Today's CPA Nov/Dec 2015

Today’sCPA NOV/DEC 2015

TE X AS SOCIETY OF

C E RT I F I E D P U B L I C AC C O U N TA N T S

Practical Compliance with the ACA Build an Effective Working Relationship with the External Auditor Three Tips for Practicing Mindfulness in a Multitasking Workplace Treatment Without Prevention is Unsustainable

The Consumer Financial Protection Bureau:

A New Regulatory

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CONTENTS

CHAIRMAN Allyson Baumeister, CPA

VOLUME 43, NUMBER 3 NOVEMBER/DECEMBER 2015

EXECUTIVE DIRECTOR/CEO John Sharbaugh, CAE

EDITORIAL BOARD CHAIRMAN James Danford, CPA

Staff MANAGING EDITOR DeLynn Deakins ddeakins@tscpa.net 972-687-8550 800-428-0272, ext. 250

TECHNICAL EDITOR Brinn Serbanic, CPA, CFP® Brinn_Serbanic@baylor.edu

COLUMN EDITORS Jason B. Freeman, CPA, JD Mano Mahadeva, CPA, MBA C. William (Bill) Thomas, CPA, Ph.D.

WEB EDITOR Wayne Hardin whardin@tscpa.net

CONTRIBUTORS Ali Allie; Melinda Bentley; Rosa Castillo; Jerry Cross, CPA; Anne Davis, ABC; Chrissy Jones, AICPA; Rhonda Ledbetter; Craig Nauta; Judy Neathery; Catherine Raffetto; Patty Wyatt

DIRECTOR, MARKETING & COMMUNICATIONS Janet Overton CLASSIFIED DeLynn Deakins Texas Society of CPAs 14651 Dallas Parkway, Suite 700 Dallas, Texas 75254-7408 972-687-8550 ddeakins@tscpa.net.

Editorial Board Arthur Agulnek, CPA-Dallas; Aaron Borden, CPA-Dallas; Jacob Briggs, CPA-Fort Worth; Kristan Allen Crapps, CPA-Houston; James Danford, CPA-Fort Worth; Melissa Frazier, CPA-Houston; Jason Freeman, CPA-Dallas; Baria Jaroudi, CPA-Houston; Brian Johnson, CPA-Fort Worth; Tony Katz, CPA-Dallas; Mano Mahadeva, CPA-Dallas; Alyssa Martin; CPA-Dallas; Marshall Pitman, CPA-San Antonio; Kamala Raghavan, CPA-Houston; Barbara Scofield, CPA-Permian Basin; C. William Thomas, CPA-Central Texas

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

cover story 32 The Consumer Financial Protection Bureau: A New Regulatory Dynamic society features 12 Spotlight on CPAs Reaching New Heights 16 Capitol Interest Foreshadowing Future Legislative Sessions technical articles 26 Practical Compliance with the ACA 36 Build an Effective Working Relationship with the External Auditor 37 Three Tips for Practicing Mindfulness in a Multitasking Workplace 38 Treatment Without Prevention is Unsustainable columns 4 Chairman’s and Executive Director’s Message An Update on the Private Company Council 6

Tax Topics The New Highway Trust Fund Bill Paves the Way for Major Tax Compliance and Return Due Date Changes

9 Business Perspectives De-risking Pensions 10 Accounting & Auditing New Lease Standard is Almost Ready 11 Tech Issues Data Analytics Locks in Relevance 14 Chapters CPA Day of Service Casts Wide Net departments 18 Take Note 49 TSCPA CPE Course Calendar 50 Classifieds

© 2015, Texas Society of CPAs. The opinions expressed herein are those of the authors and are not necessarily those of the Texas Society of CPAs. Today’s CPA (ISSN 00889-4337) is published bimonthly by the Texas Society of Certified Public Accountants; 14651 Dallas Parkway, Suite 700; Dallas, TX 75254-7408. Member subscription rate is $3 per year (included in membership dues); nonmember subscription rate is $28 per year. Single issue rate is $5. Periodical POSTAGE PAID at Dallas, TX and additional mailing offices. POSTMASTER: Send address changes to: Today’s CPA; 14651 Dallas Parkway, Suite 700; Dallas, TX 75254-7408.

CHAIRMAN’S AND EXECUTIVE DIRECTOR’S MESSAGE

An Update on the Private Company Council

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By Allyson Baumeister, CPA | 2015-2016 TSCPA Chairman and John Sharbaugh, CAE | TSCPA Executive Director/CEO

n 2012, the Financial Accounting Foundation established the Private Company Council (PCC). The group’s purpose is to improve the process of setting accounting standards for private companies. The PCC has two principal responsibilities: 1) determine alternatives to existing nongovernmental U.S. generally accepted accounting principles (GAAP) to address the needs of private company financial statement users; 2) to serve as the primary advisory body to the Financial Accounting Standards Board (FASB) on the appropriate treatment for private companies for items under active consideration on FASB’s technical agenda.

How do the PCC and FASB work together? The PCC and FASB mutually agree on a set of criteria to decide whether and when alternatives within U.S. GAAP are warranted for private companies.

Based on those criteria, the PCC reviews and proposes alternatives within GAAP to address the needs of private company financial statement users. The PCC submits proposed GAAP modifications or exceptions to FASB for a decision on endorsement. If endorsed by a simple majority of FASB members, the proposed modifications are exposed for public comment.

Following receipt of public comment, the PCC considers changes and takes a final vote. If approved, the final decision is submitted to FASB for a decision on endorsement. If FASB does not endorse, the FASB chairman provides a written document to the PCC chair describing the reason(s) for the non-endorsement and possible changes to consider that could result in a decision by FASB to endorse.

TSCPA member Billy M. Atkinson, CPA-Houston, was named as the first chairman of the PCC. He had served as chairman of the National Association of State Boards of Accountancy and presiding officer of the Texas State Board of Public Accountancy, and he had retired from practice after working a number of years at PricewaterhouseCoopers.

Atkinson and the other PCC members moved rather quickly to make some sensible exceptions to GAAP for private companies.

Under his leadership, the PCC has released: • Issue No. 13-01A, “Accounting for Identifiable Intangible Assets in a Business Combination,” • Issue No. 13-02, “Applying Variable Interest Entity Guidance to Common Control Leasing Arrangements,” • Issue No. 13-01B, “Accounting for Goodwill,” • Issue No. 13-03A, “Accounting for Certain Receive-Variable, 4

Private Company Council (PCC) meeting The next PCC meeting will be held on Friday, Dec. 4, 2015. Those interested in observing the meeting in person must reserve a seat in advance. The meetings are videowebcast live at www.fasb.org.

Pay-Fixed Interest Rate Swaps – Simplified Hedge Accounting Approach,” • Issue No. 13-03B, “Accounting for Certain Receive-Variable, PayFixed Interest Rate Swaps – Combined Instruments Approach,” • “Private Company Decision-Making Framework: A Guide for Evaluating Financial Accounting and Reporting for Private Companies,” which is used to assist the PCC and FASB in determining whether and in what circumstances to provide alternative recognition, measurement, disclosure, display, effective date, and transition guidance for private companies reporting under U.S. GAAP. Current agenda items include Issue No. 14-01, “Definition of a Public Business Entity (Phase II)” and Issue No. 15-01, “Effective Date and Transition Guidance.”

In April of this year, Atkinson announced that he would not seek a second term as head of the organization. His term will conclude on Dec. 31, 2015. The PCC named Candace E. Wright, CPA, CFF, as the new chair. She serves as a director with Postlethwaite & Netterville, a Louisiana-based accounting and business advisory firm.

For those within the accounting profession, the PCC’s work has provided recognition that private companies and their financial statement users often have different, less complicated needs than public companies. Within a few short years, we have seen tangible changes occur in this area. TSCPA would like to recognize Atkinson and the PCC for the progress that has been made for private companies and their CPAs, and we look forward to the continued work of the new chair and the PCC. n

Allyson Baumeister, CPA,

can be contacted at allyson.baumeister@CLAconnect.com.

John Sharbaugh

can be contacted at jsharbaugh@tscpa.net.

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TAX TOPICS

The New Highway Trust Fund Bill Paves the Way for Major Tax Compliance and Return Due Date Changes

O

By Jason B. Freeman, JD, CPA | Column Editor

n July 31, 2015, with funding for the federal Highway Trust Fund set to run out, the president signed into law the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (H.R. 3236). The act authorized temporary, stop-gap funding for the federal Highway Trust Fund, a trust that funds road and transit infrastructure projects. It also contained a number of important tax compliance and filing deadline changes.

The Highway Trust Fund, first established under the Eisenhower administration to build the interstate highway system, is primarily funded through a dedicated excise tax on gas and diesel fuel. The rough principle behind this funding mechanism is that those who use the highway system pay for it. Sensible enough. The fund, however, has faced repeated solvency challenges, and Congress has been forced to subsidize these earmarked tax revenues time and time again. By most estimates, the fund is going broke, and the government is looking for creative solutions to offset costs and keep it afloat – especially if those solutions avoid a direct tax hike.

Enter the act’s new tax compliance and filing deadline changes.

The changes (largely designed to create a more streamlined and logical flow of tax information) are projected to raise an estimated $5 billion over the next decade to help defray funding costs. The act modifies the filing deadline for several tax return forms and the FinCEN Form 114, Report of Foreign Bank and Financial Accounts.

The newly revised due dates are generally effective with respect to returns for tax years beginning after Dec. 31, 2015 – in other words, they will generally affect the 2017 filing season. The act also includes several other important changes, including requiring additional information reporting on mortgage information statements, statutory changes that override the Supreme Court’s statute of limitations decision in Home Concrete, and provisions to coordinate basis reporting between estates and beneficiaries.

Tax Return Due Date Changes The act changes the due date for several important returns, including partnership and corporate returns. For calendar year partnerships, the Form 1065 due date is moved up a month: from April 15 to March 15. Likewise, the Table 1: Summary of Key Provisions return due date for fiscal year partnerships is also moved up a month. These changes bring the due Deadline Under Deadline Under Extended Deadline date for partnership returns in line with the due Tax Return Old Law New Act Under New Act date for S-corporation returns, and are designed to Form 1065 15-Apr 15-Mar Sept. 15 put K-1s from flow-through entities into the hands of partners earlier in the tax-filing season. The idea Form 1120 15-Mar 15-Apr Sept. 15 (Before Jan. 1, 2026) is to make the information available early enough to allow taxpayers to report it accurately on their Oct. 15 (After Dec. 31, 2025) tax returns and thereby cut down on the need for Form 1120-S 15-Mar 15-Mar Sept. 15 extensions and amendments, as well as to alleviate the growing problem of workload compression.

Form 1041 15-Apr 15-Apr Sept. 30 For calendar year C corporations, the act moves Form 3520 15-Apr 15-Apr Oct. 15 the filing deadline for Form 1120 back a month: from March 15 to April 15. Likewise, the return Form 3520-A 15-Mar 15-Mar Sept. 15 due date for fiscal-year corporations is also moved Form 5500 31-Jul 31-Jul Nov. 15 back a month. There is a special rule, however, for C corporations with fiscal years ending on June Form 990 15-May 15-May Nov. 15 30. For such corporations, the filing deadline will FinCEN 30-Jun 15-Apr Oct. 15 remain September 15 until tax years that begin after Report 114 Dec. 31, 2025.

The act contains several other notable changes, Note: Applicable to tax returns for tax years beginning after Dec. 31, 2015. Special rules not the least of which modifies the due date for apply to C corporations with a June 30 fiscal year end. Unless otherwise stated, dates assume a calendar-year taxpayer. filing FinCEN Report 114, Report of Foreign Bank

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Today’sCPA

and Financial Accounts. Because the FinCEN Report 114, also known as an FBAR, is a Title 31 Bank Secrecy Act filing obligation (not a Title 26 tax filing obligation), its filing deadline has not historically been tied to the Form 1040 filing deadline, even though the information required to be reported on the FBAR overlaps significantly with information required to be reported on certain tax forms filed with the Form 1040. The act changes the due date for FinCEN Report 114 from June 30 to April 15; provides for a sixmonth extension; and contains a new, limited first-filer penalty-relief provision. These changes bring the deadline for filing the report in line with the deadline for individual tax returns and for many, are a welcome simplification.

