Magazine of the
New Jersey Society of Certified Public Accountants
July • August 2013
Succession Planning CPA Firm Succession Planning Practice Growth During Succession Mitigating Risk During Succession Eight Tips for Creating a Family-Business Succession Plan
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Watch the debut episode of "CPA Cribs" p. 28
July • August 2013
features
Ralph Albert Thomas, CGMA Chief Executive Officer & Executive Director rthomas@njscpa.org
Ellen C. McSherry, CGMA Chief Operating Officer emcsherry@njscpa.org
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CPA Firm Succession Planning Discover how demographic shifts and accounting profession nuances impact succession planning at CPA firms.
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Practice Growth During Succession Hear from a variety of accounting professionals on how their firms set the stage for growth during partner succession.
Don Meyer Director, Communications & Marketing dmeyer@njscpa.org
David Plaskow Managing Editor dplaskow@njscpa.org
Jeanette L. Miller Editorial Assistant jmiller@njscpa.org
Editorial Advisory Board Neil B. Becourtney, CPA Timothy A. Burley, CPA Salvatore A. Collemi, CPA Rebecca B. Fitzhugh, CPA Catherine Z. Horn, CPA Bernard M. Kiely, CPA Marcella LoCastro, CPA Anthony F. Marone, CPA William C. McNamara, CPA Marc D. Mintz, CPA John F. Raspante, CPA Margaret Van Brunt, CPA
The New Jersey Society of Certified Public Accountants 425 Eagle Rock Avenue Roseland, NJ 07068-1723 973-226-4494 njscpa.org #njcpamag Read New Jersey CPA digital at njscpa.org/newjerseycpa
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Mitigating Risk During Succession Find out the major categories of risk during succession, and see how you can avoid getting caught in the sand traps.
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Eight Tips for Creating a Family-Business Succession Plan Look beyond the numbers to successfully transition a family-owned business for the long haul.
2 Close Up New Society President Walked Right into It
25 Tax Talk Charitable Contributions of Appreciated Property 26 Tech Center Human Resources Recruiting Systems
4 News Briefs 16 A&A Buzz New Disclosure Requirements for Multiemployer Defined 44 Student Outlook Benefit Plans Students Learn the Secrets of Public Speaking at Scholars 18 Best Practices Institute Effectively Coordinating Partner Efforts 46 Legislative Views Society Has a Full Plate of 20 Financial Planning Legislative Activity Financial Planning for Boomerang Parents 48 Member Profile Welcome to Abos' Funhouse 21 Forensic File Succession Planning for a Society Pages Forensic Accounting Practice CPE Offerings and Events, 38 Member Benefits, 39 22 Industry Insights Get Involved, 40 An Industry View of NJ State Board of Mandatory Audit Firm Accountancy Report, 42 Rotation Classifieds, 43 24 Small/Sole Practitioner Preparing for Your First Peer Review
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New Jersey CPA (ISSN 1534-6692) is published six times per year by the New Jersey Society of Certified Public Accountants, 425 Eagle Rock Avenue-Suite 100, Roseland, NJ 07068. Issue No. 40 Copyright © 2013 New Jersey Society of Certified Public Accountants. Annual membership dues includes $9 for a one-year subscription to New Jersey CPA magazine. Members may not deduct subscription price from dues. Periodicals postage paid at Roseland, NJ, and at additional mailing office. POSTMASTER: Send address changes to New Jersey CPA, 425 Eagle Rock Avenue, Suite 100, Roseland, NJ 07068-1723. The materials and information contained within New Jersey CPA are offered as information only and not as practice, financial, accounting, legal or other professional advice. The opinions expressed herein are those of the authors and not necessarily those of the New Jersey Society of CPAs. Publication of an advertisement in New Jersey CPA does not constitute an endorsement of the product or service by the New Jersey Society of CPAs.
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New Society President Walked Right into It B Y DON MEYER, NJS CPA C OM M U NI C ATI O NS & M AR K E T I N G D I R E C TO R
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n the late 1980s, when Gerard Abbattista, CPA, a partner at EisnerAmper in Iselin, was asked by a colleague to attend a New Jersey Society of CPAs Middlesex/Somerset Chapter meeting because “it was within walking distance,” he probably had no idea where that walk would lead him. Twenty-five years, countless meetings and seminars, several leadership positions and one food poisoning investigation later, he strolled into the 2013 NJSCPA Convention & Expo in Atlantic City as Society president. “I started out with the NJSCPA primarily for the CPE, but my experiences at the Society and the people I’ve met have been invaluable,” says Abbattista, who resides in Westfield with his wife, Debbie, and their three children, Michael, Jenelle and Julia. I recently sat down with Abbattista to talk about his tenure at the Society. How did you become involved in the Society? I attended CPE seminars at the Middlesex/ Somerset Chapter. I volunteered at the registration desk for some seminars, and by 1991 I was a director. In 1993, I became chapter president and one of my biggest challenges was dealing with the repercussions from a bout of food poisoning at our annual tax seminar. I needed to leave the event early, but others weren’t so lucky. We called the board of health, but it wasn’t able to trace the cause. After completing my eventful term as chapter president, I joined the Student Programs & Scholarships Committee and became chair in 1998. From there, I became an NJSCPA Scholarship Fund trustee, served as the Society treasurer, chaired the Finance and Investment committees and served as Committee Operations chair. In 2012, I was asked to become president – and after speaking with my family, my firm and a host of past presidents – I gratefully accepted the role.
What are your presidential goals? I’d like to promote member engagement, especially among young people, and encourage others to capitalize on the many benefits of NJSCPA involvement. Of course, we’ll have to be cognizant of our changing membership demographics. Young CPAs may want to contribute differently than they did 20 years ago. As such, the Young CPAs Council is engaging in a strategic planning process that I fully support. I also want the Society to continue to feed the membership pipeline through the Scholarship Fund. Not only does the fund do a tremendous job of subsidizing higher education costs for dozens of aspiring CPAs, it also provides a great introduction to the Society for future members and leaders. Lastly, I’m a long-term supporter of the NJ-CPAPAC and our advocacy efforts on behalf of the profession and the NJ business community. We’re close to making it easier to attain CPA license reciprocity in the Garden State and eliminating the so-called “five-year death penalty,” but we still need member support to pass appeal bond cap legislation. How can NJSCPA members benefit from involvement? There are three areas where I believe members can benefit or make a difference – people, profession and skills. Whether you meet people personally or professionally, connections help business, and you will certainly make many connections through the Society. Members can also have a tremendous impact on the profession, whether it’s planning CPE, speaking to students at a local high school or working with the division of taxation. Lastly, NJSCPA involvement can help you showcase your skills to your peers or develop new skills that can help you in your career. N E W J E R S E Y C P A • J U LY • A U G U S T 2 0 1 3
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Any final thoughts? One of my responsibilities as Society president is serving on the American Institute of CPAs Council. I’m impressed by what the AICPA is doing to protect the value of the CPA license and spread its acceptance internationally. The new Chartered Global Management Accountant designation is gaining traction globally and elevating the profession of management accounting. I look forward to helping protect the value of the CPA credential. To hear more from the new Society president, visit njscpa.org/newjerseycpa/ julaug13.
2013/14 Board of Trustees EXECUTIVE COMMITTEE President – Gerard Abbattista, CPA President-Elect – Brad E. Muniz, CPA Secretary – Walter J. Brasch, CPA Treasurer – John M. Szczomak, CPA Immediate Past President – Thomas F. Roche III, CPA CEO & Executive Director – Ralph Albert Thomas, CGMA TRUSTEES Sharon J. Bishop, CPA Leonard N. Brooks, CPA William A. Cadmus, CPA Joseph C. DiFalco, CPA Edward I. Guttenplan, CPA Michael W. Gutwetter, CPA Karl A. Halteman, CPA Robert P. Herman, CPA Edward G. O’Connell, CPA Jody Rorick, CPA Mary E. Zago, CPA Joseph A. Zielinski, CPA
NEWS NJSCPA Offers Succession Planning Portal Is your firm's succession plan in place? The New Jersey Society of CPAs has partnered with the Connecticut Society of CPAs to offer CPASuccessionMatch, a matchmaking website designed to help firm owners whose paths might someday lead to a firm sale or acquisition. For more information, go to njscpa.org/succession.
Supreme Court Takes Tax Shelter Penalty Case In its upcoming October session, the U.S. Supreme Court will determine if the Internal Revenue Service can impose a 40-percent penalty for tax shelter abuses, some of which date back to the 1990s. The case involves billionaire Billy Joe McCombs and his business partner, Gary Woods, who used a strategy called COBRA – current options bring reward alternatives – to claim $45 million in losses from transactions costing only $1.37 million. The court will be determining the penalty aspect and not the validity of the transaction.
AICPA Launches Web Page on Comfort Letters With the number of “comfort letter” requests skyrocketing over the past few years, the American Institute of CPAs has started a web page with resources to assist CPAs in handling these requests. Visit the new web page at aicpa.org/interestareas/frc/pages/
briefs concernsregardingcomfortletters.aspx. Note: Some of the information on the site is only available to AICPA members.
conveyance of real estate, contracting and financing. Contact the division at 609-984-3997 or dorinfo@treas.state.nj.us.
NJ’s “Premier Business Services” Tools Help CPAs and Clients
NJ Division of Taxation News
New tools that can help New Jersey businesses track registration and tax payment status online have recently been introduced at New Jersey’s Business Portal. Developed under the guidance of the Department of the Treasury’s Division of Revenue and Enterprise Services, and based on feedback from the NJSCPA, the new tools allow businesses of all kinds to obtain a Premier Business Services account through the business portal at nj.gov/njbusiness/ home/pbs. After registering, users can log in and access a new service called the Business Standing Check. With the Business Standing Check, businesses can look up their registration (legal) status with New Jersey and determine whether they are in good standing with regard to filing annual reports. A business can also check whether its tax returns and payments are current and, if needed, make payments and file returns online. Along with these features, the service allows businesses to review up to 10 years of tax return and payment filing history. The intent of the new tools is to enable businesses to monitor their accounts proactively and efficiently and avoid complications that arise from compliance issues – issues that can impede vital business transactions such as the
Miss America Pageant by the Numbers 30,000,000 Economic impact on the Atlantic City area (in dollars) 1921 Year the pageant was founded in Atlantic City 53 Number of contestants in each pageant 7 Years the pageant was held in Las Vegas (2006-12)
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Fraud Prevention Contractors – P.L.2013, c. 20, authorizes the use of fraud prevention contractors by the NJ Division of Taxation. It provides that the director may enter into agreements with one or more private persons, companies, associations or corporations providing fraud prevention services. It further provides that the director may provide such taxpayer information as is necessary for the provider of fraud prevention services to fulfill its obligations under the fraud prevention agreement, provided that such disclosure is not contrary to the provisions of subsection (a) of Section 6103 of the Federal Internal Revenue Code of 1986, 26 U.S.C. s.6103. NJ Angel Investor Tax Credit Act – Public Law 2013, Chapter 14, aka the New Jersey Angel Investor Tax Credit Act, revives the expired Small New Jersey-Based High Technology Business Investment Tax Credit by establishing credits against corporation business and gross income taxes for individuals or entities investing in New Jersey emerging technology businesses. The corporation business and gross income tax credits equal 10 percent of qualified investment in an emerging technology company as approved by the NJ Economic Development Authority, subject to a $25 million annual cap. Tax credit recipients cannot claim tax credits for that part of an investment in a single company that exceeds $500,000. For gross income tax purposes, it is a refundable tax credit, while a corporation business taxpayer may choose between a refund and a 15-year carryforward credit. Unincorporated Businesses – An unincorporated business that carries on its business activities both inside and outside New Jersey may allocate its business income to determine the amount from New Jersey sources. The business is not required to maintain a regular place of business outside of New Jersey in order to allocate its income. The business must complete the Business
Allocation Schedule, Form NJ-NR-A, and allocate income, gains, losses and expenses in accordance with N.J.A.C. 18:35-1.1(e) and N.J.A.C. 18:35-1.3(d)4.
