Disclosures Mar/Apr 2011

Brought to you by the Virginia Society of CPAs

MARCH/APRIL 2011 I VOL. 24 NO. 2 I WWW.VSCPA.COM

AT THE

TIPPING POINT? How intergovernmental

financial dependency

affects us all

10 24 28

6 Reasons CPA Firms Should Consider SEO Clients Want Investment Advice?

How to Respond Save a LIFO

INSIDE this issue

16

cover story >>

It would be hard to argue that our professional responsibilities would not include gaining an understanding of the current and anticipated financial condition of the single most important element of our economy — our federal government.

FEATURES

ARTICLES

At The Tipping Point?

How Intergovernmental Financial dependeNcy affects us all 16

6 REASONS CPA FIRMS SHOULD CONSIDER SEO

As financial professionals, it is incumbent upon us to see through the sound bites and political posturing and gain an understanding of the facts.

THE TOP 5 RESPONSES TO CLIENTS LOOKING FOR INVESTMENT ADVICE 24 Investing is entirely about managing risk, and we have a powerful understanding of the types of risks that are meaningful for investors.

HOW TO SAVE A LIFO

28

With U.S. GAAP rapidly edging closer toward international convergence, companies that elect to use the LIFO inventory accounting method must consider the effects of its elimination.

SECTIONS 10

Getting noticed in the right place during an Internet search is what SEO is all about.

FINANCIAL FITNESS: CPAs LEAD THE WAY

12

Backtalk

2

Line Items

4

Data Draft

6

ADVOCAcy

8

Self-Assessment

31

CPAs are in the ideal position to teach financial literacy.

VSCPA News

32

Advertisers Index

Member News

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Audimation Services Inc. p. 29 • Avalor Solutions p. 26 • Beth A. Berk, CPA p. 3 • Brannon Poe CPA, LLC, inside back cover • CPA Mutual p. 7 • Keiter, Stephens, & Shreaves, PC back cover • Tax Solutions Alliance p. 26 • VSCPA

VSCPA Educational Foundation

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Classifieds

38

I Am

40

Insurance Service Center p. 27

disclosures Our mission is to enhance the success of CPAs.

is published bimonthly for members of the Virginia Society of CPAs.

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MARCH/APRIL 2011

1

Virginia SOciety of Cpas

4309 Cox Road Glen Allen, VA 23060 Ph. (800) 733-8272 Fx. (804) 273-1741 www.vscpa.com

From the VSCPA LinkedIn Group >>

disclosures

Attention, PCAOB!

Editorial Staff Jill Edmonds Managing Editor disclosures@vscpa.com Jenny Hansen Communications Director jhansen@vscpa.com Tina Lambert, CAE Vice President, Member & Public Relations tlambert@vscpa.com Editorial Task Force Joan D. Aaron, CPA William C. Barrett III, CPA/ABV Beth A. Berk, CPA James D. Cole, CPA Cheri G. David, CPA, CVA James P. Davis Jr., CPA William C. Foote, CPA/ABV, CVA Heather L. Judson, CPA Clare K. Levison, CPA Gabriele Lingenfelter, CPA Haven S. Pope, CPA, MBA, CFE George D. Strudgeon, CPA Philip H. Umansky, CPA, Ph.D. Deadlines Articles and advertising for future issues are due by 5 p.m. on the following dates: July/Aug. 2011 Sept./Oct. 2011 Nov./Dec. 2011 Jan./Feb. 2012 Mar./Apr. 2012 May/June 2012

Apr. 15 June 15 Aug. 15 Oct. 15 Dec. 15 Feb. 15

Statements of fact and opinion are made by the authors alone and do not imply an opinion on the part of the officers, members or editorial staff.

The Warren Group Design / Production / Advertising thewarrengroup.com custompubs@thewarrengroup.com

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BACKTALK you said it

Finally!! We have known about the need for “Little GAAP” ever since the new regulations came about from the Enron fiasco. This issue needs to be at the forefront at the next PCAOB discussion, too many small businesses are struggling from overreporting and regulation. With this economy we need to assist small and medium size businesses, not bog them down with unnecessary rules set up for large publicly held entities. Next let’s tackle IFRS in the US! DANIELLE CALABRO, The Mergis Group, Washington, D.C.

Blog props >> Get in touch with these wonderful people: http://www.vscpa.com/Content/ vscpa.aspx. They’ll answer your question for free. I love them.

Referencing the VSCPA’s “Ask a CPA” e-mail program volunteers, this comment was made to a post about tax issues on www.princeofpetworth.com, a Washington, D.C., neighborhood blog.

VIA E-MAIL >> The Davidson Group, PC is a Leesburgbased accounting firm and is getting started with monthly newsletters to clients. I was wondering under what, if any, terms I could use articles from the Financial Fitness section of the VSCPA website. Also, perhaps you have other suggestions for good newsletter content?

Matt Coughlin

Did you know? The VSCPA offers free money management articles you can use in your client e-newsletters. Check out www.vscpa.com/FinancialArticles.

Get in touch

From the

Twittersphere >> @vpaige, RT @VSCPAEmWalker:

Spending day at General Assembly visiting members of @VaHouse Commerce and Labor to support SB930. #VSCPA @amiemclain: RT @FinancialFit:

Hold off on filing your tax returns! #VSCPA member Phil Umansky explains why to @AmieMcLain, @8NEWS: http:// bit.ly/fOl1gp @shawnter:

#VSCPA member Don Pinkleton, #CPA, talks about choosing a qualified tax preparer with @RTDNews BLOG: www.cpacafe.com Twitter: @VSCPANews, @FinancialFit LinkedIn: http://tinyurl.com/VSCPALinkedInGroup Facebook: www.facebook.com/VSCPA

At the Virginia Society of CPAs, we love to hear from you.

Whether it’s a quick e-mail to a staff member, chat on the phone, Disclosures letter to the editor, tweet, blog comment or something different altogether, let us know what you’re talking about, how you feel about different issues affecting CPAs and how we can help.

Attention CPAs: Whether A Decision Maker Looking To Upgrade Your Talent, Or A CPA Looking to Upgrade Yourself/Your Skills, Ask Yourself: Who really chose who in joining your company?

Are you/your professional staff really at the right level where you should be/you need them to be?

Are you/your staff in a position that truly suits your/their personality, values, and professional and personal needs?

Why leave your future to chance?

If you’re seriously interested in making the “right” move for your next hire, I can help you.

I am an actively licensed CPA in Virginia with over 20 years of experience including public accounting (E&Y) and consulting (KPMG), financial accounting (American Cancer Society), internal audit (Moneyline Telerate), and recruiting (Acsys, formerly Don Richards). As a networker who truly enjoys helping others and sharing my career experiences to guide fellow professionals, here is how I can help you: Decision Makers:  Ask you questions, and most likely ask many more questions than other recruiters about your company, duties involved, skills required, corporate culture and more  Work with you on finding the “right” professional that is the “right fit”  Provide you with valuable information about the professionals I work with, the marketplace, what your competitors pay, and more Career Seekers:  Guide you on career paths available in public accounting and industry  Enable you to capitalize on your strengths  Coach you on how to put your best foot forward to find the “right fit”  Advise you when to stay in your current position if that is the right move If you’re interested in working with a recruiter who understands your background, skills, and is genuinely interested in helping you find the “right fit”, then I welcome meeting you!

BETH A. BERK, CPA Independent Recruiter

Phone: 301-767-0670 Email: BethABerk@msn.com

Specializing in CPA Firm, Accounting & Finance Positions in Metropolitan DC & Nearby Suburbs/Baltimore/Richmond/Tidewater Connecting You To Your Next Hire

TM

Contingency & Retained Staffing Solutions

matching skills, experience & values with needs CPA Ambassador for the state of Maryland, sponsored by the AICPA Serving clients and professionals as an Independent Recruiter since March 2005

LINE items >>

Bonus feature

New Perspectives on Portfolio Diversification

by John Davenport In the July/August 2010 issue of Disclosures, the article “Portfolio Diversification: Where it Goes Wrong” highlighted some of the prevailing portfolio construction

Warning Signs >>

practices that do not serve to

Profile of a fraudster

introduce any real diversification into investment portfolios. In this article we continue the discussion by examining one of these core portfolio construction practices, the home country bias. The article explores a different perspective on how to shift the portfolio construction process such that portfolios are more “well-rounded,” offering a level of diversification that is more in line with Harry Marlowitz’ original treatise on Modern Portfolio Theory. The article discusses expanding the view of diversification beyond simply asset class diversification to a perspective on diversification that also includes style and process as a diversification tool.

WANT TO READ MORE? Visit the 2011 archives at www.vscpa.com/Disclosures.

New research from the Association of Certified Fraud Examiners (ACFE) shows that it’s not easy to identify a fraud suspect.

The ACFE’s “2010 Report to the Nations on Occupational Fraud & Abuse” details 1,843 cases of fraud from January 2008 to December 2009. According to the study, the average fraud perpetrator has no prior fraud charges or convictions, is usually in the 31–45 age range and is slightly more likely to be male than female.

That’s not to say that there are no warning signs. Red flags identified by the study were living beyond one’s means (43 percent of cases) and experiencing financial difficulties (36 percent). More than 80 percent of the cases studied were committed by individuals in accounting, operations, sales, executive/upper management, customer service or purchasing.

Frauds committed by owners and executives were more than three times as costly as those committed by managers and more than nine times as costly as employee frauds, while taking much longer to detect.

More than half of the cases studied were committed by individuals in the 31–45 age group, with median losses rising with the age of the perpetrator. Only seven percent of the fraudsters had been previously convicted of a fraud-related offense. n

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LINE items What's My Name? >>

Contractor versus employee The Internal Revenue Service (IRS) is in the midst of its “most significant audit initiative in decades” regarding employees classified as independent contractors.

The intensive National Research Program (NRP) audits focus on 6,000 randomly selected employers and their classification of employees. IRS officials believe that difficult economic conditions have led companies to classify more workers as independent contractors, often incorrectly.

Using independent contractors can save an employer money on insurance, benefits and Social Security and Medicare taxes.

More investigations could be on the horizon — President Barack Obama’s proposed 2011 budget includes funding for an additional 100 IRS federal employees to find independent contractors who should be classified as employees. The proposed budget also includes a recommendation to eliminate legal incentives for employers to classify employees as contractors and enhance penalties for employers found to have misclassified their workers. n

Making the grade >>

Virginians rate roughly average in financial fitness Virginians are roughly in line with their peers nationwide in several key aspects of financial fitness, according to a new study.

reportedly spending more than their household income over the past year. The national average was 20 percent.

Results from the State-by-State Financial Capability Survey, developed in consultation with the U.S. Treasury Department and the President’s Advisory Council on Financial Literacy, were released in late December 2010. Financial fitness was measured on four key components: how many households spend more than their income, whether or not individuals had a “rainy day fund” to cover three months’ worth of expenses in case of emergency, how many individuals used non-bank borrowing methods over the past five years and how high individuals scored on a five-question financial literacy quiz.

On the positive side, Virginians were four percent more likely to have a rainy day fund than their counterparts in other states, with 39 percent of those surveyed reporting that they had three months’ worth of expenses saved up. Commonwealth residents were three percent less likely (at 21 percent) than the national average to have used non-bank borrowing methods, such as a car title loan or a payday loan.

