4 The State of Accounting Education: How to Appeal to the Next Generation
Today’s accounting students are eager to learn anything about the profession that they can get their hands on — both the practical and the trade secrets. From internships to public speaking, classrooms are ripe for student engagement.
6
Preventing and Detecting Occupational Fraud
The Association of Certified Fraud Examiners’ Occupational Fraud 2024: Report to the Nations, which spans 138 countries, reveals that losses tend to stem from the same five corporate departments, correlate to years of service and can be stopped with anti-fraud controls.
8
AI and the Accountant’s Role in Shaping the Future
Partnering with artificial intelligence (AI) to offer strategic financial advisory or virtual CFO services is gaining ground to not only increase margins but to give CPAs greater influence as trusted advisors who can help businesses transform and adapt to an AI-driven world.
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CPAs More Optimistic About National Economy Than New Jersey’s
BY AIYSHA (AJ) JOHNSON, MA, IOM, NJCPA CEO AND EXECUTIVE DIRECTOR
The NJCPA’s latest economic survey of our members in June revealed a relatively guarded stance on New Jersey’s economy and a somewhat more positive take on the national economy. In our annual survey of more than 500 CPAs, an equal number of respondents (43%) expected New Jersey’s economy to stay the same over the second half of 2024 as expected it to become worse, while when asked about the national economy, nearly 50% anticipated economic conditions to remain about the same and 36% expected it to be worse. In general, most respondents (74%) suggested that lessening burdensome regulations would help improve the business environment, followed by lowering interest rates (56%) and reducing the corporate tax rate (43%). These insights are a telling sign that our state and national economic conditions need to improve. We want businesses moving into New Jersey, bringing offices and jobs here, and that means helping businesses remain competitive and grow to their potential. Our member CPAs, well-versed in how businesses operate, are strategic advisors and willing to be a resource to the New Jersey Legislature when considering the impact of regulations on businesses.
As one respondent noted, New Jersey should be “more business-centric” and state government should look for ways to invest in the business community with
grant programs or the use of a surplus to fund the Unemployment Insurance Trust Fund.
Respondents were extremely concerned with inflation (57%), followed by political disfunction in Trenton (53%) and, like last year, finding the right employees (47%) to hire. They echoed concerns that many businesses are facing in the state, such as corporate vacancy rates and the high cost of medical and other insurance rates. Overall, nearly 80% of respondents believed the fiscal health of New Jersey was either fair (44%) or poor (34%) compared with 19% saying it was good and 3% considering it excellent.
CORPORATE TRANSIT FEE
Governor Murphy’s corporate transit fee (CTF) was a particular sticking point. More than 65% of respondents noted they were either “very concerned” or “somewhat concerned” about the CTF. They believed that the fee would hurt their clients, even though the fee will only directly tax the 600 largest companies in the state. The NJCPA has expressed its disappointment with this fee.
QUESTIONING RELOCATION
The survey also revealed that some CPAs and their clients are thinking twice about staying in New Jersey due to the state’s high cost of living. When asked whether they
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had ever advised an individual client living in New Jersey to consider relocation, 63% said they had compared with 37% who had not. More than 50% advised a New Jersey-based business client to consider relocation due to the high cost of doing business.
Additionally, 59% saw an increase in the number of high-income clients who file as non-residents of New Jersey, compared with 23% who had not. Similarly, 65% said they saw a decrease in the number of high-income clients who have residency in New Jersey currently. According to one comment, “increasing taxes on a shrinking tax base is unsustainable and disastrous for the state.”
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THE STATE OF ACCOUNTING EDUCATION: HOW TO APPEAL TO THE NEXT GENERATION
By STEVEN J. BUDRYK, CPA, MS
TRAPHAGEN CPA s AND WEALTH ADVISORS
I was taught from a young age that education is the only thing that cannot be taken away from you. Every piece of paper that comes across your desk is a learning opportunity.
The classroom was a space for me to digest different facts, circumstances and opinions and even compare it to industry through my internship. After completing my undergraduate degree, my graduate degree, the CPA Exam and continuing education courses, I returned to the classroom, becoming the youngest adjunct professor at Ramapo College of New Jersey. This new role has afforded me the opportunity to have a direct impact not only on accounting students, but on the state of accounting education.
The current generation of accounting students are as interested in learning outside the classroom as they are inside the classroom. New accounting platforms allow for both in-class learning and outside experiential learning. This new paradigm incorporates a broader curriculum, including data analytics, information technology and a greater importance on communication to interpret the results to the end user.
NEW OPTIONS FOR THE NEXT GENERATION
Obtaining an internship is often the single most important objective for an accounting student. There are alternative avenues to achieve this objective, such as:
y Co-op programs. This is where students receive college credit, usually as an undergraduate, for working in the field. Whether providing their educator with weekly journals, writing papers about an accounting-specific topic or
otherwise, students not only obtain the vital credits for graduation and stay on course for the 150-credit CPA licensure requirement, they gain valuable experience.
y Work-for-credit programs. Students can apply for these, which assist with obtaining the additional 30 credits after receiving an undergraduate degree.
In addition, students should focus on new skills that are in demand in the workplace, including:
y Public speaking. Communication is the number-one skill for accounting students to master. Those who can effectively articulate their findings to not only educators, but their peers as well, will position themselves for greater learning and work opportunities.
y Microsoft Excel. Becoming proficient in Excel is paramount to a student’s success. Complemented by data analytics or information technology courses, students will be familiar with programs and disciplines that accountants use daily.
FLEXIBLE LEARNING ENVIRONMENT
There has been an evolution in in-person and online learning over the years. In-person learning still provides the best way for students to learn and build relationships
with their peers and educators. There have been multiple instances in which staying after class has allowed for mentoring to flourish and provides students with necessary feedback on their work and job expectations. Online learning has its place, whether over summer or winter break, for students to accelerate their graduation date or stay on track with their plan to graduate with 150 credits. Because of the pandemic, there was a requirement for courses to be offered online to not delay student graduations. According to Forbes, approximately 75% of college students enrolled in distance learning in the fall of 2020, while approximately 54% of college students enrolled in distance learning in the fall of 2022. Online learning is an important alternative, which provides students with more options and flexibility to learn. However, for students to receive the most feedback and attention, in-person learning is key.
IN-DEMAND SKILLS TO COMPLEMENT ACCOUNTING MAJORS
Accounting education allows for students to learn vital skills that will translate into successful careers. Communication skills, teamwork, leadership, technology and
organizational skills are in demand and can be incorporated in college curriculums. As a professor, I incorporate group presentations on topic areas that public accountants work in, such as tax return preparation and tax planning analysis. In addition, I bring in young professionals and allow the students to interact on a one-on-one basis. The students are enthusiastic and can see a vision of their future.
Students have expressed interest in and are most intrigued about:
y Analytical work. Every source document is a learning opportunity. Aggregated together, it tells a story. Whether reviewing business financial statements, a business registration certificate or an individual 1099 investment statement, the information interpreted assists accountants in preparing sound strategies and recommendations.
y Client relationships. Accountants communicate with clients through email, phone or in person. Each interaction strengthens the relationship. When you show a personal interest in your client’s financial well-being, the level of trust formed solidifies your position as their trusted advisor.
y Constant learning. Everything students learn in school and in industry can be applied personally. As an example, we review a year-to-date paystub projection. Understanding this application allows students to consider focusing on their own personal financials.
y Growth opportunities. Having goals and objectives is very important for students as they embark on their accounting careers. We discuss career advice during and after class. Discussions have included remote and in-person training, professional dress, distinguishing yourself from your peers and how to be successful. By providing lessons learned on the job, students receive tips to excel.
y Rewarding careers. A student’s career in accounting begins in the classroom; however, as students become full-time accountants after graduation, they learn as much about themselves as the firm they work with, the colleagues they work with and the clients they serve. Students ask how rewarding this career is and I always include in my response that they become a main stakeholder in someone else’s life, which cannot be understated.
The state of accounting education offers tremendous opportunities for students inside and outside the classroom. Educators play a vital role in contributing to their students’ success. I could not be prouder of our current generation of students!
Steven J. Budryk, CPA, MS, is a manager at Traphagen CPAs & Wealth Advisors. He is a member of the NJCPA and a 2023 Emerging Leader Ovation Award winner. He can be reached at steven@tfgllc.com
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PREVENTING AND DETECTING OCCUPATIONAL FRAUD
By JACLYN VENO, CPA GALASSO LEARNING SOLUTIONS
Occupational fraud represents a significant risk to every organization, regardless of size or industry.
The Association of Certified Fraud Exam iners (ACFE) defines occupational fraud as “the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets.” The ACFE estimates that organizations lose 5% of their revenue each year to occupational fraud. While 5% may not seem like a significant amount, when this percentage is projected against the Gross World Product (GWP), it totals more than $5 trillion lost due to fraud globally.
The ACFE Occupational Fraud 2024: Report to the Nations (legacy.acfe.com/ report-to-the-nations/2024/) is the largest global study on occupational fraud. This year’s report is based on 1,921 real cases and spans 138 countries and territories. It explores the costs, schemes, victims and perpetrators of fraud.