The act also includes an array of other extension rule changes, affecting, for example, exempt organizations and benefit plans, as well as the returns discussed above. The act’s more notable tax return due date changes and extended deadlines are summarized in Table 1.

Congress Overrules Home Concrete The bill also modifies Code Section 6501(e)(1)(B) by providing that an understatement of gross income due to an overstatement of one’s basis in property that is sold constitutes an omission from gross income for purposes of triggering the extended six-year statute of limitations on assessment. Generally, the IRS is only permitted to assess additional tax with respect to a tax return if it does so within three years of the due date of the return or the date it was filed,

Today’sCPA Nov/Dec 2015

BY MOST ESTIMATES, THE FUND IS GOING BROKE, AND THE GOVERNMENT IS LOOKING FOR CREATIVE SOLUTIONS TO OFFSET COSTS AND KEEP IT AFLOAT – ESPECIALLY IF THOSE SOLUTIONS AVOID A DIRECT TAX HIKE.

whichever is later. There are, however, certain limited exceptions to this general rule, including an exception under Section 6501(e) that gives the IRS six years if the taxpayer omits certain amounts or types of gross income from their return.

The IRS has long argued that a taxpayer’s overstatement of basis continued on page 8

7

TAX TOPICS continued from page 7 in sold property is an omission of gross income that can trigger the extended statute of limitations. In 2012, the Supreme Court, in United States v. Home Concrete & Supply, LLC, ruled against the IRS on this point, holding that an overstatement of basis did not trigger the extended six-year statute. The new act, however, legislatively overrides the Home Concrete decision, providing that an overstatement of basis constitutes an omission from gross income that can trigger the six-year limitations period.

New Mortgage Information Reporting Requirements The act amended Code Section 6050H to require new information that will be reported on Form 1098, Mortgage Interest Statement.

The new information includes the amount of outstanding principal on the mortgage, the date of the origination of the mortgage, and the address of the property securing the mortgage. The changes apply to statements required to be issued after Dec. 31, 2016.

Estate Tax Basis Reporting The act amends Code Section 1014 and adds new Code Section 6035 in an effort to coordinate the reporting of a beneficiary’s tax basis in inherited property. The amendments to Section 1014 provide that a taxpayer who inherits certain property from a Jason B. Freeman, JD, CPA

decedent may not treat the property as having a basis that exceeds the value of the property reported for estate tax purposes. Newly added Section 6035 places information-reporting obligations on certain executors, requiring them to provide property valuation information to the IRS and beneficiaries. The new obligations apply to property with respect to which an estate tax return is filed after July 31, 2015.

Significant Implications The new changes will have a significant practical impact on CPAs and the tax-preparation process in years to come. They will also likely provide a revenue boost to offset at least some of the cost of temporarily funding the Highway Trust Fund.

However, because the funding provided by the act is only a short-term fix, Congress will soon be looking for a long-term solution to stave off the fund’s insolvency challenges. Legislators and policymakers have discussed a number of potential candidates, including, among others, international and corporate tax reform measures. With such significant reform measures up for debate, the recent changes in the act, though significant, may ultimately prove little more than a harbinger of things to come. n

is a tax attorney with Meadows Collier Reed Cousins Crouch & Ungerman in Dallas, Texas and an adjunct professor of law at Southern Methodist University’s Dedman School of Law. He can be reached at jfreeman@meadowscollier.com.

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BUSINESS PERSPECTIVES

De-risking Pensions

H

By Mano Mahadeva, CPA, MBA | Column Editor

ardly a day goes by without the financial press reporting issues related to pension plans. Even though the troubles that plague Social Security receive the most attention, similar problems now threaten other kinds of retirement funds. Some plans suffer from shortfalls, some suffer from demographic changes in the number of retirees and others have had poor returns. Recently, the trustees for Social Security forecast that its reserves will dry up in 20 years, sooner than previously thought.

Private sector and state and local government retirement benefit plans have done no better, because of optimistic plan assumptions and ill-informed consumers. It has become a new world of personal responsibility.

Pension plans have been around since the 1800s and the real growth of these plans is attributable to developments around the period of World War II. High tax rates on corporate profits encouraged companies to take advantage of inexpensive, tax-deductible pension plans. Managers boosted fringe benefit programs by offering liberal pension provisions to offset price and wage control stabilization programs, which were legislated to combat inflation. A third attribute arose due to the social and political environment of the Depression era as a pressing need to provide for economic security for the American people. Labor leaders felt that pensions were required as a supplemental source of retirement income to Social Security payments, as the sole source of income benefits was considered inadequate.

In general, a pension plan is an arrangement by an employer who provides paid benefits to employees after they retire, for services they provided while being employed. The two most common plans are the defined benefit plan and the defined contribution plan. A defined benefit plan defines the benefits the employee will receive at retirement. The benefit formula is based on a combination of the years of service and possibly the employee’s rate of pay at retirement. The employer is responsible for the payment of the defined benefit. Any shortfalls in accumulated assets must be made up by the employer.

In a defined contribution plan, only the employer contribution to the plan is defined. Therefore, the liability to the sponsor is only the contribution made to the plan and not the benefit ultimately received by the participants. This contribution can be based on many factors, but typically relate to employer profits, length of service and employee compensation.

It was easy for employers to make pension promises in the early years. There were only a few lives at stake. It was easier to promise greater pension benefits in the future than pay higher wages at present.

The cost to manage and fund plans was low as the window of liability was far in the future.

Mano Mahadeva, CPA

Today’sCPA Nov/Dec 2015

Today, pension plans and beneficiaries are faced with many challenges, causing major financial implications to both.

Demographic changes, such as better health habits, newer treatments and state of the art technologies, have caused beneficiaries to have longer life expectancies. The number of beneficiaries retiring presently has not been succeeded by the appropriate number of younger future beneficiaries who will shoulder a larger cost burden in the future. Overly optimistic pension plan assumptions, the linking to and over reliance on, broad market performance has added much stress to the financial position, results of operation and cash flows of entities, jeopardizing anticipated payouts to retirees.

To manage this risk, entities have adopted different strategies.

Some have frozen their plans. Others have reduced contributions for new plan entrants. A few have reduced future cost of living adjustments. A handful have reduced their pension obligation by making lump-sum offers and buying annuities for retirees, and many have begun to move from a defined benefit plan toward defined contribution plans.

A move toward a defined contribution plan reduces future promises for the sponsor entity and transfers all investment risk over to the employees. Sponsors have also made a concerted effort to help beneficiaries by doing the following: • auto enroll all employees with an opt-out provision, rather than offer them an opt-in provision; • provide education in the form of seminars and webinars; • offer counsel with retirement advisors; • provide an array of diverse investment options; and • manage investment management fees.

Unfortunately, there are not many viable solutions for those sponsors with shortfalls. Increasing contributions to close the chasm depends on the financial status of the sponsor organization. For states or local municipalities, increasing taxes may not be a political option. For businesses, it relates to earnings expectations and future cash flow. Expecting asset returns to close the gap is a poor assumption. Making a lump-sum offer or annuitizing sums today may be a compromise for both.

The cumulative result may be that some employees face retirement with an income well short of their expectations.

If so, older workers may be unable or unwilling to retire. All employers offering any kind of pension plan will have difficult decisions to make. Large sums are at stake. The sooner the decisions are made, the better. n

is Chief Financial Officer with Solis Health in Addison, Texas. He serves on the Editorial Board for TSCPA. Mahadeva can be reached at mmahadeva@solishealth.com.

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ACCOUNTING & AUDITING

New Lease Standard is Almost Ready

F

By C. William (Bill) Thomas, CPA, Ph.D.

or over 10 years, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have collaborated to improve accounting for leases. The two groups launched the leases project in 2005 based on the widely held opinion that the current way to account for operating leases does not faithfully represent the economic resources or obligations of the entities that utilize them. During the past four years, through several iterations, Today’s CPA has published technical articles on this controversial topic. A new lease standard may soon and finally be forthcoming.

Leasing is a way to gain access to, and benefit from, assets without exposing the organization to the risks of actually owning the asset. Leasing has long been a popular activity for all types of entities, enabling them to secure use of all kinds of assets without recognizing the consequences on their balance sheets.

LEASING IS A WAY TO GAIN ACCESS TO, AND BENEFIT FROM, ASSETS WITHOUT EXPOSING THE ORGANIZATION TO THE RISKS OF ACTUALLY OWNING THE ASSET.

In May 2013, FASB released Proposed Accounting Standards Update (ASU), Leases (Topic 842) – A Revision of the 2010 Proposed FASB Accounting Standards Update, Leases (Topic 840). This ASU suggests a new approach for lease accounting requiring organizations to recognize all assets and liabilities resulting from any lease agreement more than one year in length.

Changes to Generally Accepted Accounting Principles (GAAP) Current GAAP requires an organization to apply a classification test to determine how to account for each lease. Leases may be currently classified as either capital leases or operating leases. A capital lease occurs when substantially all rights and obligations of ownership transfer to the lessee from the lessor, using a four-element test. If the lease meets any one of the requirements for a capital lease, the lessee must recognize all assets C. William Thomas, CPA, Ph.D.

10

and liabilities resulting from the lease agreement on the balance sheet. If the lease fails all of the requirements for a capital lease, by default the lease is classified as an operating lease; therefore, the lessee does not recognize any assets or liabilities resulting from the lease agreement in the financial statements. This accounting method has been widely criticized for not faithfully representing the current state of an organization’s economic resources and obligations.

The new standard requires all leases, whether capital or operating, to be recognized on the lessee’s balance sheet if the lease term is for more than one year. This makes the financial statements more complete and increases transparency and understandability with the users of the financial statements. Comparability will also be increased and the users can then compare the financial statements of their organization to other organizations that lease assets.

Basics of the Proposed Standard The proposed leasing standard will require lessees to recognize all assets and liabilities resulting from a lease agreement that is longer than one year. FASB chose a dual approach for lease accounting and will use the same classification system they have in place now.

Capital leases will be now classified as Type A leases. Lessees will have to recognize a right-of-use asset and liability measured at present value of future lease payments. They will also have to recognize the interest on the lease liability separate from the amortization of the asset. Lessors must account for Type A leases in the same way as they currently account for capital leases.

Operating leases will now be classified as Type B leases. Lessees will have to recognize a right-of-use asset and liability measured at present value of future lease payments. They will also have to recognize a single total lease expense, rather than interest and amortization. Lessors will continue to recognize Type B leases in the same way as they currently account for operating leases.

IASB chose to classify all leases as Type A or capital leases.

The Next Steps FASB and IASB are almost finished deliberating the exposure draft of the final standard and will be ready to issue it soon. It is not clear how long the standard will be exposed for comment from the public, but the standard should be ready to be issued by the end of 2015.

The effective date of the new standard will not be any earlier than Jan. 1, 2018. Nonpublic organizations will get an extra year before they would have to adopt the new leasing standard. Organizations that present threeyear comparative financial statements and have a calendar year end will have to adopt the new leasing standard as early as Jan. 1, 2016, which is less than a year away. To read more on this topic, visit fasb.org. n

is the J.E. Bush Professor of Accounting in the Hankamer School of Business at Baylor University in Waco.

Thomas can be reached at Bill_Thomas@baylor.edu.

Today’sCPA

TECH ISSUES

Data Analytics Locks in Relevance

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By Carolyn J. Newman, CPA, CISA, and Liz Clare

s a CPA, you’ve always been the one who can pick the relevant data out of any array of long columns and rows.

These days, however, the amount of data collected is growing exponentially, creating datasets that are so complex and variable that traditional monthly financials no longer cut it. Your clients and employers need focused, dynamic information about where they stand today. The good news is that there is software that can provide the data analytics that lets business owners and managers make crucial operational decisions, armed with timely information about parameters such as operating cash, inventory and cost of goods sold.