Virginia residents ranked slightly worse than the national average in making ends meet, with 21 percent of individuals

One in three Virginia residents surveyed had comparison shopped for a credit card, compared to the national average of 32 percent. On the five-question quiz, Virginians averaged three correct responses, 0.7 incorrect responses and 1.2 “don’t know” responses, exactly in line with the national average. n

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MARCH/APRIL 2011

5

DATA draft Job Market >>

Getting their start FOCUS ON FINANCIAL FITNESS >>

They get no credit More than 8 million Americans stopped using credit cards in 2010, according to research by TransUnion. National average credit card borrower debt was $4,964 in the third quarter of 2010, down 11 percent from the third quarter of 2009. Virginians were delinquent on credit-card payments at the 13th-lowest rate in the nation, at just 0.72 percent.

North Dakota had the lowest rate at 0.48 percent, while Nevada was highest at 1.28 percent. n

>>

IT'S A FACT

179

The number of tips fielded by the Public Company Accounting Oversight Board (PCAOB) in 2009 alleging wrongdoing by audit firms, their employees and others —

According to the Fall 2010 Salary Survey published by the National Association of Colleges and Employers, employers in accounting services extended the most job offers to class of 2010 graduates. Here are the top 10 fields in hiring 2010 grads and the average salary offer for each:

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$50,371

RETAIL/WHOLESALE TRADE

$41,805

FINANCIAL SERVICES

$49,218

ENGINEERING SERVICES

$56,070

EDUCATIONAL SERVICES

$33,883

CONSULTING SERVICES

$55,148

GOVERNMENT (FEDERAL)

$46,874

BANKING (INVESTMENT)

$60,806

PETROLEUM & COAL PRODUCTS

$67,630

HEALTH CARE SERVICES (FOR PROFIT)

$73,728

Gender not-so-neutral According to a report from the Commonwealth Institute for Fiscal Analysis, men in Virginia earn $3.59 per hour more than women, per a report on median income based on 2008 wage and earnings data from the U.S. Census Bureau. That gap is the 14th-highest in the nation. The median income for working men in Virginia was $34,000, compared to $18,000 for working women. n

the most in PCAOB history.

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ACCOUNTING SERVICES

MARCH/APRIL 2011

DATA draft

Thinking globally Virginia’s exports are on the rise, with Commonwealth businesses experiencing a 33 percent growth in international exports since 2005, according to statistics cited by Sen. Mark Warner at the Virginia Summit on Export Opportunities. Nearly 5,000 Virginia companies do business outside the United States. $12 billion: Exports from Virginia businesses in 2005 $16 billion: Exports from Virginia businesses today $2.3 billion: Exports to Canada, Virginia’s top international

trade partner $1.2 billion: Exports to China, Virginia’s second-biggest

international trade partner 3.5 percent: Export-related jobs as a percentage of Virginia’s

employment n

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Our business is taking care of your business.

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MARCH/APRIL 2011

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Advocacy

In Session…

Virginia General Assembly tackles issues that affect Virginia CPAs The other attempt to repeal the standalone course was amended to delay all of the new graduation requirements by one year due to the Commonwealth’s budget situation.

A year later, new threats to delay new graduation requirements cropped up.

HB 1554 / HB 2378 and SB 810 called for another year delay to all new graduation requirements.

The 2011 Virginia General Assembly session began January 12, and the VSCPA has been actively involved in important conversations at Virginia’s Capitol.

The VSCPA legislative agenda drives the Society’s actions for the Assembly session. Tax conformity, financial literacy education and clarifying the definition of a credit counselor have topped this year’s list.

A few of the top legislative issues are detailed below, but many changes may have taken place since press time. View the current status of each issue on the VSCPA’s Session Watch page at www.vscpa.com/SessionWatch.

The VSCPA sprang into action, meeting with key policymakers and calling upon members to contact their legislators to ask for an amendment that carves out the standalone financial literacy course from the overarching delay. The hard work paid off. The amendments were introduced and accepted, and both chambers had passed their respective bills at press time.

While the VSCPA actively lobbied for an amendment to protect this important course, another bill threatened the standalone aspect of the graduation requirement. HB 1518 would have, with approval by the Virginia Board of Education, allowed local school boards to implement requirements in economics education and financial literacy through Standards of Learning, career and technical programs or other educational programs that comply with Board objectives. The bill was left in House Committee.

Stay tuned for updates on these bills and the status of the standalone personal finance course.

Financial literacy The fight continued to maintain the Virginia high school graduation requirement in personal finance and economics education, which is currently a regulatory requirement.

During the 2010 General Assembly session, several bills threatened the requirement, and the VSCPA fought hard against the passage of those bills. The first bill, which did not pass, would have given school districts much more leeway to integrate the course into existing curricula.

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MARCH/APRIL 2011

Tax conformity As always, the VSCPA pushes for immediate, early passage of emergency legislation to conform the Commonwealth’s tax code to that of the Internal Revenue Code.

HB 1874 and SB 1384 would advance conformity with the federal tax code from January 22, 2010, to December 31, 2010.

Even before session began, members of the VSCPA Key Person

Advocacy

Network proactively called and wrote to their legislators, urging them to pass conformity quickly.

HB 1874 passed the House on January 20, 2011, and the Senate on January 27, 2011. It was awaiting the governor’s signature at press time.

Credit counselor definition change Are you a credit counselor? Based on the current definition, you could be. And because Virginia statute requires licensure of credit counselors in certain circumstances, it is critical to clarify that the usual and customary services of CPAs and CPA firms are not included in the definition of credit counselor.

That’s why the VSCPA asked Sen. Ryan McDougle to introduce introduced SB 930. CPAs in public practice routinely provide basic financial planning advice to clients and represent clients before certain debtors, such as the Internal Revenue Service (IRS)

and the Virginia Department of Taxation, but are already subject to stringent licensure requirements and are required to adhere to various professional standards.

Passage of this bill would prevent CPAs performing usual and customary services from being unintentionally subject to additional licensure in the future, should the criteria requiring credit counselors to obtain a license be expanded.

The bill passed the Senate unanimously on January 21, 2011, and had moved to the House at press time.

Stay tuned for more Stay tuned to www.vscpa.com/SessionWatch for updates on these and other bills we’re monitoring on behalf of Virginia CPAs, as well as other VSCPA communications. If you have questions or comments, contact VSCPA Government Affairs Director Emily Walker at (804) 612-9428. n

CPA Assembly Day Success Tax conformity, financial literacy and the definition of a credit counselor were hot topics of conversation during 2011 CPA Assembly Day on January 18.

VSCPA members and staff spent the morning discussing these issues with legislators and also offering the assistance of the VSCPA and its members throughout session, ensuring the CPA profession has a true presence in Virginia’s legislative arena.

In the afternoon, participants observed the General Assembly in session. The VSCPA was introduced on the floor of both chambers by VSCPA member Sen. Walter Stosch, CPA, in the Senate and Del. Jimmie Massie in the House of Delegates.

CPA Day is an integral part of the VSCPA’s grassroots advocacy efforts. n

From left to right, VSCPA member John Copeland, CPA, Sen. Ryan T. McDougle, VSCPA Government Affairs Director Emily Walker and Development & Academic Relations Director Molly Wash meet during CPA Assembly Day.

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MARKET knowledge

6 Reasons

CPA Firms Should Consider SEO

BY Brian Swanson

result, it is imperative to find an effective way to present this strategy, especially if your firm is a “slow mover.”

Positioning SEO as a viable marketing strategy can have a very positive and meaningful effect on your firm’s marketing efforts — often immediately and at little or no cost. Here are six strong cases to consider SEO:

SEO provides access to “warmer” leads.

Many CPAs and accountants want to know how to use limited marketing resources to best position their firm. Should firms continue to invest in traditional marketing activities such as ads, sponsorships, direct mail and e-mail marketing, or venture into website marketing, and more specifically, Search Engine Optimization (SEO)?

Getting noticed in the right place during an Internet search is what SEO is all about.

A developing technology, SEO increases the likelihood that your company will be easily noticed by prospects searching for information on a specific topic or service. Anyone searching for information in Google or other search engines will find your site based on the meta-tag information (keywords, descriptions and title) embedded in each page. Once SEO has been integrated into your online presence, reports generated through an Internet Service Provider (or third-party traffic tool such as Google Analytics)

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provide very specific and easily understood information you can use to determine the amount of traffic your site is attracting, who visited and where they spent the most time on your website.

While most marketing professionals find the concept of SEO appealing, many have reservations about integrating the strategy into the marketing plan because they are unsure how to gain buy-in from management. A majority of partners in CPA firms do not have a clear understanding of the mechanics of implementing an SEO strategy, much less how it will benefit their bottom line.

Altering or changing long-standing marketing activities can be difficult, especially if they have been producing results. It is difficult to push away a program the firm has been successfully using for years and replace it with an unknown, which may or may not produce results, from the partner perspective. As a

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Inbound marketing techniques such as SEO allow your firm to connect with more qualified opportunities. When a company contacts you through your website, it is usually ready to make a decision to buy. The company already identified its internal need, researched potential solutions to the problem and identified specific providers.

When a prospect comes to your firm in this fashion, it reduces the amount of time spent educating the prospect and communicating the firm’s value proposition as well as lead-time in pursuing the prospect.

SEO maximizes partners’ chargeable hours.

Due to the reduced amount of time spent pursuing opportunities, the time invested by a firm’s partners is also reduced. Whether a firm has a business development/marketing function, there is less time spent on site visits, prospect meetings and conference calls to move

MARKET knowledge

the prospect through the sales cycle. With SEO, partners are able to insert themselves into the sales process in a time-efficient way, selling the opportunity in a much shorter time period than by leads identified through traditional marketing techniques.

The process leads to additional time for partners to focus on chargeable work.

and resources are consumed with these tactics? Through an optimized website, however, your firm has a sales tool that works to find new opportunities on a 24/7 basis. Once the initial optimization has been performed, there is only a minimal amount of time required to maintain and tweak the original work.

SEO expands your marketing footprint.

SEO adds value to marketing activities.

SEO allows firms to attract opportunities outside of their geographical footprint.

While there are a number of services firms offer that can be performed in markets across the country, the marketing dilemma is resource allocation. For example, does it make sense to invest marketing dollars in cities where the firm has little brand awareness? Of course not. However, SEO allows your firm to promote itself in other markets without incurring additional costs.

Would your firm be interested in serving clients in other markets if the opportunity presented itself? Through focused SEO, your firm can find these opportunities.

Most marketing departments in firms are expected to develop, lead and manage nonrevenue-producing programs. Ad design, proposal development, collateral material development and pursuit planning, while valuable, do not produce any firm revenues. SEO changes the paradigm and turns marketing into a lead generation source. If properly implemented, SEO can transform marketing beyond an internal services function and position it as a revenue generator for the firm.

SEO creates a larger pipeline.

Optimizing your website to attract new opportunities will help your firm create a large pipeline of opportunities. Consider how your firm attracts prospects currently: Do you send out focused and targeted mailings? Electronic newsletters? Many firms invest time and effort into traditional outbound marketing techniques, such as direct mail, e-mail and lead-generation telemarketing. How much time, energy

SEO is effective.