The ACFE’s methodology for this report is based on the ACFE 2023 Global Fraud Survey, an online survey of Certified Fraud Examiners conducted from July to September 2023. Respondents provided information on the largest occupational fraud case they had investigated, with criteria requiring that the case involved occupational fraud, the investigation occurred between January 2022 and the survey period, the investigation was completed by the time of survey participation, and the perpetrator(s) had been identified with reasonable certainty.
HIGHLIGHTS FROM THE REPORT
Of the 1,921 cases included in the survey, there were more than $3.1 billion in losses.
In addition, 22% of cases had losses of more than $1 million.
The most common form of occupational fraud is asset misappropriation, or the theft of an employing organization’s assets, being present in 89% of fraud cases. Common examples of asset misappropriation from the report were cash larceny, skimming, billing schemes, payroll schemes and expense reimbursement schemes.
Despite asset misappropriation being the most common form of occupational fraud, it is also the least impactful to organizations, with an average median loss of $120,000. On the other hand, financial statement fraud was only present in 5% of cases. However, it is deeply impactful, causing a median loss of $766,000. There are plenty of examples of financial statement fraud, which includes revenue recognition fraud, expense fraud and fraudulent financial reporting to deceive investors, creditors or regulators.
In addition, corruption was present in roughly half of all cases, resulting in a median loss of $200,000. Examples of corruption include conflicts of interest, bribery, illegal gratuities and economic extortion.
RED FLAGS OF FRAUD
According to the ACFE report, in approximately 84% of cases, red flags were present. Knowing these red flags can help organizations gain an advantage in detecting fraud. Of the 1,921 cases included in this report, 75% of fraudsters displayed at least one of the eight most common behavioral red flags. The most common behavioral red flag since the ACFE’s first report in
2008 was the fraudster living beyond their means. Other red flags include:
y The perpetrator is experiencing financial difficulties
y Unusually close association with vendor/customer
y Control issues, unwillingness to share duties
y Irritability, suspiciousness or defensiveness
y “Wheeler-dealer” attitude
y Bullying or intimidation
y Divorce/family problems
In addition to behavioral red flags, there are some organizational red flags to keep in mind, such as a lack of ethical tone at the top, a lack of documented policies and procedures, low employee morale and high employee turnover.
PROFILE OF THE FRAUDSTER
Interestingly, there is no psychological profile of a fraudster. However, the data from the 2024 report does show that there are commonalities among perpetrators. Most perpetrators (87%) are first-time offenders and lack previous criminal history. Perpetrators are usually male (74%), have a university degree (52%) and are between the ages of 36 and 50 years old (53%).
There are also positive correlations between the age and tenure of the perpetrator and the losses they are capable of inflicting. For instance, perpetrators who have been working for their organization longer cause higher losses when committing fraud than their less-tenured counterparts. According to the report, employees working at their
organization for one year or less had a median loss of $50,000. In contrast, perpe trators with 10 or more years of experience had a median loss of $250,000.
Lastly, more than half of all fraud cases studied in the report came from the same five departments at organizations: operations, accounting, sales, customer service and executive/upper management.
INTERNAL CONTROLS TO HELP PREVENT FRAUD
According to the ACFE report, the presence of anti-fraud controls is associated with lower fraud losses and quicker fraud detection. In addition, more than half of cases occurred due to a lack of internal controls (32%) and an override of existing controls (19%). This data shows that nearly half of the frauds in the study could have been prevented with a stronger system of anti-fraud controls.
The report outlines 18 anti-fraud controls commonly found in organizations, such as the presence of a code of conduct, management review, fraud training for employees and job rotations/mandatory vacation. The presence of these controls was associated with anywhere from a 23% to 63% reduction in median losses and a 14% to 50% reduction in fraud duration if the controls were in place. In essence, all these controls were associated with both faster detection and lower losses. But, according to the data, there are four controls — surprise audits, financial statement audits, hotlines and proactive data analysis — that are associated with at least a 50% reduction in both fraud loss and duration.
The most common method by which fraud was detected in the report was tips, from both internal employees and outside parties, which account for a staggering 43% of fraud detections, more than three times as many as any other method. Although there are many ways these tips were given, the report does note that having a dedicated tip hotline made an organization nearly twice as likely to detect fraud via a tip than an organization without a hotline. The second most common method of detection is by internal audit (14%) and the third is by management review (13%).
The 2024 report contains valuable insight into the types of fraud schemes that are occurring, red flags to watch out for and the value of implementing strong internal controls at organizations. Another statistic showed that 82% of organizations modified their anti-fraud controls following the fraud, and 95% of the modifications were expected to be effective at preventing future frauds. This report shows that trying to limit the opportunities of employees to commit fraud through internal controls proves to be a worthwhile effort.
Jaclyn Veno, CPA, oversees the development of Level Training programs for Galasso Learning Solutions. She can be reached at jacyln@galassolearningsolutions.com
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AI AND THE ACCOUNTANT’S ROLE IN SHAPING THE FUTURE
By ELIJAH LOW AI MATRIX SOLUTIONS
As the first blush of dawn bled through the blinds, casting long, ghostly shadows across the room, I slowly awoke in an unfamiliar bed. The quiet was almost unsettling. I found myself on the outskirts of Charlottesville, VA — a stark contrast to the relentless pace of New York City.
Outside the chirping of early birds signaled a world waking up at a leisurely pace. In contrast, I opened my laptop and typed the following question to ChatGPT, an artificial intelligence (AI) tool that is taking the world by storm:
“Conduct a financial evaluation of a merger between Pfizer and Merck using financial information in their latest annual reports and go online to find their latest market cap. Do a quantitative analysis and recommend if the merger is a good or bad thing.”
A response came back immediately, reporting the key financial figures used in its calculations and citing the annual reports it pulled data from. It then calculated a post-merger value. What caught my eye in its recommendation for the merger were the synergies it found, including a “stronger oncology pipeline (especially with Pfizer’s acquisition of Seagen).” Needing something stronger to recommend the merger, I typed, “How much would it increase shareholder value?” The AI calculated the pre-merger valuation and the post-merger valuation, including “Projected Synergies Impact: $4 billion in cost savings + 10% synergy realization on combined net income = $45.9 billion + $4.59 billion = $50.49 billion,” then applied an industry price-to-earnings ratio (PE) of 15.
Total time taken: 12 seconds. Potential Outcome: significant increase in shareholder value; $276 billion.
What is truly remarkable is that this analysis came at no cost to me and was completed in mere seconds. Without the aid of AI, compiling all the necessary information, performing the calculations and arriving at the same conclusion would have demanded significantly more time and resources. In essence, AI achieved the task faster, more economically and with greater efficiency. This transformative capability of AI will extend across all industries.
AI is not just the latest technological revolution; it is poised to be the most significant, having a larger impact than either the computer or the internet revolutions. To understand this impact, it helps to use a 200-year-old theory by Adam Smith.
AI’S IMPACT ON FACTORS OF PRODUCTION
Adam Smith identified the factors of production as land, labor and capital, which have a high correlation to the production of goods and services. In other words, to increase production, you had to increase land, labor and capital, and this was true up until the internet revolution. In the last technological revolution, the internet decoupled the relationship between land and production. Blockbuster and Netflix exemplify this transition. Before the internet, increasing production in the video rental industry required more land as a factor of production. Post-internet, Netflix showed that production could increase without additional land use. This decoupling allowed corporations to scale output without scaling land. However, they still needed to scale labor, explaining why large tech companies employ many people. AI is poised to decouple labor from production, just as the internet decoupled land from production. Early indicators of this decoupling are visible in the tech sector, where labor reductions occur alongside increasing output as measured by revenue and earnings before interest, taxes, depreciation and amortization (EBITDA).
WHY THIS IS IMPORTANT TO ACCOUNTANTS
As industries consolidate and leverage AI, the competitive landscape will change, putting some clients out of business. Accounting firms that have not implemented AI to decouple labor from production risk losing market share. Firms that only provide transactional services like bookkeeping, auditing and financial reporting — tasks AI can easily perform — will face a race to the bottom until AI takes over. To survive, accounting firms will either have to diversify or expand into higher-value services and partner with AI to offer services like strategic financial advisory and virtual CFO services. These expanded services will not only increase their margins but grant accountants greater influence as trusted advisors, influencing how businesses transform and adapt to an AI-driven world. This critical role provides accountants with a unique opportunity to shape the future. By having an aspirational vision of the future and guiding clients to build such a world, accountants can change the world for the better.
ASPIRATIONAL VISION OF THE FUTURE
An aspirational vision of the future with AI is a world where all of humanity is healthier, wealthier and wiser. It includes advanced healthcare where the only cause of death is old age, a fair and just economy, people working because they enjoy the work that they do rather than for just money, and a welfare system that ensures all children can achieve their dreams. Without such a vision guiding our decision-making, profit maximization for shareholders will be the only guide. As trusted advisors, accountants have significant influence over corporate growth and can use that influence to guide corporations toward building a better future.
To demonstrate this, I typed the next prompt into ChatGPT:
“If we wanted to move towards a vision for an ideal world with the following characteristics:
1. Advanced healthcare where the only cause of death is old age,
2. A fair and just economy,
3. People enjoy their work instead of working for money,
4. Every child has the opportunity to achieve their dreams,
Would this merger between Pfizer and Merck be a good thing?