Now more than ever, businesses need someone who knows how to extract the insights from their data and explain those insights in clear, non-accounting terms. Perhaps for the first time in history, CPAs are in the position to help drive future innovation rather than react to the past. The key insight is to realize that data analytics software is merely a tool. What clients care about are the accurate and meaningful insights that you are in a position to provide. In a Gartner survey, 82 percent of executives said they had half (or less) of the information they needed to predict their business performance. By adding analytics to your skill set, you can deepen your relevance.

Discover Strategic Value, Not Just Risk Data analytics provides accounting and auditing professionals with the opportunity to support business objectives in ways that are both strategic and outcome-oriented. Where are the inefficiencies? Where is there loss of revenue? Are there places where resources are being wasted?

Using data analytics software such as IDEA, you can provide knowledge for decision-making in real time. Most data is aggregated automatically, but it still must be understood at the human level. The opportunities have never been greater for forward-looking CPAs and firms willing to shed the old role of service provider and embrace the role of trusted business adviser. Using large databases and sophisticated algorithms that are built right into the software, you can go beyond recommendations on controlling costs and help clients and managers analyze how to optimize the bottom line over the long term.

Of the major professions in corporate America, perhaps only the accounting role still retains its hard-won reputation for rock-solid ethics and trustworthy tell-it-like-it-is reporting. CPAs have always been able to answer the question “What do we know today?” Using analytics tools, accounting professionals can now build on the trust by offering powerful intelligence that answers the question “What do we need to know for tomorrow?”

Predict, Don’t Just React Data analytics allows a business to operate within a fact-based culture.

By moving from reporting to analytics, you can provide your clients and employers with data that gives a true picture of sales, costs and profits. The result? More realistic budgets that put money into activities that actually drive revenues and enable better control over operating and sales expenses.

Today’sCPA Nov/Dec 2015

NOW MORE THAN EVER, BUSINESSES NEED SOMEONE WHO KNOWS HOW TO EXTRACT THE INSIGHTS FROM THEIR DATA AND EXPLAIN THOSE INSIGHTS IN CLEAR, NON-ACCOUNTING TERMS.

You can work to establish key performance indicators (KPIs) to align company activities and strategy. Data analytics assists you in discovering meaningful new correlations, patterns and trends, such as what products are selling where and when, enabling your clients and employers to manage head count and spending in the short term, while planning how best to improve processes and invest in new products and markets in the long term.

Tools allow you to create models and forecasts that take the vast array of data now available and make it understandable, useful and actionable. Similarly, you can use them to plan and execute audits and forensics dynamically, looking at relevant measures and steering clear of information overload.

Many people in the accounting profession enjoy working with structured data that fits readily into tables, spreadsheets and financial statements. However, the days of routine internal reporting and compliance work are mostly gone. This creates new opportunities and challenges. Ultimately, as trusted stewards of corporate data, finance and accounting professionals have the opportunity to embrace a new role of facilitating real-time decision making.

When it comes to big data, surveys have shown that executives don’t know which way to turn. According to Tata Consulting Services, 80 percent of executives said data initiatives had improved their decisionmaking. But an IDG Research Services study discovered that only 10 percent of executives thought their information was fresh or timely enough to make a difference to their employees.

As CPAs, we can bring data analytics to bear to benchmark KPIs and manage the flow of data through an organization with wisdom and consistency. It is up to us to take the initiative to master data analytics.

The time is now to add value, embrace a new role as trusted consultants and lock in relevance. Big data is here to stay. The question is – what will be your role? n

Carolyn J. Newman, CPA, CISA

is president of Audimation Services, Inc.

Liz Clare

is a freelance writer.

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SPOTLIGHT ON CPAS

Reaching New Heights Meet Oscar the Osprey, Fresh Inspiration for Kids to Scale Life’s Hurdles

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Artist Jean Rosow and Ed Polansky, CPA. Photos courtesy of Joseph Polansky Photography.

By Anne McDonald Davis

n the Texas CPA community, Ed Polansky is known as one of the venerable founders of Polansky McNutt Perry & Co. in San Antonio, which merged with Texas-based Weaver & Tidwell LLP in 2009, and a past chairman (2004-05) of TSCPA. But … children’s book author?

Polansky laughs: “I think writing creatively uses many of the same skills that are needed to be a good CPA. You learn to step out of one world into another. Most of the CPAs I respect do lots of other things – public service, volunteering for charity, political activity, art, music.

They have all kinds of interests and talents.”

The San Antonio CPA’s focus on children’s literature started when he was in high school and working in the public library. He had a particular curiosity about the tales that first fire our imaginations and even help form our values later in life.

“I didn’t like the way some books were written ‘down’ to children,” Polansky recalls. “The best ones reach several audiences … from the small child being read to … to the adult doing the reading … to the child old enough to read alone.”

Later in life when he became a parent, Polansky was struck by how “we need to re-teach values to every generation,” that our meaningful ideals need to take root in our children.

He muses: “There are bad values being passed on also, but we have a lot of consistency in our shared humanity. Think of the stories we were told as kids … some things we remember all our lives. Stories about good triumphing over evil. Kids need positive views. If you teach them cynicism, you leave them a pretty sad world.”

The specific idea for his new book came during a long-ago Polansky family vacation in Wyoming and Colorado. As they walked across a suspension bridge spanning the Royal Gorge – 1,000 feet above the Arkansas River – one of the boys felt a twinge of acrophobia and exclaimed, “It would really suck if you were a bird and afraid of heights!”

Thus was born the idea for Oscar the Osprey: The Bird Who Was Afraid of Heights.

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For years, the book was one of those projects that many of us think of, and perhaps toy with from time to time, but don’t complete.

Then when Polansky became “of counsel” to the firm (semi-retired), he began redoing the project through AuthorHouse.

“In effect, they help with editing, reviewing and so forth,” he explains. “Now I’m going to do a book launch with Barnes & Noble!”

According to Polansky, the book is “a bit retro” with black-andwhite illustrations in pen and ink by artist Jean Rosow, coincidentally the daughter-in-law of another prominent San Antonio CPA. He hopes to write a couple of sequels featuring Oscar’s jealous brother and the sister who is making up her own mind about the world out there.

He smiles: “It’s fun figuring out what is going to happen – that’s the process. I think about Walt Disney’s concept of ‘plausible impossibility’ and ask myself, ‘Have I done that? Does the story hold up? Was the solution reasonable? Does it ring true for the world I’ve created and the character I’ve created?’”

Polansky’s son was 13 when the story began; he’s in his early 40s now. “They’ve always been part of it,” Polansky smiles. “My wife and I have been married 47 years. I’ve had a lot of help. But I think my family is shocked that I actually did it!

“I guess the moral of my story is that we all have obstacles to overcome, and we can find the way to do that and be successful.

None of us will get everything we want. But you don’t have to be the hero. You can achieve a great deal quietly.” n Oscar the Osprey: The Bird Who Was Afraid of Heights is available through Amazon or Barnes & Noble. Be sure to leave a review. Your fellow CPA wants feedback!

Today’sCPA

CHAPTERS

CPA Day of Service Casts Wide Net

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By Rhonda Ledbetter | TSCPA Chapter Relations Representative

SCPA and its Young CPAs and Emerging Professionals Committee hosted the first statewide CPA Day of Service on Saturday, May 2, 2015. Chapters were where it all happened. Volunteers assisted organizations across Texas by caring for rescue animals, stocking food pantries, tutoring at afterschool programs, cleaning up their local parks and much more.

The badges worked on were: • Philanthropist (Brownies): Learn how to help people in need.

• Savvy Shopper ( Juniors): Know the difference between needs/wants and wisely save money for both.

• Budgeting (Cadettes): Learn how to keep track of money, save for needs/wants and help others by giving.

Abilene Chapter The Abilene Chapter had a total of 75 volunteers participate in service projects at five different locations. At Habitat for Humanity, the morning was spent painting the interior of a house nearing completion. Participants at Global Samaritan Resources worked to sort and prepare medical supplies for shipment to humanitarian aid and disaster relief projects. At Disability Resources Inc., volunteers spent the morning interacting with developmentally disabled adults. Several worked at Eternal Threads, sorting and organizing the handmade products sold to help provide sustainable livelihoods for women and children in 15 countries.

Volunteers worked with the Abilene Cultural Affairs Council to prepare for their upcoming Children’s Art and Literacy Festival.

Central Texas Chapter

The Central Texas Chapter had a team of 17 members who volunteered with Habitat for Humanity. Volunteers cleared and moved siding from the front to the back of the house, painted siding and trim, marked the studs on the outside of the home for siding placement, put in the ledger boards to support the siding and installed siding. The home the chapter worked on should be completed in the autumn.

Corpus Christi Chapter

Austin Chapter

Austin Chapter members volunteered to help the Girl Scouts of Central Texas receive financial literacy badges as part of TSCPA’s statewide Day of Service.

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The Corpus Christi Chapter had 25 members and local accounting students sorting at the Food Bank of Corpus Christi during an extended morning. Participants enjoyed a networking lunch at a local restaurant after the event. Most of the volunteers were students from Texas A&M-Corpus Christi’s student accounting society.

Today’sCPA

Fort Worth Chapter

Fort Worth CPAs served as the exclusive course and registration crew for the Mayfest Run, a USATF certified 10K or 5K, and 1K fun run, through Trinity Park along the banks of the river. One team worked to check in runners while others formed water station teams and race route direction staff. Another team was deployed at the course finish line to prepare refreshments and the awards ceremony for race participants.

Houston Chapter

San Antonio Chapter

A total of 40 CPAs, candidates and student members were at two locations to serve those who are “food insecure.” Most worked in the warehouse and garden at the San Antonio Food Bank, sorting more than 10,000 pounds of donated food and pulling five rows of carrots, four rows of potatoes and eight bins of onions. Six volunteers worked the 3 to 7 p.m. shift at Haven for Hope, prepping and serving 313 evening meals and then cleaning up after.

Southeast Texas Chapter The Southeast Texas Chapter volunteered with the organization Some Other Place. Thirteen volunteers served a plated, hot meal for the needy on May 2 from 8 a.m. until 1 p.m. Some Other Place was founded to meet the unfulfilled emergency needs of the poor and hurting residents of the Beaumont community. When no one could help, they were told they had to go to some other place ... thus, the name. It allows people to have somewhere to go when all else fails.

The Houston CPA Society organized three volunteer activities for the CPA Day of Service. Sixty-eight people came out to volunteer at the Houston Food Bank, the Houston Public Library and Memorial Park.

Volunteers at the Food Bank sorted food while others were “auditing” the packaging process and sealing boxes for delivery.

Memorial Park volunteers dug up weeds and pruned back overgrowth along jogging paths to provide a safer environment for anyone utilizing the area. The Houston Public Library has a warehouse where libraries send out-of-date books and publications. Volunteers sorted these books into recycle bins and bins labeled according to a category – history, biographies, travel, antiques, cookbooks, children’s books, etc. – for the library’s public sale of useable publications.

Victoria Chapter

Permian Basin Chapter The Permian Basin Chapter adopted a lot and conducted their first clean-up on May 2.

The chapter’s efforts helped to Keep Midland Beautiful!

The Victoria Chapter assisted the Food Bank of the Golden Crescent located in Victoria, which serves an 11-county area.

Members had a food drive and delivered 297 pounds of canned and dry goods for the Food Bank. Additionally, on May 2, the chapter had 12 members volunteer to package rice into two-pound packages and palletize them. A total of 2,400 pounds of rice was made ready for distribution.

Thank you to everyone who volunteered as an individual, with your firm or company, or with your TSCPA chapter. n

Today’sCPA Nov/Dec 2015

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CAPITOL INTEREST

Foreshadowing Future Legislative Sessions

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By Bob Owen, CPA | TSCPA Managing Director, Governmental Affairs

veryone knows the Texas Legislature only meets in oddnumbered years, so 2016 should be the interim when legislators get re-elected and study all the important issues they will deliberate in 2017 – unless the governor calls a special session. Gov. Greg Abbott was very disappointed in the Legislature’s failure to address meaningful political ethics (an oxymoron?) reform during the 2015 session and he thought about calling a special session to make clear his displeasure. I suspect he thought about it for about two seconds and then decided to pass.