Perhaps the most important reason CPA firms should invest in SEO is that it works.

Several firms have achieved success pursuing this strategy and have gained

access to opportunities they did not otherwise think possible.

For example, Rea & Associates, an Ohio-based CPA firm, has experienced positive results from its SEO efforts.

After making an initial investment in SEO, the firm is receiving a high volume of monthly leads. In November 2010, the firm received 10 new leads from customers searching for help with basic services, such as individual and corporate tax returns, to more complex services, including a consulting engagement and a business valuation.

There are many other ways SEO and inbound marketing techniques help drive practice growth. However, these six are used successfully in selling partners on short- and long-term benefits. CPAs are not marketing professionals, but they can understand the value associated with a planned process. Focus on meaningful benefits: spending less time in the sales process and more time to addressing client’s needs and attracting a larger number of prospects. n

BRIAN SWANSON is a principal with Flashpoint Marketing, a marketing and lead generation company focused on serving the accounting industry. He has more than 14 years of experience in search engine optimization, marketing, business development and lead generation for various CPA firms across the United States. Contact him at bswanson@flashprintmarketing.biz.

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FINANCIAL fitness

Financial Fitness: CPAs Lead the Way

BY Shawnte Reynolds

How financially literate are Americans? The numbers paint a dire picture.

Recent statistics show that 43 percent of American families spend more than they earn each year, and the average household credit card debt is more than $8,000. In 2009, more than 1.4 million Americans filed for bankruptcy. In a 2008 national survey gauging financial knowledge, Virginia high school seniors scored an average of 48 percent — a failing grade.

Many college graduates leave academia with more than $20,000 in combined student loan and credit card debt. And four out of five business start-ups fail within five years.

VSCPA member Richard J. Beason, CPA, a sole proprietor in Roanoke who frequently speaks to groups on money management topics, worries about Virginia consumers’ ability to protect their finances.

“I see the financial literacy of Virginia’s citizens as crucial for the health of our state,” Beason said. “There is so much misinformation and bad information in the public domain about finance.

Consumers are often misled and/or sold

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financial information and products that are not in their best interests.”

Beason isn’t the only Virginia CPA who’s worried.

CPAS AND FINANCIAL LITERACY: A LOGICAL CONNECTION CPAs have long been committed to financial education. Through the years, the VSCPA has developed student outreach, teacher training and other public programs to unite CPAs in promoting basic money management skills.

Clare K. Levison, CPA, an analyst at Alliant Techsystems, Inc. in Roanoke, joined the VSCPA Speakers Bureau in 2009 to help spread the word about financial literacy. The good news is that Levison senses the public desires more information and guidance regarding their personal finances.

“The economic uncertainty in this country has put finance at the forefront of people’s minds,” Levison says. “People are looking for an expert they can connect with; someone who motivates them to do more about their money.”

As trusted personal and business advisors who have in-depth financial knowledge and expertise, CPAs are in the ideal position to teach financial literacy. The

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reason: CPAs, whenever they engage with individuals, small businesses or employers, work to maximize financial potential, which includes investment, savings and retirement planning. CPAs also have the broad business competencies that make them ideal financial advisors. They work with clients to develop financial strategies and help them achieve their financial goals.

In addition, CPAs have relationships in their communities with businesses of all sizes and in all sectors, with hundreds of individuals. These relationships offer tremendous opportunity for financial education and create an automatic audience with whom CPAs can share their financial knowledge and expertise.

HOW IT ALL BEGAN The VSCPA’s award-winning Financial Fitness initiative was a product of the October 2003 VSCPA Board of Directors strategic planning retreat.

The first step was the development of a website, www.FinancialFitness. org. Launched in early September 2004, the website is still a public portal for free financial planning articles and resources, like a downloadable template for a personal spending plan and a financial check-up quiz. Today, this consumer site receives more than 20,000 visitors each year.

FINANCIAL fitness To remind Virginia citizens about the importance of becoming financially literate and responsible, Gov. Mark Warner signed a proclamation recognizing the week of October 17–23, 2004, as “Financial Fitness Week” in the Commonwealth. The proclamation was first introduced by the VSCPA in 2004, and was introduced again in 2005 and 2006.

As part of the week, the VSCPA held the first-ever Financial Fitness Day on Saturday, October 23, 2004, in Richmond.

Volunteer CPAs manned informational booths at grocery stores around metro Richmond to offer free financial advice, resources and materials to consumers.

This community service event expanded statewide in fall 2005, and, since then, has reached more than 5,000 citizens annually.

The VSCPA also created a Financial Fitness calendar for consumers, which was introduced in October 2004. In addition to serving as a wall calendar, it is also a free financial literacy resource guide, loaded with year-round money management advice as well as important tax and financial dates to remember and information for additional financial assistance. The calendar also features profiles of four Virginia CPAs with diverse careers.

Next, in April 2005, the VSCPA led the formation of the Virginia Jump$tart Coalition for Personal Financial Literacy — a separate nonprofit that aims to improve financial literacy in students and young adults. The Coalition today has approximately 90 member organizations and holds the annual Virginia Financial Literacy Summit, which draws more than 300 attendees.

Active VSCPA Speakers Bureau member

Clare K. Levison, CPA

Philip H. Umansky, CPA, Ph.D.

Ann G. Rankin, CPA, chief of enforcement in the Division of Securities at the Virginia State Corporation Commission in Richmond, serves on the board of directors for Virginia Jump$tart.

titled “Money-Wise Women.” Rose says volunteering is not only an opportunity to share an important message about financial literacy, but also a chance to grow personally.

“Virginia Jump$tart helps me find out the latest news and ideas about financial literacy,” Rankin says. “I also enjoy working with others that are also passionate about improving financial literacy of Virginians.”

“Volunteering has allowed me to interact with some of the most fascinating people,” Rose says. “As a volunteer, I develop more self-confidence and strengthen my communication skills.”

To continue the outreach, the VSCPA began holding free consumer workshops in June 2005. These Financial Fitness Workshops are led by CPA experts and cover various money management topics.

In addition to workshops for all consumers, a special series for women and a new series for young adults are now available. The VSCPA also now holds several webinars each year.

So was the Financial Fitness initiative effective in the first few years? The Financial Fitness initiative won the top honor, called “Best in Show,” in the 2005 Virginia Public Relations Awards, a statewide awards competition sponsored by the Richmond Chapter of the Public Relations Society of America (PRSA). The VSCPA was also given the first-ever Commonwealth Community Service Award by the Virginia Society of Association Executives (VSAE) and named an honor roll winner in the 2005 Associations Advance America Awards, a national awards competition sponsored by the American Society 

VSCPA member Elsie L. Rose, CPA, principal at Yount, Hyde & Barbour, PC in Glen Allen, has led several of the Society’s Financial Fitness Workshops

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FINANCIAL fitness >>

Why i am a financial fitness volunteer

of Association Executives (ASAE) for its financial literacy efforts.

But the true measure of success was the public’s increased financial knowledge and confidence, which volunteers were witnessing first-hand.

“I volunteer in this effort because the strength of our economy is in its citizens’ ability to feed, clothe, house, and protect their families. The better financial decisions the citizens make, the better business and the economy can grow.”

— Richard J. Beason, CPA, sole proprietor, Roanoke “As a woman under 35, I’m particularly relevant to the younger generation. I enjoy telling them that it’s cool to be smart about their money.”

— Clare K. Levison, CPA, analyst, Alliant Techsystems, Inc., Roanoke “I volunteer to give back to the community and to improve my public speaking abilities. Volunteering shows people that CPAs don’t just help big companies and wealthy individuals.”

— David M. Hippchen, CPA, sole proprietor, Chester “Volunteering is opportunity to give back to my community and to provide a valuable service by assisting others in understanding fiscal responsibility.”

— Susan G. Messier, CPA, tax partner, Goodman & Company LLP, Norfolk “I think giving people tools and education to help themselves is the best way to improve their personal financial situation. Then, they can do anything they want in life.”

— Ann G. Rankin, CPA, chief of enforcement, Division of Securities, Virginia State Corporation Commission, Richmond “I get great satisfaction knowing I have helped create awareness and confidence in money management activities. I especially like working with women’s financial literacy initiatives because of the unique needs and issues in this demographic segment.”

— Elsie L. Rose, CPA, principal, Yount, Hyde & Barbour, PC, Glen Allen “I really enjoy providing financial literacy information to a range of individuals as I believe it will assist in living a more fulfilled life.”

— Philip H. Umansky, CPA, Ph.D., associate professor and chair of accounting, Virginia Union University, Richmond

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BUT COULD WE DO MORE? Virginia CPAs clearly made a big impact through the Financial Fitness initiative in the first three years. But why stop there? Building on the momentum, the VSCPA served as a catalyst for Virginia Financial Literacy Month in April 2007 — a governor’s proclamation to increase awareness of the importance of financial literacy in the Commonwealth. The VSCPA developed a variety of supportive resources to help Virginia organizations get involved in the commemorative month, and has introduced the proclamation each year since 2007.

Also, in April 2007, the VSCPA launched Financial Fitness Insider — a free, monthly e-newsletter containing news and tips on financial and money management topics. Later that year, the VSCPA launched Financial Fitness University, a free workplace education and training program in October 2007.

Designed to improve the personal finances of Virginia employees, the program provides online resources for continuing workplace education and free CPA instructors for onsite financial seminars.

The next year, the VSCPA began offering the “Ask a CPA” E-mail Program in April 2008. This free e-mail program is open to all Virginia residents and Virginiabased members of the U.S. armed forces.

FINANCIAL fitness Experienced, licensed CPAs provide answers to tax and personal financial planning questions within three business days.

EDUCATING VIRGINIA STUDENTS Financial literacy for Virginia students is so important that passing a graduation requirement has been part of the VSCPA’s legislative and regulatory agenda since 2005.

In October 2008, the VSCPA submitted official comment and encouraged members to send feedback to the Virginia Board of Education (VBOE) to strongly encourage the inclusion of a one-credit economics and personal finance course as a Virginia high school graduation requirement.

During the public comment period, the VBOE received 475 comments, and 329 of those comments related specifically to the request for a required course in economics and personal finance. The Virginia CPA community spoke, and the VBOE listened. At its February meeting, the VBOE indicated the comments (primarily from members of VSCPA and Virginia Jump$tart Coalition) were a key factor in their decision to incorporate the required course in the Standards of Accreditation.

In a bold move to ensure the future fiscal responsibility of Virginia’s students, on February 19, 2009, the VBOE unanimously approved a one-credit course in economics and personal finance as a requirement for high school graduation. This longawaited requirement came in the wake of grassroots advocacy efforts over the past four years by the VSCPA, its members and other interested parties to mandate financial literacy education in the Commonwealth’s high schools.

But the fight is not over. Over the past year, the financial literacy requirement has been met with some opposition, including legislation that successfully pushed back all implementation of all new graduation requirements by one year and several unsuccessful attempts to repeal the requirement altogether. The VSCPA continues to protect this requirement, which is currently a regulatory requirement, and has actively lobbied, submitted op/eds to Virginia media and repeatedly communicated the importance of financial literacy for students. Read more about this topic in the “Advocacy” section on page 8.