A response came back immediately with a lengthy two-page report not recommending the merger. Some salient points caught my eye, including:
y A merged entity might focus on profitable treatments rather than universal healthcare advancements.
y The merger could reduce competition in the pharmaceutical industry, potentially leading to higher drug prices and reduced access to medications.
y If the merger leads to higher drug prices, it could make essential medications less affordable for families, potentially impacting children’s health and opportunities.
Total time taken: 12 seconds. Potential Outcome: the world would not be a better place; Priceless.
While finance takes a random walk of valuation down Wall Street, let us accountants chart a course for a future we all value.
Elijah Low, founder of AI Matrix Solutions and author, specializes in providing AI solutions and consulting services to accounting firms. He can be reached at elijahlow@gmail.com
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From Deal to Ledger: Essential Considerations for the Financial Reporting of Income Taxes in M&A Transactions
BY MICHAEL NOREMAN, CPA, MST, MAcc, AND NICK STUFANO, CPA, ALVAREZ AND MARSAL TAX, LLC
With merger and acquisition (M&A) activity on the rise in 2024, a trend that practitioners are encountering is the preparation or audit of the associated purchase accounting, which is required under Accounting Standards Codification (ASC) 805, Business Combinations. Many professionals who deal with ASC 805 are well versed in the non-tax aspects, but when tax comes into the picture, many can be outside their comfort zone. The following framework can help ensure that the appropriate considerations are made.
DETERMINE THE TAX STRUCTURE OF THE TRANSACTION
The initial consideration that should be made is to understand the tax structure of the acquirer and the acquiree as well as the method being undertaken to effectuate the transaction. This can be done through a careful review of company organizational charts as well as the purchase agreement. Transactions are effectuated in one of two ways: through a taxable transaction or through a non-taxable transaction.
A taxable transaction leads to a “step-up” in the target’s tax basis of assets acquired and liabilities assumed to fair market value.
This type of treatment is typically seen in acquisitions of assets and stock acquisitions that are treated as asset acquisitions for tax purposes by election (e.g., §338 elections for qualified stock purchases). Conversely, a nontaxable transaction results in a “carryover” of the historical tax basis in the assets acquired and liabilities assumed. Assuming a premium is paid, this will typically result in a lower tax basis than the fair market value utilized for financial statement purposes under ASC 805. This type of transaction generally occurs in an acquisition of the acquired entity’s stock (unless a §338 election is made).
DETERMINE THE FINANCIAL STATEMENT AND TAX BASES
Under ASC 805-20-30-1, the acquirer measures the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their acquisition-date fair values. A valuation specialist is typically engaged to assist with the identification and measurement of such fair values. This will typically result in a step-up for financial reporting purposes to the acquired assets and liabilities of the target. The deferred tax consequences
of such a step-up will depend on how the transaction is being accounted for from a tax perspective.
Taxable Transactions
In a taxable transaction, the acquirer will receive stepped-up basis in acquired assets and liabilities for both financial reporting and tax purposes. In many cases, the basis in each class of assets will be equal for both financial reporting and tax purposes. Accordingly, no deferred taxes are recorded as part of purchase accounting in these instances. However, in some cases, there can still be a difference between the financial reporting fair value and the tax allocation of acquired assets and liabilities under IRC §1060. When this occurs, deferred taxes are recorded in purchase accounting to reflect the differences between financial reporting and tax bases. It is important to review the purchase agreement in detail as it may outline how the parties will allocate the fair value for tax purposes and can save considerable time during the financial statement preparation and audit.
Non-Taxable Transactions
In a non-taxable transaction, the financial reporting basis of assets and liabilities both receive a step up to fair market value; however, the tax basis in assets and liabilities maintain carryover basis. This will lead to basis differences between book and tax that will require the establishment of deferred tax assets (DTAs) and deferred tax liabilities (DTLs). The most common and significant difference relates to the step-up in nongoodwill intangibles, resulting in a DTL. A complexity that is commonly faced is accounting for goodwill. In cases where goodwill established for financial reporting purposes exceeds tax-deductible goodwill, no DTL should be established. However, a DTA is established when tax goodwill basis is greater.
ANALYZE ACQUIRED TAX ATTRIBUTES
In a non-taxable transaction, tax attributes such as net operating losses, tax credit and disallowed interest expense carry forward to the acquirer. These future tax benefits will be reflected as acquired DTAs which may be significant. However, it is crucial to understand any potential limitations in the future utilization of these acquired tax attributes (e.g., IRC §382 on net operating losses). If an attribute will necessarily expire unutilized due to these limitations, then it is not appropriate to record a DTA as of the date of acquisition.
PERFORM REALIZATION ASSESSMENT FOR DEFERRED TAX ASSETS
Acquirers should assess the need for a valuation allowance against acquired DTAs as part of business combination accounting. An analysis of whether reversing taxable temporary differences (such as DTLs) are sufficient to utilize existing DTAs is
an objective way to determine if a valuation allowance is needed, although there are other sources of evidence allowable to be used under the accounting standards (e.g., historical and projected profitability from operations). Also, acquirers should consider if the business combination warrants a change in the valuation allowance assertion for its own DTAs based on the combined entity’s tax position.
CONSIDER TREATMENT OF TAX UNCERTAINTIES AND INDEMNIFICATIONS
Additional historical tax exposures may be uncovered during the due diligence process. It is imperative that if there are findings on historical positions that the risk be assessed and, if appropriate, recorded as a liability as part of purchase accounting. The recognition and measurement criteria for these findings can vary depending on if the liability falls within ASC 740, Income Taxes, or ASC 450, Contingencies.
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Although accounting for the income tax in a business combination is complex, the above framework can be a great starting point to navigate the reporting nuances and considerations.
Michael Noreman, CPA, MST, MAcc, is a senior director at Alvarez & Marsal Tax, LLC. He is a member of several NJCPA interest groups and can be reached at mnoreman@alvarezandmarsal.com. Nick Stufano, CPA, is a manager at Alvarez & Marsal Tax, LLC. He is a member of the NJCPA and can be reached at nstufano@alvarezandmarsal.com
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NJCPA Teams Up to Aid Talent Pipeline
The New Jersey Society of CPAs (NJCPA) joined forces this past May with its members, firm pipeline partners and the Center for Audit Quality (CAQ) in partnership with EVERFI, a web-based learning management company that produced a national financial literacy program, to get the word out to college and high school students about the many job opportunities that are available in accounting.
CULTIVATING COLLEGE STUDENTS
On May 16, the NJCPA held its inaugural Accelerating Scholars in Accounting (ASA) event at its office in Roseland. More than 50 accounting students from universities/ colleges and county colleges attended.
Interactive discussions about the accounting profession and becoming a CPA were held on cultivating a positive mindset for success, how to sharpen one’s professional presence, the CPA Exam, scholarships, networking, how to enhance one’s personal brand and a business chemistry workshop conducted by Deloitte & Touche LLP.
“The Accelerating Scholars event provided the perfect setting for gaining the professional skills needed to succeed in the accounting industry. I left the event knowing that the group of participants was inspired to make an impact! Thank you to the NJCPA for playing such an important role in the future of our next generation,” added Joseph Hunt, CPA, PSA, manager at CLA (CliftonLarsonAllen LLP), chair of the NJCPA Emerging Leaders Council and a session volunteer at the event.
Aiysha (AJ) Johnson, MA, IOM, CEO and executive director at the NJCPA, offered guidance to the students on striving towards goals. “Don’t be afraid to fail. The reality is if you fail, you have time to try again. Stay focused and don’t give up,” she explained. “It’s wonderful to see such enthusiastic future accounting professionals. We are grateful to our members who helped make this event happen.”
The ASA event was possible thanks to the following firm pipeline partners: CLA (CliftonLarsonAllen), CohnReznick,
Deloitte Foundation, Forvis Mazars, WilkinGuttenplan, Wiss and Withum.
HIGH SCHOOL OUTREACH
On May 31, the NJCPA teamed up with the CAQ and EVERFI to help get the word out about the profession to more than 70 students from Barringer High School in Newark. Students heard discussions about accounting and how it relates to their everyday lives. Ras Baraka, the Mayor of Newark; Liz Barentzen, vice president of Operations and Talent Initiatives of the CAQ; Aiysha (AJ) Johnson; Ray Martinez, president and cofounder of EVERFI; and former NFL linebacker Dhani Jones were on hand to discuss the initiative with the students.
NJCPA members at the event shared their journeys in becoming CPAs. Attendees heard from the following:
y Jose Borbon, CPA, CRC, vice president and audit manager at Northfield Bank
y Joseph Polanco, senior automotive accountant at Withum
y Matthew Stenger, CPA, audit manager at Forvis Mazars
y Yan Zhang, CPA, partner at EisnerAmper
The event also featured the distribution of a $5,000 check to Barringer High School senior Patrick Asare. The award is part of a larger program that awarded $75,000 in scholarships this year under CAQ’s Accounting+ initiative ( joinaccountingplus.com).
Raising awareness of the profession among high school students and conducting year-round outreach to high schools and educators was one of the recommendations of the NJCPA’s Pipeline Task Force, formed last year to study the accounting profession’s pipeline challenges and develop a set of actionable and measurable recommendations.