While the governor can call all the special sessions he wants, he can’t make the legislators pass a single bill. Their stubborn reluctance to seriously address political ethics in the regular session tells me that Abbott can continue to use the topic as political fodder, but there’s no sense wasting the taxpayers’ money for a special session on such an issue.

GOV. GREG ABBOTT WAS VERY DISAPPOINTED IN THE LEGISLATURE’S FAILURE TO ADDRESS MEANINGFUL POLITICAL ETHICS (AN OXYMORON?) REFORM DURING THE 2015 SESSION AND HE THOUGHT ABOUT CALLING A SPECIAL SESSION TO MAKE CLEAR HIS DISPLEASURE. I SUSPECT HE THOUGHT ABOUT IT FOR ABOUT TWO SECONDS AND THEN DECIDED TO PASS.

School Finance Lawsuit About the only thing on the horizon that could lead to a special session in 2016 is the school finance lawsuit currently pending before the Texas Supreme Court. The Texas Supreme Court justices heard oral arguments on the case on Sept. 1, 2015. The suit was originally filed Oct. 11, 2011, by numerous Texas school districts with others joining in the chorus, but it was not until Aug. 8, 2014, that an Austin district court issued a formal ruling declaring the public education financing system unconstitutional.

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It’s anticipated that the Supreme Court will rule sometime during the first quarter of 2016. If the court rules the system unconstitutional (which they have done five or six times before), they will likely issue an injunction demanding that the Legislature fix the system by a certain date. That date would most likely be June of 2016 or 2017.

The earlier date would require the governor to call a 2016 special session. A June 2017 deadline might allow the Legislature to try to craft a fix during the 2017 regular session.

Despite the history of rulings against the state, some believe this time will be different. Both Abbott and the current House Education Committee Chairman, Rep. Jimmie Don Aycock (R-Killeen), have speculated that the case will be sent back to the district court for further consideration. How could that be? First, there have been two legislative sessions since the lawsuit was filed, including the 2015 session that occurred after the district court ruling. Indeed, the Texas Attorney General (AG) argued as much. The question for the Supreme Court: Was funding changed enough to require additional court proceedings – or not? The AG also argued that the relief sought by plaintiffs, an injunction prohibiting the state from sending money to school districts, would do more harm than good to those districts.

This case is also substantially more complicated than past cases, with more plaintiffs and more issues under deliberation. At the risk of oversimplification and with assistance from information supplied by the Texas Taxpayers and Research Association, here are the plaintiffs’ arguments: • $6.5 billion more funding than current levels is needed to provide the constitutionally guaranteed “general diffusion of knowledge.”

That’s a lot of money to the state of Texas.

• There is a funding gap between what property poor vs. property wealthy school districts can raise for public schools of $3,426 per student. This is an increase from the $600 gap that existed after previous court-mandated revisions to the system.

• Because so many school districts are at the legislatively mandated school property tax rate cap that requires an election to raise rates higher, these districts do not have “meaningful discretion” (a constitutionally important term) over their tax rates, because it is politically impossible for them to hold a successful tax ratification.

• The system is “qualitatively inefficient” (efficiency is evidently required by the constitution) because of waste in the system. The Cost of Education Index has not been revised in over 20 years.

• Charter schools should receive funding from the state for facilities.

The AG had an answer to each claim: • Whether the education system is adequately funded should be based on educational outcomes, not dollars spent.

• The per-student funding gap measure is outdated and should be recalculated based on current circumstances.

• The districts have not tried to hold rate increase elections, so the claim that it is impossible is without merit.

Today’sCPA

• Just because the Cost of Education Index has not been updated does not mean the entire system is inefficient.

• Charter schools voluntarily enter into a contract with the state, which does not include funds for facilities and should not be allowed to sue the state for complying with terms of the contract.

Interim Charges With or without a special session, legislators work during the interim to get ready for the next session. The lieutenant governor and the speaker of the House issue interim charges to the Senate and House committees respectively, outlining what they should be doing with all their spare time. These interim charges are often a foreshadowing of important issues that will be debated during the next session.

Lt. Gov. Dan Patrick has issued interim charges for Senate committees, but at press time we were still waiting on Speaker Joe Straus to publish the House committee charges. If Patrick’s directions are any indication, we can expect to see another session dedicated to conservative principles and issues.

Conservative principles promoted by the Senate were more or less dominant during the 2015 session. The 2015 Senate was the most conservative Senate in many sessions and that doesn’t mean past Senate’s were liberal by any measure. With some senators not standing for reelection, it’s a good bet that the 2017 Senate will be even more conservative.

Patrick’s charges are very comprehensive, touching on almost every aspect of Texas governance and Texan’s daily endeavors. The charges begin with education, with the first two asking for study of school choice (the code word for private school vouchers) and charter schools.

Patrick has campaigned in support of these two issues, but proponents were unsuccessful in passing any meaningful legislation in 2015.

Perhaps in preparation for what might come from the school district lawsuit currently before the Texas Supreme Court, other interim charges include addressing teacher preparation, teacher shortages, public school efficiency and productivity, and lowperforming schools.

Another Education Committee charge asks for monitoring of Abbott’s pre-kindergarten program that passed last session. A number of Patrick’s supporters were opposed to Abbot’s proposals and he had to personally intervene with Patrick to get the bill out of the Senate.

Some of the charges might be considered meddlin’ by local governments and school districts. You might recall that during the last session, legislators passed a bill prohibiting local governments from restricting oil and gas drilling within their borders saying that oil and gas regulation was strictly a state jurisdiction. Patrick wants the Intergovernmental Affairs Committee to look at annexation, local ordinance integrity and debt transparency in the voting booth. He also asked the State Affairs Committee to address religious liberty, with specific instructions to ensure that local ordinances do not force individuals, organizations or businesses to violate their sincerely held religious beliefs. State Affairs is also to study property owners’ protections related to local governments’ use of eminent domain and to monitor implementation of open and campus carry legislation.

In a nod to Abbott’s concerns about ethics, Patrick charged State Affairs to review current ethics laws governing public officials Today’sCPA Nov/Dec 2015

and employees, and recommend changes “to inspire the public’s confidence in a transparent and ethically principled government.”

Last session, the Senate worked hard at watering down Abbott’s proposals before finally passing a meaningful reform bill late in the session that died in the House. It remains to be seen if this is lip service or will result in serious ethics reform legislation.

In another issue pushed by conservatives, State Affairs was asked to examine the practice of using public funds for the payment and processing of union dues and to make recommendations on whether Texas should end this practice. To be clear, no state funds are used to pay union dues, but the law does allow state employees to ask for payroll withholding of union dues.

State Affairs was also asked to “examine the need to adjust Texas judicial salaries to attract, maintain and support a qualified judiciary.”

Judicial salaries are the basis for establishing the pension of retired legislators. To avoid skeptics’ claim that this is just a veiled way to increase their own future pensions, the charge includes studying whether Texas should delink legislators’ pension calculations from district judge’s salaries. Cynics will still be wary!

The Health and Human Services Committee (HHSC) is charged with “protecting the unborn,” specifically to make recommendations on the use of fetal tissue provided for research purposes and to examine the cause of action known as “wrongful birth.” This committee is also charged with studying a number of issues related to the “protection of children,” including child abuse and neglect, care of foster children and adoptions. Senior adults will get some attention, as well, under the title “Healthy Aging,” including improving oversight in longterm care settings.

Proposed budget cuts in certain Medicaid provider reimbursements have been in the news lately and HHSC is charged with looking at Medicaid, including monitoring initiatives to reduce Medicaid fraud, waste, abuse and other cost-containment strategies (such as cuts in Medicaid provider reimbursements). This committee is also charged with a review of the refugee resettlement program and its impact on Texas-provided health and human services, and examining the authority of the state to reduce its burden under the program.

The Transportation Committee has a long list of charges, but none include finding more revenue to build and maintain roads. Perhaps they believe that the passage of the constitutional amendment dedicating about $2 billion of general revenue to roads is enough.

They are charged with monitoring legislation designed to eliminate toll roads and removing eminent domain authority from private toll corporations. They are also charged with studying the demand placed on the state’s ports, roadways and railways resulting from the Panama Canal expansion.

Natural Resources and Economic Development is charged with studying the impact of federal EPA regulations, evaluating the effectiveness of economic development programs and making recommendations on solving oil field theft problems in Texas.

Those are the highlights of Patrick’s interim charges. You can read them all at Patrick’s website, https://www.ltgov.state.tx.us/. n

Bob Owen, CPA,

is TSCPA’s managing director of governmental affairs. Contact him at bowen@tscpa.net.

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TAKE NOTE

Celebrating TSCPA’s Centennial Anniversary

A

s we observe the centennial anniversary of TSCPA, we invite members to help us celebrate as we revisit our history and look forward to our next century.

Looking Back 100 Years: Oct. 27, 1915

In the early days of establishing a protected professional identity for CPAs in the state, the Texas State Society of Public Accountants was formed. Daniel Harvey Kernaghan was named president in 1913. Two years later, the Texas State Society of Public Accountants became the Texas Society of Certified Public Accountants (TSCPA) on Oct. 27, 1915. There were 16 accountants who gathered in Fort Worth and organized TSCPA, and Kernaghan served as the inaugural president.

The preamble to the TSCPA constitution stated that the Society existed “for the purpose of maintaining and elevating the standard of proficiency, integrity and character, and promoting the interests of certified public accountants, and cultivating professional cooperation and social intercourse among its members.”

At the end of the 1920s, about 80 members had joined TSCPA. By the 1940s, prestigious national accounting firms had begun to establish offices in Texas, raising the profession’s public profile. It was also during this time that there was a rise of local chapters of TSCPA. The chapters are the lifeline between the state Society and the massive geography of Texas. Today, we’re an organization with some 27,000 members and there are 20 small, medium and large TSCPA chapters across the state.

Anniversary Plans and Activities In celebration of the Society’s centennial anniversary, TSCPA’s Young CPAs and Emerging Professionals Committee hosted a free CPE conference in Fort Worth on Oct. 29, 2015. The conference was open to all TSCPA CPA members. Session topics included The Affordable Care Act, Net Investment Income Tax, economic trends, cyber security, emerging issues in the accounting profession and more. A reception was then held at the Reata Restaurant in Fort Worth following the conference.

TSCPA has created a special section of the website that includes details about scheduled events, profiles of those who shaped our history

and a list of centennial celebration sponsors. There is also a link to order your own copy of TSCPA’s newest history book, which highlights the significant milestones of the organization and the accounting profession in the state. In addition, show your TSCPA pride and help celebrate our centennial by purchasing TSCPA logo or 100-year anniversary logo gear from our online store.

Go to TSCPA’s website at tscpa.org to learn more.

Texarkana Chapter Celebrates TSCPA’s 100th Year

Texarkana Chapter officers Kevin Barnhart, Cindy Young, Nikki Laing and Carol Wilder Many of the TSCPA chapters are commemorating the Society’s centennial anniversary. The Texarkana Chapter celebrated at their August meeting. Be sure to check in with your chapter to find out more about the activities that may be planned in your local area. n

Submit an Article to Today’s CPA Magazine Would you like to see your name in print? The editors of Today’s CPA are seeking article submissions for the magazine. Today’s CPA is a peerreviewed publication with an editorial board consisting of highly respected CPA practitioners.

