway exists on whether it’s better to grow organically or by merger/ acquisition. There are pitfalls to avoid and best practices to follow for any size CPA firm. Here are some examples of what’s worked and why.

New areas in which to service clients are popping up almost daily, and CPAs are improving their skillsets to take advantage of the opportunities available.

Savvy CPAs are enjoying early success in international reporting, cannabis guidance, environmental management, and sports and entertainment taxation.

Find out what other sectors are ripe for offering advisory services.

2 CLOSE UP THE NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS 105 425EISENHOWER EAGLE ROCKPARKWAY AVENUE SUITE SUITE 300, 100, ROSELAND ROSELAND NJ NJ 07068 07068 973-226-4494 | NJCPA.ORG #NJCPAMAG READ NEW JERSEY CPA ONLINE AT NJCPA.ORG/ NEWJERSEYCPA DESIGN/ DE SIGN / P RODUC RODUCT T I ON / A ADVERTISIN DVERTISING G THE YGS GROUP 3650 WEST MARKET STREET YORK, PA 17404 Advertising Contact: LAURA GAENZLE ACCOUNT EXECUTIVE 717-430-2351 laura.gaenzle@theygsgroup.com

NJCPA Sets Organizational Vision 12 ACCOUNTING, AUDITING & ATTEST

Accounting and Auditing for Small Businesses 13 BECOMING A CPA

How CPA Exam Review Courses Measure Up 14 BUSINESS ADVISORY SERVICES

3 Steps to Successful Cross-Servicing 15 FINANCIAL PLANNING SERVICES

Upstream Gifting: Leveraging the Estate Tax to Reduce Income Tax

By delivering increased value to clients, getting compensated at the appropriate rates and being a more engaged professional, the shift to advisory is a win-win all around. But it can be difficult for firms and practitioners to identify just what specific steps should be taken to turn this concept into reality.

With the growth in advisory services, CPAs need to be aware of several activities that would constitute an impairment of the CPA’s independence. Some liability issues exist when offering advisory services if a client has a questionable reputation, for example. The most important CPA tool, however, to avoid liability issues is the engagement letter.

16 FIRM & PRACTICE MANAGEMENT

9 Social Media Pitfalls to Avoid 17 GOVERNMENTAL & NONPROFIT

Smart Grant Writing and Compliance: Be Strategic to Get it Right 18 LAW & ETHICS

Can I Hold Client Records for Unpaid Fees?

19 PROFESSIONAL DEVELOPMENT

The Path to Thought Leadership

20 TAX

Desk Audits — More Common Than You Might Think 21 NJCPA NEWS

yy 2019/20 NJCPA Chapter Presidents yy NJCPA Adds Four New Business Service Providers yy 2019 Annual Convention a Success 23 CLASSIFIEDS 24 MEMBER STORY

Renee Bell, CPA

CLOSE UP

NJCPA Sets Organizational Vision

BY BRENT ASHTON, CPA, EY LLP AND CHAIR OF THE NJCPA STRATEGIC PLANNING COMMITTEE

The NJCPA has a long-standing tradition of serving its members and the business community while helping to foster the next generation of accountants and CPAs. As the largest professional organization serving the needs of Garden State CPAs and aspiring CPAs, we have a lot on our plate. So, how do we become nimbler and more responsive to the needs of a changing market while still fulfilling our mission? It begins with a bold organizational vision: TO EQUIP AND EMPOWER NEW JERSEY’S ACCOUNTING AND FINANCE PROFESSIONALS TO THRIVE IN THEIR CAREERS Those are not just words — they mean something. As the chair of the Strategic Planning Committee, I have observed firsthand how we can work together to embrace our colleagues, help the profession grow and encourage the next generation of aspiring CPAs. This new organizational vision will serve as a beacon for the NJCPA, providing a framework within which strategic decisions and plans are made. We will continue to provide exceptional learning experiences, an inclusive welcoming community, tools and resources for our members and customers, while serving as the voice for New Jersey CPAs and the accounting profession.

What’s changing? What we deliver and how we deliver it. Dissecting the vision statement, we see several supporting programs to help carry out this vision.

These include:

yy Professional development. We will enhance the flexibility of our programming and supplement in-person training with anytime, anywhere training options that meet CPAs’ time and location constraints. The NJCPA also realizes that we need to extend the reach of our educational offerings to serve the entire profession. Staff from throughout the accounting and finance profession will partake in NJCPA’s professional development offerings, including analytics, information systems and professional skills, which will become as important as traditional technical training.

and their clients. CPAs, in turn, will receive news and information in real time directly to smart devices based on their interests and what we know about each user. Greater use of new and existing information sharing/ innovation techniques will improve collaboration and engagement and build broader, better-connected CPA communities.

yy Market assistance. The NJCPA will offer a suite of programs and firm benefits around pressing and evolving firm and company needs, such as marketing, technology and talent management.

Through this new suite of business services, NJCPA will provide solutions to the challenges members and their businesses face, while assisting members to advance in their careers.

yy Community building. CPAs will choose from a variety of modernized membership options, offering individuals the ability to create a customized collection of member benefits to match their needs and interests at a particular point in their life or career.

They will also be able to attend smaller, targeted events designed to bring together individuals around a common interest. On a broader scale, firms and companies will be able to take advantage of organizational memberships, in which an organization can purchase a group membership for its qualified staff.

yy Advancing public policy. Members and staff will play a more active role within New Jersey government, assisting legislators and regulators to make more informed decisions on tax and regulatory policies.

yy Partnerships and alliances. Tighter collaboration between the NJCPA and firms, companies and related professional associations will facilitate insight sharing and provide CPAs with access to new resources and expertise.

yy Information sharing. We will strive to provide more in-depth guidance and best practices to help CPAs stay abreast of changes in the profession that impact them, their organizations

Our intent is for this vision statement to guide us in helping you grow, innovate and continue to thrive in the CPA profession. Learn more about the vision at njcpa.org/vision.

New Jersey CPA (ISSN 1534-6692) is published six times per year by the New Jersey Society of Certified Public Accountants, 105 Eisenhower Parkway, Suite 300, Roseland, NJ 07068. Issue No. 76 Copyright © 2019 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, 105 Eisenhower Parkway, Suite 300, Roseland, NJ 07068-1640.

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.

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THE LEARNING CURVE FOR ADVISORY SERVICES

By KATHLEEN HOFFELDER

NJCPA CONTENT EDITOR

From fraud investigation and financial services to government consulting — you name it and accounting advisories offer it.

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Almost daily a CPA practice that once only provided accounting and tax now boasts a myriad of client services, has updated branding and has altered its website accordingly. In a recent Accounting Today “Secrets of the Top 100 Firms” report, “moving more into advisory services” was cited as one of the most important strategies of the top 100 accounting firms.

Indeed, while many firms already have a strategy or best practices in place for advisory expansion, others may simply jump on a niche when they see an opportunity.

Regardless of the method, enhancing client satisfaction and revenue growth, for both the firm and the client, is the desired outcome. Scott Derco, CPA, partner at Citrin Cooperman, cautions accounting advisories not to cast their net too wide and try to be all things to all people. “Focus on an industry that makes the most sense and be the go-to advisor,” he says.

So how does a firm become “launch ready” to offer new services but not offer something they can’t fully support? The answer varies. Some say it’s best to merge with or acquire other firms that already provide those services since the expertise is there and so are future clients, but others say hiring new employees and building out also works.

As Charles Ott, CPA, MBA, co-managing member of Levine, Jacobs & Company, LLC, notes, “it may be less expensive to grow organically, but it is faster to grow through the M&A route. There is no better way. It depends on the firm’s approach.”

Either way takes time to realize results.

“There needs to be an expectation that no

significant revenues will be generated within the first two or three years,” he adds.

Hiring specific experts can help. As Sarah Krom, CPA, managing partner, SKC & Co. CPAs and immediate past president of the NJCPA, explains, “if you have never worked in this space before, it will be longer and more challenging to build this from the bottom up.” She suggests hiring a retired partner as a consultant or bringing someone in laterally who works in this space to create this niche.

SERVICE SPECIALTIES Some service areas simply lend themselves more easily to CPA firms, while others involve more complicated procedures.

With advisory services and consultancies on the rise, what niche areas work and why? Some of the most common areas for expansion include: Data and Analytics There’s no question that data collection — and a lot of it — is needed for successful firm and practice management but also for advising clients on revenue growth and operating efficiently. According to The CPA Journal article, “State of the Profession 2018: Views on Practice Management,” CPA firms are using technology to better service clients. For example, it points out that software-as-a-service (SaaS) accounting programs have grown in importance, particularly for small businesses. CPAs using SaaS programs, it says, are spending less time providing traditional transactional services and more time delivering advisory services like tax

planning, business insights, big data analysis and regulatory compliance.

And with increasing client demands, firms are using data in more non-traditional ways. Levine, Jacobs & Company, for example, has offered valuation and litigation support for years, but they are expanding their advisory services into data and analytics. “This niche reaches into a broad array of services including business development, regulatory reporting and other analytics customizable to a client’s needs,” says Michael Karu, CPA, CFF, member at Levine, Jacobs & Company.