Students interested in attending future events and learning about scholarship opportunities can become free Student Members of the NJCPA at njcpa.org/join.
Best Practices for Complying with the Corporate Transparency Act
BY STACY KUXHAUSEN, CPA, AND CHAMBERLYN BRIDGE, SECURE COMPLIANCE
As businesses work to comply with the Corporate Transparency Act (CTA), it’s important to realize that CTA reporting is NOT a one-time or even annual requirement. Updates are required whenever company information or beneficial owner information changes, and these must be reported within 30 days. Now is the time for businesses to develop a plan for timely filing and to consider the new procedures that come with this responsibility.
EDUCATING BENEFICIAL OWNERS, MANAGERS AND LEADERSHIP
Beneficial owners must be informed about their reporting obligations and the need to notify the company of any changes in their information immediately. They need to be aware of the information they must keep up to date. Some examples include:
y Modification in beneficial owner information (BOI): Changes in residential address, name or getting a new driver’s license or passport.
Likewise, managers and leadership must understand when updates are required for both beneficial owners and the company itself. These are events that may also trigger a need for an updated report:
y Changes in company information: Registering a new trade or doingbusiness-as name or moving to a new business address.
y Alterations in beneficial ownership: Appointment or departure of beneficial owners with substantial control (C-suite), changes in ownership structure or death of a beneficial owner.
Establishing a schedule for verifying company information and current information with beneficial owners is a sound strategy to ensure accuracy.
For CPAs who are responsible for maintaining compliance for clients or their company, it is important to discuss who within the organization is responsible for keeping the CPA updated on changes.
HUMAN RESOURCES COORDINATION
The HR team, or those handling employee relations, needs to be familiar with the CTA requirements, especially those related to substantial control roles. They must ensure that new hires in positions of substantial control are added or removed from the report. Also, if a new position is created, it must be evaluated for reporting status.
ESTABLISHING NEW POLICIES AND PROCEDURES
It’s important to develop clear policies outlining the process for updating required information. Standard operating procedures should include answers to the following questions:
y Does the company have educational resources to share with beneficial owners, managers and leadership?
y Will the company proactively ask beneficial owners if their information changed? Who will do this and how often?
y What is the channel for the beneficial owners to share changes?
y Who is responsible for submitting the updated BOI reports?
y Is HR watching for changes in job descriptions or new roles that might give someone substantial control?
y Who will monitor changes to legislation and adjust internal processes?
RESPONSIBILITY FOR FILING UPDATES
Determine who will be responsible for filing updates with FinCEN. Clear delegation can prevent lapses in compliance.
When an owner gets a FinCEN ID, the company’s ability to file certain updates about their personal information may be limited. Once an owner has a FinCEN ID and uses it on the BOI report, they can only update their information through their login.gov account. BOI reporting is the company’s responsibility. Implementing a system to verify that beneficial owners have updated their information with FinCEN might involve collecting proof of submission from the owners.
Software is available to streamline CTA compliance, securely manage personal information and reduce data reentry. Unlike the FinCEN website, which requires full data reentry for minor updates, software allows for adjusting only the changed information before filing.
The CTA introduces new complexities for business owners, but with planning and the right tools, they can navigate these changes successfully. CPAs may handle some of the tasks mentioned above, but businesses will still need to establish clear procedures to avoid the potential penalties of this new regulatory landscape.
Stacy Kuxhausen, CPA, is the chief strategy and marketing officer for Secure Compliance. She can be reached at stacy@securecompliance us. Chamberlyn Bridge is the compliance manager at Secure Compliance. She can be reached at chamberlyn@securecompliance.us
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BENEFICIAL OWNERSHIP INFORMATION REPORTING KNOWLEDGE HUB njcpa.org/hub/boi
Strategic Expansion: Case Studies in Integrating Financial Planning Services for CPA Firms
BY JUSTIN W. RICE, CFP®, CSLP®, PERSONAL WEALTH STRATEGIES
Financial planners may not fully appreciate the value of a CPA firm’s client relationships if they suggest a simple one-to-one referral partnership.
This subtle yet impactful statement underscores a critical issue for CPA firms: the potential underestimation of their client base and service potential. As the financial services landscape evolves, CPA firms are uniquely positioned to expand into financial planning, unlocking significant revenue and client retention opportunities.
THE LUCRATIVE POTENTIAL OF FINANCIAL PLANNING FOR CPA FIRMS
The financial planning sector presents an attractive avenue for CPA firms seeking growth. While traditional CPA firms typically sell at about 1x revenue, financial advisory practices command multiples of 2x revenue or higher. This stark difference highlights the untapped potential within CPA firms. Moreover, the operational dynamics of financial planning offer a more manageable workload compared to the seasonal intensity of tax work, allowing for a steadier stream of recurring income.
“The strongest partnership opportunity in financial services is between tax advisors and financial planners,” notes Geoff Bruskin, managing partner of White Tiger Connections. “The client is best served when the two work as part of the same team.”
THREE STRATEGIES FOR INTEGRATION
There are three primary strategies CPA firms can employ to integrate financial planning services, each with varying levels of commitment and complexity. Regardless of the strategy, consulting an attorney specializing in compliance is recommended due to complex legal and regulatory requirements.
1. CPA self-training and certification.
The most demanding path involves the
CPA personally acquiring the necessary financial planning expertise. This entails obtaining the Personal Financial Specialist (PFS) or Certified Financial Planner™ (CFP®) designation along with relevant licenses and starting, or joining, an existing Registered Investment Advisor (RIA) or broker/dealer. While this route requires significant time and effort, it allows for complete control over the new service offering. Ping Yin, CPA and owner of Yin Financial Service, LLC in Millburn, New Jersey, exemplifies this approach. She recently earned her CFP® designation in 2023 and has begun integrating financial planning into her practice, serving her clients with enhanced, holistic services.
2. Creating an RIA and hiring expertise. A more balanced approach is to establish an RIA and hire a qualified financial planner to manage it. This strategy allows the CPA to focus on their core competencies while leveraging the expertise of a financial planner. The CPA maintains ownership of the RIA, potentially sharing it with the hired planner who acts as the CEO of the RIA. Wiss & Company, LLP, a prominent CPA firm headquartered in Florham Park, New Jersey, successfully implemented this model by bringing on Stephanie Hughes five years ago as the CEO of Wiss Private Client Advisors, LLC. Under her leadership, the RIA has grown to more than $500 million in assets under management, primarily from their existing CPA clients, demonstrating the substantial growth potential of this strategy.
3. Forming strategic partnerships. The third approach involves partnering with an established financial planning firm. This model facilitates collaboration between the CPA and financial planner, offering clients enhanced services
while providing the CPA firm with a share of the revenue. Anton Anderson, founder of Elite Resource Team, has been advocating this model since 2014. His newly released book, The Art of Collaboration: When 2 Tribes Stop the War, co-authored with an accountant, delves into the transformative potential of such partnerships. The team-based model they promote fosters a proactive, holistic approach to client service, breaking down traditional barriers and maximizing client value.
THE SYNERGY OF ECOSYSTEM MERGERS
Regardless of the path chosen, integrating financial planning services can create a synergistic effect, where the combined value of the CPA and financial planner ecosystems exceed the sum of their parts. This concept of ecosystem merging is a cornerstone of Sean Callagy’s Unblinded Results Formula. As co-founder and chief visionary officer of Unblinded, Callagy emphasizes the exponential benefits of such integrations in the professions he consults, trains and coaches.
The integration of financial planning services not only enhances the value proposition for clients but also positions CPA firms for sustained growth and profitability. By expanding their service offerings, CPA firms can transition from reactive, compliance-based services to proactive, advisory roles, ensuring long-term client relationships and improved business outcomes.
The strategic expansion into financial planning is not just a business decision; it’s a transformative journey that can redefine the future of CPA firms.
Justin W. Rice, CFP®, CSLP®, is a financial planner at Personal Wealth Strategies and serves as the president-elect of the Financial Planning Association of New Jersey. He can be reached at justin.rice@personalwealthstrategies.com.
5 Guidelines for Contemporary Succession Planning
BY JOSEPH A. TARASCO, CPA, ACCOUNTANTS ADVISORY GROUP, LLC
Contemporary succession planning for CPA firms is crucial to ensuring the continuity, stability, transitioning and growth of the firm. Given the evolving nature and current transformation of the public accounting industry, succession planning must adapt to modern challenges and opportunities. As Charles Darwin aptly said, “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.”
Succession planning should be an everyday event, not a series of events taking place just prior to partner retirements. By running their practices as a business, accounting firms can achieve financial stability, operational efficiency and strategic growth. This approach ensures delivering high-quality services to clients, managing risks effectively and staying competitive in a dynamic market environment. Here are five key guidelines for effective succession planning for today's CPA firms:
1. DEVELOP LEADERSHIP
y Identify future leaders. Assess the current leadership and identify potential successors. Spot potential leaders early, and invest in their development through training and exposure to various aspects of the business. Establish mentorship programs to develop future leaders within the firm.
y Incorporate continuous professional development. Create individualized development plans for potential successors, focusing on their growth areas. Encourage continuous learning and certification to keep up with industry changes.