The publication features articles and columns that focus on issues, trends and developments affecting CPAs in all facets of business. If you would like to submit an article for consideration or to learn more, please contact managing editor DeLynn Deakins at ddeakins@tscpa.net or technical editor Brinn Serbanic at Brinn_Serbanic@baylor.edu. n

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Today’sCPA

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TAKE NOTE 2015 Outstanding Educator Award Recipients Recognized TSCPA presented four top Texas accounting professors with the organization’s 2015 Outstanding Accounting Educator Award. The awards recognize accounting educators in Texas who have demonstrated teaching excellence and have distinguished themselves through active service to the profession. At a ceremony held during the TSCPA Accounting Education Conference, the winners each received a plaque for their office provided by the TSCPA Accounting Education Foundation.

Congratulations to the recipients: • Regina Lanett Brown – Eastfield College (community college) • Dr. Mary Fischer – The University of Texas at Tyler (small four-year college/university) • Marie T. Kelly, CPA – Stephen F. Austin State University (medium fouryear college/university) • Kathy Zolton, CPA – The University of Texas at Dallas (large four-year college/university For more information about the Outstanding Accounting Educator Award, please go to TSCPA’s website at tscpa.org. Click on Students, then Educators and scroll down and select Outstanding Accounting Educator Award. n

Stand Out With the CGMA Designation AICPA and the Chartered Institute of Management Accountants (CIMA) created the Chartered Global Management Accountant (CGMA) designation for those who work in management accounting roles. The CGMA elevates the profession of management accounting worldwide and is a respected complement to your CPA license.

The designation: • Recognizes your experience and skills globally; • Showcases your value around the world; • Connects you to a community of like-minded peers; and • Gives you the tools you need to succeed and can give you a competitive edge, with tools, reports, research and webinars.

To learn more about the CGMA, its benefits and the requirements to become a designation holder, visit the website at cgma.org. n

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TSCPA’s Member Recruitment Campaign Since its creation in 1915, TSCPA has been a resilient organization.

Over the years, CPAs have united in TSCPA to protect the prestigious identity now enjoyed, but the support of new members can make the organization grow even bigger and better.

Encourage your non-member colleagues to join you in celebrating our anniversary and keeping TSCPA strong for our next century of growth. CPAs who have never been members of TSCPA can join with the introductory dues rate of $119 for state and chapter dues through May 31, 2016. They can use this link to become members: http://bit.ly/joinTSCPA. Send them the link today.

Succession Planning Resource for TSCPA Members TSCPA offers members resources that are focused on firm management and practice management issues. The Practice Management Institute was developed in partnership with the Succession Institute, LLC. Members can access free material and content on succession planning. There are also CPE self-study course offerings available at a discounted rate for those who would like to receive CPE credit. To learn more and utilize this members-only resource, please go to the CPE section of the TSCPA website at tscpa.org, scroll down and select Practice Management under Tools and Information.

Students Win Tuition/Book Reimbursements In a random drawing of 2015-16 student members majoring in accounting, four student members recently won $250 tuition/book reimbursements provided by the Accounting Education Foundation of TSCPA, Inc. TSCPA congratulates these four students: • Ryan S. Knight, Dallas Chapter, University of North Texas • Greg Argueta, Dallas Chapter, University of Texas at Dallas • Fan L. Ashley, Houston Chapter, University of Houston – Clear Lake • Jay-Conor Kruczkowski, San Antonio Chapter, Schreiner University

Today’sCPA

Notice of Midyear Board of Directors Meeting January 29-30, 2016 Meeting: El Paso Convention and Performance Center Lodging: DoubleTree El Paso

The Midyear Board of Directors Meeting will be held Friday and Saturday, Jan. 29-30, 2016.

Meetings will be held at the El Paso Convention Center and Performing Arts Center, which is walking distance from the DoubleTree Hotel.

hotel is ideally situated in the heart of downtown, with access to area attractions, businesses, Fort Bliss, UTEP and much more.

El Paso Convention Center One Civic Center Plaza El Paso, TX 79901

Phone: 915-532-8733; TollFree: 1-800-222-TREE

The DoubleTree by Hilton El Paso Downtown is located just 10 minutes from the airport. The

DoubleTree by Hilton El Paso Downtown 600 N. El Paso Street El Paso, Texas 79901

Rate: $119 single or double plus taxes Cutoff Date: Jan. 4, 2016 n

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Today’sCPA Nov/Dec 2015

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TAKE NOTE TSCPA Seeks Faculty and Student Campus Reps for 2015-2016 TSCPA is looking for students and faculty members to represent the Society on campuses across the state. In exchange for serving as a campus rep, students will receive free membership for the year, recognition in relevant TSCPA communications and more. If you or someone you know is interested in becoming TSCPA’s link to your college or university, please contact Catherine Raffetto at craffetto@tscpa.net for more information.

Accountants Confidential Assistance Network The Accountants Confidential Assistance Network (ACAN) supports Texas CPAs, CPA candidates and/ or accounting students who are addressing alcohol, chemical dependency and/or mental health issues.

ACAN provides a confidential phone line at 1-866-766-ACAN to help people who need assistance or you can also contact TSCPA’s Craig Nauta at cnauta@tscpa.net. n ACAN groups and Friends of Bill Wilson meet regularly at the following times and locations.

Need an Answer?

Ask a Member!

TSCPA’s Ask a Member program is an important benefit of your TSCPA membership. This easy-to-use resource allows you to access the knowledge of your fellow 27,000-member Texas CPA network. Whether you are assisting a client outside your area of expertise, are considering a new venture, or have a management accounting issue or concern, Ask a Member volunteers provide quick, informal assistance on an “as-needed” basis, via phone or email. Go to the Resource Center on the website at tscpa.org and click on Ask a Member.

Austin Covenant Presbyterian Church 3003 Northland Drive Noon on the third Friday of the month Dallas Saint Michaels and All Angels Church 8011 Douglas Avenue 6:15 p.m. every Monday Houston LCL/ACAN Meeting Wortham Tower Cafeteria

2727 Allen Parkway Monday mornings at 7:30 a.m.

Houston LCL/ACAN Meeting Power House Recovery Center 1713 Runyan Sunday evenings at 5:30 p.m.

San Antonio Eileen Lanagan, P.C. 11950 Starcrest, Ste. 201 210-828-1467 I410 and Broadway 2nd Monday evening at 6 p.m.

Disciplinary Actions As a result of decisions by the Executive Board of the Texas Society of CPAs, the following member had his TSCPA membership: Suspended – • Carlos L. Ancira Jr. of Austin for a period of three years retroactive to May 21, 2015. The suspension is effective Sept. 17, 2015. The action was based on the three-year suspension of Ancira’s license by the Texas State Board of Public Accountancy.

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• Randall A. Stone of Austin for a period of three years retroactive to July 7, 2014. The suspension is effective Sept. 17, 2015. The action was based on the three-year suspension of Stone’s license by the Texas State Board of Public Accountancy in connection with disciplinary action taken by the Public Company Accounting Oversight Board (PCAOB). n

Today’sCPA

TSCPA thanks our sponsors for their generous support this year as we honor and celebrate the Society’s rich 100-year history and our dedicated professional community.

CENTENNIAL SPONSORS Financial Executives International – Texas Chapters Jackson Walker LLP

DIAMOND SPONSORS Goodman Financial Corporation Gray Reed & McGraw P.C. Sanford Baumeister & Frazier LLP Weaver

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TAKE NOTE

Leadership Nominations Results for 2016-17 Positions Terms Commence June 1, 2016 TSCPA’s Nominating Committee recently chose the candidates for 2016-17 leadership positions, directors-at-large and Nominating Committee members. In accordance with TSCPA Bylaws Article IX, the candidates’ election will be conducted through a secure electronic ballot on a TSCPA website area approved by the Executive Board. The electronic ballot will be open to all eligible members to vote. The voting is planned to take place in mid-November through December 2015. TSCPA will send communications to members regarding the electronic voting and will post information about it on the website at tscpa.org.

The following persons were nominated for terms beginning in fiscal year 2016-17 and have consented to serve if elected by the members.

Chairman-elect: Jim Oliver (San Antonio), Chairman in 2017-18 Treasurer-elect: Jerry Spence (Corpus Christi), Treasurer in 2017-18 Secretary: Janelle Jones (Houston), beginning June 2016 and expiring May 2017 Executive Board Members (Three-year term beginning June 2016 and expiring May 2019) Tom DeGeorgio (Houston) Jason Freeman (Dallas)* Director at Large (Three-year term beginning June 2016 and expiring May 2019) Katy Avenson (Austin) Leroy Bolt (Abilene) David Colmenero (Dallas) Travis Garmon (San Angelo)

Tram Le (Fort Worth) Stephen Parker (Houston) Ben Peña (Rio Grande Valley) Priscilla Soto (San Antonio)

Shelly Spinks (Central Texas) Jesse Vick (Permian Basin) Laura Williams (Southeast Texas) Veronda Willis (East Texas)

* Donna Hugly (Dallas) was selected as a one-year replacement director-at-large (2016-17) for Jason Freeman (Dallas) who was selected for a three-year Executive Board position and was serving as a director-at-large through 2017. ** Brad Brown (Southeast Texas) was selected as a replacement director-at-large to fill a one-year remaining term (2016-17) for Phil Davis (Permian Basin), who resigned from the Board of Directors.

Nominating Committee (One-year term beginning June 2016 and expiring May 2017) Charles Clark (San Antonio) Bradley Elgin (Houston) Olivia Espinoza-Riley (Austin) Julia Hayes (Southeast Texas)

Kirby Jackson (Dallas) Amanda Johnson (Fort Worth) Ben Peña (Rio Grande Valley) Shelly Spinks (Central Texas)

Michael Thomas (East Texas) Amy Twardowski (Corpus Christi)

As TSCPA immediate past chairman in 2016-2017, Allyson Baumeister (Fort Worth) will serve automatically as chair of the 2016-2017 Nominating Committee. Ben Peña (Rio Grande Valley) was appointed as vice chair.

AICPA Council The Nominating Committee also recommends that the names of the following Mitch Perry (Dallas) – three-year term expiring 2019 individuals be forwarded to the American Institute of Certified Public Roxie Samaniego (El Paso) – three-year term expiring 2019 Accountants as representatives from Texas to serve on the AICPA Council: Carol Warley (Houston) – three-year term expiring 2019 Allyson Baumeister (Fort Worth) – three-year term expiring 2019 AICPA Council – One-Year Designee (Beginning October 2016 and expiring October 2017) Kathy Kapka (East Texas)

24

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FEATURE

Practical Compliance with the ACA

T

By Brinn Serbanic, CPA, CFP®

he Patient Protection and Affordable Care Act (ACA) of 2010 is one of the most widely talked about pieces of legislation in recent years. The actual implementation of the act has been arduous and ever-changing for tax practitioners who are attempting to comprehend compliance responsibilities. The employer mandate became effective Jan. 1, 2015, and the provisions of the act increase in complexity and expand to encompass more individuals and employers each year until 2018, when the gradual rollout is complete.

In addition to understanding the provisions of the act in theory, tax practitioners must also determine the nuts and bolts of how to actually implement the new law in practice. The following discussion briefly explains each key provision of the ACA, and then further analyzes the action items required of tax practitioners.

Employer Provisions Beginning Jan. 1, 2015, the employer-provided health insurance mandate began to roll out. The first step in determining if an employer 26

is subject to the mandate is determining the number of full-time and full-time equivalent employees (FTEs).

A full-time employee is one who is employed at least 30 hours per week, and the calculation also includes part-time employees, who in combination, add up to 30 hours per week. For example, two part-time employees who each work 15 hours per week would be counted as one full-time equivalent employee.

Alert: The calculation is based on the employer’s workforce in the prior year. Therefore, for 2015, employers will be counting their 2014 employees.

New employers, who were not in existence in 2014, are also subject to the mandate if reasonably expected to employ on average at least 50 employees during the employer’s first year.

If the employer has between one – 49 FTEs, the employer is not subject to the mandate.