Cyber Cyber services are particularly on the rise.

KPMG, for one, purchased Cyber, Inc., a Silicon Valley-based company that provides cybersecurity solutions globally, in January of 2018. “Acquisitions such as this enhance our existing capabilities as a leading provider of consulting services, expand our ability to deliver newer and more agile solutions to our clients, and bolster our talent and resources in rapidly growing areas,” explains Jennifer Shimek, a partner/principal at KPMG and advisory office leader of its Short Hills office. KPMG continues to expand its offerings in regulatory, enterprise security, data and analytics, automation, internal audit outsourcing, contract compliance audits, blockchain and up-and-coming contingent workforce platforms.

Bookkeeping/CFO Services Bookkeeping is increasingly being offered as a service to clients. As Krom explains, “CPA practices are diversifying in areas such as outsourced CFO services, financial advisory services and consulting.” According to Krom, these services are booming because there is a need in the business community, and they are coming to CPAs because of the trust and respect that their certification holds.

According to Deirdre Hartmann, CPA, who spearheads the bookkeeping and outsourced accounting services at Nisivoccia LLP, demand is high for these services since it’s less expensive than hiring staff. “By offering these services to our clients, they can now focus on generating revenue, improving their internal

operations and growing their business without having to spend the cost and time associated with managing their own accounting department.”

INTERNAL STRUCTURE Before any final decision on providing advisory services, the right mindset, staffing and support need to be in place.

“First and foremost, you need to identify the right internal leadership team who has the passion and drive to build a new advisory practice area. Next, you need to understand market needs and buyer behaviors surrounding a service area. Once these items are addressed, you then bring in the talent,” explains Bill Hagaman, CPA, CGMA, managing partner and CEO of WithumSmith+Brown, which changed its company tagline in 2018 to list “advisory” ahead of tax and audit services.

Derco recommends setting up an infrastructure that “allows you to be nimble.” His firm employs a team strategy to identify and find solutions that impact

clients’ specific situations and add substance and value.

Regardless of which advisory services are offered, CPA practices must find a balance between adapting and responding to competition and remaining relevant to their clients.

LEARN MORE AUG. 19, ATLANTIC CITY THE SMALL FIRM OF THE FUTURE njcpa.org/events READ MORE SECRETS OF THE TOP 100 FIRMS accountingtoday.com

STATE OF THE PROFESSION:

VIEWS ON PRACTICE MANAGEMENT

cpajournal.com

BUSINESS ADVISORY SERVICES ARTICLES njcpa.org/topics/advisory

NEW JERSEY CPA | JULY/AUGUST 2019

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8 FAST-GROWING SERVICE AREAS FOR CPAs

By SUSAN FIRRIOLO, CPA

TAX CORRESPONDENCE SERVICE

Savvy CPA firms are taking advantage of opportunities to expand their services and quickly deliver more value. International reporting, cannabis guidance, environmental management, and sports and entertainment taxation are among the areas CPAs are enjoying early success in servicing.

ROBOTICS As organizations increasingly utilize artificial intelligence, CPAs can offer robotic services focusing on simplifying life for clients. CPAs who are expanding in this area are going all out to know everything about a business so they can advise their clients on and develop robots needed to automate basic processes. Although robots are great at finding solutions, they don’t yet have the capability to find the problem. That’s where the CPA’s skills come in to identify problems, set goals and utilize resources for those rethinking traditional methods. CPAs who are successful in positioning their firms as experts in robotics are being pursued by clients not only for their expertise but also for the human involvement they offer.

VIRTUALIZATION Many CPAs are already providing outsourced accounting and bookkeeping services to their clients. Now virtual CFOs are becoming popular. A virtual CFO analyzes real-time business data to optimize a company’s financial performance, manage risk, develop tax strategies and more. They may offer one-time services such as advising on business plans or corporate strategy. Virtual CFO services are also marketed to small businesses that are looking for expertise to scale their operations but are concerned about the costs of hiring a full-time CFO. CPAs finding success in this area are filling the void between accounting and meeting the needs of the C-suite.

CYBERSECURITY Cybersecurity is a hot ticket especially since it has become a business requirement across all industries. CPAs are pursuing cybersecurity services to help clients improve data protection and boost controls for important business processes. Because CPAs already

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understand internal controls, systems management and risks, it can be a natural segue into offering cybersecurity services.

Forensic accountants are particularly adept at analyzing, interpreting, summarizing and communicating complex matters. However, it may not be time to dive in yet. Not all CPAs are prepared to offer cybersecurity services just because they possess certain skills. Those offering cybersecurity services need to come armed with a strong high-tech understanding of software development, access controls, data privacy, multiple security domains, emerging technologies and system vulnerabilities.

BLOCKCHAIN Blockchains are a continuing series of records constructed to transmit data.

Blockchain-led solutions are giving CPAs a chance to expand their business valuation and financial planning services. CPAs are also offering a new service advising business owners on the cost benefit of entering blockchain. On another level, there will be a demand for CPAs having a detailed understanding of how blockchains work, bringing their expertise together to create blockchain regulations.

INTERNATIONAL REPORTING The U.S. continues to follow Generally Accepted Accounting Principles (GAAP) for financial reporting which some CPAs feel are outdated standards. Although the U.S. is making a shift from GAAP to International Financial Reporting Standards (IFRS), the move must speed up as many companies are doing more business internationally. CPAs are training themselves in IFRS so they can keep up with the demand this area is beginning to experience. In addition, as international

tax laws, expatriate rules and treaties are becoming increasingly confusing to comply with and hard to understand, CPAs who position themselves as experts in this area are positioning their firms as an early and essential business partner to savvy business leaders who want to take advantage of the opportunities world capital markets offer.

edge. Alternatively, they must be able to teach clients how to keep accurate records and run their cannabis business using only cash. CPAs should also consider establishing a network of other service providers in the cannabis industry, because their guidance can be invaluable in gaining traction in this new industry.

CANNABIS Some CPAs are finding they’ve hit the so-called jackpot providing services in the challenging marijuana industry. Before diving in, CPAs must be careful navigating the hodgepodge of state laws that regulate a substance considered illegal by the federal government. CPAs need to make sure they are well experienced with Internal Revenue Code 280E concerning taxation of illegal income. As a result, CPAs servicing the cannabis industry need to assist cannabis businesses in setting up a chart of accounts to ensure transactions are properly allocated for tax and reporting purposes and avoid audits. Another roadblock is that although the federal government has given banks the okay to work with businesses in the cannabis industry, many banks are reluctant to agree until the federal ban is lifted. CPAs who can successfully work with financial institutions to obtain deposit accounts for those in the cannabis business will have the

THE ENVIRONMENT The specialty field of environmental accounting has not yet matured and offers CPAs an opportunity to get in on the growing green movement. Improving the management of environmental costs is good for the world. CPAs offering services in this area use their skills to find ways for organizations to reduce environmental costs and create revenue streams. Companies are also implementing an Environmental Management System (EMS) which gives them more credibility. CPAs can be involved in the planning, reviewing and reporting on a new EMS or improving an existing one.

SPORTS AND ENTERTAINMENT With the complexity of U.S., state and international tax codes, athletes and entertainers are increasingly seeking experienced CPAs to protect their net worth, ensure their financial security and explain to them why their 18k gold-trimmed Rolls Royce isn’t

a business expense. CPAs offering services to the sports and entertainment industry are becoming an important resource for assuring tax compliance, business structure guidance and estate planning.

Technology changes daily, cannabis is continuing to be legalized, financial reporting standards are evolving, environmental initiatives are increasing, and tax laws are getting more complex. Astute CPAs will improve their skills to take advantage of the opportunities available.

Susan Firriolo, CPA, CITP, CGMA, CISA, is president of Tax Correspondence Service. She can be reached at sac2364@gmail.com

LEARN MORE JULY 25, ROSELAND INTERNATIONAL TAXATION AUG. 9, ROSELAND INTEGRATING AUDIT DATA ANALYTICS INTO THE AUDIT PROCESS

NOV. 7, ROSELAND

AND WEBCAST

ANALYTICAL PROCEDURES

AND BLOCKCHAIN ESSENTIALS —

IMPACT ON MODERN ACCOUNTING njcpa.org/events

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THINKING ADVISORY: WHAT CPAs NEED TO CONSIDER

By DR. SEAN STEIN SMITH, CPA

LEHMAN COLLEGE

It’s been stated time and time again: CPAs need to evolve into strategic advisors and become business partners to clients.

While this concept may sound cliché, what often goes unaddressed are the concrete steps firms and individuals can take to turn this idea into a reality.

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Organizations are different and change over time, and the individuals employed at these firms change even more often, but there are several core traits and ideas that can be used to help prepare CPAs and other accounting professionals for the transition to strategic advisor. Instead of being optional or a nice idea, this shift is quickly becoming a requirement for every practitioner wanting to expand or develop new business lines. Tax returns, audit, attestation engagements and other traditional accounting services are not going away or being rendered irrelevant. Rather, the opposite is true; as data and understanding data becomes more important to organizational success, CPAs have the skill sets and competencies clients and customers are going to be looking for moving forward.