2. PLAN CLIENT TRANSITIONS
y Use gradual introductions. Introduce successors to clients gradually to build trust and maintain relationships. Start succession planning well in advance, ideally five to 10 years before the expected transition.
y Communicate to clients. Clearly communicate the transition plan to clients to reassure them of continuity. Develop a clear timeline for the transition, outlining key milestones and responsibilities.
3. INTEGRATE TECHNOLOGY
y Adopt modern tools. Implement up-to-date accounting software and technology, including artificial intelligence, to streamline operations and attract tech-savvy talent.
y Use cybersecurity measures. Ensure robust cybersecurity protocols to protect sensitive client data during transitions.
y Adopt advanced software. Utilize the latest accounting and financial software to increase efficiency and accuracy.
y Implement cloud-based solutions. These allow for better accessibility and real-time data sharing.
y Diversify leadership. Encourage diversity in leadership to bring different perspectives and drive innovation.
4. ENSURE CULTURAL CONTINUITY
y Maintain core values. Ensure that the firm’s core values and culture are preserved through transitions.
y Engage employees. Foster a sense of belonging and commitment among employees to reduce turnover. Implement recognition and reward programs to motivate and retain top talent.
y Communicate plans. Communicate the succession plan to all stakeholders, including employees, clients and partners. Regularly evaluate the firm’s worth to ensure fair and accurate buy-ins and buy-outs.
y Have flexible work arrangements. Offer flexible working conditions to attract and retain top talent, including remote work options.
5. IMPLEMENT SUCCESSION PLANNING OVERSIGHT
y Regularly review and update the succession plan to adapt to changes in the firm’s structure, market conditions and regulatory environment. Develop a merger & acquisition/private equity (PE) strategy and implementation plan that will take the firm to the next level of success by acquiring firms with talented professionals, service and industry expertise, and advisory service capabilities.
y Align firm strategy and partner performance by defining the roles and goals of the leadership and management of the firm.
y Monitor progress and adjust as needed.
y Review partnership agreements to ascertain that they reflect the current marketplace.
y Establish clear performance metrics for potential successors to ensure they meet the firm’s standards and goals.
y Engage external consultants or advisors specializing in succession planning for an unbiased perspective and expert advice.
y Form a committee responsible for overseeing the succession planning process, ensuring all aspects are covered.
y Ensure a seamless and successful transition, maintaining a competitive edge and client trust through generations.
y Develop contemporary growth and lead generation strategies to position the firm in the marketplace by targeting the right size and types of clients in specific industries that the firm has the best chances of engaging.
y Use offshore outsourcing to fuel the capacity for growth and as a retention and profitability strategy.
y Overcome procrastination by the partners in making the tough business and strategy decisions to take the firm to the next level of success.
y Periodically discuss the pros and cons of merging into a larger firm with more resources or as a tuck-in in a PE transaction.
Joseph A. Tarasco, CPA, is the CEO and senior consultant of Accountants Advisory Group, LLC. He is a member of several interest groups at the NJCPA and can be reached at joe@accountantsadvisory.com.
SUCCESSION PLANNING FOR THE SMALL BUSINESS OWNER: FINDING THE EXIT RAMP njcpa.org/events
The Current State of Professional Liability Protection
BY JOHN RASPANTE, CPA, MST, CDFA, McGOWANPRO AND LAWRENCE REISMAN, EA, LK REISMAN
With the ever-changing accounting and auditing pronouncements, there will likely be an increase in litigation against CPAs. While the historical claim patterns will continue, it’s imperative CPAs become vigilant in understanding the laws and recent court case victories to protect themselves and their practices.
The In Pari Delicto Defense (IPDD) is a protection in professional liability claims asserted against public accounting firms. Essentially, IPDD means “in equal fault.” Consequently, where a plaintiff and a defendant are mutually at fault for causing damages, the plaintiff/client cannot avoid its own liability and make a recovery against the defendant. It should be noted that each state may apply the IPDD differently, and the results may vary if the auditors were, in fact, negligent in failing to detect. Further, states vary as to the suitability of the IPDD as it relates to trustees and receivers. For CPAs, it’s a potential benefit.
TWO KEY METRICS
In analyzing professional liability claims against CPAs, two metrics are considered: frequency (number of claims) and severity (dollar amount of the claims). The major providers of CPA malpractice insurance typically report the highest frequency occurs in tax services, yet the highest severity occurs in audit services. The following charts reflect the frequency and severity in major areas of practice.
Claim Frequency in Major Practice Areas
Claim Severity in Major Practice Areas
Source: McGowanPRO
In addition, by evaluating the source of the loss in audit services, 40% occur where the auditors failed to detect fraud and embezzlement, as outlined in the chart below.
Percentage of Audit Claims
Source: McGowanPRO
Source: McGowanPRO
Recent cases reveal that the IPDD may provide some relief in claims asserting a failure to detect fraud and a failure to detect embezzlement.
According to PwC, in Teachers’ Retirement System of Louisiana v. PricewaterhouseCoopers LLP, investors asserted on behalf of American International (“AIG”) that PricewaterhouseCoopers, LLP, failed to detect or report fraud perpetrated by AIG’s senior officers. The trial court held under New York law that the wrongdoing of
AIG’s senior officers was imputed to AIG itself and dismissed the claims under the doctrine of In Pari Delicto.
As a result of the accounting profession being burdened by litigation arising from business failures, bankruptcy and failure to detect fraud and plaintiffs seeking “deep pockets,” it’s important to discuss this defense with risk managers, audit staff and professional liability carriers.
John Raspante, CPA, MST, CDFA, is the director of risk management for McGowanPRO. He is on the NJCPA Content Advisory Board and the Accounting & Auditing Standards Interest Group and can be reached at jraspante@mcgowanprofessional.com Lawrence Reisman, EA, is the managing partner of the accounting office of LK Reisman and can be reached at LawrenceReisman@LKReisman.com
GET NJCPA MEMBER PRICING ON PROFESSIONAL LIABILITY INSURANCE FROM CAMICO/ GALLAGHER AFFINITY njcpa.org/marketplace
LEARN MORE
Sept. 18 (and additional dates), Live Webinar LESSONS LEARNED FROM RECENT ACCOUNTING MALPRACTICE ACTIONS
Oct. 25 (and additional dates), Live Webinar ACCOUNTANTS AND MALPRACTICE: CAN WE GET SUED FOR THIS? njcpa.org/events
Leveraging AI in Forensic Accounting and Litigation Support
BY CHRISTINE FABBRO BRUNNER, CPA, CFE, MAcc, BRUNNER SIERRA GROUP, LLC
The arrival of artificial intelligence (AI) is causing a seismic shift in the field of forensic accounting and litigation support. It’s critical for CPAs to understand these changes to stay ahead in this quickly changing field. AI isn’t just a buzzword; it’s a tool that can strengthen accuracy, efficiency and effectiveness in forensic investigations and litigation support.
DECIPHERING DATA
Forensic accounting frequently entails meticulously reviewing substantial quantities of information and searching for inconsistencies, deception or budgetary alterations. This activity is often slow and requires many individuals to work long hours. However, AI-fueled applications can rapidly and faultlessly dissect big data collections, identifying outlines and anomalies that could elude the human eye.
A subset of AI, known as machine learning, excels at deciphering complex patterns and relationships found in data. It trains itself by learning what distinguishes different instances of fraud or other malicious activities within existing data samples. This capability allows auditors to concentrate on more subtle and high-risk behaviors. As a result, AI can detect fraudulent transactions and identity theft. Support for lawsuits often includes an intensive review of documents, emails and messages. Automation through AI-powered e-discovery tools can streamline this process, extracting useful information and quickly categorizing documents. Tools that use natural language processing (NLP), a field of AI, can understand and interpret human language, enabling them to parse through unstructured data like contracts and emails to pinpoint critical information. One of the easiest and simplest examples of this is Adobe Acrobat’s AI Assistant which is now offered through their application. AI Assistant can help users interact with documents and PDFs in a variety of ways. It can summarize crucial
concepts and themes from documents, amongst other features.
These tools offer several advantages:
y Save time. Using these tools allows attorneys to complete reviews faster than through manual review alone.
y Improve accuracy. They reduce the chances of human error, ensuring that all documents are coded consistently and accurately.
y Enhance organization. These tools enable better document organization, making it easier to find important information or examples quickly.
PREDICTIVE ANALYTICS
Fraud detection and prevention is an ideal field for AI’s predictive analytics capabilities. By analyzing vast historical datasets and identifying patterns indicative of fraudulent behavior, AI systems can make predictions and prevent fraud before it occurs. CPAs can deploy AI tools to continuously monitor transactions and financial activities, receiving real-time alerts for suspicious behavior.
AI can also improve internal controls by identifying weaknesses and suggesting improvements. This proactive approach not only helps detect fraud early but also strengthens the overall financial integrity of organizations.
PROS
AI in forensic accounting offers many advantages, with increased efficiency and associated cost savings being among the most significant. Processes such as automated data analysis and document review significantly decrease the man-hours required to investigate a company’s financials, allowing CPAs to take on more cases simultaneously. The ability to handle more cases translates into lower client costs and higher profitability for firms.