If the employer has between 50 – 99 FTEs, then for 2015 only, the employer may be eligible for a one-year delay of the penalty. However, beginning 2016, the employer must offer coverage to at least 95 percent of FTEs and adult dependent children. If the employer does not provide Today’sCPA

Table 1: Type of Coverage

# of Employees

Health Exchange

N/A

Private Carrier

N/A

Fully Insured

Any Number

Fully Insured

50 or More FTEs

Self Insured

Under 50 FTEs

Self Insured

50 or More FTEs

Category of Individual

Form Received

Issuer of Forms

Individual covered through health exchange

1095-A

Health Exchange

Individual covered through private carrier (e.g., sole-proprietor)

1095-B

Insurer

All individuals participating in employer sponsored plan

1095-B

Insurer

1095-C (Parts I & II)

Employer

1095-B

Employer

1095-C (Parts I, II & III)

Employer

All full time employees regardless of whether they were offered or accepted coverage All individuals participating in plan All full time employees regardless of whether they were offered or accepted coverage + any other participating employees or nonemployees

qualifying coverage AND at least one of its employees is certified to receive a premium tax credit from the marketplace, the employer will be required to pay an Employer Shared Responsibility payment.

If the employer has over 100 FTEs, then for 2015 only, the employer must offer coverage to at least 70 percent of FTEs and adult dependent children or face the penalty. Beginning 2016, the coverage must be extended to at least 95 percent of FTEs and dependent children.

Employer Information Reporting Employers who already offer minimum essential coverage and those who decide to play beginning in 2015 must have procedures in place to gather relevant employee data to comply with the information reporting requirements under IRC Sections 6055 and 6056.

Alert: Employers will be required to obtain names and SSNs of not only

all employees under the insurance plan, but also of all dependents on the plan. Currently, most insurers and employers only acquire name and date of birth for dependents, but the final regulations were clear that SSNs or TINs must be included on the information reports. Thus, CPAs should be proactive in advising employers to obtain this information as soon as possible. If an employer waits until reports are due in early 2016, they may not have sufficient time to gather the information from current employees and may face difficulty obtaining information for any employees terminated during 2015.

Practitioners will encounter three new information reports with initial reporting beginning in early 2016: Form 1095-A, Form 1095-B and Form 1095-C. continued on next page

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FEATURE continued from previous page Form 1095-A is issued by the marketplace for taxpayers who obtained marketplace coverage.

Form 1095-B fulfills the requirements of IRC Section 6055, which mandates that health insurance issuers and employers sponsoring selfinsured plans provide the identifying information, type of coverage and periods of coverage for each individual and dependent under the plan.

Alert: Insurers will bear the burden of preparing and filing Form 1095B on behalf of employers who purchase fully insured coverage. Employers with less than 50 full-time employees who operate a self-insured plan will be responsible for submitting Forms 1095-B. Form 1095-C fulfills the requirements of Section 6056, which mandates that employers disclose whether minimum essential coverage is offered to full-time employees and their dependents. Form 1095-C will be used by the IRS to evaluate an employee’s eligibility for a premium tax credit on the marketplace exchange and whether an employer owes a shared responsibility payment.

Alert: Applicable large employers (ALEs) with more than 50 FTEs must comply with Section 6056 and file Forms 1095-C even if they qualify for a one-year delay of the penalty. Fully insured ALEs should complete Parts I and II on Form 1095-C. Self-insured ALEs may use Form 1095-C and complete Parts I, II and III to fulfill their reporting requirements under both Sections 6055 and 6056 in lieu of filing both sets of forms.

The 1095 forms must be filed with the IRS by Feb. 28, 2016 (March 31, if filed electronically). However, individual statements must be furnished to covered employees by Jan. 31, 2016.

Alert: Plan sponsors of an applicable self-insured health plan may also have an additional temporary filing and annual fee requirement, the Patient-Centered Outcomes Research Institute fee (PCORI), due July 31 of each year and reported on Form 720.

Small Business Health Care Tax Credit Apart from the employer mandate for ALEs, CPAs should also be aware of changes for small businesses, including the Small Business Health Care Tax Credit.

For tax years 2010 – 2013, small businesses with less than 25 FTEs who paid an average annual wage of less than $50,000 and paid at least half of employee health insurance premiums were eligible for the Small Business Health Care Tax Credit. CPAs may have claimed this credit for taxpayers on Form 8941.

Alert: Beginning 2014, the Small Business Health Care Tax Credit is only available to small businesses that pay premiums for employees enrolled in a qualified health plan offered through the small business marketplace (SHOP exchange). Thus, premiums paid for private insurance plans will no longer qualify for the credit.

Alert: In addition, the credit is only available for a two consecutive taxyear credit period. Thus, small businesses that are considering moving their private insurance plan to a marketplace plan to qualify for the 50 percent of premiums paid credit should be advised that the credit is only available for a two-year period.

Individual Taxpayer Provisions Under current law, every U.S. taxpayer who does not qualify for a specific exemption is required to have qualifying insurance coverage for each month of the year or otherwise pay the Individual Shared Responsibility payment when filing their federal income tax return.

28

Because most individuals will have employer-provided insurance, the mandate will primarily affect self-employed taxpayers. Insurers will provide Forms 1095 to each individual possessing qualifying coverage to assist the IRS in enforcing the mandate. The 1095s will state whether or not an individual has minimum essential coverage, the dependents covered and the amount of any premium assistance tax credit received.

Some individuals may qualify for an exemption from coverage.

The primary exemptions that CPAs should be aware of include short coverage gap, household income below the return filing threshold and unaffordable coverage.

Short Coverage Gap Exemption The individual responsibility payment is assessed for each month that the taxpayer did not have qualifying coverage. The taxpayer’s applicable Form 1095 will inform the tax practitioner of any gaps in coverage for which a payment on the 1040 must be calculated.

Alert: Taxpayers with a less than three consecutive month coverage gap are exempt from the responsibility payment for the year under the short coverage gap exemption. Individuals receive credit for a full month so long as they had coverage for at least one day in the month.

Household Income Below Filing Threshold Exemption Individuals who are not required to file a tax return are also exempt from the responsibility payment.

Alert: Recall that according to IRS Publication 501, gross income for purposes of determining who must file a return does not include non-taxable Social Security benefits, only the portion of benefits that would be taxable.

Alert: It is critical for CPAs to review filing requirements to avoid generating the responsibility payment for a taxpayer who should not be filing a return. If a taxpayer is not required to file a return, but will file to receive a refund, then Form 8965 must be prepared with the return to claim an exemption for the responsibility payment.

Unaffordable Exemption In addition, taxpayers for whom insurance coverage is deemed unaffordable are exempt from the responsibility payment. Coverage is considered unaffordable if the lowest premium cost available to the taxpayer under an employer plan or the marketplace is greater than 8 percent of the taxpayer’s household income.

Alert: Therefore, if a client is subject to the responsibility payment, tax preparers may need to determine the client’s lowest cost premium available to calculate eligibility for this unaffordability exemption.

Household income is a new term defined in the ACA. Household income is defined as the modified adjusted gross income (MAGI) of the taxpayer and spouse plus the MAGI of all dependents claimed by the taxpayer who are required to file a return.

Alert: Thus, evaluating dependents’ filing requirements will be essential for the calculation of household income.

Dependents must also have qualifying health insurance coverage or the taxpayer who is eligible to claim the dependent will owe the penalty.

Alert: However, the household does not include a person who can be claimed as a dependent if the dependent is properly claimed on another return or can be claimed by a taxpayer with higher priority under the tie-breaker rules. continued on next page Today’sCPA

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FEATURE continued from previous page The individual responsibility payment is calculated by month on the Shared Responsibility Payment worksheet, and the total payment is reported on line 61 of Form 1040.

Alert: Practitioners may note that the responsibility payment can offset a refund; however, the IRS was not given authority by Congress to issues a levy or lien to collect this payment.

Premium Tax Credit The Premium Tax Credit is designed for individuals whose household income is between 100 percent and 400 percent of the federal poverty line (FPL) to assist with the cost of health insurance premiums purchased through the exchange. Household income closest to 100 percent of the FPL receives the greatest credit. Household income exceeding 400 percent of the FPL results in no credit assistance.

As part of the ACA, states were given the opportunity to expand their Medicaid programs. In states that adopted the expansion, if the taxpayer’s household income is less than 100 percent, the taxpayer now qualifies for Medicaid. Texas opted out of the expanded Medicaid program; therefore, individuals in Texas below the FPL may fall into a gap where their income is too high to qualify for Medicaid, but too low to qualify for premium assistance. This gap may particularly impact selfemployed individuals who have net operating losses carrying forward.

Alert: In these cases, practitioners may advise clients to increase AGI just up to 100 percent of the applicable FPL to qualify for the maximum premium tax credit. Roth conversions or taxable retirement withdrawals may be worthwhile solutions to qualify for the tax credit and save thousands of dollars on health insurance with relatively minimal income tax effect. The amount of premium assistance that the taxpayer is eligible for can be estimated through the Health Insurance Marketplace calculator on the Kaiser Family Foundation website.

For example, a single farmer with substantial net operating losses may benefit from making a Roth conversion that fully utilizes his net operating losses and generates approximately $12,000 of taxable income, which is 100 percent of the 2015 federal poverty line for a single individual. The farmer qualifies for the maximum premium tax credit, saving thousands of dollars on health insurance and benefits from a Roth conversion for the minimal income tax cost of less than $200.

The credit can be claimed in one of two ways. The farmer may simply receive a refundable credit upon filing his federal income tax return. Or the farmer may choose to claim advance payments deducted directly against the cost of premiums so that he pays lower out-of-pocket premiums throughout the year. Upon signing up for coverage on the marketplace website, the farmer is prompted to estimate household income for the upcoming year and the marketplace calculates estimated advance payments.

Then on the farmer’s federal income tax return, the advance payments are reconciled with the credit the taxpayer is entitled to according to actual household income. Any additional credit is refunded through the return. However, if the advance payments exceed the calculated credit, the taxpayer may be responsible for repaying some or all of the advance payments.

Brinn Serbanic, CPA, CFP® 30

Practitioners use the information provided on 1095-A by the marketplace to complete Form 8962 and calculate a taxpayer’s premium tax credit.

Alert: Taxpayers claiming the premium assistance credit and/or advance payments must file by April 15; no extensions. If the return is not filed by April 15, the IRS will notify HHS so that future advance payments will be denied.

Alert: Per IRS Notice 2015-09, for 2014 tax returns, the IRS has waived late payment and underpayment of estimated tax penalties if they resulted from repayment of excess advance premium payments. Taxpayers eligible for the waiver should check box A in Part II of Form 2210, complete page one and include the statement: “Received excess advance payment of the premium tax credit.

Alert: Clients may engage practitioners to assist in estimating AGI for the year ahead, a calculation that could substantially impact the amount of advance payments for which the client is eligible during the year. If income is underestimated, the amount of advance payments that the taxpayer may be required to repay is limited based on filing status. Please refer to the instructions for Form 8962 for these maximum repayment amounts. As a result of these repayment limitations, taxpayers have a strong incentive to underestimate their household income, generating a larger advance premium credit upfront, of which only a relatively small portion must be repaid. It is unknown at this time how the IRS or the marketplace will handle taxpayers who consistently underestimate income and receive advance payments that exceed repayment thresholds.

On June 25, 2015, the United States Supreme Court ruled in King v.

Burwell that individuals receiving health insurance premium assistance on the federal marketplace can continue to receive those subsidies.

The issue presented before the courts was whether subsidies should be available only in states that operate their own marketplaces. The language in the act reads that subsidies are available in a marketplace “established by the state.” A narrow interpretation would disallow subsidies in the 34 states that did not set up their own exchanges, but instead relied on the federal marketplace. The Supreme Court ruled that “it is implausible that Congress meant the act to operate in this manner,” and thus premium assistance will continue for individuals currently receiving subsidies through the federal exchange.

Pitfalls and Opportunities The ACA continues to evolve as regulatory agencies attempt to execute and enforce the act’s provisions. The next provision drawn into battle will likely be the Cadillac tax set to take effect in 2018.

The Cadillac tax is to be assessed annually on plans providing benefits exceeding certain individual and family thresholds. The excise tax is estimated to impact one-third of employer-sponsored and public plans, and the number of plans impacted will continue to grow as health care costs rise.