NASBA Releases CPA Exam Stats The National Association of State Boards of Accountancy (NASBA) has released the Uniform CPA Examination Candidate Performance Book and the School Performance Book which feature comprehensive statistical data from all four testing windows of the 2012 Uniform CPA Examination. To learn more, visit nasba.org/ products/nasbareport.
New GASB Offerings The Governmental Accounting Standards Board (GASB) is offering a new, easy-to-understand guide to how state and local governments finance and account for their business activities. What You Should Know About the Finances of Your Government’s Business-Type Activities: A Guide to Financial Statements is a comprehensive primer for taxpayers,
elected representatives and others seeking information about state and local government business-type activities and how they report their finances. The GASB also recently launched a new online platform for the Governmental Accounting Research System that provides efficient, effective and easy access to all U.S. generally accepted accounting principles and related literature for state and local governments. The system will be available through four service plans to accommodate the varying needs of different stakeholders. To learn more, visit gasb.org.
Improvements in Dangerous Taxpayer Training Needed Internal Revenue Service (IRS) employees can be exposed to many difficult, threatening and even extremely dangerous situations because of daily and ongoing interactions with the public. However, not all IRS employees have sufficient knowledge of the Office of Employee Protection (OEP) and the Potentially Dangerous Taxpayer (PDT) and Caution Upon Contact (CAU) Programs, according to a recent audit report from the Treasury
Inspector General for Tax Administration (TIGTA). Visit treasury.gov/tigta.
Society a Great Place to Work for Second Consecutive Year In a recent NonProfit Times list of the country’s “50 Best Nonprofits to Work for in 2013,” the New Jersey Society of CPAs was ranked fourth overall (up three spots from last year) and first (up two spots from last year) among small employers. Kudos to the NJSCPA staff!
njscpa.org Spotlight
Get Social with Us The New Jersey Society of CPAs is active on numerous social media sites. Make sure to follow/like us to get up-to-date information, news, photos and more.
Join the NJSCPA’s LinkedIn group (njscpa.org/linkedin) and follow our LinkedIn company page (linkedin.com/company/new-jerseysociety-of-cpas).
Join more than 5,400 other people who have “liked” our Facebook page. We share professional news plus fun photos of members and links to interesting articles (facebook.com/njscpa).
Follow us on Pinterest. Our boards include Young Professionals, Best Practices, Infographics, CPA Exam, Giving Back, Social Media and more (pinterest.com/njscpa).
The NJSCPA Twitter stream provides local and national news, Society updates and member/ firm news (twitter.com/njscpa).
Everyone loves photos, including the NJSCPA! Follow us on Instagram for photos from our events and activities (instagram.com/njscpa).
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The NJSCPA YouTube channel has recently been enhanced. Check it out and subscribe (youtube.com/njscpa). Add the NJSCPA to your circles on Google+ (njscpa.org/gplus).
Last, but certainly not least, is Connect – the NJSCPA’s own social networking site. Connect with your fellow members, participate in discussions and build your professional network (njscpa.org/connect).
CPA Firm Succession Planning Today’s CPA profession struggles with standards overload, complex accounting rules, difficult and ever-changing tax laws, workload compression, tough federal and state regulators and time-consuming quality control processes. In addition, firms are managing generational differences between Baby Boomers, Generation X and Millennials. In this environment, becoming a growing and successful accounting firm is nothing short of a challenge.
It All Starts with Planning By Henry Rinder, CPA Smolin, Lupin & Co., P.A.
The firms that “fail to plan, plan to fail.” The succession process begins with a succession plan designed to identify and develop a fresh talent pool of new partners from within. The other choices are limited. Will we recruit new partners to fill the voids in our management and service structures, or do we look for an exit strategy and merge upstream? An effective succession plan will include training, executive coaching and mentoring, followed by periodic screening of those who make up the talent bench. N E W J E R S E Y C P A • J U LY • A U G U S T 2 0 1 3
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Just How Deep Is Your Bench? Most CPA firms have been deeply impacted by the Great Recession and suffer from aging demographics in their leadership structures. The current talent bench shows remnants of the Baby Boomers, but is now dominated by newer generations who, for the first time, witnessed a steep economic slowdown. Firms need to understand and embrace the unique characteristics of each generation to help them succeed.
Corporate Culture Each firm has a unique corporate culture, as well as a unique form of management, accountability, vision and work discipline. This is why growing from within is an appealing proposition. Getting a buy-in from various levels and age groups of the firm into the shared vision is strategically necessary. All partners and staff should embrace the common corporate culture. As our human resources director puts it, “we need to live it.”
Communication, Communication, Communication A clear commitment to integrity, professional standards, empowerment of your people and a focus on quality
of service are the necessary ingredients of the secret sauce for building longterm success. Your firm should be able to communicate its corporate vision, mission and core values with clarity; the tone starts at the top. That communication extends to the succession plan. Your staff needs to know, without ambiguity, what your expectations are and what they need to do to become partners.
Mandatory Retirement In developing a succession plan, it is a good idea to promote a mandatory retirement for the partners. A void at the top created by retiring partners provides an opportunity and incentive for the younger partners and staff who are positioned lower on the proverbial totem pole. At the same time, a softlanding provision can be put in place that allows the firm to retain those retired partners who, despite being over the mandatory retirement age, are productive and still have much to contribute.
Family owned firms, by definition, will favor family members, regardless of merit. That is a dangerous path which may lead to mediocrity. Our firm has chosen to establish a nepotism policy that prohibits family hiring. This policy has served us well.
Partners must not allow greed to derail a sound succession plan. There must be sufficient cash flows left for the working partners and contractual safety valves that ensure the future viability of the practice. The cash flow control can be accomplished by limiting the total payouts to the retired partners with a contractual cap based on the percentage of the total collections.
The Numbers Have to Work
Training Days
Firms poised to grow will want to make sure that the retiring partners – and those in the retirement “red zone” – do not consider a sale of the practice as a better option. Their economic impact at retirement should match what they would realize from a sale. The partnership agreement should have buyout retirement provisions that mirror the economic reality of a sale; otherwise, senior partners may believe they are leaving money on the table. The partnership agreement should also provide incentives for business development and transfer of clients to younger partners who would support aggressive growth and succession.
A more profitable and successful firm is likely to attract better talent. Running a CPA firm is a lot like running a talent agency. If you have talented CPAs, you are more likely to attract clients of substance who will seek out the leading professionals with unique skills for their unique needs. An important objective of succession building is to attract and retain the best and brightest who are then trained and mentored to become highly qualified and proficient. Part of that training should include leadership training and teamwork – skills that are critical in building for succession. For newer staff, early stage coaching and mentoring could be part
Keep It Out of the Family
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of a succession plan. Young, talented professionals are identified early as potential partners. They should be offered sales and leadership training to improve their chances of success and advancement. The succession plan should include specific career markers for this elite group as they ascend the corporate and professional ladder of the firm. And for the more seasoned staff, a quality firm will make advanced training and support available to those who are talented, driven, committed and, perhaps most importantly, want to be partners. In following noted author and management consultant Jim Collins’ ideas and observations, firms must carefully and judicially decide if they have “the right people on the bus.” A process of top grading is necessary to ensure the right individuals are chosen to stay on the bus. Henry Rinder, CPA, ABV, CFF, CFE, CGMA, is a member of Smolin, Lupin & Co., P.A. He is a past president of the New Jersey Society of CPAs. Contact him at hrinder@smolin.com or 973-439-7200.
Practice Growth During Succession What could be more vital to a firm’s long-term success than continuing to grow revenues while partner succession is taking place? Growth during succession requires a complex set of strategies and plans that must be implemented years prior to partner retirement.
By Joseph A. Tarasco, CPA Accountants Advisory Group, LLC
Succession planning often involves the retirement of founders and rainmakers who’ve played critical roles in growing the practice for 20, 30, 40 years or more – this can’t be replaced with a short-term succession plan approach. Some of the greatest risks to growth during succession are (1) replacing the exiting rainmaker’s practice development skills and referral network; and (2) losing opportunities to add more clients and retain current clients if the trusted advisor role is not transitioned properly.
Practice Development To help overcome the risks when rainmakers ride off into the sunset, young partners should receive formal and on-the-job practice development training throughout their careers. They should learn and develop selling skills and relationship-building techniques that encourage and motivate them to market themselves and the firm. “Our young partners participate in new business meetings with senior partners, and they’re involved in the proposal process early in their careers. Also, our future leaders and partners are members of the firm’s marketing N E W J E R S E Y C P A • J U LY • A U G U S T 2 0 1 3
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and practice development committees,” said Director of Marketing Nancy Damato of O’Connor Davies, LLP. A firm’s practice development strategy must address short-term and long-term succession practice growth requirements in order to provide sustainable increases in future revenues and profits. “We realize the importance of building mutually beneficial relationships – an ongoing, career-long process for success,” said Marketing Director Yvonne Trella of The Mironov Group, LLC. “We train and develop our future partners throughout their careers to help them keep in touch with clients, prospects and referral sources so that they can continually provide them with industry insight and useful resources.” A growth strategy should be structured with the appropriate support mechanisms for younger partners and managers so that the process is succession-proof. It’s difficult to make it rain, but most anyone can make it drizzle with the proper professional support, a well-directed and managed marketing program, and practice development coaching and training. “We develop personal marketing plans for partners early in their careers, and our marketing department coaches and advises them during implementation,” said Director of Marketing and Practice Growth Rhonda Maraziti of WithumSmith+Brown. Implementing a formal marketing and practice development infrastructure will provide a seamless transition of new business development during succession. Supporting partners' practice development efforts with professional assistance and a focused game plan can increase new business activities, and
the results will enable all partners to be engaged and play a role in practice development. “Our young partners and senior staff are encouraged to write articles and speak at professional conferences that are attended by clients, prospects and referral sources. This gives them exposure to the marketplace and builds confidence in their practice development skills,” added Damato. Practice development is a contact sport that requires a systematic approach to engage qualified client prospects and develop business relationships with referral sources. “Whether it’s expanding their networks of referral sources or client prospects, it’s important that pieces are being continuously put in place to sustain growth while our partners are retiring,” noted Maraziti.
Trusted Advisor Role and Retaining Clients Quantifying new business from a partner’s trusted advisor role – from referrals and/or clients – is tough to determine. However, the trusted advisor role plays a big part in new business development, generating new business from existing clients as well as client retention. Marketing professional accounting services is different from other selling approaches. It normally requires building relationships and developing a sense of trust and credibility with clients and referral sources over time. “The rainmaker development process starts very early in an individual’s career,” commented Chief Marketing Officer Charles G. Ludmer of CohnReznick. “That’s why we have the CohnReznick Rainmaker Academy. It’s part of our formal training where our most senior partners share the keys to their successes with our high-potential, next-generation partners. We ask participants to develop a personal marketing plan which is utilized as a personal and firm performance measure. This becomes an excellent entrée to build relationships and generate new business or to cross-sell value-added opportunities with existing clients.” Developing staff and younger partners into the trusted advisor role is a
comprehensive process, and earning the right to be a trusted advisor starts years prior to succession. “The key is planning. That doesn’t necessarily equate to handing over the reins altogether,” pointed out Chief Marketing Officer Adam Schuman of Citrin Cooperman. “One approach involves grooming younger professionals to not only play more of a role with long-standing clients, but to educate and train them on the importance of establishing their own relationships and developing new business opportunities, thus filling the pipeline.” In addition to a formal structure and marketing support program, it’s imperative that rainmakers pass on their skills, talents and know-how throughout their careers to younger partners. On-the-job client relationship training for young managers and partners is critical to succession planning. “We provide our future leaders with skills to help them be more effective at developing more powerful relationships with existing clients in order to maintain our higher retention rates and recognize relevant and N E W J E R S E Y C P A • J U LY • A U G U S T 2 0 1 3
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meaningful cross-selling opportunities,” commented Principal and Chief Growth Strategist Sally Glick of Sobel & Co., LLC. “Working on improving relationships with current clients is every bit as important as developing new ones.” Establishing a marketing and practice development infrastructure and culture is the best way to ensure successful growth during the changes taking place in succession. “We have our partners create revenue action plans that align with their professional goals and the firm’s strategic growth plan. We provide them with the tools they need to identify, strengthen and grow their professional relationships along with the training they need to become trusted advisors. This has served us well during our many partner retirements,” added Trella. Joseph A. Tarasco, CPA, consultant to the CPA profession, is president of the Accountants Advisory Group, LLC. He is a member of the New Jersey Society of CPAs. Contact him at joe@accountatsadvisory.com.