CALL FOR VOLUNTEERS High schools around the Commonwealth will need qualified financial experts to assist with these courses. As the VSCPA has been instrumental to this graduation requirement, we want to stay involved.

One of the easiest ways to get involved in the Financial Fitness initiative is by joining the VSCPA Speakers Bureau.

“The VSCPA staff provides great handouts, fun giveaways and event coordination,” Rose says. “They make sure I have everything I need for any presentation or event. They make it easy to volunteer for the Financial Fitness program.”

Here’s how the VSCPA Speakers Bureau works: You’ll receive an e-mail notification

when an organization in your area requests a speaker. You can choose whether to accept the opportunity, based on your availability and interest in the topic. Requests are filled on a first-come, first-serve basis.

The VSCPA organizes the time, venue and topics — all that is needed is your expertise and a small commitment of your time.

If public speaking is not your forte, there are several other financial literacy volunteer opportunities. Fellow members are needed to answer questions for the “Ask a CPA” E-mail Program. Licensed CPAs can also volunteer for the Nonprofit Pro Bono Assistance Program to provide free financial assistance to Virginia 501(c)3 organizations.

To get involved in the Financial Fitness initiative, contact VSCPA Public Relations Specialist Shawnte Reynolds at sreynolds@ vscpa.com or (804) 612-9424 today.

Where will the Financial Fitness initiative go in 2011 and beyond? It’s already made a splash in the social media world with approximately 250 Facebook fans (www. facebook.com/FinancialFitness) and nearly 600 Twitter followers (twitter.com/ FinancialFit). There are new ways to get the word out, and spreading the word is still critical.

The sky is the limit for the VSCPA’s Financial Fitness program. Won’t you join us? n

SHAWNTE REYNOLDS

is the VSCPA public relations specialist. She manages the VSCPA’s public and media relations strategies and programs. Contact her at (804) 612-9424 or sreynolds@vscpa.com.

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FISCAL responsibility

At the Tipping Point?

How intergovernmental financial dependency affects us all.

By Edward J. Mazur, CPA, and John B. Montoro, CPA

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FISCAL responsibility

Federal fiscal sustainability significantly affects state and local governments. The need to report on intergovernmental financial dependency and its risks is as pressing as ever.

C

urrent economic conditions, including job loss, illiquid credit markets, an ailing construction industry and reduced consumer spending, have combined to increase risk and uncertainty not only across all private industries, but also in the public sector, including local governments, states and, perhaps most importantly, the federal government.

American Institute of CPAs (AICPA) Statement of Position (SOP) 94-6, Disclosure of Significant Risks and Uncertainties, and now Financial Accounting Standards Board (FASB) Accounting Standards Codification 275 require certain disclosures about risks and uncertainties relating to the nature of operations, the use and significance of estimates in the financial statements and the vulnerability of the financial statements to certain concentrations.

With regard to concentrations, SOP 94-6 requires disclosure when information known prior to issuance of the report has met the following criteria: • The concentration exists at the date of the financial statements; • The concentration makes the

enterprise vulnerable to the risk of a near-term severe impact; • It is at least reasonably possible that events that could cause the severe impact will occur in the near term.

Consider Company A, a manufacturer of an electronic component for automotive air conditioners. Company A has one primary customer, Company B, which fabricates the air conditioning units and sells them to General Motors, which installs them in several SUV models. Clearly, as the auditor of Company A’s financial statements, based on the guidance found in SOP 94-6, one would conclude that all criteria have been met to disclose a concentration risk.

Now consider a town with a highway fund that accounts for all road maintenance activity for the town and related debt service. Eighty percent of its revenue comes from a share of gasoline taxes that are distributed to it from the state. During 2009, in an attempt to balance its own budget, the state decides to cut the distribution to the town by 90 percent. The town now faces the prospect of either drastically cutting services to its citizens or raising taxes. 

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EXhibit A

Historical Indicators of Declining Federal Financial Condition • Almost 40 years of negative annual cash flows • 40 years of borrowing to meet current cash needs — from Americans and foreign governments • 40 years of borrowing from Social Security, Medicare and other “Trust Funds” • 40 years of not linking borrowing to the creation of long-term assets — thus not promoting intergenerational equity • Ignoring life-cycle costs of infrastructure • Funding federal pension obligations on pay-as-you-go basis • Not pre-funding long-term obligations under Social Security and Medicare

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FISCAL responsibility >>

EXhibit B

Source: 2010 Financial Report of United States Government, U.S. Treasury Department

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EXhibit C

In contrast to the Company A example, a concentration disclosure will not be found in the town’s financial statements.

And while a similar scenario has played out in thousands of local and state governments over the past couple years, it is in fact very difficult in most cases to assess the extent of intergovernmental financial dependency of a particular governmental entity, despite the fact that these revenues make up a substantial percentage of revenues.

The reason for this lack of disclosure perhaps rests with the belief that these intergovernmental revenues are stable and that the risk that events could negatively impact these revenues in the near term has always been considered low. Not anymore.

Our latest economic crisis has taught us that the sustainability of all three levels of government — local, state and federal, is no longer a given. We need to become more educated on the fiscal strengths and weaknesses that contribute to the economic sustainability of our governmental units. As financial professionals, it is incumbent upon us to see through the sound bites and political posturing and gain an understanding of the facts. And, as it turns out, there is plenty of reliable data out there. Let’s start with the “800-pound gorilla” of the public sector — the federal government.

The Facts in Black and White

Source: 2010 Financial Report of United States Government, U.S. Treasury Department

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Weighing in at 233 pages, reading the annual financial report of the U.S. government is not for the faint of heart. That said, as with the reports of state and local governments, there is a Management’s Discussion and

FISCAL responsibility >>

Making Sense of the Facts

EXhibit D

Analysis of Federal Liabilities, Intragovernmental Debt, and Social Insurance Obligations Source of Data: 2010 Financial Report of U.S. Government $ Billions 2010

2009

Publicly-held Debt

$9,060*

$7,583**

Federal Employee & VA Benefits

5,720

5,284

Other

1,576

1,257

INTRAGOVERNMENTAL DEBT—Owed to Social Security, Medicare/Other Trust Funds

4,577

4,391

Social Security

7,947

7,677

Medicare — Parts A, B & D

22,813

38,107

Other

97

94

$51,790

$64,393

Current-dollar GDP 3rd qtr 2010, 4th qtr 2009

$14,750

$14,119 (Source: BEA)

Liabilities and Obligations as % GDP

351%

456%

FEDERAL LIABILITIES:

FEDERAL SOCIAL INSURANCE OBLIGATIONS

Total Liabilities, Intragovernmental Debt & SI Obligations

* 62% of 2010 GDP

**53% of 2009 GDP

Analysis (MD&A) section that covers all of the most essential information on the financial condition of our federal government — and it is only 26 pages long. Given the enormous complexity of the federal government and the extreme diversity of activities in its service to our citizens, it is tough to come to a “corporate style” bottom line — even if governmental accounting and reporting standards permitted such to be presented.

There is a “bottom line” of sorts, however, and it is clearly spelled out in the 2010 “Financial Report of the United States Government” (the Financial Report1) — “(t)he projections in this Report indicate that the trajectory of current policy is not sustainable.”

Well, so why read the annual report of the federal government? One reason would be to judge for yourself if our national government is fiscally sustainable. CPAs are certainly citizens and they participate in electing Congressional policymakers and our president. They also are immersed in the financial intricacies of most of the elements of our economy.

It would be hard to argue that our professional responsibilities would not include gaining an understanding of the current and anticipated financial condition of the single most important element of our economy — our federal government.

If we were not able to print money, if the dollar was not a world currency and if we did not have what has been, so far, a seemingly unlimited line of credit, Washington, D.C., might have become mainly a tourist destination some time ago. As illustrated in Exhibit A (page 17), our federal government has committed a laundry list of fiscally irresponsible actions over the course of the past 40 years. Large corporations, small businesses, state or local governments and nonprofit organizations could have not have survived for long following the fiscal practices of our federal government.

Let’s look at some of the numbers.

Exhibit B (page 18), extracted from the 2010 Financial Report, illustrates the general composition of federal spending and history of exceeding revenues. It also illustrates future expenditures based on current laws and past spending patterns.

It is important to note that, under current law, there are only two areas of federal spending that one might consider subject to change under normal budgetary mechanisms — defense spending and other non-interest spending. The remaining expenditures are on autopilot unless benefits are fundamentally changed by the Congress and approved by the President. Incidentally, “noninterest spending” includes just about everything that affects citizens in their daily lives, e.g. road construction, college grants and loans, health research funds, K-12 education, homeland security and on and on.

All of the dollars spent over the receipts line in Exhibit B, however, have had to be borrowed from Americans and, increasingly, from foreign governments — especially those that have a 

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FISCAL responsibility >>

EXhibit E

Key Dependency Measurements

VA 2008

NC 2008

FL 2008

Direct Federal Revenues to state (billions) (VA 2009)

$10.8

$15.0

$24.5

Percentage of total state revenues—all Sources

26.9%

31.8%

28%

Direct Federal Grants to local governments (billions)

$1.1

$2.2

$3.9

Federal purchases from state businesses (billions)

$53.9

$5.8

$16.6

Federal Payments to Individuals-wages, pensions, s.s., medicare (billions)

$53.9

$47.6

$110.7

Total Direct and Indirect Federal Flows (billions)

$119.7

$70.6

$155.7

positive balance of trade with the United States, such as China and Japan. These lenders (enablers, if you will) do expect interest payments. Exhibit C, extracted from the Financial Report, illustrates what the current, past and future fiscal picture looks like when those required interest payments are built in.

The Federal Debt Burden With the federal government spending more than its revenues in all but a few of the past 40 years, it has built up a substantial debt load. The balance of publicly held debt at September 30, 2010, is $9.06 trillion dollars, or 62 percent of the U.S. Gross Domestic Product. There is an opinion of certain economists that, when viewed in relation to the GDP, a debt level of 62 percent of GDP is not that bad, as we have not yet accumulated debt exceeding the approximate 109 percent of GDP built up by the end of World War II. Before breathing a sigh of relief, however,

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one must remember the trends illustrated

by Exhibits B and C (page 18). Also consider the following: • There were no social insurance trust funds to borrow from back in 1946 — in fact, Medicare did not come into existence until the 1960s. In contrast, borrowings against the trust funds in 2010 are $4.5 trillion.

• Federal employee and veterans pension and other benefits were minimal in 1946. The present value of these obligations currently exceeds $5.7 trillion.

The MD&A section of the Financial Report states that “(i)f current policies are kept in place indefinitely, the debt to GDP ratio is projected to exceed 350 percent in 2085 and to rise continually thereafter.” In fact, it could be said, depending on what kind of stakeholder you are, that we have already reached the 350 percent-of-GDP mark. Exhibit

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D (page 19) is an analysis based on data extracted from the Financial Report.

It illustrates what happens when you lump together all of the liabilities of the federal government as they appear on its balance sheet, the intragovernmental borrowings from the Social Security and Medicare “Trust Funds,” and the present value of all future benefit payments to those current and future participants in Social Security and Medicare. As shown, these total $51,790 billion, which is 351 percent of 2010 GDP. In the end, or until those other promises are altered by law, intragovernmental debt and social services obligations will have to be addressed by the same productive capacity of the nation, as will the repayment of publicly held debt — which explains why these other debts and obligations should also be measured against the GDP yardstick.