TRENDS TO CONSIDER Before diving right into the mindset shifts or specific changes that should be factored into organizational training and development, it is appropriate to point out what specific trends are forming the focus of this push to advisory. Not meant to be all inclusive, this listing should be used as a starting point for further discussion and analysis.

1. Data-driven analytics. The terminology associated with big data and data analytics may seem like old news, but it is important to remember that many client organizations may have not embraced data and the insights that are available from it. Specifically, accounting professionals — already well versed in collecting and analyzing information

— should continue to drill down into data that is being produced in larger quantities than ever before.

2. Cybersecurity. It might not seem like an incredibly exciting or lucrative area, especially since CPAs have heard about cybersecurity for decades, but this is certainly an area that practitioners need to focus on. Emerging technologies, including blockchain, robotic process automation, artificial intelligence and automation at large are increasing the speed and volume with which data can be transferred and analyzed. On the flip side, these same benefits also provide opportunities for CPAs to address client needs and concerns related to just how secure this data is.

3. Emerging technologies. Speaking of those emerging technologies, these tools represent both opportunities and challenges for practitioners. Automation, increased security and the growing availability of information mean that there is more data to analyze than ever before. This also means, however, that other non-CPA technical experts and firms can enter the market and begin to offer advisory services connected to these tools.

MAKING THE SHIFT CPAs need to be proactive and stake out market positions connected to these emerging trends, but simply approaching these emerging areas with a traditional focus will not be sufficient. In order to truly

crucial to become an operational expert, but in order to increase understanding about the client’s business, CPAs should consider attending a client industry training session and/or working on-site at client locations on periodic basis, and not just at audit or tax time.

3. Serve as a technology and strategy expert. This is the proverbial bucket of gold that practitioners often want to evolve or change into, but in order to do that CPAs need to both understand the emerging technology tools and be able to explain them in a manner that is understandable and useful to clients.

Making it understandable also means that practitioners need to be able to link to business issues and problems that the client is experiencing (see point #2).

move into the advisory services space, and do so successfully, practitioners and firms need to use some new approaches and viewpoints, such as the following: 1. Bring solution options, not just news.

One of the most common complaints from clients to CPAs is that the deliverables that are produced only focus on events and news that have already occurred. While certainly valuable from a compliance and reporting purpose, simply focusing on what has already occurred does not add value to the enterprise going forward. In order to offer solutions and advice moving forward,

CPAs need to understand how the business actually operates, leading us to the second point.

2. Understand the business itself.

Accountants and CPAs have a reputation, deserved or not, of sometimes not quite understanding the operational side of every client business. Clients and customers hire CPAs to assist with financial matters, so it makes sense that is where the focus has been. In order, however, to be able to become that strategic advisor and business partner, firms and practitioners want to evolve into, a deeper understanding is necessary. It is not

Despite all of the discussion about how important it is for CPAs to make the pivot to advisory services and become more of a strategic business partner and advisor, it can be difficult for firms and practitioners to identify just what specific steps should be taken to turn this concept into reality.

Emerging technologies, changing client needs and expectations, and the different mindset necessary to transition from traditional roles to more advisory roles can challenge this transition and shift. That said, and hopefully incorporating some of the ideas contained in this article, it should be becoming clearer that this shift is indeed possible. Delivering increased value to clients, getting compensated at the appropriate rates and being a more engaged professional — the shift to advisory is a win-win all around.

Dr. Sean Stein Smith, CPA, DBA, M.S., CMA, CGMA, is the assistant professor at Lehman College. He is the leader of the NJCPA Emerging Technologies Interest Group and is involved in numerous other NJCPA committees and interest groups. He can be reached at drseansteinsmith@gmail.com.

READ MORE BUSINESS ADVISORY SERVICES ARTICLES njcpa.org/topics/advisory

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INDEPENDENCE AND LIABILITY ISSUES FOR ADVISORY SERVICES

By DESIREE MARTINEZ

TRAPHAGEN FINANCIAL GROUP, LLC

Business growth, the increase in the complexity of the business environment and increased financial reporting standards have turned risk and compliance into opportunities for CPAs to develop more as a trusted advisor to their clients.

The historical accounting firm model has changed — no longer will compliance services be the foundation of success; tomorrow’s measure of success will be based on advisory services. Through advisory services, a trusted advisor enhances value and develops solutions to assist their clients with critical issues in today’s complicated financial landscape.

There are many factors to consider when providing advisory services, especially when providing attest and nonattest services for the same client; it is imperative that CPAs identify and ensure that the requirements listed in the American Institute of CPAs (AICPA) Code of Professional Conduct have been met. CPAs performing attest and nonattest services for the same client must first determine whether the three AICPA requirements outlined below have been met.

The Code of Professional Conduct defines an attest engagement as “an engagement that requires independence.”

Attest services include audits, reviews, agreed upon procedures and other examinations. Examples of nonattest services would be financial statement preparation, cash to accrual conversion and tax return preparation.

DON’T ASSUME MANAGEMENT RESPONSIBILITIES The first general requirement in properly performing advisory services for an attest client is that the CPA does not assume any management responsibilities. Examples of activities that are considered management responsibilities, which would constitute

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an impairment of the CPA’s independence, include the following: yy Setting policies or strategy direction for the client and directing or accepting responsibility for the actions of the client’s employees; yy Authorizing, executing, consummating transactions or otherwise exercising authority on the client’s behalf or having authority to do so; yy Having custody of client assets and accepting responsibility for the preparation and fair presentation of the client’s financial statements in accordance with the applicable financial reporting framework; and yy Accepting responsibility to design, implement or maintain internal controls.

If the CPA was to assume a management responsibility for an attest client, the management participation threat created would be so significant that no safeguards could reduce the threat to an acceptable level; therefore, independence would be impaired.

AVOID THE APPEARANCE OF ASSUMING MANAGEMENT RESPONSIBILITIES The second general requirement is to avoid the appearance of assuming management responsibilities. The CPA should be assured that management will assume all management responsibilities, including oversight of the service by designating an individual, preferably within senior management, who possesses suitable skills, knowledge and experience. Management should evaluate the adequacy and results

of the services performed and accept responsibility for the results of the services.

Again, if management cannot or will not meet its responsibilities, the CPA’s independence will be considered impaired.

HAVE A WRITTEN UNDERSTANDING The third general requirement is to establish an understanding with the client, in writing, about the type and level of services to help prevent any misunderstanding with the client. This should outline the objectives of the engagement, the specific services to be performed, an acknowledgement of the client’s acceptance and responsibilities, and the CPA’s responsibilities and any limitation of the engagement.

If the CPA services are only advisory in nature and the CPA applies the “general requirements” for performing nonattest services, threats would be at an acceptable level and independence would not be impaired.

It is important to carefully evaluate the circumstances and use judgment to determine whether advice or assistance rendered goes beyond what is acceptable. Some examples of advisory services include research materials and recommendations to assist management in performing its functions and making decisions. Other examples include attending board meetings as a nonvoting advisor; interpreting financial statements, forecasts or other analysis; and providing management with advice regarding its potential plans, strategies or relationships.

TIPS TO AVOID LIABILITY ISSUES Some liability issues to be avoided when offering advisory services include

whether to accept a new client and continue servicing a recurring client.

A CPA should not accept or continue an association with a client that has a poor or questionable reputation for honesty and business ethics. While professional standards do not mandate any specific checking or communications before accepting a consulting client, it is a practical recommendation that the CPA should check at least one source for reputation (e.g., professionals serving the potential client) and check with a credit evaluation source (e.g., Dun & Bradstreet). An acceptance and continuance form is also recommended for all prospective clients. These forms should be completed in evaluating whether to accept the client.

The most important CPA tool to utilize in order to avoid liability issues is an engagement letter. The engagement letter should be a comprehensive contract and not just a fee agreement.

An engagement letter communicates and documents the understanding between the CPA and the client about the services to be performed. Owners and managers of small businesses do not always understand some of the provisions of these agreements. As a result, small business clients may resist signing the engagement letter. The purpose of the engagement letter is to simply define the scope of the work that is going to be performed to prevent differing expectations. Engagement letters define the mutual responsibilities of the CPA and the client. A best-practice approach is to

develop standardized engagement letter templates for firm-wide use. It is also important to ensure that the CPA uses the most up-to-date template.

When performing different services, the CPA should include specific language for each level of service to be performed or alternatively consider preparing a separate engagement letter.

The engagement letter should be addressed to management, those charged with governance or both. By taking the proper measurements, CPAs can mitigate risks and avoid independence and liability issues.

“The percentage of CPA firm revenues coming from consulting services is on the rise,” says Jennifer Wilson, partner and co-founder of ConverganceCoaching LLC. “More and more, firms are seizing opportunities to deliver differencemaking consulting services.” Advisory services will indeed be tomorrow’s measure of success for accounting firms.