Mitigating Risk
During Succession With change comes the potential for professional liability risk, and CPA firm succession is no different. While the claims databases of professional liability insurance carriers are not teeming with these types of claims, there will be an increase in claims as a result of the succession issues – as well as the explosion of merger and acquisition activity – in the CPA profession.
the latest American Institute of CPAs webinars that focused on compilation and review updates. After the merge, the education training center at the firm could not accommodate the practice growth, and the educational programs were discontinued. As such, the firm’s most recent compilation engagement letter failed to have the latest and required language. The firm consequently received a letter of comment on its peer review.
Firm Applications and Processes Three major categories of risk that have evolved over the last few years due to firm succession are (1) firm culture and personalities; (2) firm applications and processes; and (3) employee benefits and retirement plans.
Firm Culture and Personalities By John F. Raspante, CPA North American Professional Liability Insurance Association
Firm culture issues – leadership style, ethics, open door policies, education and staff assimilation – can pose risks. Example: Senior partners at firm XYZ are forced to retire based on the firm’s mandatory retirement guidelines, and new leadership plans to visit clients less frequently or not at all. Instead, the leaders will use advanced technological applications to service clients. The result could be a loss of clients or a professional liability lawsuit alleging breach of contract by firm XYZ. Example: Prior to a merge, the firm periodically met as a group and viewed N E W J E R S E Y C P A • J U LY • A U G U S T 2 0 1 3
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Use of engagement letters, client portals, cloud computing, document management and destruction, client selection committees and client terminations all pose risks before, during and after succession. Example: Firm XYZ recently recruited a new quality control (QC) partner from a large regional firm. That QC partner recommends that any partner who brings in new business should not be part of the client selection committee. This new process is met with opposition by the existing partners who feel this is unnecessary and will lead to less growth. Example: Firm A acquires a much smaller firm, firm B. Firm A has a strict policy requiring the use of engagement letters on all engagements. Prior to the merge, firm B used engagement letters only for attest engagements and never for tax services. Firm B feels if engagement letters are used on all tax
services, it will lead to a significant loss of clients. It is worth noting that firm B will ultimately be paid for the clients who have been merged into firm A, based on collections.
Employee Benefits and Retirement Plans Employee benefits include, but are not limited to, paid time off, reimbursement for CPA Exam costs, health savings accounts, continuing education and tuition reimbursement, health insurance and group-term life insurance. The discussion of retirement plans will be limited to 401(k)s, but applies equally to all retirement plans. Many of the exposures discussed in this section have historically had their genesis in employment practice claims against CPA firms, as opposed to professional liability claims. 1. Employees of smaller firms that combine with larger firms may experience tremendous differences in employee benefits. The array of benefits will often be greater and more valuable after the merger or sale. However, it’s the loss of benefits that people will focus on. If the successor firm had a policy of 100-percent employer coverage for medical and now it’s 50/50, this will probably be met with staff resistance. Firm management needs to clearly and comprehensively articulate any reductions in benefits early in the transition. Further, human resource personnel should meet with staff individually or in small groups to discuss benefits changes. Employment practice insurance carriers have reported these types of issues as common causes of actions faced by CPA firms. 2. Retirement plan claims occur less frequently, but complications and related exposures exist nevertheless. Changes in the type of plans instituted by the firm will always subject it to exposure, as the dollar amount of the pension benefit may change. Plan loans, plan termination and the
resulting income tax consequences need to be analyzed. The nuances of the Employee Retirement Income Security Act need to be analyzed and applied properly. Also, the samedesk rule needs to be examined to determine whether the responsibilities of the staff prior to and after a merger or sale are effectively the same. The same-desk rule will have the effect of treating the employees that have joined the new firm as not being considered to have a separation of service and, consequently, no distribution of pension account balances. Internal Revenue Service Ruling 2000-27 provides guidance regarding the same-desk rule.
Best Practices With Baby Boomers retiring at unprecedented levels, as well as the dramatic increase in accounting firm mergers and sales, professional liability and employment practice liability exposures are sure to increase. Careful attention to best practices and a review N E W J E R S E Y C P A • J U LY • A U G U S T 2 0 1 3
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of the related professional standards will help keep these exposures to a minimum. For the above reasons and beyond, there are several things you can do to help mitigate your risk: • Choose a successor firm that will not have to implement changes that place your firm at risk for client and staff loss and liability reasons. • Make sure that the mergee/seller maintains its tail policy and the successor firm is covered. • Add proper hold-harmless and indemnification clauses into your agreement that protect both parties. John F. Raspante, CPA, M.S.T., CDFA, is the director of risk management for the North American Professional Liability Insurance Association. He is a member of the New Jersey Society of CPAs Accounting & Auditing Standards Interest Group and the Editorial Advisory Board of New Jersey CPA magazine. Contact him at johnr@naplia. com or 508-656-1318.
Eight Tips for Creating a
Family-Business Succession Plan Creating a business succession plan is important for any business, but it is particularly essential for a family-owned business. A well-thought-out succession plan is the most effective vehicle for making sure that a family business endures well into the future. The Numbers
By Carl H. Bagell, CPA Friedman LLP
Family businesses have maintained their status as the backbone of the U.S. economy. The Small Business Administration estimates that family businesses comprise 90 percent of all business enterprises in North America and 62 percent of total U.S. employment. However, significant change is on the horizon: 27 percent of familyowned or family-managed businesses around the world expect to change hands in the next five years, according to a PricewaterhouseCoopers survey. But are businesses ready to transition? Peakfamilybusiness.com N E W J E R S E Y C P A • J U LY • A U G U S T 2 0 1 3
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estimates that only 30 percent of family businesses in the U.S. have a plan for passing the reins to the next generation, even though close to 70 percent would like to keep the business in the family. The numbers don’t trend well with the passage of time. By the third generation, only 12 percent of family businesses in the U.S. are still viable; and by the fourth generation and beyond, only 3 percent of family businesses continue to exist.
Beyond the Numbers Transitioning a family business from one generation to the next can be emotionally trying. The viability of a succession plan often depends on how emotions are handled. Taking this into account, it clearly makes sense for the family business owner to treat the succession plan as seriously as retirement and estate planning. In other words, take the emotions out of it!
The Tips
The primary challenge for many small business owners is formulating
a plan for who should run the business in the future and how. While developing a plan may seem daunting, it should not discourage the owner from getting started. Once a well-thought-out plan is in place, transitioning owners can have peace of mind that comes from knowing they have done everything within their powers to ensure the ongoing health of the businesses. The following eight tips can help current owners enact a smooth transition: 1. Obtain a Business Valuation – It is common for business owners to assign too high a monetary value to their businesses because of the emotional sweat equity they have expended, sometimes over the course of decades. This is known as “overestimation
bias,” and it needs to be overcome. The best way to do so is to use external professionals to prepare an accurate business valuation report that does not overvalue or undervalue the business. 2. Prepare for Life Without the Business – The best business valuation in the world will not help owners determine if the amount they receive from the transition is enough to take care of their lifestyle expenses, family, community obligations and plans for the future. Business owners often underestimate their lifestyle expenses by as much as 50 percent. It’s critical to identify how much is enough. 3. Prevent Negative Financial Consequences – Careful tax and estate planning is essential if owners want to make sure various governmental N E W J E R S E Y C P A • J U LY • A U G U S T 2 0 1 3
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agencies do not take a big slice of their future proceeds. Also, the owners need to make sure they have the requisite insurance coverage to mitigate any potential turmoil. Again, the proper use of outside professionals is crucial. 4. Choose a New Leader – Deciding whether to use a family member or nonfamily member as the company’s new leader should be based on a single factor: Who is best qualified? All matters that involve family come with a complex set of emotions – family businesses are no different. To ensure a succession plan accomplishes all of its goals, owners need to stay emotionally detached and choose the most capable person. 5. Educate the Successor – Whether the person chosen to lead the business
is internal or external, educate him or her early and often about the family business, as this will help to create an attitude of ownership. The successor probably thinks he/she understands what running the business entails, so now is the time to dispel any erroneous assumptions. 6. Mentor the Next Generation – Develop a training program to mentor the next generation that will run the business. Clearly define roles, expectations and responsibilities. Empower the successor to make management decisions, and let the successor make mistakes – that’s how lessons are learned. 7. Create a Realistic Timetable – The timetable should include when control of the company will shift and the training period. Depending on the size of the business, it could
take three to five years to implement the changes needed for a seamless transition. 8. Develop an Exit Plan and Make It Transparent – As the successor takes on more responsibilities, the outgoing owner should spend less and less time at the office. This will demonstrate confidence in the new leader’s ability to manage the business, and when the transition takes place it won’t be abrupt. Make the outgoing owner’s level of involvement clear. It may be assumed that a long-time patriarch/ matriarch of a business will always be available to offer advice. However, this may not be what a new successor wants and, in fact, could interfere with posttransition plans. Research shows that 75 percent of business owners are not satisfied
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with the personal and financial outcomes achieved after they transition their businesses, with most of the dissatisfaction being attributed to poor planning and a lack of communication. This can be avoided by planning ahead, communicating plans with everyone involved and employing the proper professionals: CPA, financial advisor, estate planner and insurance professional. Proper planning (and keeping emotions out of it) can ensure the ongoing prosperity of the business while the outgoing owner rides off into the sunset – or on to whatever endeavor comes next. Carl H. Bagell, CPA, is the managing partner for South Jersey for Friedman LLP. He is a member of the New Jersey Society of CPAs. Contact him at cbagell@ friedmanllp.com.
A&A
buzz
New Disclosure Requirements for Multiemployer Defined Benefit Plans B Y K A R EN H. S CH WARTZ, C PA, E I SNE R AM PE R LLP
E
mployers operating in unionized industries (construction, manufacturing or transportation, to name a few) often participate in a multiemployer plan as a means to cost effectively provide benefits to union employees. This type of plan also enables unionized employees to accumulate retirement benefits in a single plan. The assets of such a plan are commingled by their very nature, since funds contributed through numerous unrelated employers are included in one plan.
It becomes challenging when one of the participating employers of the multiemployer plan cannot meet its funding obligations. Unfortunately, the nonpaying employer’s obligations become the responsibility of the remaining employers. However, these remaining employers are not required to recognize a liability for their share of the unfunded obligation and are only required to record a withdrawal liability if it becomes probable that they will cease participation in the plan. In fact, prior to Accounting Standards Update (ASU) 2011-09, Disclosures About an Employer’s Participation in a Multiemployer Plan, the disclosures for multiemployer plans were the same as for single-employer plans, even though the inherent nature of the plans and their potential risks and obligations greatly differ. So, how does a potential investor in an entity which is party to collective bargaining agreements value that contractor for purposes of a potential investment, without understanding the funded status of the multiemployer plans it N E W J E R S E Y C P A • J U LY • A U G U S T 2 0 1 3
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participates in and future potential cash flow obligations? The answer is it really can’t, until now. To assist financial statement users in assessing the potential future/ off-balance-sheet obligations of an employer participating in a multiemployer plan, the Financial Accounting Standards Board issued ASU 2011-09, Disclosures About an Employer’s Participation in a Multiemployer Plan. The new disclosure requirements (in tabular format) included in a participating employer’s financial statements are: • Each significant plan’s legal name and employer identification number. • Each plan’s financial health, as indicated by its zone status as provided for in the Pension Protection Act of 2006. If the zone status is not available, an employer will be required to disclose whether the plan is less than 65-percent funded (red zone), 65- to 80-percent funded (yellow zone) or more than 80-percent funded (green zone). • Expiration dates of collective bargaining agreements and minimum funding requirements, if any. • A qualitative description that helps readers understand the significance of the collective bargaining agreements, such as the portion of the employees covered. • Plans in which the participating employer represents more than 5 percent of the plan’s total contribution. • Plans that are severely underfunded and subject to a fundingimprovement plan. • The amount of employer contributions made to each
individually significant plan and to all plans in the aggregate. • Whether or not a surcharge was paid to the plan; a quantifiable disclosure is not required. • Any changes affecting the comparability from period to period for each period in which an income statement is presented, such as a business combination or divestiture, change in the contractual employer contribution rate or change in the number of employees covered by the plan during the year. • Further requirements are information that is available through the date at which subsequent events have been evaluated is to be used, as well as certifications of funding zones must
be completed within 90 days after the start of the plan year. Such information includes all collective bargaining agreements the company is a party to, funding zone certifications and a schedule of contributions made to each plan. In order to prepare for these expanded disclosures, it is recommended that companies contact their plan administrators on a timely basis to ensure they will provide the required information. The effective date for ASU 2011-09 is for periods ending after December 15, 2012, for private companies; the rules have already been effective for public companies.