Trickling Down: Federal Government’s Fiscal Stress affects Us Here at Home Prior to the mid-1960s, the three levels of government — federal, state and local — generally tended their own gardens.

The onset and ongoing expansion of intergovernmental funding since that time has, however, dramatically altered that old model. Utilizing the published reports of state and local governments, the data resources of the U.S. Census Bureau and Bureau of Economic Analysis, and statistical reports of the U.S. Defense Department, the General Services Administration and the U.S. Treasury Department, it is possible to determine key measures of intergovernmental financial dependency as shown in Exhibits E through H.2

FISCAL responsibility >>

EXhibit F

Key Dependency Measurements

VA 2008

NC 2008

FL 2008

Real GDP by State inflation adjusted to 2000 (billions)

$324.5

$329.4

$603.5

Total federal flows Gross state product

36.9%

21.4%

25.8%

50.4

4.3

14.0

$6.3

N/A

$40.1

Federal leased owned buildings (millions sq/ft)

Addressing the Risks of Intergovernmental Financial Dependency

as of March 2010 Federal Debt Securities Held by State (billions)

As illustrated in Exhibit E, the three southeastern states of Virginia, North Carolina and Florida receive federal funds directly into their coffers that comprise between 27 percent and 32 percent of their total revenues. The economies of those three states are also affected by federal funds flowing directly to their local governments, billions of dollars in federal purchases from businesses located in the states, and from payments made by the federal government directly to their respective citizenry for salaries and wages, pension benefits, Social Security and Medicare coverage.

Exhibit F illustrates how these total direct and indirect federal flows range from 21 percent of Real GDP for North Carolina to 37 percent of Real GDP for Virginia.

Exhibits F and G (pages 21 and 22) also illustrate the indirect economic impact of the federal government associated with its ownership or lease of millions of square feet of buildings and the presence of military establishments. As illustrated in

Exhibit H (page 23), similar measures of intergovernmental financial dependency can be obtained for local governments.

For the six Virginia localities shown, the combination of direct federal and Commonwealth funding constitutes between 25 percent and 32 percent of total locality revenue. Indirect federal flows relating to the purchase of goods and services and payments to individual citizens amount to hundreds of millions of dollars affecting the economies of those localities.

Although the above commentary couches the impact of federal funding and payments from the perspective of state and local governments, it is the businesses and citizens of each state and a variety of nonprofit organizations that are also affected by these federal flows. Clearly, we are all in the same boat, including the members of the CPA profession that provide vital services to businesses, governments, organizations and individuals throughout each state.

Perhaps the biggest risk from intergovernmental financial dependency is ignoring that it exists. Ignoring the fiscal problems of the federal government has allowed the matter to get much worse, and to make the options for resolution all the more painful. From the perspective of the CPA, our challenge is that the clients we serve, most often, do not recognize the build-up of risks within their financial planning and reporting. Very few state and local governments either disclose within their annual reports the concentration of intergovernmental revenues or seek to alert their readers as to the risks of such dependency. One government is an exception to this general condition, and that is the City of Durham, N.C. Its annual financial report contains the following disclosure: Interdependence with Other Entities The City depends on financial resources flowing from, or associated with, both the federal government and the State of North Carolina.

Because of this dependency, the City is subject to changes in specific flows of intergovernmental revenues based on modifications to federal and state laws and federal and state appropriations. It is also subject to changes in investment earnings and asset values associated with U.S. treasury securities because of actions by foreign governments and other holders of publicly held U.S. treasury securities.

This concise, straight-forward disclosure acknowledges the more-than-material ď ľ

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FISCAL responsibility In the Company of Others >>

EXhibit G

Key Dependency Measurements

VA 2008

NC 2008

FL 2008

148

123

235

Military Facilities—Present Replacement Value (9/30/08, billions)

$37.6

$20.4

$23.4

Military Facilities— Military and civilian Personnel (9/30/08, thousands)

205.8

147.2

91.2

Military Facilities (9/30/08)

nature of intergovernmental financial dependency and alerts the reader to the potential for change. If one ties this disclosure back to the reported disclosures within the 2010 Financial Report, then it becomes inescapable that states, local governments and virtually all elements of their respective economies are being, and will be, affected by the unsustainable fiscal condition of the federal government.

The CPA Profession’s Current Involvement The Governmental Accounting Standards Board (GASB) has a project on its current agenda called “Economic Condition Reporting: Fiscal Sustainability.” At a recent meeting in October 2010, there was at least tentative agreement from a conceptual standpoint that information on revenue interdependency and service interdependency are types of information necessary for users to assess the effects of interdependencies between governmental entities. However, the first due process document is currently not scheduled to be issued until November 2011, so official guidance is still some time off.

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What Should the CPA Community Do? The practicing CPA performing an attest function can respond to the reported fiscal condition of the federal government and/ or a state government in relation to the degree to which a client is dependent on revenues, procurements or other flows received from these governmental sources.

Drawing on SOP 94-6, the client can be encouraged to disclose the amount and significance of revenues associated with the federal government and/or a state government3. Clients with significant dependency on revenues from such governments can also be encouraged, through applying professional judgment, to disclose the reported financial condition of governments disclosing sustainability concerns4. Beyond these client-specific measures, the CPA can obtain and seek to understand the conditions reported in the “2010 Financial Report of the United States Government” and the comprehensive annual financial reports of the state and local governmental jurisdictions in which they practice.

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The CPA community is not alone in helping to bear the task of addressing the sustainability issues of the federal government. Beyond ensuring that their clients are aware of and are properly acknowledging financial dependency on governmental flows, there is an opportunity for CPAs to develop an understanding of recent recommendations for reforming federal fiscal practices. Most notable among these are the recent proposals from the National Commission on Fiscal Responsibility and Reform, which issued its formal report5 in early December. The Commission’s report tackles all of the major areas of government policy that have the most significant impact on future deficits, to include: discretionary spending cuts, tax reform, health, Social Security and process reform.

A key point in the report of the Commission is that all spending and revenue matters must be taken into consideration together. Without doing so, the political and other forces beholden to the status quo will inhibit proceeding with the very substantive changes necessary to alter the fiscal trajectory of current policies. In the words of the Commission Report: We must stabilize and then reduce the national debt, or we could spend $1 trillion a year in interest alone by 2020. There is no easy way out of our debt problem, so everything must be on the table.

A sensible, realistic plan requires shared sacrifice — and Washington must lead the way and tighten its belt. n

FISCAL responsibility >>

EXhibit H

Key Dependency Measurements

Henrico County 2008-09

Chesterfield County 2008-09

City of Richmond 2008-09

City of Chesapeake 2008-2009

City of Virginia 2008-09

$63.0

$44.2

$95.0

$43.5

$129.0

Direct State Assistance to Locality (millions)

$369.8

$403.9

$283.9

$338.1

$577.2

Federal and State Assistance as a % of Total locality revenues—All Sources

31.8%

29.5%

25.3%

28.2%

24.7%

Federal Purchases from local Jurisdiction (millions)

$64.0

$121.9

$504.5

$242.1

$1,181.0

Federal Payments to individuals residing in locality (millions)

$734.3

$719.6

$2,510.2

$1,035.1

$2,669.8

$1,228.1

$1,289.6

$3,393.6

$1,658.8

$4,557.0

Direct Federal Revenues to Locality (millions)

Total Federal and state flows— Direct and indirect (millions)

1. The “2010 Financial Report of the United States Government” can be accessed by going to the website of the U.S. Department of the Treasury, and by clicking on FMS under Bureaus and then Publications, or by going to www. fms.treas.gov/fr/index.html.

2. For guidance on how to obtain and display key measures of intergovernmental financial dependency, go to Volumes One and Two of “Intergovernmental Financial Dependency and Related Risks — Proposed Reporting by State and Local Governments,” published by Cherry Bekaert & Holland, LLP. Accessible at: www.cbh.com/intergovernmentalreport.

3. See “Excerpts and Analysis of AICPA Statement of Position 94-6, Disclosure of Certain Significant Risks and Uncertainties,” beginning on page 12 of Volume Three, “Intergovernmental

Financial Dependency and Related Risks — Proposed Reporting by State and Local Governments.”

of reporting and disclosing intergovernmental financial dependency and related risks.

4. See Volume One, “Intergovernmental Financial Dependency and Related Risks — Proposed Reporting by State and Local Governments,” for proposed reporting on the “Financial Position of Other Governments Providing Assistance,” and other means

5. The report of the National Commission on Fiscal Responsibility and Reform is titled, “The Moment of Truth,” and can be accessed at www.fiscalcommission. gov/news/moment-truth-reportnational-commission-fiscalresponsibility-and-reform.

Edward J. Mazur, CPA serves as senior advisor for Public Sector Services with Clifton Gunderson LLP, and principal author of “Intergovernmental Financial Dependency and Related Risks.” Contact him at Edward.Mazur@cliftoncpa.com.

John B. Montoro, CPA is a partner in the Richmond office of Cherry, Bekaert & Holland, LLP, a large regional CPA firm headquartered in Richmond. Contact him at jmontoro@cbh. com.

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FINANCIAL planning

THE TOP 5 RESPONSES

to Clients Looking for Investment Advice

By Dennis P. Gogarty, CFP ®

As financial professionals, we are often asked to give investment advice. More often than not, the question is asked with the hope that we’ll give some credible insight about what to expect from the market in the coming months. Before responding, I’m reminded of Warren Buffet’s eloquent remark, “forecasts tell you much more about the forecaster than they do about the future.” As I recall this phrase, I know that I’m about to disappoint my audience with actual sound advice.

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FINANCIAL planning

Be a strong voice of discipline to your clients.

Encourage them to avoid giving in to fear when the environment is uncertain.

The last few years have been so volatile, and the last 10 years have been so flat, that investors are quite understandably looking for answers. Lately, I sense an almost desperate need for guidance. This desperation and fear creates a dangerous void that can too easily be filled by those with ulterior motives and products to sell. If not afraid, many of your clients are at least worried. My advice to you is to be that strong voice of discipline, encouraging your clients to not give in to fear when the environment is uncertain — which is pretty much always.

I offer you my top five responses to clients looking for investment advice.

You’ll notice a distinct lack of sizzle and a remarkable degree of common sense. I wish you and your clients good fortune in 2011.

1. Diversify and balance Investing is profoundly not about knowing when to be in the market and when to be out. It’s not about knowing which stocks or sectors to be in — and which to avoid. And it is most definitely not about who to hire and pay to try to “beat the market” by speculating about these matters. Investing is entirely about managing risk, and we have a powerful understanding of the types of risks that are meaningful for investors. The meaningful risks are those that cannot be eliminated through diversification.

These risks are called “systemic,” and

investors can be exposed to them easily and inexpensively.

The most important decision your clients will make is the mix, or balance, between stocks and bonds in their portfolio.

The purpose of stocks in a portfolio is to provide long-term growth, and they have done so historically, but at the risk of loss in the short term. The purpose of bonds is to provide stability and reduce the volatility of the overall portfolio.

Think of stocks as the gas pedal in a car and think of bonds as the brakes.