Additionally, AI tools can manage monotonous and routine tasks, freeing up CPAs to focus on more complex and valueadded work. This shift not only increases job satisfaction but also enhances the potential for forensic accountants to apply their expertise, improving the overall quality of investigations and litigation support.
CONS
Despite AI's substantial benefits, integrating it into forensic accounting practices presents challenges. AI’s effectiveness depends on neural networks trained on vast datasets. As firms embrace AI, they must ensure data quality, as poor data can lead to inaccurate results.
Integrating AI requires significant investment in technology and training. CPAs must continuously enhance their skills to effectively use these tools and stay updated on the latest AI-based forensic accounting technologies. Additionally, data privacy and security are critical concerns. AI systems handle sensitive financial data, and maintaining the confidentiality and integrity of this data is paramount. CPAs must enforce robust data security measures and comply with regulations to protect client information.
THE BOTTOM LINE
Forensic accounting and litigation support are being fundamentally reshaped by AI, delivering enhanced data analysis, greater efficiency and more powerful fraud detection. AI technologies are essential for CPAs who want to keep pace and deliver higher-value services to clients. By understanding and leveraging AI, CPAs can uncover new insights, sharpen investigations and provide more effective litigation support.
Christine Fabbro Brunner, CPA, CFE, MAcc, is the CEO and founder of Brunner SierraGroup. She is a member of the NJCPA and can be reached at christine@brunnersierragroup.com
Unlocking Transformational Leadership in Accounting
BY RACHEL ANEVSKI, MAOB, PHR, SHRM-CP, MATTERS OF MANAGEMENT
Today’s business environment is complex and unprecedented. With rapid technological advancements and ongoing people challenges, traditional leadership approaches have proven insufficient. Accounting firms and CFOs face unique challenges and opportunities, necessitating a shift in leadership strategies. Transformational leadership — a model emphasizing vision, inspiration and change — is well-suited to navigate these complexities. Historically, companies have sought servant leaders primarily to assist others with training and client/ customer challenges. However, training leaders in transformational leadership is not just beneficial; it is imperative for companies seeking to thrive.
WHY TRANSFORMATIONAL LEADERSHIP IS NEEDED
Transformational leadership goes beyond conventional command-and-control methods. It involves inspiring and motivating employees to exceed their own expectations and embrace change enthusiastically. This style is critical in accounting firms where precision, regulatory adherence and dynamic financial landscapes demand agile and innovative leadership.
The entire profession is at a crucial juncture and requires transformational leadership to navigate successfully. Traditional leadership methods may fall short in fostering the proactive, adaptable culture necessary for success today. Managing partners, CFOs and those leading change must embody this vibrant leadership style.
ATTRIBUTES OF A TRANSFORMATIONAL LEADER
Transformational leaders possess several key attributes that distinguish them from their traditional counterparts. These include:
y Visionary thinking: Transformational leaders have a clear, strategic vision for the future. They articulate this vision
compellingly, inspiring their team to buy into long-term goals and work collectively towards them. It’s a collaborative mindset.
y Inspirational motivation: These leaders are adept at motivating and energizing their teams. They encourage employees to transcend their self-interests for the sake of the organization, fostering a sense of purpose and commitment.
y Intellectual innovation: Transformational leaders challenge the status quo and encourage innovation. They stimulate creativity by encouraging employees to think critically and solve problems in novel ways, fostering a culture of experimentation.
y Individualized consideration: They provide personalized support and mentorship, recognizing and nurturing individual talents to help employees achieve their full potential. This attribute is critical for developing others.
y Ethical integrity: Transformational leaders demonstrate high ethical standards. They build trust by acting consistently with their values and principles, setting an example for their team.
TRAINING ACCOUNTANTS TO BE TRANSFORMATIONAL LEADERS
Despite its clear advantages, many companies, including accounting firms, currently do not provide specific training in transformational leadership. This is a significant oversight, as the qualities that define transformational leaders can be cultivated through targeted development programs. The benefit of nurturing future transformational leaders is the ability to withstand the critical challenges and changes that abound. The right training program can accomplish the following:
y Enhancing visionary thinking: Training programs can help leaders develop their ability to create and communicate a compelling vision. This involves strategic thinking exercises, scenario planning and communication skills development. Leaders learn to articulate a clear and inspiring direction for their teams, aligning their efforts with the company’s long-term objectives.
y Fostering inspirational motivation: Workshops and coaching can enhance leaders’ motivational skills. Leaders can foster a more committed and enthusiastic workforce by learning techniques to inspire and engage their teams. This
might include training in emotional intelligence, storytelling and recognizing and celebrating achievements.
y Encouraging intellectual innovation: To stimulate innovation, leaders need to be comfortable with ambiguity and risk. Training can focus on developing creative problem-solving skills and fostering a culture of experimentation. This can be achieved through workshops on design thinking, brainstorming sessions and learning from failure.
y Developing individualized consideration: Programs emphasizing active listening, empathy and personalized feedback help leaders connect with their team members more profoundly, fostering growth and development. This training, coupled with enhanced communication skills, works well together.
y Promoting ethical integrity: Workshops exploring ethical dilemmas, corporate social responsibility and values-based leadership help leaders build trust and integrity. This sets a strong ethical tone throughout the organization.
THE OPPORTUNITY TO TRANSFORM
We are at a time when the industry demands leaders who can inspire and navigate change with agility and foresight. Transformational leadership, emphasizing vision, motivation, innovation and ethical integrity, is particularly well-suited to this environment. However, the qualities that define transformational leaders are not innate; they can and should be cultivated through dedicated training programs.
For accounting firms and CFOs, investing in transformational leadership training
is not just an option but a necessity. By developing these types of leaders, companies can position themselves to withstand the pressures of change and harness it as a catalyst for growth and innovation. Transformational leadership is the key to unlocking the full potential of both individuals and organizations.
Rachel Anevski, MAOB, PHR, SHRM-CP, is the CEO and founder of Matters of Management. She can be reached at rachel@mattersofmanagement.com
LEARN MORE
Sept. 24 and additional dates, Live Webinar
ADVANCED MANAGEMENT AND LEADERSHIP ESSENTIALS
Dec. 10, Live Webinar MANAGEMENT SUPERPOWERS njcpa.org/events
Why Segregation of Duties is Essential for Internal Control
BY SAMANTHA SCHMITT, CPA, WITHUM
The foundation for having optimal performance and reduction of risks is to ensure that there are adequate internal controls. These are processes designed to provide reasonable assurance about the achievement of the company’s objectives with regard to the reliability of financial reporting, effectiveness and efficiency of operations, and compliance with laws and regulations. Segregation of duties is a key internal control that involves assigning responsibilities to more than one individual so that no single individual has sole control over an entire process. As such, no single individual can initiate, authorize, record and review a transaction without the involvement of another individual. Proper segregation of duties is key to ensuring critical safeguards over internal controls and minimizes the risk of errors, conflicts of interest, theft and fraudulent activity. Although segregation of duties can cause bottlenecks and lead to inefficiencies, it is a best practice and prevents bigger issues from arising.
COSO FRAMEWORK
The COSO (Committee of Sponsoring Organizations) framework is a set of guidelines for companies to implement internal controls to manage, prevent and detect fraud risk. There are five components of the COSO framework:
y Control environment — sets the tone of the company and its employees and includes the integrity, ethical values and management’s attitude and operating style.
y Risk assessment — the identification of relevant risks within a company and how those risks should be managed to achieve the company’s objectives.
y Control activities — the policies and procedures enforced to ensure management directives are implemented.
y Information and communication relevant and significant information must be identified, captured and communicated in a timely manner to internal parties, such as management, and external parties, such as vendors.
y Monitoring activities — internal controls should be continuously monitored to assess whether they are working effectively.
IMPLEMENTATION
There are two steps to implementing segregation of duties. The first step is to establish and create policies and procedures for each department. Management should determine what key controls are relevant and significant to the company to ensure proper safeguards. Creating a standard operating procedure (SOP) on the processes and controls will allow all individuals to understand the necessary responsibilities by department and by individual. When creating the SOP, management should build a segregation of duties matrix, listing out all the responsibilities by department and by individual to properly ensure there are no conflicts where individuals have access to several different areas.
The second step is to monitor and manage how it is functioning. Management should periodically monitor how the departments are operating with these procedures and oversee whether the segregation of duties is being implemented and maintained. If controls are not effectively working, management should determine the root cause and find a solution.
COMMON EXAMPLES
Some common examples of proper segregation of duties include the following:
y Cash receipts and revenue process: No single individual should have the ability to collect, deposit, record and reconcile cash receipts. The individual
collecting and recording the cash receipts should not be the same individual who is making the deposit to the bank. Another individual (who is independent of the individuals who are collecting and recording and depositing the cash receipt) should reconcile the deposit to the general ledger through bank reconciliations, and another separate individual should review the reconciliation.
y Purchasing process: The individual initiating a purchase order for goods should not be the same individual approving the purchase. The individual approving the purchase of the goods should not be the same individual who initiates payment for those goods. Additionally, the individual initiating the payment for the goods should not be the same individual with custody of the checks.
y IT systems: Individuals should have the appropriate access to systems and the level of access given (e.g., review only, super admin) should be commensurate with their respective job responsibilities.