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Karen H. Schwartz, CPA, is a director in the Professional Practice Group at EisnerAmper LLP. She is a member of the New Jersey Society of CPAs Accounting & Auditing Standards Interest Group and an active peer reviewer and CPE instructor. Contact her at karen.schwartz@ eisneramper.com or 732-287-1000.
Member Benefit Auditing Defined Contribution Plans Tuesday, August 13, Jamesburg Visit njscpa.org/catalog Express Code: E1308263
BEST
practices
Effectively Coordinating Partner Efforts BY THOMAS M. ANGELO, CPA, SPIRE GROUP, PC
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ongratulations. You’ve become managing partner, and you have several supportive partners, talented staff and a well-balanced client list. All’s right with the world. But now you have to navigate the ever-changing tax code, recent audit and accounting standards, business development during a weak economy and a host of administrative nightmares that haunt you daily. It's time to start with a plan and make sure that the workload is spread out amongst your fellow partners to keep the momentum moving forward.
all the firm’s partners. The partners need to revisit the plan annually to determine where the firm was, where it is now and where it needs to go in the future. Unfortunately, many firms stop here. The next step is to take the strategic plan components and lay them out in a quarterly operational plan. The operational plan should have a partner’s name assigned to each task listed. Don’t try to solve all of the firm’s problems, issues and goals in one quarter. Carefully craft the priorities and focus on the most important ones first.
Create a Strategic and Operational Plan
Match the Partners
The first step is to create a strategic plan that is crafted with the input of
While it would be wonderful if all partners could be masters of audit, tax, marketing, technology and N E W J E R S E Y C P A • J U LY • A U G U S T 2 0 1 3
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recruiting the best and brightest talent, in reality, not all partners are created equal. The key is to coordinate which partners are best suited to handle the operational goals of your plan. Have an open and honest discussion with each partner on his/her goals and where he/she feels the most comfortable and skilled in executing the firm's goals. If you have a partner who is wellrespected among the staff, have that partner champion the firm as a top workplace by keeping retention high, attracting new talent, and developing and mentoring the future leaders of the firm. Another partner might be the best at processes and policy and should create the most efficient workflows and procedures. Another partner might be more adept at technology and should drive the firm’s IT programs. Ultimately, if you’re left with operational goals that don’t fit your current partner base, you have a couple of choices. You can work with an existing partner to develop those skills by sending him/her for additional training or bringing in an outside consultant to help. If you believe that your firm will fail without that goal being fulfilled, it’s time to recruit more talent at the partner level with that skill. Having the proper people on the bus is the only way to ensure that the firm gets to the destination.
Keep Everyone Accountable Once you are comfortable with everyone having their goals, it’s important to ensure that they are all accountable to not only the managing partner, but to each other as well. While firm owners need to maintain a certain amount of autonomy to feel true entrepreneurial spirit, they are not to be left alone in the hopes that
they’ll get to it. The partners should have these goals tied to compensation through a balanced scorecard. The managing partner or partner group should also be reviewing the status of goals regularly throughout the year so that changes can be made and, if necessary, efforts redirected should the economy, industry or firm undergo changes. Without the plan and the corresponding accountability, there is no way to coordinate the efforts of the partners to meet the firm’s overall goals. Your firm ends up having
partners working on whatever they feel is important, which may or may not be in the best interest of the firm and could lead to reduced profitability, unhappy staff or a decline in client retention. For example, the last thing you want is two partners unknowingly cultivating the same potential client. That just makes the firm look unprofessional. Coordinating partners’ efforts is a key component to overall strategy and the best way to ensure the one-firm concept.
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Thomas M. Angelo, CPA, CITP, is a shareholder at the Spire Group, PC. He is a member of the New Jersey Society of CPAs Nonprofit and Technology interest groups. Contact him at tangelo@spirecpa.com.
Member Benefit The Leadership Secrets of Football's Master Coaches; Leadership and Coaching Essentials for the CPA Friday, August 23, Roseland Visit njscpa.org/catalog Express Code: E1308403
FINANCIAL
planning
Financial Planning for Boomerang Parents B Y EDWARD R. COL L INS, ART I SAN W E ALT H M ANAGE M E N T, L L C
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ome call it a perfect storm. The confluence of a still-troubled economy, a lagging job market and burdensome student loan debt has created an environment where onceempty nests are no longer all that empty. Recent data released by the U.S. Census Bureau estimates approximately 22.6 million adult children are once again enjoying mom’s cooking on a regular basis. A decade ago, that number was closer to 5 million. If trends continue on this course, that number is sure to rise. The media has coined the phrase “Boomerang Generation” to refer to the current crop of young adults (typically age 18 through 35) who have either returned home to live with their parents due to economic reasons after college or those who have not yet left. Parents who find themselves in this reality soon discover that living with their adult kids is a completely different proposition than when they were younger. As a trusted advisor, it behooves you to understand this socio-demographic and have financial planning strategies available for boomerang families.
Put a Plan in Place Parents who find themselves caring for their adult children for much longer than expected, with no exit plan in sight, could easily face their own financial ruin. One way to combat this scenario is to thoroughly review, and adjust if necessary, the parents’ financial plan as well as help draft an exit strategy for the adult children. Write It Down – It is extremely important for parents to establish boundaries right away when adult children move back home. Some financial professionals recommend parents draft a written contract that establishes quantitative rules (rent, utility costs, food costs) and qualitative rules (chores, guest policy and job search efforts).
Establish a Budget – When a child returns home, parents often see money being spent on new cell phones and going out with friends, rather than paying off student loans, credit card debt and car payments. Working with parents to establish a personal budget for the adult child can help set them on the right track toward independence more quickly. Make Home a “No Freeloading Zone” – Adult children should be made to understand that when they move back home, it increases their parents’ cost of living. Advise parents to illustrate these costs – mortgage, utilities, food, insurance – to help adult children appreciate the financial impact on their parents. Determine if income and expenses warrant the child’s contribution toward the household and to what extent. Systematize Supplemental Support – Parents should set limits on how much they are willing to supplement the cash needs of their adult children. Assist parents in making a supplemental disbursement schedule (monthly, weekly) so that adult children can learn to manage their money wisely. Also, determine how long this disbursement should last and if it will be a loan or a gift. Set Time Limits – Adult denizens shouldn’t have an open-ended invitation. Financial advisors can be instrumental in determining how long parents can “carry” an adult child at home without it jeopardizing their financial golden years. Also, in the interim, should the child get a parttime job and what would be the tax impact? N E W J E R S E Y C P A • J U LY • A U G U S T 2 0 1 3
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Have an Exit Strategy – At what point should parents expect their adult children to move out: immediately after finding a job or after a certain amount of money has been saved? Under what circumstances should an adult child be asked to move out regardless of employment or savings?
Keep Parents Committed to Their Own Financial WellBeing Ever wonder why flight attendants instruct passengers to put on their oxygen masks first before helping others in the event of depressurization? Well, it is difficult to help others if you’re unconscious. The same is true financially. Parents should be cautious not to let their desire to love and nurture their children irreparably damage their own financial well-beings. This is where working with a financial professional can help make sure that parents don’t get clobbered by that boomerang. Edward R. Collins, CFP, AAMS, RFC, is a founding partner and wealth advisor at Artisan Wealth Management, LLC. Contact him at ecollins@artisanwealthmanagement. com or 908-366-7630.
FORENSIC
file
Succession Planning for a Forensic Accounting Practice B Y REBECC A B . FITZHUGH, C PA, SO B E L & C O. , LLC , CPA S
S
o, you’ve spent the last 25 years honing your skills and building a practice and a reputation for litigation support excellence. You’ve also devoted long hours mastering the complexities of your chosen area of expertise, spent countless days developing the ability to translate your field’s technical jargon into everyday language that a jury can understand and gained the trust of attorneys, judges and clients through your hard work and integrity. You’ve developed processes and reporting and analytic templates that streamline your practice. Now it’s time for you to ease back and enjoy the rewards of your successful career in retirement. But how do you pass your business on, provide financial security for your retirement and ensure the ongoing careers of your employees? It’s been widely reported that a large percentage of CPA firms lack succession plans that adequately address their continued operations and financial goals; sole practitioners are even less prepared. Litigation support and business valuation practices are somewhat different from the typical audit, accounting and tax practices in that they tend to be dependent upon the reputation and knowledge of one or more individual experts who’ve testified in court. The skills and experience required to provide expert services in any field take years to develop, so succession planning needs to be addressed several years before a planned retirement. However, there are a couple of aspects of litigation support and business valuation that require some special planning when it comes to a successful succession.
Courtroom Skills Because litigation support and business valuation practitioners often testify in court, it’s important to find a successor who is comfortable with those requirements. For example, he or she must have the professional credentials (e.g., ABV, CFF, CVA) and educational background to prove subject matter expertise. The individual must be eloquent and able to translate the profession’s technical jargon into plain, everyday concepts that a judge and jury can understand and sympathize with. He/she must be persuasive and trustworthy and must have the temperament to deal with lawyers and clients who can be difficult at times. Many people in this profession are comfortable with, or even excel at, the work itself but have no appetite for courtroom drama and the stress of being badgered by an experienced litigator in front of a judge and jury. Once you find someone who is willing to testify in court, it may take several years to obtain the credentials and experience required, as well as develop his/her courtroom skills to the degree that the practitioner can satisfactorily succeed you.
Continuous Business Development Another aspect of succession planning in forensic accounting is that there are generally few, if any, evergreen clients. Litigation support and business valuation assignments are often onetime engagements, unlike audits and tax return preparation where a client may continue using you and your practice N E W J E R S E Y C P A • J U LY • A U G U S T 2 0 1 3
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for multiple generations. Forensic accounting requires continuous business development and exposure to potential clients. Relationships and reputation are major factors in developing and maintaining business, and your best bet for getting the next engagement is to be the one who is frequently in front of potential clients, usually attorneys, and being foremost on their minds when they need a financial expert. Your successor must be able to assume and maintain the relationships you’ve cultivated over the years, as well as develop new ones.
How to Succeed at Succession Identify candidates for a business continuation plan internally or through event networking and professional associations, but begin looking for and developing a successor early. It took you a long time to build your reputation and practice, so you’ll want to take the appropriate time to find the right person (or people) to succeed you. Litigation support and business valuation are specialties that require significant training and technical knowledge, as well as the social and presentation skills necessary to be convincing in the courtroom and successful in business development. Rebecca B. Fitzhugh, CPA, CFF, CFE, CIGA, is a senior manager with Sobel & Co., LLC, CPAs. She is a member of the New Jersey Society of CPAs Education Foundation Executive Committee and the New Jersey CPA Editorial Advisory Board. Contact her at rebecca.fitzhugh@sobel-cpa.com.