Higher-quality and shorter-term bonds will provide greater overall portfolio stability and more effectively reduce the volatility of the stock portfolio (stronger brakes). In other words, high-yield bonds (non-investment grade) do not effectively balance a portfolio of stocks.

Index funds are well diversified and very inexpensive. Not only are the expenses that you can see low (management costs), but so are the expenses that you don’t (internal transaction costs). Index funds can deliver the right types of risks with a very high degree of efficiency. This is what good investors focus on.

Your clients need to manage the balance between stocks and high-quality bonds based on their timeframe, risk tolerance and spending flexibility.

Inexpensive, broadly diversified index funds like the Vanguard Total Bond Market Index fund and the Vanguard FTSE All World Ex US exchange-traded fund (ETF) are ideal. The Fidelity Spartan series of index funds is also a good choice, and Charles Schwab has recently developed a series of low-cost, well-diversified ETFs. Common mistakes include using sector-specific ETFs and index funds with high expense ratios.

Individual sector risks can be greatly minimized with greater diversification.

Anything over .20 percent for a U.S. stock or bond fund is too high and anything over .40 percent for an international fund is too high.

2. Buy low-cost index funds

3. Ignore the pundits

Investors should focus on what matters, not on what may help them “beat the market” — whatever that means. If your clients want to speculate with their money, suggest they save up and take a trip to Vegas. The house will wind up with most of their money (much like in the world of actively managed mutual funds), but they’ll have a much better time.

In 2009, everyone knew that interest rates were going up. In 2010, everyone knew the stock market was going to come back down (after the incredible rebound that started in March of 2009, which no one saw coming). It turns out that everyone was wrong. 

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FINANCIAL planning Pundits are rarely, if ever, held accountable for their predictions. One such example is when 50 economic forecasters were surveyed by The Wall Street Journal in June 2009. Forty-three expected the 10-year U.S. Treasury note yield to move higher over the year ahead, with an average estimate of 4.13 percent.

Seven expected a rate of 5 percent or higher, while only two predicted rates to fall below 3 percent. The result? The 10-year Treasury yield slumped to 2.95 percent on June 30, 2010, and rates on 30-year mortgages fell to their lowest level since Fannie Mae began tracking them in 1971. Where was the follow-up article pointing out that when everyone knew interest rates were going up — and they fell?

Some may be tempted to poke fun at these hapless “experts,” implying they are incompetent or poorly informed. This interpretation is flawed, as it suggests that a better team of experts would achieve a more accurate result. A more useful explanation is that even the most talented analysts are unlikely to make reliable predictions and the poor showing by this particular group is simply what we would expect to see, just as often as not.

What is the message for investors?

Predicting interest rates and bond prices is no easier than predicting stock prices, and making decisions based on what appear to be certain outcomes at the time often proves costly. Many investors reconfigured their portfolios in anticipation of higher interest rates

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MARCH/APRIL 2011

and have penalized their results while waiting.

Instead of seeking to predict the unpredictable, investors are much more likely to enhance their results by focusing on the elements they can control: risk exposure, diversification and minimizing costs and taxes.

4. Read this book I’ve read many books on investing, and two stick out for their profound simplicity and effectiveness. They are: • “The Intelligent Asset Allocator,” William Bernstein, 2001, McGrawHill • “The Investment Answer,” Daniel C. Goldie, CFA, CFP & Gordon S. Murray, 2010, Daniel C. Goldie “The Intelligent Asset Allocator” is a do-it-yourself manual for designing and implementing a well-diversified and balanced portfolio. If your client is looking for an education in portfolio management, this is the book for them.

Although a bit technical, it’s overall an easy and interesting read.

“The Investment Answer” is a more recent book written by a former bond salesman for Goldman Sachs who rose to the managing director level at both Lehman Brothers and Credit Suisse First Boston. Gordon Murray now suffers with glioblastoma, a type of brain cancer, and has channeled his remaining energy into this slim paperback. The book explains proper investing in a handful of simple steps while condemning many of the damaging business practices he was once involved in. Your clients will find this both interesting and insightful.

FINANCIAL planning 5. Ask an expert You can serve your clients well by taking the time to build a relationship with someone who you trust will serve their interests. But where do you find such a person or firm?

You can start by searching the Paladin Registry (www.paladinregistry.com), which seeks to help investors select financial professionals with the best qualifications. The Registry consists of pre-screened professionals from more than 100 financial service companies.

The screening process produces quality ratings of zero to five stars. Only advisors who achieve five-star quality ratings are profiled in the Registry. Their five-star quality rating includes documentation for advisor credentials, ethics, business practices and services. In the interest of full disclosure (and self-promotion), I am profiled in the Paladin Registry.

Whether you or your clients utilize a screening service or not, you’ll want to be sure that a certain level of due diligence has been performed before making any recommendations. You’ll want to know that any advisor or broker you recommend has a clean compliance record (www.finra.org/Investors/ ToolsCalculators/BrokerCheck), that you’re comfortable with how they earn their revenue (brokerage commissions, “soft-dollar” arrangements and transaction costs can all create a potential conflict of interest) and that their investment or financial planning process is suitable for your clients’ needs.

In conclusion, if you are not licensed and registered to provide investment advice, obviously you should refrain from doing so. These top five responses to clients looking for investment advice

are intended to provide a framework for counseling your clients in a disciplined and ultimately effective manner. Your clients have had experiences that will greatly affect their willingness and ability to stay disciplined. They have been told for decades that by anticipating the next market move or accessing the right talent, they can enjoy more (return) for less

(risk). They want to believe — and your suggestion that they can’t will feel a lot like telling a child that Santa Claus doesn’t exist. The truth is that risk and return are directly related, and you can’t have more of one without the other. It’s a tough message to deliver. Discipline in investing is difficult, but it’s the right advice for you to be giving your clients. n Copyright Raffa Wealth Management, 2010, all rights reserved.

DENNIS P. GOGARTY, CFP® is the president of Raffa Wealth Management. Raffa Wealth Management offers a wide range of investment advisory and retirement planning services to individual investors, nonprofit organizations and qualified retirement plans. Contact him at (202) 955-6734 or dennis@raffawealth.com.

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27

ACCOUNTING

How to Save a LIFO

By Christopher D. Lucas

No, this is not the Fray’s hit song.

It’s a song that is soon to be at the top of the charts, written by some companies with enormous last-in, first-out (LIFO) reserve balances on their books.

With U.S. Generally Accepted Accounting Principles (GAAP) rapidly edging closer toward international convergence, companies that elect to use the LIFO inventory accounting method must consider the effects of its elimination. International Financial Reporting Standards (IFRS) do not permit a company to use LIFO for financial reporting purposes. This major difference is yet to be addressed in any of the ongoing convergence projects, and the LIFO inventory method is in jeopardy.

The “stars in the band,” Exxon Mobil, Chevron, Conoco Phillips and Valero Energy, with quite a few “backup singers,” are facing the possibility of enormous federal, state and local income tax liabilities as they will be forced to retrospectively recognize large amounts of taxable income immediately. This will be a significant change for many industries, including petroleum, chemical and retail.

Although the apparent obsolescence of LIFO has not been formally discussed, it is included in President Barack Obama’s fiscal 2011 budget proposal. The proposal would not allow the use of the LIFO method after 2012 and would also require

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the recapture of all LIFO tax deferrals from prior years. With the repeal of LIFO, the government would collect some serious cash from companies that have large LIFO Reserves.

History of the U.S. Tax Code and LIFO The “LIFO Conformity Rule” was born when Congress enacted the Revenue Act of 1939, which authorized the use of LIFO by any electing firm, provided that it was also used for financial reporting purposes.

The next big step in LIFO’s history came in 1984, when the American Institute of CPAs (AICPA) issued a paper discussing LIFO. The paper, “Identification and Discussion of Certain Financial Accounting and Reporting Issues Concerning LIFO Inventories,” recommended establishing a “LIFO Reserve” as the difference in inventory due to using LIFO to account for inventory instead of the first-in, firstout (FIFO) method. Since the LIFO method tends to lower reported income amounts in an economic climate of increasing costs, the reserve account would essentially be the pre-tax basis that would be taxed upon convergence to FIFO. The Securities and Exchange Commission (SEC) accepted the paper as a form of GAAP with the issuance of Staff Accounting Bulletin (SAB) 58, “Topic 5: Miscellaneous Accounting, Item L: LIFO Inventory Practices,” now codified in Financial Accounting Standards Board (FASB) Accounting

ACCOUNTING

Standards Codification (ASC) Topic 330, Inventory (specifically, paragraph 330-10-S99-S99-1).

to the LIFO Conformity Rule would keep companies using LIFO happy. IFRS is not related to taxation, and this may be a feasible option.

Convergence and the Related Issues

The creation of an exception for IFRS use in the United States is another possible alternative. It would entail accepting IFRS, but allowing companies in the United States to still use the LIFO inventory system. This approach has been used in other countries such as Singapore, but may be difficult for the United States, as we do not allow altered IFRS statements from foreign

It is not the financial reporting that will be a major issue with the elimination of LIFO, but the tax reporting. Over time, the use of LIFO to account for inventory can have a significant downward effect on the value of inventory, as it puts the more recent purchases into cost of goods sold.

This higher cost of goods sold results in a reduction of operating income, thus creating the need for a LIFO Reserve.

With firms having to pay such staggering amounts to the government, it is likely that many jobs will be lost. That is definitely not what this country needs right now.

Conversion to IFRS would cause U.S. firms to owe approximately $27 billion in tax payments. Some industries, more than others, will be forced to pay hefty amounts if LIFO is disallowed.

Figure 1 (page 30) illustrates potential tax liabilities owed by industry sector based on the LIFO Reserve account balances.

As you can see, the petroleum industry is by far most reliant on LIFO to report inventory amounts, and will therefore have the largest tax liability upon convergence.

firms, and the International Accounting Standards Board (IASB) will likely not accept an altered IFRS statement given the movement toward one set of globally accepted accounting standards.

Providing a tax break to companies that are forced to switch inventory methods would help companies pay off their retrospective tax liability. This break could come in the form of a lower tax rate or an extension to pay the income tax.

The LIFO Reserve balances built up over time, so companies should be given time to pay off such a large debt. 