Companies should regularly evaluate which controls are the most critical and the key areas in which there should be proper segregation of duties including the authorization of transactions, custody of assets and reconciling/reviewing of transactions. All in all, proper segregation of duties helps ensure errors, whether unintentional or intentional, are detected by another individual.
Samantha Schmitt, CPA, is an audit manager at Withum. She is a member of the NJCPA and can be reached at sschmitt@withum.com
4 Ways to Protect Your Clients’ Data
BY HANNAH BRUNO, CPACHARGE
Today’s accounting professionals know that data security is a more urgent concern than ever. CPAs are in possession of their clients’ most sensitive personal and financial details, so it’s no surprise they’ve become prime hacking targets.
The IRS has advised CPAs to review all aspects of their data security strategies, including administrative practices, building protection, computer security, staff and information systems. But does this mean you have to immediately become an internet security expert if you want to avoid becoming the next headline or cautionary tale? Absolutely not. Protecting sensitive data can be simple. The following steps will help ensure better data protection in your practice.
1. IDENTIFY YOUR CYBER ASSETS
The path to a more secure firm starts with creating a simple document detailing your practice’s IT assets. List all the technology you use at your firm to the best of your knowledge, including:
y Networking infrastructure: Do you have wired (LAN) and Wi-Fi networks? What is connected to each? Is there a guest network? Who has access?
y Systems and other hardware: Take an inventory of all of the PCs, laptops, mobile devices, file servers and network-attached storage (NAS) that are present in the practice.
y Applications and data: Common software for accounting professionals includes practice management suites, billing and payments solutions, and document management tools.
y Users: Make a comprehensive list of any and all users with accounts on your systems, including the privileges and capabilities these users have.
2. STRENGTHEN YOUR PASSWORDS
Everything in your office, from your network itself to your personal computer,
is only as secure as the password you’ve created for it. What steps can you take to strengthen passwords?
y Use a password manager. A password manager provides a secure way to store and find all of your passwords.
y Create a strong passphrase. Ensure that your passphrase:
• Contains both uppercase and lowercase letters
• Has digits and punctuation symbols as well as letters
• Contains at least 12 letters, numbers or symbols
• Is not a word in any language, slang, dialect or jargon
• Is not based on any personal information
y Enable multi-factor authentication. This requires both a password and a code to access an account.
3. FORTIFY YOUR PHYSICAL AND DIGITAL OFFICE
Securing both the physical and digital office environments is crucial, particularly with Wi-Fi networks serving as the backbone of connectivity. While convenient, they pose significant security risks if not properly configured. Start by securing administrative access to your wireless router with a strong, unique password through the router’s configuration website, ensuring default passwords are changed.
4. ENSURE DATA SECURITY AND PCI COMPLIANCE
Every business that accepts credit or debit card payments must comply with the Payment Card Industry Data Security Standard (PCI DSS). To become compliant, businesses must complete a self-assessment questionnaire (SAQ) on an annual basis. The SAQs are based on the six standard groups outlined by the PCI DSS (and their sub-requirements), which are:
y Build and maintain a secure network. Ensure that your systems have firewalls installed and are regularly updated.
y Protect cardholder data no matter what. The best online payment solutions store and protect sensitive cardholder data for you.
y Maintain a vulnerability management program. This simply means using antivirus and anti-malware software and keeping it up to date.
y Implement strong access-control measures. This involves limiting access to sensitive cardholder data to only those with a business need to access it.
y Regularly monitor and test networks. This involves documenting who can access what and ensuring these practices are working correctly.
y Maintain an information security policy. Draft a security policy that outlines how your business uses technology and handles sensitive data.
For more tips on how to increase your firm’s security, access the comprehensive guide, Cybersecurity: Best Practices for Accounting Firms, at cpacharge.com/ resources/e-books-and-guides/cybersecurityguide-for-accounting-firms/
Hannah Bruno is a senior content writer at CPACharge. She can be reached at cpachargesales@ cpacharge.com.
CPACharge, an NJCPA Member Benefit Provider, provides online payment solutions for CPA firms to enable them to streamline their billing processes and increase cash flow, safely and securely. Learn more at cpacharge.com/ njcpa
Corporation Business Tax Regulations Coming to New York City
BY DAVID JASPHY, McDERMOTT WILL & EMERY LLP
Ten years after New York City introduced the business corporation tax, it is finally preparing complementary regulations. New York State adopted regulations in December 2023 to implement its 2015 corporate tax reform legislation. The City has said that its “regulations would substantially parallel the State’s corporate tax reform regulations [but] in several respects, the City is considering departing from the policies contemplated in the State’s regulations.” One area of divergence is “the allocation of flow-through income from partnerships.”
New York City imposes a tax “on the unincorporated business taxable income of every unincorporated business (i.e., partnerships) wholly or partly carried on within the city.” Where a corporation is a partner in an unincorporated business, items of income or gain from a partnership will be allocated under the statutory and regulatory rules of the unincorporated business tax (UBT). The corporate partner can claim a UBT paid credit on its business corporation tax return to the extent it was required “to include in entire net income its distributive share of income, gain, loss and deductions of, or guaranteed payments from such unincorporated business.” The City indicated that it intends to maintain this regime in the coming regulations.
When comparing New York City’s regime to New York State and New Jersey, there are some notable differences.
NEW YORK STATE
Although New York State does not impose an entity-level tax on partnerships, it does require corporate partners to compute their liability using the aggregate method. Generally, a corporation must use the aggregate method if it “has access to the information necessary to compute its tax using such method.” A corporate partner is presumed to have access to the necessary information if any of the eight regulatory factors are met, including if the corporation is conducting a unitary business with the partnership.
Under the aggregate method, the corporation “is treated as participating in the partnership’s transactions and activities” because it “is viewed as having an undivided interest in the partnership’s assets, liabilities, and items of receipts, income, gain, loss and deduction.” In other words, the corporation applies the corporate sourcing rules and includes “its distributive share of the partnership’s business receipts when computing its Business Apportionment Factor.”
Under the entity method, “a corporate partner is treated as owning an interest in the partnership entity [that] is an intangible
asset.” In other words, a corporate partner “must include its total distributive share of income, gain, loss and deduction from [the partnership] as business income [and] such amounts from [the partnership] are then multiplied by a [business apportionment factor] computed without regard to the amounts from the [partnership].”
NEW JERSEY
The Garden State’s rule is a variation on the themes described above. If the corporate partner is not in a unitary business with the partnership, then the corporation would add (1) “its distributive share of the partnership's business income . . . by only taking into account the corporate partner’s share of the receipts of the business that the partnership carries on directly” and (2) “the corporation’s entire net income, excluding its distributive share of the partnership’s income . . . by only taking into account the receipts . . . of the business that the corporation carries on directly.” If the corporate partner is unitary with the partnership, then the corporate partner should use the “flow through accounting” method. In other words, the corporate partner combines the factors of the corporation and the partnership and applies against its entire net income including its distributive share of the partnership’s income.
David Jasphy is an associate at McDermott Will & Emery LLP. He can be reached at djasphy@mwe.com
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CPA Exam Fee Lottery Opens
The NJCPA is offering members a chance to lower the cost to become a CPA. From Oct. 1 to Oct. 31, NJCPA Affiliate and Student members are encouraged to enter the CPA Exam Fee Lottery for a chance to win $750 towards studying for and taking the CPA Exam. The cost to take all four parts of the CPA Exam is more than $1,300, and any review classes and/or preparatory books can cost an additional $1,000 to $3,000.
To be eligible, applicants must not be receiving compensation from their employer in the form of payments/reimbursements for any Exam fees or review courses. Winners will need to provide a copy of their Notice to Schedule issued by the National Association of State Boards of Accountancy CPA Exam Services.
Entries can be made at njcpa.org/cpaexamfeelottery. Ten winners will be selected at random to receive $750 each from the NJCPA Scholarship Fund. Winners will be notified in early November.
O’Connell Distributes Distinguished Service Medallions
In a time-honored tradition, Edward G. O’Connell, CPA, CGMA, CFF, CFE, partner at Withum, and president of the NJCPA for the 2023/24 term, distributed five Distinguished Service Medallions to the NJCPA community during his tenure. The medallion represents exemplary work, commitment and dedication to furthering the objectives and mission of the NJCPA. This year’s winners include the following (in alphabetical order):
y Tara M. Baldwin, CPA, manager at WilkinGuttenplan. She has exhibited tireless commitment to inspiring the next generation of CPAs. The medallion recognizes her exceptional professionalism and dedication to the NJCPA Scholarship Fund.
y Aiysha (AJ) Johnson, MA, IOM, CEO and executive director at the NJCPA. She has shown continued focus on improving the CPA pipeline and helping to keep the accounting profession open and inviting to all.
y Jay L. Levine, CPA, CGMA, partner at Prager Metis CPAs, LLC. He was honored for his exemplary leadership of the Accounting & Auditing Standards Interest Group and engagement with members.
y Angela Russo, MBA, director of learning at the NJCPA. The medallion recognized her efforts to enhance and improve the educational programs for members and her work with third parties and other state societies.
y Paula M. Young, CPA, partner at EisnerAmper LLP. She was recognized for her involvement on the NJCPA Board of Trustees, Education Foundation Executive Committee, Accounting & Auditing Standards Interest Group, Professional Conduct Committee and the Middlesex/Somerset Chapter.