Desiree Martinez is a senior auditor at Traphagen Financial Group, LLC. She is a CPA Candidate member of the NJCPA and serves on the Accounting and Auditing Standards Interest Group. Desiree can be reached at desiree@tfgllc.com or 201-262-1040 x400.

READ MORE LAW & ETHICS ARTICLES njcpa.org/topics/ethics

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njcpa.org/topics/firmmanagement

NEW JERSEY CPA | JULY/AUGUST 2019

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ACCOUNTING, AUDITING & ATTEST

Accounting and Auditing for Small Businesses

BY DAVID A. LOPEZ, CPA, DAVID A. LOPEZ AND COMPANY, LLC

Accounting, auditing, bookkeeping…to a CPA these terms have a clear and distinct meaning. These three words also represent three specific levels of service provided to clients. But, for most small business owners, these words mean the exact same thing. In their minds, these words are interchangeable. And, in many cases, these words are intimidating to the small business client.

CPAs sometimes fall into the “one-sizefits-all” approach to client service. Some firms have checklists, routing sheets and audit programs that are used for all clients, large or small. But within the small business space, providing accounting and auditing services is a true skill. It’s not enough to simply understand debits and credits or be proficient with audit programs. CPAs need to be teachers and problem solvers.

Providing service to small business extends beyond analyzing the transactions; it involves serving as a consistent resource for the entity. Consider the following when servicing small business clients.

UNDERSTAND THE BUSINESS’S TECHNICAL KNOWLEDGE With many small businesses, most of the company’s financial knowledge lies with one or two people. In most cases, these individuals do not possess a high level of technical accounting knowledge. This becomes risky, especially with an audit engagement. The external accounting professional has to gain an understanding of their knowledge base. In larger organizations, the accounting function is managed by professionals with four-year degrees and professional designations, but in a smaller organization, the external CPA may be the most advanced professional in the room. The small business staff is unlikely to understand the process and the lingo that CPAs use on a daily basis.

Take the time to ensure everyone fully understands the terminology being used, the task at hand, and that everyone truly embraces the importance of the accounting function.

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ACCEPT THE ROLE OF TEACHER With an audit, CPAs always keep independence in the forefront, but they may find themselves explaining concepts that are critical to the audit engagement. This could include providing guidance on how to organize items that need to be presented to the auditor, explaining internal controls or conveying how to minimize risk. But the ability to teach during an audit engagement can be limited. When working on an accounting engagement, there is much more latitude to teach and be hands on. Be prepared to explain the difference between bookkeeping and accounting. Be patient enough to assist the client with the proper recording of certain transactions. Always offer to assist with the analysis and maintenance of subsidiary ledgers. CPAs often create spreadsheets that allow the client to maintain an ongoing analysis of items such as debt. In these situations, the small business can truly appreciate the CPA’s expertise, and it brings a value-added component to the equation.

BE MORE THAN A CPA — BE A BUSINESS PERSON CPAs sometimes tend to laser focus on debits and credits and not take a comprehensive look at the entire business. When working with small businesses, it is imperative to look at everything through the lens of a business person. Focus on how the owner can make improvements to the overall

business. Provide guidance not only on the manner in which transactions are recorded, but also how proposed financial moves will affect the overall business. If the small business client knows the CPA wants to be a resource on all business fronts, he or she will become the go-to advisor. This creates a stronger business relationship as well as upselling opportunities for the firm.

Working with small businesses is rewarding because CPAs can truly display their depth of knowledge and bring experience and skills that are essential to a business’s success.

David A. Lopez, CPA, is managing director of David A. Lopez and Company LLC. He is a member of the NJCPA Content Advisory Board and can be reached at dlopez@davidlopezcpa.com.

LEARN MORE AUG. 23, ROSELAND ACCOUNTING AND AUDITING UPDATE FOR SMALL BUSINESSES njcpa.org/events READ MORE ACCOUNTING AND AUDITING ARTICLES njcpa.org/topics/accounting BUSINESS ADVISORY SERVICES ARTICLES njcpa.org/topics/advisory

BECOMING A CPA

How CPA Exam Review Courses Measure Up

BY PHILIP SOOKRAM, CPA, SAINT PETER’S UNIVERSITY

When preparing to take the CPA Exam, the first step before you start studying is to choose a CPA Exam review course. While all CPA review courses offer similar content, each provider has unique features. Each provider in the table below offers discounts during certain months as well as monthly payment plans. Also, each provider offers a discount for those who have failed using a competitor’s review course, and most will offer a discount if you become a campus representative for their review course.

Each review course offers similar sample exams, multiple choice questions and SURGENT CPA REVIEW

task-based simulations. When comparing course content, there are a few questions to consider before selecting a specific review course.

The answers to these questions will better direct you to the course that fits your needs. Each review course allows a free trial to test out their product, which is a great option to take advantage of.

Good luck on your journey towards becoming a CPA. Pat yourself on the back for taking the first steps. Remember, it always seems impossible until it’s done.

yy Is the review course only a self-study, or are there live classes offered? yy Can it be accessed on a mobile device when that mobile device is not connected to the internet? yy Are you a visual learner or an audio learner? yy What length of time will you have access to the review course content?

BECKER CPA REVIEW

surgentcpareview .com

beckercpa.com

Package Name

Ultimate Pass

Price

$2,899

Discount if previously failed using competitor’s course?

YAEGER CPA REVIEW

WILEY CPAEXCEL

Philip Sookram, CPA, assistant professor, School of Business, Department of Accountancy & Business Law at Saint Peter’s University. He can be reached at psookram@saintpeters.edu.

ROGER CPA REVIEW

efficientlearning .com/cpa

Becker Bundle

All-Access Bundles

Platinum Elite Course Review Course Package

CPA Review Premium

CPA Smart Bundle

$3,987

$1,589

$2,800

$2,999

$1,999

$1,549

50% discount 50%

25% discount

50%

20% discount Up to 20% off 20-25%

Unlimited access until you pass





Access up to 24 

Platform types

Self-study only

Self-study Self-study only Live Online Classroom Live Classroom

Platform access

yyOnline only

yyOnline and offline

Separate mobile app

(flashcards

Learning methods

yyAudio yyVisual

discount

gleim.com

FAST FORWARD ACADEMY

yaegercpareview .com

discount

rogercpareview .com

GLEIM CPA REVIEW

fastforward academy.com

discount







Self-study Live Online Classroom

Self-study only

Self-study only

Self-study only

yyOnline only

yyOnline and offline

yyOnline and offline

yyOnline only

yyOnline only













yyVisual

yyAudio yyVisual

yyVisual

yyAudio yyVisual

yyAudio yyVisual

yyVisual

months if needed

only)

Questions (multiple choice)

7,250+

7,000+

4,300+

12,000

6,200+

10,000+

5,000+

Questions (taskbased simulations)

Nearly 400

400+

160+

540+

400+

1,300+

120+

Video lectures

350+ hours

100+ hours

100+ hours

140+ hours

120+ hours

100+ hours

80+ hours

For a more in-depth comparison chart, visit njcpa.org/cpaexam.

NEW JERSEY CPA | JULY/AUGUST 2019

13

BUSINESS ADVISORY SERVICES

3 Steps to Successful Cross-Servicing

BY RACHEL L. ANEVSKI, M.A.O.B., PHR, SHRM-CP, MATTERS OF MANAGEMENT, LLC

Cross-selling — or the act of marketing existing services to your current client list — has a word in it that many accountants don’t necessarily love: selling. For this article and perhaps your mindset, let’s change the word “selling” to “servicing.” Therefore, cross-servicing is the act in which additional solutions are provided to current clients’ needs. In order to cross-service successfully, three major components need to be present: product promotion, client awareness and client engagement.

1. PRODUCT PROMOTION Product promotion occurs in several ways, typically starting with a handshake introduction and promotional materials. Best practices for product promotion are websites, e-correspondence, social media and hosted events. Standard product offerings tend to be bookkeeping, compliance audits and tax services, however, many firms have expanded upon these and branched out via niche specialties and expertise.

Already known for their core services, many have become accustomed to simply introducing themselves as a CPA. Instead of stating the obvious, try this: “I’m a CPA, and at our firm, we help clients retain more of their earnings. Our clients love us for traditional services, and also leverage us for (insert niche or specialty here).”

Some traditional and not-so-traditional ways to cross-service include the following: yy An old-school brochure with services listed can be a valuable leave-behind. yy Proposals are a great way to up-service products by demonstrating other services the client could benefit from. yy To combat email fatigue, try going back to basics and print a postcard with offerings. yy When using snail mail, employ a targeted approach by choosing specific areas clients would gain from and deliver a message on that. Not everyone needs a cost-segregation study or a certified construction accountant, so be specific. yy Follow up any mailing with a live call. yy Leverage promotion and retention tactics on the firm’s website. Elaborate

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on the firm’s products as well as loop-in key leaders that service them.

2. CLIENT AWARENESS Client awareness is imperative to identify cross-servicing opportunities. When onboarding, take inventory of items the client currently requires and audit them for future needs. Set reminders to follow up with specific information. Determine the appropriate contact(s) at the company for the various services provided by the firm.