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29

>>

Figure 1:

Potential Tax liabilities owed based on LIFO Reserves INDUSTRY Petroleum Refining Industrial and Farm Equipment Chemical Motor Vehicles and Parts Metals Food and Drug Stores Utilities: Gas and EJecb1c Wholesales: Diversified Aerospace and Defense Tobacco Diversified Financials Insurance: Property and casual (Stock) Forest and Paper Products Wholesale~Food and Grocery Food Consumer Products Packaging, Containers Energy Oil and Gas Equipment, Service Household and Personal Products Computers, Office Equipment Beverages Wholesalers: Healthcare Electronic, Electrical Equipment Transportation Equipment Pharmaceuticals Mining, Crude Oil Products General Merchandisers Publishing, Printing Home Equipment, Furnishing Wholesale: Electronics and Office Equipment Scientific, Photographic, Control Equipment Medical Products and Equipment TOTAL

What Can Companies Do to Save LIFO? There is an organized effort called the LIFO Coalition that was formed to help businesses fight for the retention of the LIFO inventory method. The LIFO Coalition is a group

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LIFO RESERVE $ 56,722,243,000 $ 4,455,801,000 $ 3,541,879,000 $ 2,920,300,000 $ 2,741,600,000 $ 1,996,138,000 $ 934,000,000 $ 893,125,000 $ 782,900,000 $ 751,000,000 $ 623,000,000 $ 482,000,000 $ 459,000,000 $ 389,000,000 $ 344,538,000 $ 325,200,000 $ 304,400,000 $ 299,159,000 $ 233,300,000 $ 237,000,000 $ 231,500,000 $ 2.12,400,000 $ 175,200,000 $ 148,334,000 $ 135,400,000 $ 102,000,000 $ 90,800,000 $ 77,600,000 $ 61,700,000 $ 60,400,000 $ 18,000,000 $ 3,700,000 $ 80,802,617,000

of more than 115 trade associations representing hundreds of thousands of businesses. It was formed in 2006 to oppose proposals by the U.S. Congress to repeal the use of the LIFO inventory accounting method under U.S. tax laws.

SaveLIFO.org, as stated on its homepage,

MARCH/APRIL 2011

is one website devoted to promoting the understanding of LIFO to media, lawmakers and business owners.

Getting the word out about LIFO and its convergence issues will be a major help in sparking conversations and can give it a chance to survive.

Speaking up about the issue is essential for U.S. companies to attempt to save the LIFO inventory method. For some reason it has not reached the agenda of the FASB or IASB. Although, some might say that by not including the LIFO issue in discussions, the IASB has addressed it. It could be that there is no chance for acceptance of LIFO under IFRS as IAS 2, “Inventories,” does not include LIFO as a recognized method. This could mean that elimination of LIFO is inevitable.

Conclusion At this point, companies need to internally prepare for the worst and plan ways to go about paying large tax bills upon convergence. Hoping for the best is fine, but hope doesn’t seem to carry much weight when it comes to making a decision about the fate of LIFO. A discussion has to happen sooner rather than later. It’s kind of like the Fray’s opening line in “How to Save a Life:” “Step one, you say we need to talk.” n

CHRISTOPHER D. LUCAS

is a graduate of the University of Richmond Class of 2010. He is now working at a Big Four firm in Long Island.

VSCPA self-assessment Complete this 12-question test and submit to the VSCPA for 1 CPE credit. A 75 percent or better pass rate is necessary to receive credit.

After your exam is graded, you will receive either a certificate of completion via e-mail for your records or an e-mail notification that the 75 percent grade was not met.

Submission deadline: April 30, 2011. Exams received after this date will not be graded and your money returned.

Cost: $15 for VSCPA members/$30 for nonmembers.

Submission Instructions You may submit this selfassessment and make the exam payment online at www.vscpa.com/ March2011DisclosuresExam.

You may also circle your answer for each question and mail this paper exam to: CPE Team Virginia Society of CPAs 4309 Cox Road Glen Allen, VA 23060 Fax submissions are acceptable to (804) 273-1741.

Name _________________________ Address _______________________ _______________________________ E-mail Address _ _________________ Date __________________________ Method of Payment Check (payable to the VSCPA) Credit card

• •

Credit Card Number _______________________________ Expiration Date ________________ Signature _____________________ Date

_________________________

1. Which is not one of the top five responses to clients looking for investment advice? a. Buy low-cost index funds. b. Buy low, sell high. c. Ignore the pundits. d. Ask an expert.

2. In a June 2009 article from The Wall Street Journal, how many of the 50 economists surveyed correctly predicted the direction of future interest rates? a. 50 b. 47 c. 15 d. 2 3. Which of the following hypothetical bonds is the best investment? a. Two-year Treasury bond yielding 1.5% b. Five-year Federal Home Loan Bank bond yielding 3.5% c. Seven-year GE Capital bond yielding 5.5% d. Ten-year Sallie Mae bond yielding 7.5% e. Risk and return are directly related. They are equally good/bad choices.

4. Which of the following independent registries lists pre-screened professionals with five-star ratings? a. Franklin Registry b. Paladin Registry c. Templeton Registry 5. Companies using the last-in, first-out (LIFO) inventory accounting method establish a “LIFO Reserve” in order to: a. Account for the difference in inventory due to using LIFO rather than the first-in, first-out method. b. Account for the difference in inventory due to using LIFO rather than the lower of cost or market method. c. Determine the company’s current year tax expense and tax liability. d. Comply with the newly enacted standards associated with international financial reporting standards.

6. Repeal of the LIFO accounting method would result in: a. Decreased taxes for companies using the LIFO method in an economic climate of increasing costs. b. An increase in the cost of goods sold for all companies currently using the LIFO inventory accounting method. c. Increased taxes for companies using the LIFO method in an economic climate of decreasing costs. d. Increased taxes for companies using the LIFO method in an economic climate of increasing costs.

7. Under the LIFO method: a. Companies will always have a lower cost of goods sold and lower income. b. A business assumes that the oldest inventory items are the first to be sold. c. A business assumes that the most recent additions to inventory are the first to be sold. d. Companies will always have a higher cost of goods sold and lower income.

8. International Financial Reporting Standards (IFRS): a. Require companies to use the LIFO method of accounting for inventory. b. Permit the use of LIFO for financial reporting purposes, but not for tax purposes. c. Do not permit companies to use LIFO for financial reporting purposes. d. Allow only U.S. companies to use the LIFO method of accounting for inventory.

9. American Institute of CPAs (AICPA) Statement of Position (SOP) 94-6 requires disclosure of a concentration if the following exists: a. The concentration exists at the date of the financial statements. b. The concentration makes the enterprise vulnerable to the risk of a near-term severe impact. c. It is at least reasonably possible that events that could cause the severe impact will occur in the near term. d. All of the above 10. Virginia received what percentage of its total revenues in 2009 from the federal government? a. 18% b. 27% c. 8% d. 45% 11. Which of the following does not describe a fiscal policy followed by the federal government over the last 40 years? a. Negative cash flows for most years b. Borrowing from Social Security, Medicare and other “Trust Funds” c. Funding federal employee pension obligations in accordance with actuarial calculations d. Borrowing to meet cash needs from Americans and foreign governments 12. If you add together the publicly held debt of the federal government as of September 30, 2010, and amounts owed to trust funds and the present value of future obligations of the federal government, including federal employee benefits, Social Security and Medicare obligations, the total would be what percentage of Gross Domestic Product (GDP)? a. 62% b. 351% c. 125% d. 35%

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VSCPA news

April is Financial Literacy Month FINANCIAL FITNESS CALENDAR: The VSCPA has released the 2011 Financial Fitness Calendar, which offers financial tips and profiles of VSCPA members, with supplemental material online at FinancialFitness.org/Calendar.

Once again, the VSCPA and Virginians across the Commonwealth will focus on financial fitness throughout the month of April during Virginia Financial Literacy Month.

The VSCPA has plenty of ways to help Virginians increase their financial literacy, starting with its award-winning Financial Fitness initiative.

Here are some ways the VSCPA will

encourage wise money management during Financial Literacy Month: FINANCIAL FITNESS DAY: On Saturday, April 30, 2011, the VSCPA will hold its annual statewide community service event. Volunteer CPAs will man informational booths around the state from 10 a.m. to 2 p.m. to offer free resources and materials to the public on money management and fiscal responsibility.

“ASK A CPA” E-MAIL PROGRAM: Virginia CPAs will answer questions from the public via e-mails submitted at FinancialFitness. org. Free advice is available from experts on financial planning, tax planning, military taxes and disaster recovery. Questions will be answered by volunteer VSCPA members within three business days.

To volunteer for Financial Fitness Day or the “Ask a CPA” E-mail Program, contact Community Relations Coordinator Tracey Zink at tzink@ vscpa.com or (804) 612-9427. n

VSCPA Annual Meeting and 2011–2012 Board of Directors The VSCPA Annual Meeting will be held Friday, May 20, 2011, at 10:30 a.m. at the Richmond Hilton Hotel & Spa in Short Pump. During the meeting, the Nominations Committee will present the following nominated members for election as 2011–2012 officers and directors: Chair

At-large directors

Damon L. DeSue, CPA Chair-elect

John B. Montoro, CPA Vice chairs

Roy D. Peters, CPA Tom E. Rosengarth, CPA James M. Shepherd, CPA Colette Y. Wilson, CPA

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Maria T. Bridges, CPA Nishon R. Evans, CPA Marc E. Filer, CPA Carl W. Hoecker, CPA Clare K. Levison, CPA James L. Phillips, CPA Gary E. Romer, CPA Barbara L. Smith, CPA Mark A. VanDeveer, CPA Jamie C. Wohlert, CPA n

MARCH/APRIL 2011

VSCPA CPE & NETWORKING: GET IT ALL ONLINE >>

Visit the CPE Catalog at www.vscpa. com/CPE for the latest VSCPA seminars, conferences, webcasts, networking events and more.

VSCPA news

VSCPA 100% Member Firms VSCPA 100% Member Firms show their commitment to their employees, the profession and the association. A 100% Member Firm is simply a Virginia CPA firm or company that has all of its CPAs enrolled as members in the VSCPA. Interested in being listed as a 100% Member Firm? Contact VSCPA Member Relations Director Brenda Fogg at bfogg@vscpa.com or (804) 612-9409.

Thank you for your commitment, 100% Member Firms!

Anderson & Reed, LLP Beck & Company, CPAs, PC Bennett, Atkinson & Associates, PC BlackHeath Company, PLC Bowling, Franklin, & Co., LLP Boyce, Spady & Moore PLC Britt & Peak, PC, CPAs Burgess & Co., PC, CPAs Cameron, Moberly & Hamrick, PC Charles S. Pearson, Jr., CPA Charles W. Snader, P. C. Cole & Associates CPAs, LLC Coley, Eubank & Company, PC Corbin & Company, PC Craver, Green and Company, P.L.C. Creedle, Jones and Alga, PC CST Group, CPAs, PC Dalal & Company David L Zimmer CPA PC Didawick & Knopp, PC Dominion Benefits Donald W. Coleman, CPA, Inc., PC Duvall Wheeler, LLP Elmore, Hupp & Company, PLC Forrest & Markos Frank Edward Sheffer & Company Fritz & Company, PC GL Roberson CPA, PLLC Garland & Garland, CPAs, PC Garris and Company, PC Gregg & Bailey, PC Gregory & Associates, PLLC Hantzmon Wiebel Harris, Harvey, Neal & Co., LLP Henry R. Hortenstine III, CPA, PC Homes, Lowry, Horn & Johnson, Ltd. Honeycutt & McGuire CPAs Jones & Radman, PC Keiter, Stephens, Hurst, Gary & Shreaves, PC Kositzka, Wicks and Company

Kuehl Shepherd Kozlowski & Associates, Inc. L. P. Martin & Company, PC Lane & Associates, PC Larry D. Greene CPA PC Lent & Hawthorne, PC M. Lee Winder & Associates, PC McPhillips Roberts & Deans PLC Michael B. Cooke, CPA, PC Michael R. Anliker, CPA, PC Miller Foley Group Mitchell, Wiggins & Company, LLP Moss & Riggs, PLLC Murray, Jonson, White & Associates, Ltd., PC PBGH R.T. McCalpin & Associates Renner & Company, CPAs, PC Roger L. Handy, PC Rubin, Koehmstedt & Nadler, PLC Rutherford & Johnson, PC Sells, Hogg & Jones, CPAs, PC Spencer, Hager & Mosdell, PC Stephen Merritt CPA, PC Steve Guy & Associates, PC Strickland & Jones, PC Sullivan, Andrews & Taylor PC Swart, Lalande & Associates, PC Terry L. Jones, CPA, LLC The Burdette Smith Group, PC Thomas E. Fraley, CPA Thompson, Greenspon & Co., PC Tongelidis Consulting, LLC Updegrove, Combs, McDaniel & Wilson, PLC Valderas & Fishel, PC Walker Consulting Group Wall, Einhorn & Chernitzer Wells, Coleman & Company, LLP

The above list was compiled January 1, 2011. Check www.vscpa.com/100Percent for a complete, up-to-date list. n

>> Join Speakers

Bureau To Share your ExpertisE ONLINE The VSCPA is seeking member volunteers to join its Speakers Bureau and lend their expertise to the public.