While practitioners have numerous pitfalls to navigate in health care reform, there are also many opportunities presented. As the landscape of the ACA changes on a continuous basis, CPAs who stay informed and are able to efficiently execute the arduous requirements will be an invaluable resource. n

is a tax manager at BKD, LLP in Waco, Texas and can be reached at bserbanic@bkd.com.

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COVER

The Consumer Financial Protection Bureau:

A New Regulatory

Dynamic

I

By James Mihills, CPA, and Rachel Mondragon, CRCM, CAMS

n recent years, certain politicians and media personalities have made reference to the Consumer Financial Protection Bureau (CFPB). As a federal agency, the CFPB is rather young. The legislation creating the bureau was not signed into law until July 2010.

The CFPB, however, exercises considerable authority in regulating businesses that deliver financial products and services to consumers.

Objectives include: • Writing rules, supervising companies and enforcing consumer financial protection laws.

• Promoting financial education.

• Restricting unfair, deceptive or abusive acts or practices.

• Monitoring financial markets for new risks to consumers.

• Enforcing laws that outlaw discrimination and unfair treatment in consumer finance.

The oversight extends to non-bank companies, as well as to financial institutions primarily regulated by longstanding mandates and other federal agencies. The bureau’s mission also emphasizes educating consumers and presenting relevant information in a comprehensible manner. Appreciating the scope and focus of the CFPB begins with understanding the events that led to passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act).

32

The Financial Crisis and Passage of the Dodd-Frank Act From 2007 through 2009, global economies experienced a significant financial crisis. For the United States, this crisis became known as the “Great Recession” and was the most serious economic downturn facing the nation since the Great Depression. This crisis marked a breaking point for the national economy, in which a variety of practices developed that significantly reduced home and investment values, leaving many consumers with insurmountable debt.

In the years leading up to the financial crisis, risky practices developed in the home mortgage industry. Many of these practices displayed a lack of adequate due diligence by lenders and were difficult to understand by homebuyers. Examples of these practices included: • “No doc” loans became common, which allowed individuals to obtain mortgages with little to no documentation or verification of income, assets or employment. Use of interest-only option adjustable rate mortgages (ARMs) and features such as negative amortization were trending upward and often led to individuals owing more than the value of their homes. A mortgage with negative amortization may work against the borrower, as it gives the borrower the option of paying less interest than the interest amount due. The remaining unpaid interest is added back to the principal and essentially increases the borrower’s principal balance instead of lowering it.

Today’sCPA

• Pre-payment penalties became common in the mortgage industry, making it unattractive for consumers to pay off mortgages before scheduled amortization dates.

• “Robo-signing,” or the automatic signing of mortgage documents without review, became common.

Such practices in the mortgage industry presented considerable risk to consumers, as well as to investors backing those mortgages.

Consumer complaints of unfair foreclosures were common.

As the financial crisis continued to unfold, a significant number of American consumers were affected. Some mortgagees faced foreclosure. Others faced mortgage terms that placed considerable strain on family finances. Unemployment increased, resulting in losses of income. Those consumers who had not obtained a risky mortgage, had maintained good credit and retained employment, often faced sharp declines in home values that limited their options for selling a house and relocating or leveraging home equity.

In 2010 after the crisis had largely passed, the U.S. Financial Crisis Inquiry Commission concluded that “the crisis was avoidable and was caused by: (a) widespread failures in financial regulation, including the Federal Reserve’s failure to stem the tide of toxic mortgages; (b) dramatic breakdowns in corporate governance, including too many financial firms acting recklessly and taking on too much risk; (c) an explosive mix of excessive borrowing and risk by households and Wall Street that put the financial system on a collision course with crisis; (d) key policy-makers ill prepared for the crisis, lacking a full understanding of the financial system they oversaw; and (e) systemic breaches in accountability and ethics at all levels.” In other words, the commission concluded that the financial crisis was the result of systemic failures.

In the aftermath of this crisis, Congress sought to prevent history from repeating itself by passing the Dodd-Frank Act, which established the CFPB to serve as a source of regulatory enforcement and advocacy for consumer financial concerns.

A New Type of Agency The CFPB serves as a single advocacy resource for consumer financial concerns and is not bound to a particular product or financial area. In addition to consolidating consumer protection responsibilities from other regulatory agencies, the bureau distinguishes itself from other federal agencies through its communication to consumers. Unlike other regulatory agencies, the bureau delivers messages and guidance written in a more “consumer friendly” manner that is easier for consumers to read and understand.

The CFPB takes steps to be more accessible to consumers and interactive in their efforts to be a strong consumer resource. For example, the bureau’s “Ask CFPB” service allows consumers to find answers online to commonly-asked questions for topics such as reverse mortgages, credit reports and scores, and student loans, while the “Tell Your Story” service enables consumers to share personal finance experiences with online readers.

“Action Letters,” one of the CFPB’s first consumer education efforts, serves as a tool to help consumers respond to debt collectors.

While this service initially received considerable criticism from the Today’sCPA Nov/Dec 2015

debt collection industry for being too broad in scope, this and the other communication efforts illustrate the importance the bureau places on both protecting and educating consumers.

CFPB Authority Effective July 21, 2011, all financial institutions with more than $10 billion in assets face CFPB supervision. Accordingly, this authority covers banks with a regional or national footprint.

Oversight also extends to nonbanks posing risk to consumers.

A June 26, 2013, CFPB newsroom announcement defined such entities as: “companies that offer to provide consumer financial products or services, but do not have a bank, thrift or credit union charter. The bureau must base such reasonable cause determinations on complaints collected by the bureau, or on information from other sources, such as judicial opinions and administrative decisions.”

Therefore, businesses providing financial products or services to consumers must now evaluate how CFPB oversight might apply to them and the risks they face of noncompliance.

As an example, payday lenders and other businesses that emerged in previous decades to provide short-term loans to individuals are subject to CFPB authority. While such businesses provide loans to individuals who may not be able to borrow from traditional banking institutions, the interest rates and payment terms may make it onerous or impossible for consumers to pay off such debts.

Businesses providing such financial products now face CFPB oversight, as do other nonbank entities, regardless of size, including mortgage companies (originators, brokers and servicers providing loan modification or foreclosure relief services) and private education lenders.

Initiatives and Regulatory Implementation Since its inception, the CFPB has enacted significant consumer protection measures, which include the following.

Effective Oct. 3, 2015, the Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA) mortgage disclosures will be combined in what the CFPB described in May 2011 as its “Know Before You Owe” project. This combined act will affect how home purchase transactions and home mortgages are offered by requiring new loan estimate and closing disclosures.

Effective Oct. 28, 2013, Regulation E (subpart B): Remittance Rule for International Money Transfers was amended. International money transfers can be used by individuals living in the United States to send funds to family members in another country and are also used for exchanging funds with citizens stationed at U.S. military bases abroad.

When international money transfers occur, the currency exchange rates at the time determine the monetary sum the recipient receives. Prior to the amendment of Regulation E, financial services organizations were not required to provide related disclosures and many consumers were unaware that currency exchange rates affected the total amount of funds forwarded to the recipient. The amended Regulation E requires three new disclosures clarifying international money transfer details.

As a result of these changes, many community banks determined that the time and costs required to comply with the new requirements 33

COVER continued from previous page exceeded the benefits and they simply stopped offering international money transfer services. Larger financial institutions and nonbank entities offering this service must continue to meet these new requirements.

On Oct. 24, 2012, Debt Collection Examination Procedures were released. The Dodd-Frank Act gave the CFPB supervisory authority over businesses engaged in debt collection, including nonbank entities.

The examination procedures provide a framework for assessing the quality of an entity’s compliance management systems and for identifying acts or practices that materially increase the risk of

IN ADVISING CLIENTS ON RISK MANAGEMENT, CONSIDER REGULATORY RISK ALONGSIDE LEGAL, REPUTATIONAL, FINANCIAL AND OPERATIONAL RISKS.

violating federal consumer financial laws.

Prior to the financial crisis, large debt collection agencies faced varying degrees of oversight from the Federal Trade Commission (FTC) and the Better Business Bureau (BBB). With its consumer advocacy mission, the CFPB brought an enhanced level of scrutiny to large debt collection agencies (which would be the first to be examined). As a result, many debt collection firms are now conducting audits pertaining to debt collection risk assessments, compliance management systems and debt collection exam procedures.

Effective Oct. 13, 2011, Mortgage Servicing Examination Procedures were established. Mortgage servicing practices were viewed by many as a significant contributing factor in the financial crisis, and the CFPB sought to address situations in which consumers felt their concerns were not handled properly or where they had been foreclosed upon unfairly.

The procedures apply to businesses involved in routine servicing, default servicing and foreclosure, as well as banks. On Dec. 21, 2011, significant changes applicable to three different regulations were made, including Regulation B, Equal Credit Opportunity, RESPA and TILA. These changes address appraisal copies and accompanying notices, RESPA servicing and TILA servicing.

In addition, new underwriting standards were developed for mortgages, including Ability to Repay (ATR) considerations.

The changes established what is known as a Qualified Mortgage (QM). Among other provisions, QM requirements bar what are 34

deemed to be harmful loan features, such as interest-only periods, negative amortizations and balloon payments. Loan terms also cannot exceed 30 years for such mortgages. QM rules took effect on Jan. 10, 2014, and have had a significant impact on the mortgage industry, which has had to make numerous changes incorporating new documents and timing requirements.

Finally, the CFPB has taken an active enforcement role in consumer protection, which is a role that could subject businesses to substantial financial penalties for noncompliance.

Actions Taken Against Financial Organizations Since its inception, the CFPB has collected millions of dollars from various businesses for regulatory violations. In some instances, collected funds were released to consumers, while in other instances the funds collected were regarded as fines. Examples of actions include the following: • In December 2014, an organization and debt collector were ordered to pay $2.5 million in relief for illegal lawsuits and unauthorized debits to military service members.

• In February 2015, the CFPB secured $480 million in debt relief for current and former students who had obtained private student loans to enroll at campuses of a for-profit college company. The new owner of the college campuses is prohibited from private student loan lending for more than seven years and has agreed to a series of new consumer protection measures.

• In February 2015, a subprime credit card company was ordered to refund $2.7 million to approximately 98,000 consumers affected by illegal credit card fees.

• In March 2015, the CFPB issued an enforcement action against a nationwide debt collection agency for presenting “deceptive threats of criminal prosecution and jail time” to consumers.

• In March 2015, a lender was sued by the CFPB for presenting false reverse mortgage advertising. The CFPB charged the lender engaged in deceptive advertising by claiming U.S. Government affiliation with its reverse mortgage product.

The strong enforcement actions illustrate the critical need for awareness among businesses that may be affected by the bureau’s regulations.

Impact of CFPB on the Broader Business Community While the oversight encompasses large financial institutions, its greatest impact may be on nonbanking businesses that previously did not face the levels of regulation faced by traditional financial institutions. As stated above, such nonbank businesses include collection agencies, mortgage lenders, payday loan businesses and other providers of short-term loans, as well as payment processors.

The CFPB is establishing itself as a vigilant advocate for consumer concerns, and its impact may indirectly go beyond the financial services sector. Accordingly, CPAs and other advisors close to the financial services sector should consider the following issues.

The CFPB is placing a greater burden of proof on businesses rather than consumers when consumer complaints arise. Such trends are being noticed by banks and other businesses not formally regulated Today’sCPA

by the CFPB. In response, more detailed documentation is being compiled for consumer transactions. Businesses should evaluate whether their documentation and retention practices sufficiently protect the business if consumer complaints are made.

Despite political rhetoric decrying increasing degrees of regulation, the CFPB’s activity is indicative of regulatory momentum after many years of deregulatory trends. All businesses need to recognize that federal and state regulatory agencies have an increasingly important role in commerce and market oversight. At a minimum, this should cause businesses to evaluate their own governance structures, risk management processes and documentation standards.