INDUSTRY
insights
An Industry View of Mandatory Audit Firm Rotation B Y GREGORY L EVINE, C PA, SO NY M USI C E NTE RTAI NME N T
And I Quote…
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hen our team interacts with our external audit firm each year, a couple of our key responsibilities include overseeing the corporate profit and loss and balance sheet statements as well as providing support and feedback to our auditors during year-end and quarter-end audit reviews. This includes reconciling the corporate balance sheet each month, including detailed account analysis with proper review and sign-off, monitoring large changes on a monthly and quarterly basis, and keeping both physical and electronic support documentation. Based on my experience, it can take a few years for the auditors – and their firm – to understand how the business works and, more importantly, the
internal systems and processes. For example, a new audit firm rotating into the position would need to view and understand all contracts currently in place and then interpret them to ensure proper accounting treatment. The current audit firm would already have this information and only need an update on new contracts signed over the past year. If we had to rotate audit firms each year, it would cause redundancy and probably increase the cost of the actual audit due to the learning curve associated with being a new client. The auditors I’ve worked with each year are extremely professional and diligent and they, too, don’t believe rotating audit firms would decrease potential fraud at companies. N E W J E R S E Y C P A • J U LY • A U G U S T 2 0 1 3
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I inquired with some colleagues at Sony Music about mandatory audit firm rotation, and the responses were basically the same. All respondents were against the idea, but open to the idea of rotating staff or partners. • “The knowledge and understanding of a business gained over time would better enable the audit firm’s staff to spot items that are potentially inaccurate. They are better positioned to question and understand the reasonableness of management’s business explanations and how that relates to past practice for that company and industry.” • “One of the ways costs and efficiencies are gained is by having an audit firm that is familiar with and understands our business. In a rotation scenario, any knowledge accumulated over time is lost, and a lot of time is invested in covering ground already covered. This becomes an inefficient use of time and money. If the reason driving the rotation concept is to ensure that the auditor is independent and to ensure integrity, this could be achieved by the auditor oversight board in its review and audit firm monitoring.” • “I don’t favor mandatory audit firm rotation for the same reasons I don’t favor term limits: You shouldn’t change a productive, effective process simply due to the passage of time. If it’s not working, then make a change. It doesn’t seem right to force a change when things are working effectively.” • “The increasing complexity of businesses and continuing pressure to reduce audit fees make audit firm rotation a bad idea. The Big Four have to gain efficiencies through their
previous experiences with the firm being audited.” • “Overall, I think it’s a bad idea. There is enough turnover between staff below the partner level that makes it difficult enough to have an efficient audit. Rotating the partner is enough of a control.” The idea behind audit firm rotation is rooted in good faith. However, audit firms are paid to give opinions by the very firms they work for. The public may interpret this as an ethical situation that could open the door for fraud. However, hiring a new audit firm does not guarantee fraud prevention or decreased audit risk. On the contrary, the risk may actually increase as the new audit firm struggles to understand the business, ledger systems and processes currently in place. Furthermore, rotating audit firms would probably increase the cost of the audit, at least in the first year of the new firm’s review. This would increase the annual cost of doing business. Rotating the audit partner and holding the executive team responsible for the financial statement might be better alternatives. Gregory Levine, CPA, is the associate director of corporate accounting for Sony Music Entertainment. He is a member of the New Jersey Society of CPAs Personal Financial Planning Interest Group. Contact him at greg.levine@sonymusic.com.
Member Benefit Controller and CFO Skills Wednesday, August 21, Atlantic City Visit njscpa.org/catalog Express Code: E1308363
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SMALL/SOLE
practitioner
Preparing for Your First Peer Review B Y DAVID A. L OPEZ, C PA, DAVI D A. LOPE Z AND C OM PA N Y, L L C
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or a large firm, the words “peer review” conjure feelings of anxiety, but for a sole practitioner or smallfirm professional, preparing for your first peer review may be downright scary. As the managing director of a smaller audit practice, our firm recently completed its third peer review cycle. The last two reports were issued with no comments or management recommendations. Even with these passing reports, I still get nervous when we receive our tri-annual scheduling letter. But, because of our preparation, I always feel confident when the peer reviewer steps into our office. Properly preparing for your first peer review is essential for a successful outcome. If you are prepared, your peer review will be a great learning experience. Here are some tips that can help make your peer review much less stressful.
Who Is Subject to Peer Review Simply stated, if your practice issues compiled (submitted to third parties), reviewed or audited financial statements, you are subject to a peer review every three years.
Understand the Requirements Any auditing professional going through the examination should review and understand the American Institute of CPAs Peer Review Program Standards and SQCS No. 8, Statements on Quality Control Standards. These publications, available at aicpa.org, provide practitioners with the rules and regulations that must be implemented to ensure the firm establishes and maintains the appropriate quality
control policies and procedures. Examining your firm’s quality controls is a major part of the peer review process, so understanding those requirements will ensure your team remains in compliance.
Select the Right Peer Reviewer As an examinee, choosing a qualified peer reviewer is critical. Selecting that peer reviewer is similar to a client engaging an auditor; that client needs to choose a professional who best fulfills his or her needs. Choose a peer reviewer that is similar in size to your practice. As a small practitioner, you probably do not need a regional or national firm to perform the engagement. This will allow your team to work with a professional who understands and identifies with the policies and procedures established and implemented by your firm. It will also help ensure a more affordable fee. That’s right, a peer review is not free! So, select a firm with a fee structure that works within your budget. The New Jersey Society of CPAs website has a list of firms that provide peer review services at njscpa.org/peerreview. Prior to your final selection, ask a potential peer reviewer how many reviews he/she has performed, how much experience does he/she have in the industries in which your firm operates, how many other firms does he/she examine and can he/she perform the review in a timely manner.
Organize Your Files At the conclusion of each of our peer reviews, the team captain expressed how much he appreciated the organized manner in which we presented the selected engagements. Taking time to N E W J E R S E Y C P A • J U LY • A U G U S T 2 0 1 3
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organize your engagement files greatly increases the efficiency and effectiveness of your peer review. Presenting organized files makes your peer reviewer’s task easier and can enhance his/her opinion of your work. Organizing your files does not mean making changes to them. It is very important to refer to SAS 103’s language on completing and assembling the audit file. Organizing simply means ensuring that your engagement documents are neat, properly titled, assembled in a logical manner and legible. Presenting files that are neat significantly reduces the number of peer reviewer questions. Remember, workpapers not only document your work, they tell a story. Properly constructed workpapers should effectively communicate that story to a professional who has no experience with the client. If you maintain this credo, your files should easily pass the peer review test. Peer review is a critical requirement of our profession, but it need not be scary. Peer review ensures that we comply with our standards, as well as serves as a learning tool for our practices. As a small practitioner, if you properly prepare for your peer review, your firm will benefit greatly from the experience. David A. Lopez, CPA, PSA, is the managing member of David A. Lopez and Company, LLC. He is a member of the New Jersey Society of CPAs. Contact him at dlopez@davidlopezcpa. com or 215-732-1940; follow him on Twitter @davidlopezcpa.
TAX
talk
Charitable Contributions of Appreciated Property BY CHRISTINE G. PRONEK, CPA, AND DAVID MORRONGIELLO, CPA, FAZIO, MANNUZZA, ROCHE, TANKEL, LAPILUSA LLC
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onations to charitable organizations can take many forms: cash, securities, artwork and so on. The amount of the allowable deduction and reporting requirements differs depending on the type of organization to which the donation is made and type of property contributed. When appreciated property is donated, it is important to know which factors impact the deductible amount and the information required for the donor’s income tax return. If the appreciated property is ordinary income property (property created by the donor or inventory) or short-term capital gain property, then the deduction amount is limited to the basis of the property. The deduction allowed for the contribution of longterm capital gain property depends on the type of property and the charity’s use of the property. If the property is tangible and the charity uses it for something related to its charitable purpose, then the property’s fair market value (FMV) is the deductible amount. If the tangible property had been used in the donor’s business (Internal Revenue Code [IRC] 1231 property), then the FMV less the ordinary income that would have been recaptured upon sale is the deduction amount, provided the charity uses it for a related purpose. If the use of the tangible property by the charity is unrelated to its charitable purpose, then the contribution deduction is the basis of the property. There are recapture rules that deal with the impact on the donor’s FMV deduction if certain related-use tangible property is disposed of by the charitable organization within three years of the contribution. For other
long-term capital gain property (e.g., securities, real estate), regardless of the charity’s use, the deduction amount is the FMV of the property, unless it is IRC 1231 property, in which case the deduction amount is the FMV less the ordinary income that would have been recaptured upon sale. After the deductible amount is determined, the various applicable adjusted gross income (AGI) limitations (two 50-percent limitations, two 30-percent limitations and a 20-percent limitation) must be applied to determine the amount of the charitable deduction for the current tax year. The deduction not allowed due to an AGI limitation is carried over and can be used in the five years succeeding the donation. Most charitable organizations are considered 50-percent-limit charitable organizations, meaning the deduction for contributions made to these organizations is limited within one tax year to 50 percent of the donor’s AGI. Organizations that are not 50-percentlimit organizations are 30-percent-limit organizations and include veterans organizations, fraternal societies, nonprofit cemeteries and certain private nonoperating foundations. A special 30-percent limit applies to contributions of long-term capital gain property to 50-percent-limit organizations, and a 20-percent limit applies to contributions of long-term capital gain property to 30-percentlimit organizations. The 30-percent limit will not apply if the donor elects to deduct the cost basis of the property instead of the appreciated FMV. Overall, the aggregate deductible contributions for any given tax year, after applying all applicable AGI N E W J E R S E Y C P A • J U LY • A U G U S T 2 0 1 3
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limitations, cannot exceed 50 percent of the donor’s AGI. The substantiation requirements for noncash property depend on the value and type of property contributed. When a donor contributes more than $500 in noncash property during a tax year, Form 8283, Noncash Charitable Contributions, must be included with the donor’s tax return. For any noncash contribution greater than $250, the donor must obtain a receipt or acknowledgment letter from the charitable organization indicating the details of the donation and a statement as to whether or not the donor received any goods or services in exchange for the donation. For most contributions with a value in excess of $5,000, the donor must also obtain a qualified written appraisal of the donated property from a qualified appraiser and have that appraiser complete and sign Section B, Part III, of Form 8283. Additionally, for contributions in excess of $5,000, the charitable organization must complete Part IV of Form 8283. In certain situations (e.g., contributions of artwork with a $20,000 value or greater), the qualified appraisal must be attached to the donor’s income tax return. Christine G. Pronek, CPA, M.S.T., is the estate and trust manager and David Morrongiello, CPA, is a senior accountant at Fazio, Mannuzza, Roche, Tankel, LaPilusa LLC. Both are members of the New Jersey Society of CPAs. Contact the authors at 908-272-6200.
TECH
center
Human Resources Recruiting Systems B Y A N THONY MONG E LUZO, PRO C O M PU T E R SE RVI CE
D
espite being an accountant, have you ever found yourself in the role of human resources manager, looking to add staff or receiving a client’s request for a recommendation? What do you do?
The Basics Most recruiting software falls under the broad brushstroke of human resources management systems (HRMS) or human resources information systems (HSIS). While literally hundreds of companies have software solutions, there are generally accepted tasks, or modules, that an HRMS or HSIS offers. These include everything from payroll and attendance to performance appraisals, recruiting, learning management and scheduling. You
can also use it to track and manage potential employees and to identify high-value current employees for possible promotion.
Because many companies perform all or part of the HRMS or HSIS tasks, let’s examine three major industry players. If you only need one module (e.g., payroll), and not the entire system, make sure you perform the requisite due diligence as to where the company excels in your required area. For example, ADP is synonymous with payroll.
more than $10 billion in revenues and approximately 600,000 clients. It is probably the most widely known provider of payroll and human resources outsourcing in the U.S. It describes itself as one of the world’s largest business outsourcing providers and human capital management firms, focusing on human resources, payroll, talent management, and tax and benefits administration solutions. It has a helpful page for small businesses (http://tinyurl.com/dj8xgd) that also provides a quick and easy cost-estimate calculator for its payroll services.