“It was a pleasure distributing the medallions to those individuals who continue to devote considerable time and effort to make the Society a great resource for all. They have gone above and beyond,” said O’Connell.
Edward G. O'Connell, CPA, CGMA, CFF, CFE, 2023/24 NJCPA president, presents Distinguished Service Medallions to (l to r) Aiysha (AJ) Johnson, MA, IOM; Angela Russo, MBA; and Paula M. Young, CPA
In Memoriam
GEORGE V. CURCHIN, CPA
The NJCPA is saddened by the loss of George V. Curchin, CPA, president of the NJCPA for the 1977/78 term. George, a former Boy Scouts Scoutmaster, a Navy veteran, University of Pennsylvania alum, husband, father, grandfather and great grandfather, passed away on July 8 at the age of 96.
George, most recently of Tinton Falls and formerly Fair Haven, was a founding partner of the firm now known as The Curchin Group, a practice he built from a one-man operation. He was an active member of the NJCPA community and encouraged others in his firm to volunteer at the Society. As NJCPA president, George was a staunch supporter of keeping
New Jersey’s CPA license reciprocity on the same level as other states and had many discussions with New Jersey legislators. He was a past president and active member of the Monmouth/Ocean Chapter. Always one to serve, he was also involved in many charitable organizations including the Vestry at St. John’s Episcopal Church in Little Silver. He retired to Alstead, New Hampshire.
George is predeceased by his wife Betty, and since remarried Peggy Johnson. He is survived by adult children Barbara (Brad) Hall, Nancy (Charlie) Hales, John Curchin, Lynn Geltzeiler, eight grandchildren and 11 great grandchildren.
NJCPA Women of Influence Luncheon a Success
The NJCPA held its inaugural Women of Influence Luncheon on July 25 at the Park Avenue Club in Florham Park. More than 50 accounting, human resources and client servicing professionals were on hand to hear discussions about career opportunities, share personal journeys and network.
In what is expected to be a recurring event, the Women of Influence Luncheon was created to bring together female executives from the NJCPA accounting community to enlighten and inspire others. The luncheon was sponsored by Bernstein Private Wealth and TriNet Group.
Aiysha (AJ) Johnson, MA, IOM, CEO and executive director at the NJCPA and host of the event, noted that, “The strength of any organization lies not in its technical expertise but in connecting.” She reminded attendees that social capital is the gain obtained through social connections, which is what the NJCPA strives to excel at. According to Johnson, accounting is a great profession for female executives and called on those in attendance to “invite another woman to have a seat at the table.”
June M. Toth, CPA, CGMA, CFF, partner at WilkinGuttenplan and 2024/25
NJCPA president, told attendees that events like this are needed to reinvigorate accounting professionals amid changing dynamics in the profession. “This is where relationships are built and strengthened. The NJCPA provides a great sense of community.”
Jennifer Shimek, managing partner of the Short Hills office of KPMG US and its advisory markets leader, told attendees the biggest challenge professionals face in the job market today is the “ever-changing
landscape.” She explained, “We’ve seen so much on the innovation front.”
Shimek noted the importance of perseverance and building relationships in one’s career. “We’ve all encountered speed bumps in our journeys. You’re going to have twists,” she said. “Continuous learning is super important,” she added, reminding attendees not to shrink from challenges and to create one’s own personal board of directors.
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MERGERS/ACQUISITIONS
Matthews, Panariello P.C., a full service Bergen County firm located in Paramus, is looking to merge or acquire firms, sole practitioners, or accounts (audits, reviews, compilations and tax preparation and compliance services). We are a peer reviewed firm with a strong track record of client retention. We have been successful in prior acquisitions; let's talk. Visit our website at www.mpcpas.com. To confidentially discuss email Peter at pmanetta@mpcpas.com
Traphagen CPAs & Wealth Advisors, a well-established firm in Bergen County with diverse client base and credentialed support staff is seeking small firms and sole practitioners for acquisition or merger. We are looking for firms ranging in size from $300K to $700K. This is an opportunity to align with a quality peer- reviewed firm, while continuing to provide your clients with exceptional service. To confidentially discuss this opportunity, please email us at carolynn@tfgllc.com.
Union County CPA selling well-established practice specializing in individual returns, corporate partnerships, tax based financial statements and general accounting. E-mail 07083cpa@gmail.com.
We represent highly reputable clients that are actively seeking strategic transactions through traditional merger and acquisition structures, traditional Private Equity transactions, and hybrid structures (combination of traditional M&A and PE). Our clients are experienced in M&A and PE and have proven histories of successful deals. We successfully closed two transactions this year with NJ firms. Please contact Joe Tarasco at joe@accountantsadvisory. com or call 845-265-9046 or cell: 914-924-1450.
Existing CPA business registered in Colorado looking to expand in NJ/ NY by acquiring a running CPA business with revenue in the range of USD 1-1.5 Million. Practice must have a mix of Audit (50%) and rest in Tax and Bookkeeping. If you meet this criteria contact us by email at sutheshs@pandgassoc.com.
New Jersey Practices for Sale:
Gross revenues shown: NEW $460K Greater Freehold, NJ Area CPA; NEW $425K North Bergen, NJ CPA; NEW $291K Toms River Area, NJ CPA; NEW $652K Western Monmouth Co, NJ CPA; NEW $808K Atlantic/ Cumberland Co Area, NJ CPA; NEW $2.107M Morris Co, NJ Partnership Interest; NEW $715K Somerset/ Hunterdon Co, NJ CPA; $228K Edison, NJ Tax Practice; For more information, call 800-397-0249 or visit www.aps.net
PROFESSIONAL SERVICES
Quality Review for CPA firms: Audit, Review, Compilation, Employee Benefit Plans, Yellow Book, Revenue Recognition, Leases. Contact James M. Sausmer, CPA at 732-261-7710 or james.sausmer@gmail.com
To see additional classified listings or to place an ad, visit njcpa.org/classifieds.
One CPA’s Journey from Spain to New Jersey
BY KATHLEEN HOFFELDER, NJCPA SENIOR CONTENT EDITOR
Growing up as the daughter of parents who emigrated from Cuba, Isabel Del Corral, CPA, saw the importance of working hard and starting out on her own. Her parents left Cuba initially for Madrid, Spain, where Isabel was born and lived until she was about 18 months old with her older sister, Lucia, and then they moved to Hudson County, New Jersey, to be close to other relatives already in the Garden State.
ENTREPRENEURIAL SPIRIT
Isabel learned firsthand what it means to run a business from her father, who started and sold three businesses in his lifetime. He successfully ran a grocery store, a liquor store and eventually a meat distribution operation until he retired. That entrepreneurial spirit stuck with Isabel and can be partly credited with the reason she initially became a sole practitioner; then
an audit manager with her partners, Darren J. Fusaro, CPA, and David McIntee, CPA, now retired; and eventually a partner of McIntee Fusaro Del Corral, LLC in 2013. Previously, she worked as an audit supervisor at Wiss and a senior accountant at Withum.
“Obviously the businesses my father had were labor intensive and he worked a lot of hours, but he was always saying, ‘I don’t have a boss. I can do what I need to do and get to make my own decisions.’ That stuck with me,” she says. “Always in the back of my mind, I thought I would love to become a partner, where I would have control or a say in what was going on,” she explained.
Her father’s influence also shaped her interest in math and eventually accounting. “My dad was a numbers guy, which is where I got my love of accounting,” she adds, which started with her first introduction to balancing debits and credits in high school. “That’s what made me love accounting.
The debits and credits must balance,” she remarks. Isabel went to Pace University, where she received her B.S. in accounting. “What I liked about Pace was that they had a public accounting major. They prepared you so students could pass the CPA Exam once you graduated.”
Today, she likes many other things about accounting, including the variety. “I like the fact that my day is never the same. Sometimes I’m in the office; sometimes I’m at clients’ offices; other times I’m working from home,” she adds. “I’ve had the opportunity to work with a wide variety of clients, for example, working with construction companies and doing inventory observations. I was up on a crane looking at the observation tower at Newark Airport. Obviously, there’s the numbers in this profession but there’s also a lot of interaction with people and the opportunity to work together with clients to help them reach their goals.”
NONPROFIT NICHE
After working at Withum and Wiss for about 10 years, she started out on her own and provided consulting services for another 10 years. During her time working as a consultant, she developed an interest in audits of nonprofit organizations. One of the main reasons she joined her current firm, which now consists of a staff of five, was because they specialized in audits of nonprofit organizations. Her firm also provides accounting and tax services, and she leads her firm’s employee benefit plan audit services. Isabel is also an active member of the NJCPA, having previously served as a Trustee and as president of the Hudson Chapter. She is currently vice chair of the Volunteer Relations Committee and a member of the Nonprofit and Accounting & Auditing Standards interest groups.
Sticking to her Cuban roots, Isabel, who is bilingual, has provided services to clients located in Latin America. Enjoying the ability to wear many accounting hats, she acknowledges, “Accounting is one of those professions where you can do so much.”
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