Be sure to know each client well in order to identify opportunities to cross-service them. Get personal; it makes all the difference in professional services grandeur.

3. CLIENT ENGAGEMENT Client engagement is the number-one driver for cross-servicing. It’s a formula.

Product promotion + client awareness (client engagement) = cross-servicing $$$.

Be sure to engage with new clients soon after sending them a welcome package or letter. Clients should be receiving at minimum bi-monthly e-newsletters from the firm where they can receive up-to-date information, accounting-specific or firm news and tips. Newsletters can be housed on the firm’s website for future reference.

Many even pinpoint the reader’s interests, which is helpful for follow up later.

Posting on social media engages clients in a quick and simple way. Clients and members of their organization can follow

the firm’s business page on Facebook, Twitter, Instagram or Linkedin. Clients can engage and comment on posts or leverage something they see in a visual the next time they meet with the firm. And finally, rather than live behind a desk all the time, CPAs should host events to promote products, distribute brochures, give away an item, shake a hand, or allow clients to come and relax while engaging in meaningful relationship building.

This all might sound obvious and easy, but it does take effort. Establish a program, deliver your message, know your client and interact with them frequently, at best more than once during tax season and for a quick pre-planning meeting. Set a plan and employ it. Remember, it is more lucrative to cross-service an existing client than to acquire a new one.

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. Matters of Management is an NJCPA business services provider. Learn more at njcpa.org/marketplace.

LEARN MORE AUG. 19, ATLANTIC CITY THE SMALL FIRM OF THE FUTURE njcpa.org/events READ MORE CLIENT ACQUISITION & RETENTION ARTICLES njcpa.org/topics/clients

FINANCIAL PLANNING SERVICES

Upstream Gifting: Leveraging the Estate Tax Exemption to Reduce Income Tax

BY ADAM L. SANDLER, ESQ., EINHORN, HARRIS, ASCHER, BARBARITO & FROST, PC

Let’s face it, not many New Jersey residents have an estate tax problem these days. The individual lifetime federal estate and gift tax exemption is currently $11.4 million ($22.8 million per married couple when considering portability), and the New Jersey estate tax is all but a fading memory.

With such a high federal exemption, certain clients may have elderly relatives who will die with large exemptions going unused. When the exemption was increased to $5 million in 2011, practitioners began proposing a technique called “upstream gifting” to leverage unused exemptions in order for a client to achieve a step-up in basis on his or her own assets.

At its most basic level, upstream gifting is performed as follows: a client makes a gift to his grandmother of an appreciated asset, and she bequeaths it to him under her will. Under IRC § 1014, when the client inherits the asset from grandma, the asset’s tax basis is stepped-up to its fair market value (FMV) as of the grandmother’s date of death, thereby eliminating the built-in gain.

Unfortunately, this basic form of upstream gifting is highly risky, estate tax-inefficient and simply impractical.

If grandma’s estate plan is not properly executed, the asset may inadvertently wind up in the hands of her creditors or other beneficiaries of her estate. The original gift to grandma also consumes some of the client’s own exemption only to have the asset brought back into his or her estate.

Moreover, the client loses access to, and control over, the asset until grandma dies.

For those reasons, using trusts to perform upstream gifting is a much better solution.

Consider the following example: Facts: John and Jane Smith are married residents of New Jersey. They have two children and several grandchildren. John owns a 25-percent interest of an LLC consisting of commercial property. The FMV of John’s LLC interest is $6 million, and his tax basis is $1 million. John’s mother, Mary,

also a New Jersey resident, is in her early 90s and has an estate valued at $1 million.

Issue: John would like to sell his LLC interest within the next five years to buy a vacation home. However, the tax liability on the $5 million gain would be significant.

Plan: John establishes a discretionary Spousal Lifetime Access Trust (SLAT) for the benefit of Jane and their descendants, but also includes Mary as a beneficiary.

John’s brother, Robert, is named as the trustee. The SLAT provides that Robert, as a non-interested trustee, has the power to confer a General Power of Appointment (GPOA) unto a beneficiary. If the GPOA is not exercised, the trust assets continue to remain in the SLAT for the benefit of Jane and the Smiths’ descendants, i.e. a dynasty trust. Finally, John gifts his LLC interest to the SLAT. Result: Mary’s health begins to fail within the year. Robert exercises his power and grants Mary a GPOA over the entire corpus of the SLAT. When she passes away shortly thereafter, the GPOA causes inclusion of the trust’s assets in Mary’s estate under IRC § 2041 but does not result in an estate tax because she is still under the federal exemption and New Jersey has no estate tax. As a result, the LLC interest in the SLAT now has a basis equal to its FMV of $6 million. The SLAT can sell the LLC interest and would only realize a gain to the extent the sale price exceeds $6 million.

The technique used in the above example achieves a much better result than the basic

upstream gifting technique mentioned earlier. Although John used $6 million of his exemption (or less if a discount was applied to the gift), the asset is entirely removed from, and remains out of, the marital estate. Any growth occurs outside of the Smiths’ estate and in the trust. Jane (and John as Jane’s husband) also retains the beneficial enjoyment of the asset as a trust beneficiary, along with any income earned by the LLC prior to sale. Furthermore, the asset is protected from creditors and accidental disposition. Finally, and most importantly, the Smiths avoid paying income tax on the $5 million gain that would have previously resulted.

Adam L. Sandler, Esq., is an attorney in the Wills, Trusts & Estates and Tax Practice groups at Einhorn, Harris, Ascher, Barbarito & Frost, P.C. and can be contacted at asandler@einhornharris.com.

LEARN MORE JULY 15, ISELIN ASSISTING SURVIVORS: CPA’S ROLE IN THE DECEDENT’S ESTATE AUG. 29, ROSELAND THIS YEAR’S BEST INCOME TAX, ESTATE TAX AND FINANCIAL PLANNING IDEAS njcpa.org/events

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NEW JERSEY CPA | JULY/AUGUST 2019

15

FIRM & PRACTICE MANAGEMENT

9 Social Media Pitfalls to Avoid

BY BECKY LIVINGSTON, PENHEEL MARKETING

Many accounting firms recognize that social media should be in their marketing mix, but they have little knowledge of how to do it effectively. Below are some pitfalls to avoid as you build your firm’s social media presence to generate leads, increase brand awareness and engage with clients and influencers.

1. Failure to plan. Without a strategy, the plan becomes haphazard and ineffective. Instead, create a monthly topic calendar in which all social media and marketing initiatives align. You might also leverage trending social media hashtags, such as #TipTuesday #WednesdayWisdom or #FunFriday to tie in your posts.

2. No budget. Even though social media is free to use, someone needs to spend time creating content, sharing it, managing it and reporting on it. That time is not free. Consider increasing your marketing budget to include the time needed to support the platforms you choose to use.

Estimate three to five hours per week.

3. Lacking personality. There are a lot of accounting firms using social media to spread their message. However, to stand out you must have an online personality. Share that personality in your social media posts. For example, if your staff does volunteer work, loves sports, has pets, etc., leverage that in your social media posts. Also, consider the topics on the National Day Calendar (nationaldaycalendar.com) to boost your brand’s presence and tie it into something fun and engaging.

4. Text overload. Share posts that are image centric by creating graphics, checklists, tips and more rather than simply sharing text. There are many free tools you can use to accomplish this task, including Venngage (venngage.com), Canva (canva.com), Adobe Spark (spark.adobe.com) and

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Stencil (getstencil.com).

5. Neglect. Social media is just that, social.

Monitoring, engaging and connecting are the foundation of its creation. Just like in-person networking, you need to engage. Regularly check your social media platforms, share content from others, comment on posts and connect with influencers in your field and your client’s fields. Listening tools can help you, such as Hootsuite (hootsuite.com), Keyhole (keyhole.co), Buzzsumo (buzzsumo. com), Brandwatch (brandwatch.com) and Google Alerts (google.com/alerts).

6. Boring content. The accounting profession may not seem exciting to others, but there are many ways to inject some fun and excitement into your content. Consider posts using accounting humor (“Be Audit You Can Be” is a great example); tying content to trends, for example, when a celebrity dies without a will, you could talk about estate planning; and interesting stats and figures about the profession. Find fun facts using a search engine by looking for “accounting did you know” or “accounting fun facts and stats.”

7. Blanket posting. If you’re using a post-toall social media tool, you’re missing out, confusing readers and alienating others.

All social media platforms are not created equal; thus, avoid sharing one post on all platforms without adjusting copy for the platform’s best practices. Facebook is a conversational social media tool.

LinkedIn is a business tool. Twitter is a headline tool. Instagram is a photocentric tool. Each tool has nuances about the types of posts it prefers and in what format. Blanket posting your content on all platforms will easily demonstrate you don’t know what you’re doing and cause people to stop following.

8. Self-promotion. Rather than hard selling on social media, consider creating opportunities for a conversation. Do

that by posting open-ended questions, fill-in-the-blanks, polls, quizzes and more. Then take those answers and create a response, such as a webinar, video, ebook or whitepaper to share.

9. Reporting. If you’re not tracking your success with social media, then how do you know what your audience likes/dislikes? At a minimum, view your analytics monthly to identify what’s working and opportunities for improvement.