ADP
Cornerstone
ADP (adp.com) is a provider of business outsourcing solutions with
Cornerstone OnDemand Inc. (cornerstoneondemand.com) is a
The Players
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global enterprise software company that provides cloud-based talent solutions and services to more than 10.5 million users across 189 countries and in 38 languages. It ranked number 156 on Deloitte's 2012 Technology Fast 500 list of the fastest-growing technology companies in North America. It offers various packages from global, medium and large organizations to small businesses (those with fewer than 500 employees). Its strength appears to be recruiting, learning, performance and extended enterprise cloud. Take a trial run at http://tinyurl.com/brtom2c. Upon visiting its pricing page as a one-person operation, my cost was $3,000 plus $75 per month. The price is affordable only if it meets your needs.
recruitment approach, complaining about application length. In previous columns, especially when dealing with software, I urged caution before making a decision. I encourage the same circumspection now. Do not make a full commitment until you perform a trial run for at least a few weeks. Run the program through every question you can envision. The same advice applies if you are only considering a single module. If you are not thorough, the complexity of the system and the training time needed to reach full speed can be a killer.
Taleo Taleo (taleo.com) focuses on recruitment, performance management, learning and development, and compensation management. These capabilities combine to provide what Taleo calls “talent intelligence,” or an enhanced level of insight into candidates and employees. Taleo sells its products entirely via a software-asa-service model, in which all software and information reside in data centers operated and secured by Taleo. Oracle bought Taleo in 2012 for $1.9 billion. Upon further inspection, you’ll find Taleo’s focus is recruitment. A human resources industry insider noted that Taleo’s CEO, Mike Gregoire, unleashed the breakdown of customers at a 2012 user conference with obvious overlap in module use – a rather astounding bit of transparency: recruitment 85 percent, learning 13 percent, performance 12 percent and compensation 4 percent. While Taleo’s growth proves its popularity with businesses, some applicants dislike its N E W J E R S E Y C P A • J U LY • A U G U S T 2 0 1 3
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Also, the old adage of actually asking people you know who have installed the system is one of the smartest moves you can make. I’m still perplexed why so few people don’t do this for software issues. Always ask two key questions: (1) How long did it take the staff to get up to speed; and 2) Would they buy the package or module all over again? Anthony Mongeluzo is president of Pro Computer Service. Contact him at 877596-4446 or anthony@helpmepcs.com, or visit helpmepcs.com.
50
The
OVER
The New Jersey Society of CPAs recognizes these 50 accounting veterans for their ongoing contributions to the CPA profession, the Society and the community.
Congratulations!
Keith S. Balla, CPA
Neil B. Becourtney, CPA
Frank R. Boutillette, CPA
Walter J. Brasch, CPA ParenteBeard, LLC
Gramkow, Carnevale, Seifert & Co., LLC
Alloy, Silverstein, Shapiro, Adams, Mulford, Cicalese, Wilson & Co.
Scott A. Clelland, CPA
Howard Cohen, CPA
John Coiro, CPA
Gregory Collins, CPA
Fazio, Mannuzza, Roche, Tankel, LaPilusa LLC
WithumSmith+Brown
Wiss & Company, LLP
James R. Blake, CPA
CohnReznick LLP
Moreys Piers and Waterparks
Theodore A. Carnevale, CPA
EisnerAmper LLP
Ernst & Young LLP
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Howard J. Bookbinder, CPA Howard J. Bookbinder, CPA
Reynold P. Cicalese, CPA
G. Collins & Company LLC
Kevin Cummings, CPA
John F. Dailey Jr., CPA Bowman & Company LLP
E. Martin Davidoff & Associates
E. Martin Davidoff, CPA
Robert A. DeFilippis, CPA
Donald J. DeGrazia, CPA
Howard P. Dorman, CPA
Robert A. Fodera, CPA
Marcia A. Geltman, CPA
Investors Bank
Gold Gerstein Group LLC
WeiserMazars LLP
ParenteBeard, LLC
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Fairleigh Dickinson University
Nisivoccia LLP
Lloyd F. George, CPA
Edward I. Guttenplan, CPA
Peter A. Inverso, CPA
Carol Donatiello Iocca, CPA
Lloyd F. George CPA, LLC
Roma Bank
William R. Hagaman Jr., CPA
Wilkin & Guttenplan, P.C.
WithumSmith+Brown
John M. LaPilusa, CPA
Wilkin & Guttenplan, P.C.
Fazio, Mannuzza, Roche, Tankel, LaPilusa LLC
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Carole A. Hedinger, CPA New Jersey State Lottery
Diahann W. Lassus, CPA
Lassus Wherley & Associates, P.C.
Thomas J. Marino, CPA CohnReznick LLP
Ronald L. Rickles, CPA Deloitte
Robert A. Mathers, CPA
Kenneth Pogrob, CPA
Henry Rinder, CPA
Sherise D. Ritter, CPA
Hunter Group CPA, LLC
WeiserMazars LLP
Smolin, Lupin & Co., P.A.
Mercadien, P.C., CPAs
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Michael A. Polito, CPA Deloitte
Thomas F. Roche III, CPA
Fazio, Mannuzza, Roche, Tankel, LaPilusa LLC
Gail Rosen, CPA
Robert H. Rosen, CPA
James H. Ruitenberg, CPA Bederson & Company LLP
Jump, Scutellaro & Company, LLP
Kenneth B. Shapiro, CPA
Audrey J. Sherrick, CPA
Debra M. Simon, CPA
Alan D. Sobel, CPA
Gail Rosen CPA, PC
Shapiro Financial Security Group
Klatzkin & Company, LLP
Friedman LLP
DMSimon CPA, LLC
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Joseph F. Scutellaro, CPA
Sobel & Co., LLC, CPAs
Nina S. Sorelle, CPA Bowman & Company LLP
Carl Specht, CPA
Paul V. Stahlin, CPA
Costantino, Specht, Templeton & Co., LLC
Fulton Bank of New Jersey
David S. Untracht, CPA
Margaret Van Brunt, CPA
Untracht Early LLC
Rowan University
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Robert J. Traphagen, CPA Traphagen Financial Group
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SOCIETY
pages
CPE Offerings and Events Upcoming Education Foundation Events Date
Event/Code
Location
CPE Credit
7/29
Social Security Benefits: Advising Clients (E1307041)
Roseland
8/TX
7/29
Business Management Case Studies (E1307303)
Roseland
8/MT
7/30
Introduction to International Taxation (E1307053)
Roseland
8/TX
7/30
Detecting Misstatements – Risk Assessment (E1307101)
Iselin
8/AA
7/31
HSAs, HIRAs and FSAs After the Patient Protection and Affordable Care Act (E1307063)
Roseland
8/TX
8/6
Streamlined Tax Staff Training – Level 1 – Individual (E1308051)
Roseland
8/TX
8/6
Accounting for Business Combinations (E1308233)
Roseland
8/AA
8/6
FASB Review for Industry: Targeting Recent GAAP Issues (E1308243)
Voorhees
8/AA
8/6
Comprehending OMB A-133 (E1308311)
Iselin
8/AA
8/6
New Jersey Law and Ethics Webinar (E1308044)
N/A
4/PE
8/7
Streamlined Tax Staff Training – Level 2 – Business (E1308061)
Roseland
8/TX
8/7
FASB Review for Industry: Targeting Recent GAAP Issues (E1308253)
Roseland
8/AA
8/7
Government Auditing Standards (E1308321)
Iselin
8/AA
8/9
Public Company Update (E1308283)
Roseland
8/AA
8/12
Identifying Fraudulent Financial Transactions (E1308293)
Roseland
8/AA
8/13
Auditing Defined Contribution Plans (E1308263)
Jamesburg
8/AA
8/14
Audits of 403(b) Plans (E1308271)
Freehold
8/AA
8/16
Annual Update for Controllers (E1308383)
Iselin
8/MT
8/19
Annual Update for Controllers (E1308373)
Atlantic City
8/MT
8/19
Studies on Audit Deficiencies (E1308411)
Atlantic City
8/AA
8/19
Real Estate Accounting and Auditing (E1308303)
Voorhees
8/AA
8/19
Fiduciary Income Tax Returns – Form 1041 Workshop (E1308191)
Roseland
8/TX
8/19
The Best Federal Tax Update Course by Surgent McCoy (E1308161)
Atlantic City
8/TX
8/19
Loscalzo's 2013 FASB and AICPA Update (E1308011)
Atlantic City
8/AA
8/20
Loscalzo's Compilation and Review Essentials – Rules for Local Practitioners (E1308021)
Atlantic City
8/AA
8/20
Shortcuts to Tax Cuts: Individual Tax, Social Security, and Retirement Planning Tools and Strategies (E1308171)
Atlantic City
8/TX
8/20
Mastering the Fundamentals of Estate Planning (E1308201)
Roseland
8/TX
8/20
Government Auditing Standards (E1308331)
Atlantic City
8/AA
8/20
The Bankruptcy Process (E1308353)
Atlantic City
8/AA
8/21
Controller and CFO Skills (E1308363)
Atlantic City
8/MT
8/21
Governmental and Nonprofit Update (E1308341)
Atlantic City
8/AA
8/21
Surgent McCoy's Handbook for Mastering Basis, Distributions and Loss Limitation Issues for S Corporations, LLCs and Partnerships (E1308181)
Atlantic City
8/TX
8/21
Loscalzo's Accounts Payable Fraud: Overlooked Schemes and How to Detect and Prevent Them (E1308033)
Atlantic City
8/AA
8/22
Accounting and Reporting for Not-for-Profits: Issues and Answers (E1308211)
Iselin
8/AA
8/22
How to Identify, Explain and Present Pertinent Financial Information to Non-Accountants (E1308393)
Roseland
8/PD
8/23
The Leadership Secrets of Football's Master Coaches; Leadership and Coaching Essentials for the CPA (E1308403)
Roseland
8/MT
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Date
Event/Code
Location
CPE Credit
8/23
OMB A-133 From A to Z (E1308221)
Roseland
8/AA
8/27
Streamlined Tax Staff Training – Level 3 – Complex Return Issues (E1308071)
Roseland
8/TX
8/28
Streamlined Tax Staff Training – Level 4 – Tax Research and Quality Control Issues (E1308081)
Roseland
8/TX
8/29
Paperless Office (E1308113)
Roseland
8/MT
8/29
Medical Finances: Enhancing Your Value to a Medical Practice (E1308131)
Iselin
8/AA
8/29
Tax Update for Financial Executives (E1308143)
Voorhees
8/TX
8/30
Tax Update for Financial Executives (E1308153)
Iselin
8/TX
8/30
Technology for CPAs – Don't Get Left Behind (E1308123)
Roseland
8/MT
Upcoming Chapter Events Date
Chapter
Event/Code
Location
CPE Credit
8/2
Bergen
Practitioners' Forum (E1308429)
Hackensack
N/A
KEY AA – Accounting & Auditing MT – Management
CS – Consulting Services PD – Personal Development SK – Specialized Knowledge
EC – Economics PE – Professional Ethics TX – Taxation
MC – Multiple Categories PM – Practice Management
Please note: Events are subject to change. For a full listing of all NJSCPA events, visit njscpa.org/catalog.
Boost Your Job Search Efforts with NJSCPA Member Benefits To help you create an integrated job search approach that will help you land the job that’s right for you, the New Jersey Society of CPAs has developed a resource guide that highlights the member benefits to tap into for your search. Visit njscpa.org/transition to explore these and other benefits: Chapters, Interest Groups and Committees – Get involved to network and learn with other members who share your interests. Connect – Connect with your fellow members, use the membership directory and ask technical, management or administrative questions via the Open Forum on Connect. Leave of Absence Membership Dues Category – Unemployed members pay $88 per year and still receive the same level of benefits. LinkedIn – Join the NJSCPA LinkedIn group to make contacts, keep in touch and find resources 24/7 with members and other professionals. Members in Transition Connect Community – Connect online with other NJSCPA members seeking employment.
NJSCPA Member Benefits Marketplace – Save money on business and leisure products and services. Online Job Bank – Post your resume, search available jobs and find other job search resources. Professional Development – Sharpen your skills, increase your knowledge and earn CPE at conveniently located conferences and seminars – all at special member pricing. Publications – Stay current on the accounting profession with the help of NJSCPA publications including New Jersey CPA, E-NEWS, Tomorrow’s CPA and more. If you have any questions about these or any other member benefits, contact the NJSCPA Membership Department at 973-226-4494 or membership@njscpa.org.