Speakers will be in even greater demand with the new high school financial literacy in Virginia.

Volunteers speak to various audiences, from schoolchildren to retirees, on topics related to money management and basic financial education.

Speakers volunteer to help educate the public on financial topics, but many discover it benefits them personally.

“I volunteer to give back to the community and to improve my public speaking abilities,” said David M. Hippchen, CPA, of Richmond.

To learn more about the Speakers Bureau or sign up as a speaker, visit www.vscpa.com/Volunteer.

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VSCPA news

Congratulations to the following members!

NEW HIRES >>

Appointments & Awards >>

Eliana Borda has joined The Burdette

Alan Altschuler, CPA, a sole

Smith Group, PC, in Fairfax as a staff accountant.

proprietor, was elected treasurer of Peopleto-People in Newport News.

Fallon L. Brewster, CPA, has joined

Jorge Dabul, CPA, partner at

Mitchell, Wiggins & Company, LLP, in Petersburg as a staff accountant.

McPhillips, Roberts & Deans, PC, in Norfolk, was named chairman-elect of the Chesapeake Regional Health Foundation.

Joining Thompson, Greenspon & Company, PC, in Fairfax are David Fuqua and Audrey Gale as tax staff and Robbie Jindal as staff auditor.

Tina Mallia, CPA, has joined the Central

Virginia Electric Cooperative in the newly created accounting manager position in its Lovingston office.

Sean Murphy, CPA, has joined the

Virginia Beach Department of Economic Development as an accountant.

Derrick Strand, CPA, has joined Titan

Group, LLC, in Richmond as a principal.

Promotions >> Argy, Wiltse & Robinson, PC, in McLean, has named Kelly Argy, CPA, and David Trimner, CPA, partners.

Catherine R. Daley, CPA, CPA

supervisor at Goodman & Company, LLP, in Norfolk, was named treasurer of the Board of Directors of Animal Rescue of Tidewater.

Richard M. Jacobs, CPA, senior

manager at Goodman & Company, LLP, in Chester, was recognized by the Chesterfield County Board of Supervisors for his service on the Citizens Budget Advisory Committee.

Elizabeth Moore, CPA, partner at

Goodman & Company, LLP, in Newport News, was elected board chair and president of the Peninsula Industrial Finance Corporation.

At Mitchell, Wiggins & Company, LLP, in Petersburg, Rachel L. Finton and Michelle T. Vaughan, CPA, have been promoted to senior accountant.

Bryan Newlin, CPA, has been promoted

to manager at Yount, Hyde & Barbour, PC, in Winchester.

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>>

Tenesha Overby, CPA, supervisor at

Witt Mares, PLC, in Norfolk, received the WTKR NewsChannel 3 People Taking Action Award for community service for her efforts to raise awareness and funds for breast cancer research. She was also named to the “Top Forty Under 40” list by Inside Business of Hampton Roads.

David G. Spence, CPA, certified

financial planner at Palladium Wealth Management, LLC, in Haymarket, was recognized by Cambridge Who’s Who for excellence in personal financial planning.

Spence is a former president of the Northern Chapter of the VSCPA. n

WE WANT TO HEAR ABOUT IT!

E-mail disclosures@vscpa.com if you have exciting news to share. The

VSCPA prints news of members’ awards, appointments and promotions as well as new hire and job change announcements. Firm news, as well as mergers and acquisitions, is also welcome.

VSCPA news Firm News >> Aronson & Company, of Rockville, Md., has changed

Richard J. Harrison, Jr., PC, of Portsmouth marked its 25th

its name to Aronson LLC, effective January 1, 2011. The announcement coincides with the company changing its operating entity to a limited liability company.

anniversary on November 15, 2010.

VSCPA Staff News >>

Cocke, Szpanka and Taylor, PC, of Reston has changed its

Two employees mark eight years with the VSCPA this year: Government Affairs Director Emily Walker on April 1 and Event Planner Lauren Moore on April 16.

name to CST Group.

Goodman & Company, LLP, and Dixon Hughes, PLLC,

announced plans to merge their firms and affiliated entities effective March 1. The firm will be headquartered in Charlotte, N.C., and will be known as Dixon Hughes Goodman LLP. Goodman & Company will retain all of its existing Virginia, Maryland and Washington, D.C., offices.

Hicok, Fern, Brown & Garcia, CPA, of Abingdon has

expanded its operation to downtown Marion.

McPhillips, Roberts & Deans, PLC, of Norfolk has joined

the BDO Seidman Alliance, a nationwide association of independently owned regional CPA firms.

Mike Crews, CPA, formerly of Lovelace, Norvelle, Mathews & Crews, has opened his own office in Wyndhurst.

The new firm is called Michael D. Crews, CPA, PLLC.

Sales Assistant Anne Beattie celebrates five years with the VSCPA on April 3.

Marketing Consultant Stephanie Maddox has left the VSCPA. Good luck, Stephanie!

Correction >> The January/February issue of Disclosures incorrectly stated that Sherwood H. Creedle, CPA, and Glenn E. Barbour, CPA, had formed the CPA firm of Creedle and Barbour in South Hill. While both members were in partnership at one point, Creedle is now president of Creedle, Jones and Alga, PC, and Barbour is partner and owner at Glenn E. Barbour, PC. Both firms are in South Hill. n

The VSCPA mourns the loss of: Bobby J. Bearden, CPA, a sole

proprietor from Fairfax Station.

C. Andrew Boor, CPA, a VSCPA life

member from Dry Fork who passed away in 2007. He was a founding partner of Boor, Howard & Company in Danville.

Lynn M. Duval, CPA, of Vienna. She

was active in the VSCPA, serving on the VSCPA Federal Taxation Committee from 1997–2000.

Clarence E. Garner, CPA, a VSCPA

life member from Manquin. He worked at Gary, Stosch, Walls & Company, PC, for 20 years before opening his own practice in Aylett.

Stephanie S. “Stevie” Hayes, CPA,

of Newport News. She was active in the VSCPA in the 1990s, serving on the Ethics Committee from 1995–2000 and acting as chair in 1999–2000. She was a founding member of CPA Affiliates, an organization of CPAs from across Virginia. She was a sole proprietor before merging her practice, and most recently worked for Witt Mares, PLC, in Newport News.

Eugene C. Homes, CPA, VSCPA life

member from Staunton. A founding partner of Homes, Lowry, Horn and Johnson in Vienna, he earned his master’s degree from Strayer College of Accountancy in 1951.

Ernest L. Johnson Jr., CPA, VSCPA

life member from Virginia Beach. He served in the U.S. Army during World War II, owned his own firm and worked at Liggett & Myers Tobacco Company.

Ernest Lapp Jr., CPA, of Charlottesville.

He was a graduate of the University of Illinois and enlisted in the U.S. Navy during the Korean War. He spent most of his professional career as an auditor with the Army Audit Agency before moving to the University of Virginia audit service.

James B. Oglethorpe, VSCPA life

member from Virginia Beach. He was a graduate of Riverside Military Academy and a World War II Navy veteran. n

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35

VSCPA educational foundation

Glasscock Combines Successful Career with Teaching Dream Growing up, Robson Glasscock, CPA, always wanted to teach, and the urge stayed with him even as he became a successful CPA. Now he hopes to combine his adult career with his childhood dream.

Glasscock, in his second year of graduate studies at Virginia Commonwealth University, received the VSCPA Educational Foundation’s $5,000 Ph.D. Grant in 2009. When he completes the program with his degree in business with a concentration in accounting, he plans to teach financial accounting at the university level.

Glasscock will have plenty of real-world experience to apply to his new career. He spent three years working in public accounting in Colorado before returning to school to pursue his master’s degree in accountancy at the University of Denver.

It was at Denver that Glasscock dipped a toe into the teaching waters. He began teaching accounting at the University of Colorado-Denver during his last quarter of his master’s work and stayed on for the next year while applying to Ph.D. programs.

“I just thought that after working in public accounting and being a CPA, trying to teach accounting kind of made the most sense,” Glasscock said. “Rather than going back and trying to teach at the high school level, I decided to go back and get the Ph.D.” Glasscock’s professional experience came in the field of auditing, working with municipal entities, nonprofits and publicly traded oil and gas companies. He is licensed as a CPA in Colorado and hopes to use his public accounting experience to help teach the next generation of CPAs. “As a professor, I feel more comfortable teaching in areas I have experience in,” he said. “I’ve taught financial accounting and managerial accounting, but managerial really isn’t my area.

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VSCPA educational foundation

I’m more confident with areas I’ve had exposure to in real life.”

As a child, Glasscock hoped to become a history teacher, but studied accounting as an undergraduate at Texas State University, receiving his bachelor’s degree in 2003. His hallmark during his professional career has been his effort — he received awards for “going above and beyond” during his tenure at KPMG in Denver and was elected to the Staff Leadership Council by his colleagues before leaving the firm as a senior associate. At UC-Denver, his evaluations placed him near the top of the business school faculty.

Now he hopes to teach at a university and conduct research on capital markets.

If his accounting career and his previous work at the front of the classroom are any indication, he’s well suited for his next challenge.

“The thing that I like about it the most is that you have to be on your toes,” Glasscock said. “No two students are the same. When you present something, some people are going to get it and some people aren’t. You have to figure out what they’re seeing and how you have to tweak it. I really like the challenges of that.”

For more information on VSCPA Educational Foundation scholarships and grants, visit www.

VSCPAFoundation.com. n

Glasscock enjoying one of his favorite pastimes — rock climbing.

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A Generous Gift from Hantzmon Wiebel

One of the VSCPA Educational Foundation’s most consistent benefactors has donated yet again.

Charlottesville firm Hantzmon Wiebel, LLP, has pledged $12,500 to the Educational Foundation, its second large donation in the past seven years. The firm donated $25,000 to the Foundation’s Reaching for the Stars campaign in 2004.

“We are supporting the Foundation because we feel that education transforms lives,” said Hantzmon Wiebel CEO Phil Shiflett, CPA. “The accounting education that we received gave us the platform to embark on our professional careers, create a livelihood for our families and make a difference in our community. We feel that our gift has the ability to help transform the lives of rising students in Virginia for years to come.”

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