Social media can be a great tool to help your brand expand, reach new leads and connect with influencers and clients. Using a strategy will not only help you to stay on track but will also help you to determine the path you should follow going forward.

If social media engagement intimidates you, or will take too much time from your day-to-day work, consider outsourcing that role to help move you toward your goals.

Becky Livingston is the president and CEO of Penheel Marketing, a New Jersey-based firm specializing in social media and digital marketing for CPAs and small business owners. She is also the author of “SEO for CPAs — The Accountant’s SEO Handbook: Get Found Online Organically” and “The Accountant’s Social Media Handbook.” Becky can be reached at becky@penheel.com.

LEARN MORE OCT. 17, ROSELAND AND ONLINE KEY CONCEPTS OF POWERFUL COMMUNICATION njcpa.org/events

GOVERNMENTAL & NONPROFIT

Smart Grant Writing and Compliance: Be Strategic to Get it Right

BY BRIDGET HARTNETT, CPA, AND RONALD G. MATAN, CPA, SOBELCO

CPAs who want to serve as their nonprofit clients’ trusted advisors are committed to providing guidance and resources that go beyond conducting an audit or completing a Form 990. CPAs add significant value when they share ideas that enable their clients, including nonprofit leaders and volunteers, to efficiently address their greatest challenges as well as position themselves to leverage their greatest opportunities.

One area that is always at the top of the list is grant writing. Nonprofit organizations of all sizes often focus on grants. While there are many other methods for generating revenue, such as individual philanthropy, corporate donations, fundraising events and investment income, grant writing remains as an incredibly popular option.

RESEARCH AND SELECTION There is much to be considered when applying for a grant, from application through compliance. Before applying for a grant, every organization should research the key details. This means that the first step is to conduct meaningful research. This is necessary to identify those organizations that are most interested in funding a nonprofit with a similar philosophy and commitment. By doing this, the nonprofit can determine if their mission is aligned with the goals and unique conditions of the grantor.

After selecting the right funder, the nonprofit must take time to read the entire grant application to understand the expectations, constraints and deadlines. By doing so they will be prepared to answer the critical questions that address the grantor’s issues in a clear, concise manner. Chasing the money without being certain that the grantor is an appropriate funding source is a foolhardy decision.

In fact, the more connections that exist between the vision of the funder and the nonprofit, the greater the opportunity for a positive decision.

When CPAs assist nonprofit leaders in the grant writing process, they have a range

of responsibilities. This includes reminding the nonprofit that each funder has specific requirements that need to be considered. It is essential to know if the funder is seeking nonprofits within specific industry niches — for example, supporting those focused on vertical markets such as education, healthcare, families, religious organizations or the environment. It is most likely a waste of time for a nonprofit engaged in mental health services to seek funding from a grantor that only supports animal welfare associations.

Grantors offer strict guidelines regarding what information should be included in the application. Grant makers and foundations are looking for documentation that demonstrates and supports the current and future impact of the nonprofit, the future sustainability of its objectives, the strength of the leadership team, systems and infrastructure, its target audience, its demographic focus, its willingness to collaborate with other nonprofits (or for-profits) and a summary of how the funding will enable the nonprofit to continue working to achieve its purpose.

COMPLIANCE Ensuring compliance is mandatory. It falls to the CPAs to strongly remind nonprofit leaders to take their fiscal responsibilities seriously when they receive funding. If the nonprofit is awarded funds, it must uphold the promises made during the application process. In order to accomplish this, the organization must have a relevant record keeping system in place along with strong internal procedures to support a culture of compliance.

Having proper systems in place will help the nonprofit substantiate its claims that the funds are being disbursed as promised based on the budget provided, which is included to justify the numbers, at the time of the application. Since grant management can be tied to the audit, the nonprofit leaders and their CPAs must work together to provide proper oversight, tracking the use of the funds and

confirming that the money is being used in accordance with the guidelines and requirements of the funder.

CPAs and others who are engaged in the grant writing process can increase the potential for success when they follow the rules and are attentive and respectful of the funders’ goals. The strategy for effective grant writing begins by limiting the initial outreach to the most suitable funders, continues with a detailed and authenticated application, is supported by the connection between the nonprofit’s mission and the funder’s mission, and must have the systems in place to ensure post-award compliance and proper spending as well.

Bridget Hartnett, CPA, PSA, is the member in charge of SobelCo’s Nonprofit and Social Services Practice, and can be reached at bridget. hartnett@sobelcollc.com. Ronald G. Matan, CPA, CGMA, PSA, is member of the firm and a member of the Nonprofit and Leadership teams at SobelCo. He can be reached at ron.matan@sobelcollc.com.

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NEW JERSEY CPA | JULY/AUGUST 2019

17

LAW & ETHICS

Can I Hold Client Records for Unpaid Fees?

BY LORI A. BUZA, ESQ., AND BRIGID D’SOUZA, CPA, SAINT PETER’S UNIVERSITY

The question as to whether or not a New Jersey licensed CPA (practitioner) must fulfill a records request by or for a client who has unpaid fees requires a review of several sources. The AICPA Code of Professional Conduct (AICPA Code) and the Regulations Governing Practice Before the Internal Revenue Service, referencing 31 C.F.R. §10.28, (Treasury Circular 230) both defer to state accountancy law and regulations.

In New Jersey, a practitioner may not withhold “client records” for unpaid fees (N.J.A.C. 13:29-3.16 (b)). Though this New Jersey regulation provision does not specifically define the meaning of “client records,” its meaning can be reasonably inferred, as detailed below. Where ambiguity exists, it is our position that deference should be made to the client to satisfy the records request (even in the case of unpaid fees) in order to safeguard against potential violation of the law and/ or disciplinary action.

AICPA CODE Fulfilling one’s duties under the Acts Discreditable Rule (§1.400.001) requires practitioners to appropriately fulfill records requests as set forth in §1.400.200. This section includes four types of records (§1.400.200.01): 1. “Client-provided records” are defined as “belonging to the client” and provided to the member by the client.

2. “Member-prepared records” are records the member was “not specifically engaged to prepare and that are not in the client’s books and records or are otherwise not available to the client.”

Examples include adjusting entries and supporting schedules that the member prepared as part of an engagement.

3. “Member’s work products” are deliverables per the terms of the engagement, such as tax returns.

4. “Working papers” are all other items prepared “solely for purposes of the engagement” and can be prepared by the member or the client.

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Interestingly, the AICPA Code states that “member-prepared records” and “member’s work products” may be withheld if fees are due (§1.400.200.07). The AICPA Code, however, specifically defers to state regulatory bodies — such as members’ state board(s) of accountancy — if more restrictive language exists on the topic of records requests. (§1.400.200.05) Indeed, New Jersey does have more restrictive language.

NEW JERSEY LAW AND REGULATIONS The New Jersey statute itself is silent with respect to unpaid fees (N.J.S.A. 45:2B-66 “Disposition of Records”).

The New Jersey State Board of Accountancy Regulations (N.J.A.C. 13:293.16(b)), however, provide explicit guidance with respect to unpaid fees, stating that, “a licensee or the licensee’s firm shall not withhold client records for the non-payment of fees for services performed.” [Emphasis added.] It does not explicitly define “client records,” yet provision (a) in the same section infers that client records would include: yy A copy of a tax return of the client yy A copy of any report, or other document, issued by the licensee to or for such client yy Any accounting or other records belonging to, or obtained from or on behalf of, the client which the licensee removed from the client’s premises or received for the client’s account, but the licensee or the licensee’s firm may make and retain copies of such documents when they form the basis for work done by the licensee yy A copy of the licensee’s or his or her firm’s working papers, to the extent that such working papers include records which would ordinarily constitute part of the client’s books and records, and are not otherwise available to the client (N.J.A.C. 13:29-3.16(a))

TREASURY CIRCULAR 230 Treasury Circular 230 contains additional guidance for those authorized to practice before the IRS, including CPAs. It requires a practitioner to return “…any and all records of the client that are necessary for the client to comply with his or her Federal tax obligations” (31 C.F.R. §10.28 “Return of Client Records”).

In the event of a fee dispute, §10.28 defers to state law if that law permits withholding a “client’s records” because of a fee dispute and requires only that “… those records that must be attached to the taxpayer’s return.” Yet, as noted above, a conservative reading of the law in New Jersey would suggest that a practitioner is not permitted to withhold any client records, even in the event of a fee dispute.

Lori A. Buza, J.D., is chair of the Department of Accountancy & Business Law and associate professor of Business Law at Saint Peter’s University. Brigid D’Souza, CPA, MBA, is an assistant professor with the Department of Accountancy & Business Law at Saint Peter’s University.

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PROFESSIONAL DEVELOPMENT

The Path to Thought Leadership

BY KAREN DONAWAY, SKC & CO. CPAs, LLC

Thought leadership. Personal branding. Content marketing. If you think these terms don’t apply to you…think again! It is more important than ever to become engaged in the branding and marketing process — not only for your business, but for YOU personally. If you are interested in professional growth opportunities in your company or potentially growing your business, you must stand out from others in your industry.