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SOCIETY
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Get Involved Thank You, Volunteers! New Jersey Society of CPAs volunteers help fulfill the Society’s mission when they write articles, educate members, respond to legislative actions, talk to students about the profession, mentor a scholarship recipient, answer tax questions from NJ residents and more. To thank the more than 1,500 NJSCPA members who year-in and year-out contribute their time, talents and resources to give back to their profession and the community, we launched a new section of our website to display how our members are making a difference. Check it out at njscpa.org/thankyou.
CPAs Tackle Sandy The NJSCPA Day of Service on April 27 saw Society members, along with family and friends, help the communities of Manahawkin, Brick Township and Moonachie that were severely impacted by Hurricane Sandy. On Long Beach Island, eight feet of storm surge carried debris from demolished homes that settled onto the fragile marsh at Barnegat Bay in Brick. Patrick J. Collins, CPA, and the other volunteers wore heavy boots and gloves as they worked in the soggy marsh. “We pulled a ton of
wood from destroyed homes – enough to fill three dumpsters,” said Collins. Knowing the devastation firsthand, he signed up immediately when the NJSCPA called for volunteers. “I wanted to give back and show my appreciation,” added Collins. Margaret and Robert Van Brunt, both CPAs, have a home on Long Beach Island that suffered some damage and wanted to help others. Armed with two 30-foot dumpsters, trash bags and gloves, their group removed debris from the marshes around Mallard Island. “We were amazed at the debris we found: mattresses, plywood, clothing and even rooftops,” said Margaret. “With such a large and strong membership base it’s important for the NJSCPA and its members to be involved in community involvement initiatives. We met a lot of great people who were willing to help.” “After 9/11, Katrina and then Sandy, I had had an empty, helpless feeling of not knowing if one person could make a difference. Then, on April 26 I found myself on the NJSCPA website to volunteer for the Day of Service,” noted Joseph L. DeLorenzo, CPA (pictured left), part of the team that volunteered in Moonachie. The first floor of the home the team worked in was filled with five feet of water from the storm. The homeowner had lived there since childhood – for more than 60 years. DeLorenzo was in charge of spackling and caulking. His daughter, Catherine, helped with planting flowers and spreading mulch. Amr M. Ibrahim, CPA, was also on landscaping duty in
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the backyard. “I wanted to volunteer because we have to help each other. I know how I feel when someone helps me. It makes a big difference knowing you’re not alone,” said Ibrahim. DeLorenzo couldn’t agree more: “Knowing that we were part of that joy on the homeowners’ faces was truly inspirational.” Harper L. Garrett III, CPA Candidate, wanted to volunteer wherever he could help the most. “I’m interested in any building or painting project.” Well, he wasn’t disappointed. Garrett helped paint the front porch. “It’s very important for the NJSCPA and its members to participate in programs like this. The more people who volunteer, the better the community will be for everyone.” DeLorenzo credits his 20-year involvement with the Society’s Bergen Chapter for his desire to volunteer. “The NJSCPA is built upon volunteerism and the idea of paying it forward,” he said. “Many others have benefited from NJSCPA scholarships, financial literacy programs, student mentoring and more. Having our members serve the community like this is one more way for the public to see our passion.” To read more heartwarming stories about the NJSCPA’s Day of Service, visit njscpa.org/thankyou.
NJSCPA Volunteers Answer Tax Questions Twenty-five members volunteered their time and expertise (during tax season no less) to answer questions from 382 members of the public during the annual NJSCPA tax-season call-in programs at the Asbury Park Press (pictured next page) and News 12 New Jersey. Members also fielded 44 questions submitted through moneymattersnj.com’s Ask the Experts program. Christine G. Pronek, CPA, answered calls at the Asbury Park Press. “This was my third year answering calls, and I really like doing it. The callers are so appreciative for the free guidance they can’t seem to find elsewhere.” This year she was asked a lot of questions about estate and gift taxes, which happens to be her specialty. Many questions were about damages sustained from Hurricane Sandy. “It was sad to hear how little they got from insurance. Most
wanted to know other ways they might be able to get money,” added Pronek. For Sam Pandure, CPA Candidate, Ask the Experts was the perfect way to get involved and gain more insight into public accounting. Sam graduated with an accounting degree two years ago and is on his way to becoming a CPA. He especially appreciated hearing the real tax issues the public has difficulty with versus the textbook ones. “Since questions are submitted online, I was able to do some research, mostly through the Internal Revenue Service, and get the correct answers,” commented Pandure. Many thanks to these members for volunteering their time and expertise: Tax Call-In John Apisa, CPA Fazio, Mannuzza, Roche, Tankel, LaPilusa LLC
Anthony J. Falcone, CPA Anthony J. Falcone, CPA
Lee W. Hessberger, CPA Anne Skalka & Associates
Robert A. Fodera, CPA ParenteBeard, LLC
Richard L. Lipton, CPA Richard L. Lipton, CPA & Associates LLC
Edward A. Lempka Jr., CPA Edward A. Lempka Jr., CPA
Edward Mendlowitz, CPA WithumSmith+Brown
Peter J. Marchiano Jr., CPA Peter J. Marchiano Jr., CPA
Samuel Pandure, CPA Candidate Motion Systems Corporation
Patsy J. Pepe, CPA Pat Pepe, CPA
Maryann Reyes, CPA WeiserMazars LLP
Joseph R. Petrucelli, CPA PP&D Accounting Services, Inc.
Francis C. Thomas, CPA Richard Stockton College of New Jersey
Christine G. Pronek, CPA Fazio, Mannuzza, Roche, Tankel, LaPilusa LLC
Get Involved Now
Volunteer opportunities are available throughout the year. Let us know how you’d like to be involved at njscpa.org/getinvolved. Here is an activity that needs your support now: Barry D. Shapiro, CPA NJSCPA Student Ambassador – Student WithumSmith+Brown members are needed to reach out on their James A. Toto, CPA college campuses and encourage students WeiserMazars LLP to consider accounting as a career choice, as well as publicize NJSCPA programs (such Ask the Experts as scholarship opportunities, Career Night, Lewis D. Bivona Jr., CPA Scholars Institute and membership) to their WithumSmith+Brown fellow students. Student Ambassadors can earn monthly rewards plus win a trip to the NJSCPA Robert A. Fodera, CPA Convention & Expo. Contact Lauren Matullo at ParenteBeard, LLC lmatullo@njscpa.org or 973-226-4494 x241, or Hannah S. Gold, CPA complete the application online at njscpa.org/ Sax, Macy, Fromm & Co., PC ambassador. Edward P. Rigby, CPA ParenteBeard, LLC
Christopher M. Arunkumar, CPA Breakpoint Assurance Company
Scholarship Fund Tells Its Story
Neil B. Becourtney, CPA CohnReznick LLP
Established in the 1960s, the NJSCPA Scholarship Fund has grown to become the largest professional scholarship program in New Jersey. The fund’s latest annual report describes the impact it has had on the profession through photos, recipient stories and financial highlights. Review the report online at njscpa.org/scholarship.
David Eliran, CPA I. David Eliran, LLC Ralph Evangelista, CPA Frazer, Evangelista & Company, LLC Pishoy Fahmi, CPA PNF Accounting, LLC
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SOCIETY
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NJ State Board of Accountancy Report Code of Conduct Discrepancy? Newark (April 18) Committees Nominating – The following board members were elected as officers for the upcoming term, which begins with the May meeting: President John F. Dailey Jr., CPA; Vice President Daniel J. Geltrude, CPA; Treasurer Sara L. DeSmith, CPA; and Secretary Jorge A. Caballero, CPA. Statutes/Rules/Regulations – The board received an exposure draft from the National Association of State Boards of
Accountancy (NASBA) regarding a code of professional conduct with respect to the retention and presentation of client records relative to fee payment. There appears to be a slight deviation from the American Institute of CPAs’ treatment versus the state board’s. The board will review and comment if necessary. Monitoring Profession – After receiving attendee records from New Jersey Law and Ethics course providers for the previous triennial, the committee determined that 1,070 licensees will need to provide documentation verifying that they have
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completed the course. Letters will be sent to those licensees requesting such documentation. The committee also discussed the possibility of using the NASBA’s communications services to distribute a licensee newsletter.
Public New Jersey Society of CPAs CEO & Executive Director Ralph Albert Thomas, CGMA, discussed tax relief legislation for victims of Hurricane Sandy, such as waiving the high threshold for individuals to claim losses for personal property damage.
CLASSIFIEDS Mergers/Acquisitions
Professional Services
ADVERTISERS INDEX
Small Union County firm looking to sell roughly 50 tax clients. Reasonable terms. Email response in confidence to unionctycpa@aol.com.
Financial statements – If your client needs an audit, review or compilation and you don't do them, we can. You still do the taxes and other work for your client. Free estimate: diane@slcpa.net.
New Jersey CPA is the only way to reach each of the 15,500 members of the New Jersey Society of CPAs, and 55 percent of readers take action after seeing an advertisement in the magazine – by either purchasing the product, contacting the advertiser, visiting a website or recommending the product or service to a client. For advertising opportunities, contact: Companies A-L Aileen Kronke 770-431-0867 x212/aileen@lionhrtpub.com Companies M-Z John Davis 770-431-0867 x226/jdavis@lionhrtpub.com
CPA/forensic accounting startup seeking to affiliate with other forensic accounting professionals (CPA/CFE/CFF) in either sole practice or in a small firm that does not have a robust business development program in place. File 51313 The Curchin Group, LLC, a central NJ, Monmouth County firm is seeking to merge-in near-retirement sole practitioners and small firms needing succession planning. Other individuals seeking growth and expansion are welcome to inquire. Initial practice continuation also an option. Reply in confidence to Peter Pfister, CPA, at 732-747-0500 or ppfister@ curchin.com. Northern NJ, medium-sized, full-service and peer reviewed CPA firm is interested in acquisition or merger of smaller firm or affiliation with retirement-minded practitioner. If interested, please send your confidential information to northernnjcpafirm@gmail.com. Want to sell or merge your accounting practice? Accounting Practice Sales has qualified buyers waiting and financing available to sell your practice quickly and get you the best deal possible. For information regarding our risk-free and confidential services, call Bradley Holmes at 800-397-0249. Buyers see listings and register for free email notifications at accountingpracticesales.com. Seize a merger/acquisition opportunity with benefits for you. Tired of dealing with issues of running a firm? 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 glcpas.com; email me, Phillip Goldstein, CPA, managing partner, philg@ glcpas.com; or call me at 800-839-5767 to have a confidential conversation. New Jersey – CPA firm wishes to acquire or merge with progressive, small to mid-sized firms. File 0701
Real Estate Office space for rent, Totowa Road, Totowa, NJ. One office on second floor with windows (22’x15’) with an adjoining room (10’x10’). Elevator building with private parking lot. Use of conference room, kitchen and rest rooms. Includes electric, heat and air conditioning for $1,200 per month. Email aginsberg@brunodibello.com. Professional office suites for rent – Beautiful, renovated Victorian home located perfectly in business district, Court Street, Freehold, NJ. Conference room, reception area, $900/ month-$1,200/month. Contact Darren, 908-420-5299. Real estate appraising – Tax assessment appeals, eminent domain (condemnation), unique properties; commercial/residential; consulting; business valuations. Contact Charles A. McCullough, CPA, M.B.A., State Certified General Real Estate Appraiser, American Society of Appraisers member: cmccullough@ camcpavalue.com, renwickandassociates.com, 856-779-7050, 609-923-5879. Newly renovated and beautifully appointed office building, 5,000 square feet in Fair Lawn, available for lease or lease/option to buy. Ideal for emerging CPA firm. Plentiful off-street parking and convenient to GWB/NYC and routes 4, 20, 80 and GSP. Call Jeff St. Thomas, McBride Corporate Real Estate, at 201-848-6119, or email stthomasj@mcbridecorpre.com.