Becoming a thought leader takes conscious effort and a true understanding of how you are perceived by prospective clients, strategic partners and others in your field. Although this may seem a bit overwhelming, the steps to thought leadership are very straightforward: Create your personal brand, identify your unique and innovative thoughts, and create engaging content to be generously shared with your audience.

PERSONAL BRAND Believe it or not, you’ve been working on this your entire career. Your personal brand is YOU. It is your story, your energy, how you define yourself and how others see you. It is the content you create, the relationships you develop and the expertise you are known for. Being confident in yourself and in your personal and professional story is a great starting point.

An interesting exercise to do with a networking group or peer group is to ask the people in the room to describe your personal brand. If they struggle to come up with the words, or describe your brand in a way that does not resonate with you, then you know you are not clearly articulating your story. Ask for feedback and learn from other people who are precise with conveying their brand.

THOUGHT LEADERSHIP Thought leadership is recognizing that you have unique and specific ideas and the ability to share them with others. Take a moment to think of a time that you shared an idea with someone and they responded

“Wow! I’ve never thought of it that way before” or “Thanks for sharing that, I can’t wait to try it.” You have experienced thought leadership!

Recognize that you have unique ideas and approaches that differentiate you from others in your industry. Your innovative ideas can potentially change the way someone else is doing things. You can make a positive impact on other people by sharing your thoughts and experiences with them.

Spend some time thinking about ideas you implemented that brought about positive change in your company or organization.

Or, perhaps you helped a client make a significant change. Get in touch with your creative, innovative self. This is the beginning of your thought leadership content.

CONTENT MARKETING Now that you have successfully established your personal brand and have identified your unique and innovative ideas, it is time to create shareable content. Your thought leadership success will largely depend on your ability to communicate your ideas to your target audience. Invest time in identifying your audience. Who are they? What are their pain points and issues? Use your personal brand to communicate with them in a thoughtful, genuine way that they can easily relate to.

Make it easy for your information to be shared. The more engaged your audience is the more credibility you have. Using social media platforms like Twitter, LinkedIn and Facebook is an efficient and effective way to build your audience. However, branching out beyond social media is essential to your thought leadership success. Consider doing a presentation for a like-minded organization. Sponsor events where you have an opportunity to speak to the group.

Create a podcast that can be broadcast through a professional organization. Contribute to a professional publication — or write a book! Be creative and think outside the social media box. Never underestimate the power of in-person communicating.

Thought leadership can be a powerful component of your overall marketing strategy. There is a big difference between being an “expert” and being a recognized industry leader who effectively shares their thoughts and ideas to facilitate positive change. All of your personal and professional experiences have led you to your present position. Be proud of your personal brand and your unique ideas!

Find your voice and share it with your audience. In the process you will organically create brand awareness. And, you can add “thought leader” to your growing list of credentials.

Karen Donaway is the director of marketing at SKC & Co. CPAs, LLC and can be reached at kdonaway@skcandco.com.

DO MORE BECOME AN NJCPA SUBJECT-MATTER EXPERT njcpa.org/sme

NEW JERSEY CPA | JULY/AUGUST 2019

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TAX

Desk Audits — More Common Than You Might Think

BY NEIL BECOURTNEY, CPA, COHNREZNICK

As the IRS workforce steadily declines, so does the number of field audits that are conducted. Examination staffing in FY 2016 reached a 20-year low, 23 percent lower than FY 2012 with the number of examinations down 32 percent from FY 2012. While fewer field audits are taking place, there does not appear to any reduction in the number of “desk audits” being conducted. A desk audit rarely involves a meeting with an IRS auditor. Typically, there is not even a verbal communication.

Rather, a CPA, on behalf of their client, simply responds in writing to the IRS tax notice generated by the taxing authority.

While the New Jersey Division of Taxation audit workforce has not seen a reduction on par with the IRS, it also conducts a significant number of desk audits.

IRS The IRS typically generates CP2501 or CP2000 notices that identify discrepancies between third-party information such as W-2 and 1099 forms and K-1s. The notice simply challenges the taxpayer to explain that there was no under reporting of income. While sometimes accurate, these matching notices are often incorrect.

Examples of common issues include documenting timely rollovers of retirement plan distributions or the use of Sec. 529 plan withdrawals for qualified tuition expenses.

Deductions claimed on Schedule A, namely charitable contributions and mortgage interest, are also commonly scrutinized via desk audits. For charitable contributions, the taxpayer will need to provide copies of all contemporaneous written acknowledgements for donations of $250 or more, as a cancelled check will only suffice for a donation less than $250.

For home mortgage interest, the taxpayer may need to provide the loan documents, deeds proving ownership and the calculation of deductible interest reported. Some taxpayers improperly claim a deduction for more than the interest paid on their

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principal residence and one secondary residence. Other taxpayers will fail to adhere to the $1,000,000 acquisition indebtedness (reduced to $750,000 for residence acquisitions after Dec. 14, 2017) and $100,000 home equity indebtedness (eliminated by the Tax Cuts and Jobs Act) limitations.

NEW JERSEY The New Jersey Division of Taxation focuses most of its desk audits on the resident credit claimed for taxes paid to other jurisdictions. Typically, a taxpayer receives an innocuous letter stating that in order to complete its review of the Form NJ-1040, the Division of Taxation needs to be provided with a full copy of the Federal Form 1040, copies of nonresident state income tax returns and copies of K-1s. As commercial tax software cannot be relied on to make accurate resident credit calculations involving pass-through entities, the Division often generates an assessment from these desk audits absent the tax preparer having circumvented their tax software to arrive at the proper credit. If there is an error, besides the underpayment of tax, the taxpayer will be charged interest, a 5-percent late payment penalty and, depending on the tax period, a 5-percent “amnesty eligible” penalty.

Another area for New Jersey desk audits is where there are sizable differences in the interest, dividends and capital gains reported for federal purposes, which are communicated by the IRS to the Division en masse. The New Jersey gross income tax does not piggyback the Internal Revenue Code. Whereas for federal purposes interest, dividends and capital gains are reported separately, if received via a partnership or S corporation, they are reported in those categories for gross income tax purposes. That pass-through income could conceivably be offset by losses from other pass-through entities. Additionally, there may be significant nontaxable interest reported either from New Jersey municipal or U.S. Treasury obligations that the Division seeks to verify.

RESPONDING TO NOTICES IRS desk audits are generally not assigned to an identified auditor; however, for the state, the opposite is true as most desk audits have an assigned auditor. IRS CP2501 and CP2000 notices have a section for a limited Power of Attorney for only the notice at hand, which, if completed, allows the CPA to follow up with the IRS practitioner hotline regarding the status of the response.

There is no harm in executing a Form 2848, “Power of Attorney and Declaration of Representative,” but it often is unnecessary.

When responding to a New Jersey desk audit, one can complete a Form M-5008-R, Appointment of Taxpayer Representative, to be able to communicate openly with the assigned auditor.

Neil Becourtney, CPA, is a partner at CohnReznick, specializing in tax advisory services. He can be reached at neil.becourtney@CohnReznick.com.

LEARN MORE AUG. 9, ROSELAND MULTISTATE INCOME TAX NOV. 8, MOUNT LAUREL HOT IRS TAX EXAMINATION ISSUES FOR INDIVIDUALS AND BUSINESSES njcpa.org/events

2019/20 NJCPA Chapter Presidents ATLANTIC/CAPE MAY

BERGEN

ESSEX

HUDSON

JEFFREY A. WILSON, CPA

GEORGE S. CHARNE, CPA

BRIAN KING, CPA

CARMINE A. MELUSO, CPA

Capaldi Reynolds & Pelosi CPAs, P.A.

SAX LLP

MERCER

MIDDLESEX/SOMERSET

MONMOUTH/OCEAN

MORRIS/SUSSEX

MICHAEL ALAN BYRWA JR., CPA

SCOTT J. LIFSHITZ, CPA

AMY MacFADYEN, CPA

HBK CPAs & Consultants

Enterprise Iron

EisnerAmper LLP

DOROTHY G. TATTI, CPA/PFS, MACC

CarePoint Health Medical Group

Ernst & Young LLP PASSAIC COUNTY

SOUTHWEST JERSEY

UNION COUNTY

MICHAEL JOHN MASSOOD, CPA

MARYANN PREVITERA, CPA/CGMA

KATHERINE E. ZECH, CPA

Massood & Company, P.A.

Ragone, Lacatena, Fairchild, Beppel, PC

PKF O’Connor Davies, LLP

Learn more about our chapter presidents and the activities taking place in their chapters at njcpa.org/chapters.

NEW JERSEY CPA | JULY/AUGUST 2019

21

NJCPA NEWS

2019 Annual Convention a Success This year’s Annual Convention & Expo challenged attendees to “go beyond” their typical way of thinking about the accounting profession and learn ways to “maximize their value.” The Convention featured discussions about artificial intelligence, cybersecurity, blockchain, finance automation, advisory services, how to incorporate soft skills and the skillsets aspiring CPAs and other accounting professionals will need in the future.