Accounting Practice Sales accountingpracticesales.com
27
Askin, Weber & Reed, Inc. awrins.com
23
Bederson & Company LLP bederson.com
33
Capital One Bank capitalone.com
C2
CPE Link cpelink.com
17
EisnerAmper LLP eisneramper.com
35
Electronic Office Systems eosnj.com
3
Fulton Bank of New Jersey fultonbanknj.com
29
Future Financial Planners, Inc. ffpinc.com
14
Investors Bank myinvestorsbank.com
19
Nisivoccia LLP nisivoccia.com
30
ParenteBeard, LLC parentebeard.com
45
Residential Home Funding rhfbloomingdale.com
47
Rutgers 37 pmac.rutgers.edu
Classified Advertising
Sobel & Co., LLC, CPAs sobel-cpa.com
31
Replies to ads with file numbers should be sent to:
Traphagen Financial Group traphagen-financial.com
32
Untracht Early LLC untracht.com
34
Valley National Bank valleynationalbank.com
C4
WeiserMazars LLP weisermazars.com
C3
Wiss & Company, LLP wiss.com
36
File______________________ New Jersey CPA Classifieds 425 Eagle Rock Avenue, Suite 100 Roseland, NJ 07068-1723 To see additional classified listings or to place an ad, visit njscpa.org/classifieds. N E W J E R S E Y C P A • J U LY • A U G U S T 2 0 1 3
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WithumSmith+Brown 42 withum.com
STUDENT
outlook
Students Learn the Secrets of Public Speaking at Scholars Institute B Y M ICHAEL S IG MAN, C OM M C O R E C ONSU LTI NG GRO U P
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t’s easier to talk than it is to communicate. In fact, the key takeaways from a communication skills workshop, conducted in May at the New Jersey Society of CPAs Scholars Institute at Montclair State University, were that effective and behaviorchanging communication require preparation and persuasion. Some 100 specially selected college students, who are residents of New Jersey, were instructed to change the way they communicate, whether they are presenting CPA-related information or speaking to classmates, professors and other professionals. Students need to understand that there is no such thing as “an informational talk.” It must always be considered “persuasive.” On the second day of Scholars Institute, students learned that speakers miss the mark if they don’t follow three key principles: Principle 1: It’s less about the "you" and more about the "them." Most public speaking coaches advise speakers to know about the audience before writing a speech. While this is wise counsel, many speakers either forget to tailor their remarks to the audience or never fully research that audience. It’s crucial to know the composition of your audience in order to make your messages stick. A decent audience review might include: • Demographics (age, income, profession). • Audience’s knowledge of the subject. • Audience’s interest in the subject. Do they want or have to be there? • Do you have anything in common with audience members?
Michael Sigman presents at this year's Scholars Institute. A successful speaker also realizes that audience members routinely ask themselves questions while they are listening to you, such as: So what? Who cares? What’s in it for me? If the speaker answers those questions early and often, there is a greater likelihood that the message will get through.
presentations and interviews are not IQ tests. The presenter’s goal is to make sure the audience retains information. Limit talks to three key messages, at most, and then find ways to repeat those messages using compelling data, interesting stories and well-crafted analogies.
Principle 2: It’s less about what you know and more about what they remember. CPAs know many things. That became immediately apparent when I first started consulting for the American Institute of CPAs more than nine years ago. I’ve traveled to almost every state preparing CPAs for speeches and media interviews. A common trait among CPAs is their desire to tell audiences and reporters as much as possible. It’s important to keep in mind that
Principle 3: It’s less about quick thinking and more about thorough preparation. Most successful speeches and memorable quotes are not created extemporaneously. Creating and delivering appropriate and effective messages take time, yet many speakers assume they’ll be successful because they know their topics. Scholars Institute attendees know better. They saw examples of the benefits of thorough preparation, but also learned
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specific brainstorming and writing tools that can be used for any speech or informal talk. CPAs of the future have no choice but to be outstanding communicators. Whether that message is the length of a tweet or a two-day CPE course, adherence to the three principles of effective communication will make them leaders in the accounting profession. Michael Sigman is a senior consultant with CommCore Consulting Group. He is a communication skills instructor, executive coach and guest lecturer. Contact him at msigman@ commcoreconsulting.com.
Students to Excel from Scholars Institute A new group of 100 students just joined Scholars Institute alumni when they attended the 2013 program held at Montclair State University on May 30 and 31. Not only did they network with more than 150 CPA professionals from the largest and most respected public accounting firms in New Jersey, the students also learned valuable skills, from business technology and dining etiquette to résumé development and networking – real-world knowledge that will put them ahead of their competition in the workplace. And, for the first time, Scholars Institute will hold a follow-up Excel workshop at Ernst & Young in Iselin on Monday, August 12. Don’t miss out on next year’s opportunity, visit njscpa.org/scholarsinstitute.
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LEGISLATIVE
views
Society Has a Full Plate of Legislative Activity B Y JEF FREY T. KAS ZERM AN, NJ SC PA GOVE R NM E NT R E L AT I O N S D I R E C TO R
Bill Ending “Five-Year Death Penalty” Passes Assembly Legislation that would repeal New Jersey’s so called five-year death penalty for CPAs and other licensed professionals passed the full Assembly in March. Passage of this legislation (A1545/S2116) is a top priority for the New Jersey Society of CPAs. Currently, if a NJ-licensed CPA lets his or her license expire for more than five consecutive years, then that CPA must pass the CPA Exam again for relicensure. The law does not apply to CPAs who apply to the NJ State Board of Accountancy to be on inactive status, as their licenses are not considered to be expired. This law creates havoc for CPAs who are unaware that they need to apply for inactive status and let their licenses expire for five years. When they reapply for licensure, they are informed that they again need to sit for CPA Exam. While some can get licensure in another state and then apply for reciprocity in New Jersey without taking the exam, the process is arduous. The bill also creates a streamlined reciprocity process, superseding provisions in individual professional practice acts, by allowing for quick licensure upon proof of out-of-state licensure from jurisdictions with substantially equivalent standards, even if there is no mutual reciprocity.
Governor Proposes Income Tax Credit In April, Governor Chris Christie proposed a tax credit tied to the cost of individual property taxes. The proposal has emerged as a centerpiece of his reelection campaign. While Republican legislators generally support the plan, Democrats, who control both legislative houses, have issued mixed responses. The biggest concern for the Democrats
is whether there will be sufficient funds to pay for the tax cut. The tax credit would be phased in over four years. When fully phased in, homeowners making less than $400,000 per year could deduct 10 percent of their property tax cost from their income taxes. The 10-percent credit would be capped at $10,000 worth of individual property taxes, but it would be refundable. Thus, taxpayers would receive the full credits regardless of their income tax bills. The legislation also would increase the Earned Income Tax Credit. The proposal is similar to a tax cut plan discussed last year by Christie and the Legislature. Democratic legislators rejected that plan over concerns about its impact on state revenues. This time, Christie has proposed a circuit breaker that would allow the Legislature to stop the tax cut if revenues don’t meet projections.
Economic Development Incentives Legislation Moving Legislation streamlining and expanding economic development incentive programs passed the NJ Assembly in May and the NJ Senate in June. The N E W J E R S E Y C P A • J U LY • A U G U S T 2 0 1 3
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New Jersey Economic Opportunity Act of 2013 (A3680) provides financial incentives to encourage companies to locate or expand in New Jersey. The bill consolidates five different economic development programs into two. The existing Business Retention and Relocation Assistance Grant Program, Business Employment Incentive Program and Urban Transit Hub Tax Credit Program would be consolidated into two existing economic development programs: the Grow New Jersey Assistance Program (GROWNJ) and the Economic Redevelopment and Growth Grant Program. The legislation also would expand the areas of the state within which businesses can qualify for GROWNJ tax credits and reduce the capital investment and job creation and retention requirements for program participation. The programs would continue to be run by the NJ Economic Development Authority. Christie has said he will sign the bill.
Sandy Tax Relief Legislation introduced in 2012 to provide tax relief to Hurricane Sandy
victims has been reintroduced with some modifications. The Society is a strong supporter of the bill (H.R. 2137). To see a bill summary, visit http://thomas.loc.gov/home/ thomas.php and search "Hurricane Sandy tax relief."
In a Big Election Year, It’s More Important Than Ever to Contribute to the PAC This November, the governor’s office and all 120 seats in the NJ
Legislature are up for election. This is an important time to strengthen the profession’s voice in the political and legislative process. The best way to do that is by contributing to the NJ-CPA-PAC. The PAC is a bipartisan organization that contributes funds to candidates who’ve demonstrated support for the profession’s legislative agenda. It’s the most effective way for CPAs to band together to support those who support the profession. Contribute today by visiting njscpa.org/pac.
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Magazine of the
New Jersey Society of Certified Public Accountants
September/October Coming Attractions
What the Future May Hold n The Workforce n Technology n Rules and Regulations n Firm Relationships
Sept • Oct 2013
MEMBER
profile
Welcome to Abos' Funhouse BY DAVID PLASKOW, NJSCPA PUBLIC ATIONS EDITOR
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arty Abo, CPA, has always been a fun, easy-going guy. “I sat close to the stage at Woodstock,” says this nonrebellious child of the ’60s from Long Island. “But, for me, it wasn’t this ‘life-changing’ event. It was just a fun time with a group of friends seeing some great bands.” A couple of years later, Abo graduated from Syracuse University with a B.S. in accounting and transportation. After working at his dad’s CPA firm and then Touche Ross, he met his soul mate, Jane, while at C.W. Post College studying for an M.S. in taxation, and the couple settled in Cherry Hill in 1976. After a stint with a local firm, Abo started his own firm in 1978 and hasn’t worked for anyone since. “We began as general tax and accounting and evolved to do valuations, divorce issues and shareholder disputes,” says Abo, a holder of the ABV, CFF and CVA designations. “About 45 percent of my practice is now dispute resolution. I think forensic accounting is a great career path for accountants because it involves unique people skills, technical skills and practical experience.” Abo received the CPA designation in 1974 and became a member of the New Jersey Society of CPAs in 1978, not long after planting roots in the Garden State. “Being a CPA shows commitment and ability. I learned a lot just from studying for the CPA Exam. It’s in my tool chest and it affords me a certain flexibility,” notes Abo. “As for the Society, it’s the voice of the profession. I’m constantly getting accounting news and education. I’ve met great colleagues. It’s a nice
club that keeps the profession on a higher level.” In addition to being an engaged, self-proclaimed ambassador for the NJSCPA, he’s a member of several other financial and business groups – twice named as an NJ delegate to the White House Conference on Small Business. Abo also gives back to the community by sitting on the board of the Deborah Heart and Lung Center and being active with an array of other charitable organizations. In his spare time, he likes to play tennis and read – mostly professional journals. But what Abo likes to do for fun really centers on his home. You’ve got to see it to believe it. “I guess you could call it early contemporary wacko,” laughs Abo. Inside you’ll find a parking meter, fully operational phone booth, traffic light and one of Abo’s favorite things, a classic Cadillac turned into a couch. “Jane and I thought about the concept of bringing the outside inside,” says Abo. Thus, you’ll find awnings on the inside windows, murals, trees, the perfectly placed fire hydrant and a retro Diner’s Club sign. Abo tells the story about buying a nine-foot ceramic chef at a furniture store going-out-of-business sale in Manhattan and the trials and tribulations of getting such an acquisition back to Cherry Hill. “After finally getting back home, I wrote on the statue’s chalkboard ‘Jane, anyone can get jewelry for her anniversary.’” It’s with this story, and others, that you
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realize Marty and Jane are two peas in an eclectic pod. “We’re just the two people who were supposed to find each other,” says Abo. You hear about the sumo wrestler table, mannequin lamp and singing deer head and you would think the Abos are the king and queen of kitsch. But kitschy doesn’t do the house justice as it’s very tasteful and homey – complete with three (real) dachshunds – so much so that it’s been featured in a variety of magazines. “We like to take normal stuff and give it a twist,” points out Abo, “like substituting faucets for handles on our kitchen cabinets.” His most prized possessions, however, are his two sons. “Ben is in his residency at Mount Sinai Hospital in Miami, and Zach is in Los Angeles as the day-to-day manager for Enrique Iglesias,” says Abo proudly. “At my practice, I deal with a lot of divorce, death and financial ruin,” comments Abo. “That makes me want to enjoy life, have a good time and share my home with family and friends.” Words to live by.
To tour Marty and Jane’s funhouse on our debut episode of “CPA Cribs,” visit njscpa.org/newjerseycpa/ julaug13.