Keynote speakers included JT Kostman, Ph.D., a data scientist and leading expert in applied artificial intelligence; Alex Sheen, founder of an international social movement based on the importance of keeping promises; Amy Vetter, CPA, CITP, CGMA, CEO of The B3 Method Institute; and Jason Dorsey, researcher and president at The Center for Generational Kinetics.

A New Jersey Business and Economic Roundtable featuring Assemblyman Roy

Freiman; Brigid Harrison, MA, Ph.D., author and political science and law professor at Montclair State University; Senator Steven V. Oroho; and NJTV business correspondent Rhonda Schaffler hit on the tough issues facing businesses and individuals in the state and what is needed to improve the state’s business climate.

Read more highlights and view photos at njcpa.org/convention. And mark your calendar for the 2020 convention which will take place June 16–19 in Atlantic City.

NJCPA Adds Four New Business Service Providers NJCPA members now have access to discounted services that range from staff recruitment and mergers and acquisition strategy to marketing solutions. The four new business services providers are: yy Accountants Advisory Group, founded by Joseph Tarasco, CEO and senior consultant, offers numerous services, such as mergers and acquisitions strategy; marketing and public relations solutions; practice management and strategic planning; recruiting and search advisory; and retreat, summit and annual meeting facilitation. yy Marketing 360 offers an online marketing platform for small businesses

— from software, email and analytics to design and advertising. Every client is partnered with an inhouse marketing executive, who has a team of talented designers, writers, video pros, social media experts and customer relationship management professionals. yy Matters of Management, founded by CEO Rachel Anevski, offers small accounting firms and sole practitioners the chance to grow their operations through the use of outsourced services such as recruitment, writing and creating an employee handbook. Midsize and large accounting firms can also obtain help in the areas of management training, busi-

ness development, talent acquisition, sales strategy and conflict resolution. yy Whitman Business Advisors offers NJCPA members numerous services, such as strategy sessions, sustainability studies, partner retreats, pre-merger meeting preparation, post-merger integration and internal succession/transition support. Accounting professionals from the sole practitioner to the large global firm partner can obtain help in the areas of leadership coaching, executive training, recruitment and business advisory services development.

Learn more at njcpa.org/benefits.

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NEW JERSEY CPA | JULY/AUGUST 2019

22

CLASSIFIEDS

MERGERS/ACQUISITIONS

Seize a merger/acquisition opportunity with benefits for you. We are looking for firms ranging from $300,000 to $5,000,000 eager to combine forces as we continue to grow across northern NJ, Westchester and the Hudson Valley region. Goldstein Lieberman & Company is ideally situated to service all types of industries. Visit www.glcpas. com; email me, Phillip Goldstein, CPA, Managing Partner, philg@glcpas.com; or call me at 800-839-5767 to have a confidential conversation.

Monmouth County tax and wealth advisory firm seeking partnership with CPA practice(s): looking for an additional source of recurring revenue to complement your tax practice?

Looking to enter the wealth advisory business without the costs and complexities? Do you have a succession plan for incapacity or retirement? Contact Gregg at gshaw@hstaxwealth.com, 732-268-8813; www.hstaxwealth.com.

Union County Accounting & Tax practice is looking for potential acquisition or merger candidates with annual billing ranging from $250K-$750K. Possible scenarios include: outright acquisition, merge and transition toward retirement or merger of equals.

Please reply in strict confidence to unioncountycpa2000@gmail.com.

Retirement minded? Want this to be your last tax season? Long established Morris County firm seeks to acquire firms ranging from $100K-$350K for expansion.

Interested? Contact Managing Partner at morriscountycpa@gmail.com.

Retirement-minded sole-practitioner with well-established Central NJ practice looking to associate with either an established firm or individual(s) looking to expand. Reply in confidence at njcpa.org/classifieds.

New Jersey practices for sale: gross revenue shown: Hunterdon County CPA $650K; North Essex County CPA $320K. For more information, call 800-397-0249 or visit www.aps.net.

Retirement-minded Middlesex County CPA, looking for CPA to take over my firm. Gross $450K. Must have strong background. Small existing client base a plus. Reply in confidence at njcpa.org/classifieds.

Best CPA firm for sale. Amazing “niche,” very profitable (one million to owner).

Clients through-out USA. Want large firm, with available resources to expand. Seller retiring. Email coach@4mergers.com.

Madison, NJ, Accounting firm seeks retirement-minded sole practitioners.

Join us and take advantage of the economies of scale while continuing to service your clients. When you are ready in a year, five years, or ten, we can discuss an exit strategy. If interested, please email nadine@oddcpa.com.

To see additional classified listings or to place an ad, visit njcpa.org/classifieds.

REAL ESTATE

Professional office suite available in Wall.

CPA building with shared services option, major partner retiring. Call 732-230-7777 for an appointment.

PROFESSIONAL SERVICES

Quality Review for CPA firms — over 30 years of experience in risk-based audit planning. Contact James M. Sausmer, CPA at james.sausmer@gmail.com, 732-261-7710, www.jimsausmercpa.com.

Want to start a practice? Grow client billings by six figures? We can help.

PracticePro helps launch and grow your CPA practice by taking a hands-on approach to expand your client base and provides the professional guidance you need. Email info@gopracticepro.com.

ADVERTISERS INDEX 3 ACCOUNTING PRACTICE SALES aps.net 22 CAPSTAN TAX capstantax.com C2 RUTGERS BUSINESS SCHOOL business.rutgers.edu/taxmaccy

NEW JERSEY CPA | JULY/AUGUST 2019

23

MEMBER STORY

It wasn’t long before she eventually returned to the workforce when her children were much older and on their own. While working for a private CPA firm (Richard Paterson, CPA) handling a variety of tasks, she explains, “I came home and said, ‘I can do what these guys do.’ ” And, she was right. So, she went back to school, while continuing to work, to finish the necessary requirements for a college degree in accounting. In 1994, Renee received her Bachelor of Science in accounting from Stockton University — several years after her children had already attended college elsewhere. “They graduated college before I did,” she admits.

“I came home and said, ‘I can do what these guys do.’ ”

One CPA Who Doesn’t Know the Meaning of “No”

BY KATHLEEN HOFFELDER, NJCPA CONTENT EDITOR

Renee Bell is not your ordinary retired CPA. While most professionals in her shoes would be relaxing on the beach somewhere, she’s the kind who needs to keep working.

Bell, age 88, is still an active notary public — a certification she is proud to hold for more than 50 years. “Even though I’m no longer working, I did maintain my notary public license and my CPA license. It’s convenient to have them. Many times, it was needed.”

Renee always had a can-do approach to work, beginning in high school when she was a part-time bookkeeper after school. Those skills came in handy years later. After graduation from high school she married, had two children (Julie and Laurie) and moved with her husband and children to California.

She eventually returned to New Jersey with

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JULY/AUGUST 2019 | NEW JERSEY CPA

her family and went to work for an industrial builder, whose clients included BFGoodrich and Bank of America. “They saw frankly that I knew what I was doing. I ran the office and I attended settlement meetings with and for clients after they purchased the building since the owners were too busy and I knew what was required,” she says.

While working for the builder in accounting during the day she helped her husband Herman (now deceased) run his True Value hardware store at night.

She didn’t mind working in both places — in fact, she seemed to thrive on it.

But eventually she slowed down to raise her daughters, Julie and Laurie, when the couple moved to Margate, New Jersey. “I gave up working at that point but that was not my style,” she admits.

What came next for a woman that doesn’t let much stand in her way? A CPA license, of course. After doing most of the accounting tasks in corporate as well as public accounting already, she realized she needed the formal license to move up at her firm and continue to maintain a great relationship with her clients. After receiving her CPA in 1997 at age 66, she was subsequently offered partnership in the firm she worked for.

BEYOND ACCOUNTING So, did the numbers guru want to do anything besides accounting? One might have to go back a bit far. Before any number crunching, Renee studied sculpture at Stockton. Like anything she put her mind to, Renee was able to succeed. She sold her first life-size sculpture of a woman reclining in a beach chair. “Every artist wants to sell their sculpture,” she says, noting however, that accounting is a better way to pay for college educations.

Though she admits she is not physically able to reproduce pieces of this size anymore, she still appreciates art and fine sculpture — along with accounting, of course.

AUGUST 19-21 HARRAH'S, ATLANTIC CITY

ATLANTIC CITY CPE CLUSTER Follow us to the shore.

Attend one, two or all three days.

Summertime is the right time to advance your competency, build critical skills and meet your annual CPE requirement.

njcpa.org/cluster

Announcing

THE SMALL FIRM OF THE FUTURE

(co-located at the Atlantic City CPE Cluster)

An essential workshop for building advisory services, strategic thinking and innovation.

Learn more at njcpa.org/catalog, event code E1908290

We’ve Moved!

Come and See Your NEW NJCPA Learning Center • High-tech learning environment • Modern amenities • Easy access from Route 280

NJCPA OFFICE & LEARNING CENTER

105 Eisenhower Parkway, Suite 300 Roseland, NJ 07068