In advising clients on risk management, consider regulatory risk alongside legal, reputational, financial and operational risks.

For banks, recognize that the rules will impact bank activities. For nonbank companies, determine if the CFPB has oversight authority and identify those activities falling under its purview. For nonfinancial companies, consider the current regulatory environment and determine if any of the business’s activities are subject to regulation by federal or state agencies.

James Mihills, CPA,

Recognize that the cost of complying with expanded regulation is high. For nonbank lenders and financial services companies, the addition of staff and enhancement of processes necessary to comply with new regulation has significantly increased expenses. Banks involved in consumer finance activities (even if not regulated by the CFPB) have also experienced an increase in regulatory costs, due to enhanced monitoring procedures as other agencies (such as the FDIC, Federal Reserve Bank and OCC) are conducting their own reviews with a more “consumer friendly” perspective.

Businesses outside of the financial sector may be dealing with other aspects of regulatory expansion, and these organizations will also face increasing costs to comply.

The creation and activities of the CFPB have had, and will continue to have, significant impacts on the financial services sector and consumers, and the general business community will potentially be impacted as well. As businesses look for advisory services, it’s important for CPAs to have a basic understanding of how the regulatory environment is changing and how their clients may be impacted. n

is a partner in the financial institutions consulting practice for Weaver and Tidwell, L.L.P., the largest independent accounting firm in the Southwest with seven offices in Texas and 10 locations across the nation. He may be reached at James.Mihills@ Weaver.com or 817-882-7361.

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35

FEATURE

Build an Effective Working Relationship with the External Auditor An auditor might not report something until he/she completes his/ her due diligence and suspects an issue. The auditor could be asking questions of the wrong person and might get an incomplete or incorrect answer. Asking the auditor to communicate these “areas of investigation” early can minimize the time it takes to resolve these issues and prevent an unnecessary fire drill.

W

By Jessie George, Ph.D., CPA, CISA

hen individuals hear that the auditors are coming, the feeling of dread may overtake the office.

However, not all relationships with the auditors have to be contentious and frustrating. The following tips can be used by individuals who regularly work with external auditors to improve their working relationship.

Focus on Building Relationships With Key Auditors Understanding the auditors’ chain of command is critical in identifying key relationships. The associates are the employees performing the dayto-day work, while the senior associate is the main point of contact for the fieldwork and supervises the associates. The associates and senior associates perform a majority of the audit work. The next level up consists of the managers and senior managers. These individuals are responsible for oversight of the audit team and many administrative tasks. The partner is an owner of the audit firm and typically manages the relationships with the C-Suite.

It is important to build strong relationships with at least the senior associate and manager. Both individuals are intimately involved with the fieldwork. In addition, they have perspective regarding the overall audit.

If you need information or help, the senior associate and manager are the two individuals who can easily provide insight and get to the bottom of things. These individuals are people you want in your corner, so it is important to invest in these relationships.

Get Regular Status Updates Nobody wants to be blindsided with last-minute audit issues.

Therefore, it is imperative to get regular updates from the auditor. During these updates, ask the auditor to provide information about pending document requests, follow-up questions, issues and emerging issues.

36

Effectively Manage the Documentation Request Process Auditors come in asking for a million and one documents. The task of gathering data can be very overwhelming. Before the audit begins, ask the auditor to provide a prioritized request list well in advance. Then, you can provide the most critical documents first. If a request is unknowingly cumbersome, make sure to talk to the auditor about it. Every company’s systems and processes are unique, so it is possible that you might be able to suggest an alternative document that would meet the auditor’s needs.

If possible, share electronic documents in a common place, such as a secure folder on the network. The files should follow a common naming convention, so both you and the auditor are clear on the documents being discussed. This is important when multiple requests are provided in a single document. The link between the audit requests and the documents provided may be unclear to the auditor, so using a common naming convention can eliminate some of that confusion.

If You Find a Problem Before the Auditor Does, Speak Up Many people are afraid when requested evidence is missing or incomplete. Auditors understand that people go on vacation, mistakes happen and people just forget. Auditors are guided by a concept called professional skepticism. It means that the auditor’s mind is questioning everything.

When documentation is missing, the organization may take extra time to look for it. Unexpected delays may raise an auditor’s professional skepticism. The delay indicates that something might be wrong. Here is where strong relationships with the senior associate and manager come in handy. Meet with the senior associate or manager in private and explain the situation. The auditors can provide additional guidance on what to look for or alternatives on how to proceed. For example, the auditor is looking for managerial approval on an invoice and the invoice was never signed. The auditor might be able to rely on an email approval instead. If additional evidence is not available, the auditor might be able to increase the sample to get an adequate amount of audit comfort.

Although no relationship is perfect, leveraging these tips will help improve the relationship with the auditors and make the audit process more manageable. n

Jessie George, Ph.D., CPA, CISA,

is a visiting assistant professor of accounting at the University of Houston – Downtown.

She may be contacted at georgeje@uhd.edu.

Today’sCPA

FEATURE

Three Tips for Practicing Mindfulness in a Multitasking Workplace Neurologist Shares the Science Behind Its Effectiveness

G

oogle, eBay, Intel and General Mills have offered classes on it. So have Harvard Business School, Ross School of Business and Claremont Graduate University, among other campuses. Mindfulness is not just a corporate trend, but a proven method for success.

Mindfulness – being focused and fully present in the here and now – is good for individuals and good for a business’s bottom line. How can people practice it in a workplace where multitasking is the norm, and concerns for future profits can add to workplace stress?

“Even if a company doesn’t make it part of the culture, employees and managers can substitute their multitasking habits with mindfulness to reduce stress and increase productivity,” said Dr. Romie Mushtaq, a neurologist with expertise in mind-body medicine and mindful living. “The result that you and your colleagues will notice is that you’re sharper, more efficient and more creative.” The physiological benefits of clearing away distractions and living in the moment have been documented in many scientific and medical studies.

“Practicing mindfulness, whether it’s simply taking deep breaths, or actually meditating or doing yoga, has been shown to alter the structure and function of the brain, which is what allows us to learn, acquire new abilities and improve memory,” she said. “Advances in neuroimaging techniques have taught us how these mindfulnessbased techniques affect neuroplasticity. Multitasking, on the other hand, depresses the brain’s memory and analytical functions, and it reduces blood flow to the part of the right temporal lobe that contributes to our creative thinking. In today’s marketplace, creativity is key for innovation, sustainability and leadership.”

Dr. Mushtaq offers these tips for practicing mindfulness in a multitasking business.

Focus on a single task for an allotted amount of time. You might say, “For 15 minutes, I’m going to read through my emails, and then for one hour, I’m going to make my phone calls.” If your job comes with constant interruptions that demand your attention, take several deep breaths and then prioritize them. Resist the urge if you can to answer the phone every time it rings – unless it’s your boss. If someone asks you to drop what you’re doing to help with a problem, it’s OK to tell them, “I’ll be finished with what I’m doing in 10 minutes, then I’m all yours.”

When you get “stuck” in a task, change your physical environment to stimulate your senses. Sometimes we bounce from one task to another, because we just don’t have the words to begin

Dr. Romie Mushtaq

Today’sCPA Nov/Dec 2015

writing that strategic plan, or we’re staring at a problem and have no ideas for solutions. That’s the time to get up, take a walk outside or change what you’re seeing. Offering your senses pleasant and different stimulation rewires your brain for relaxation, and reduces the effects of stress hormones, which helps to unfreeze your creativity center.

Delegate! We often have little control over the external stresses in our life, particularly on the job. How can you not multitask when five people want five different things from you at the same time? “Have compassion for yourself and reach out for help,” Dr. Mushtaq said. “If you can assign a task to somebody else who’s capable of handling it, do so. If you need to ask a colleague to help you out, ask!” This will not only allow you to focus on the tasks that most need your attention, it will reduce your stress. “And who knows? The colleague you’re asking for help may want to feel appreciated and part of your team!”

While it is possible to practice mindfulness in a hectic workplace, Dr. Mushtaq said she encourages business leaders to make it part of the company culture. Stress-related illnesses are the number one cause of missed employee workdays.

Offering mindfulness training or yoga classes, for example, can be an excellent investment. She said: “Your company’s performance will improve. You’ll see a reduction in stress-related illnesses and you’ll be a more successful businessperson.” n

is a mind-body medicine physician and neurologist. She did her medical education and training at the Medical University of South Carolina, University of Pittsburgh Medical Center and University of Michigan, where she won numerous teaching and research awards. She brings to healing both her expertise of traditional Western medical training and Eastern modalities of mindfulness. Her website is www.BrainBodyBeauty.com.

37

CPE ARTICLE

Treatment Without Prevention is Unsustainable Tools to Prevent Fraud Within Your Company

By Patricia Z. Galletta, CPA, CGMA

Curriculum: Accounting and Auditing Level: Basic Designed For: Business and Industry Objectives: Provide tips and tools to protect companies from fraud Key Topics: Anti-fraud policies, employee considerations, internal controls, budgeting issues, whistleblower hotlines, ethics practices and reviewing fraud prevention policies Prerequisites: None Advanced Preparation: None 38

Today’sCPA

So you want to be diligent in protecting your company from fraud? How do you start? The first step is to understand how to prevent fraud and the tools available to the business. According to AU 316, “It is management’s responsibility to design and implement programs and controls to prevent, deter and detect fraud.” It is also management’s responsibility to inform the external auditors of significant deficiencies in internal controls.

Prevention involves the policies and procedures created to stop fraud from happening by establishing the right business culture.

What’s best for a company is to concentrate on fraud prevention, since lost intangibles will not be easy to recover, such as a company’s reputation or employee morale.

Hire the Right Employees Companies need to spend the time (and money) to obtain an adequate background check of its employees, including: • Request written references and follow up with a phone call.

• Verify employee information such as: oo Employment history – question breaks in employment. oo Credit history – to ensure potential employees are in a stable financial position before being hired in a position handling assets of the company. Under the Fair Credit Reporting Act enforced by the Federal Trade Commission (FTC), employers must obtain permission from potential employees to request their credit report and if the individual does not obtain the job because of what is reported on the credit report, the hiring company must show the person the report and tell them where to obtain a copy. oo Professional licensing. oo Criminal history. oo Current and previous addresses.

• Conduct social media/Internet searches.

• Confirm academic history.

• Search for bankruptcies, liens and judgments.

Ethics training should be given to new employees immediately, so they know that the company takes fraud seriously.

Anti-fraud Policy Establish an anti-fraud policy outlining the company’s policies on fraud that encompass the five COSO (Committee of Sponsoring Organizations of the Treadway Commission) components described below by providing: • The company’s commitment to the prevention and the ramifications for anyone involved in fraudulent activities; • Examples of fraudulent activities within the organization; Today’sCPA Nov/Dec 2015

• Each employee’s responsibilities related to fraud; and • The procedure to report fraud – employees should be encouraged to report suspicious activity with a senior-level employee responsible for reviewing all suspicions of fraud.

The Sarbanes-Oxley Act (SOX), the Securities and Exchange Commission (SEC) and the Federal Sentencing Guidelines (Chapter 8, Part B) all stress the need for stronger anti-fraud policies.

Appendix 4 contains a sample of items that might be included in an antifraud policy.

Implementing Internal Controls Internal controls (I/C) only provide reasonable assurance against fraud and are susceptible to loopholes, such as collusion. AU 110.03 states “Management is responsible for adopting sound accounting policies and for establishing and maintaining internal controls that will, among other things, initiate, record, process and report transactions (as well as events and conditions) consistent with management’s assertions embodied in the financial statements.” The 2013 COSO integrated framework reiterates the importance of the five components of internal control of control environment, risk assessment, control activities, information and communication, and monitoring, which should be used by all businesses in establishing and maintaining good internal controls.

Control environment supports an environment of fairness and honesty, which is clearly communicated to its employees (both new and old). This is accomplished by hiring qualified employees and rewarding them based on performance, and will provide a basis for supporting a strong set of internal controls. Management should be a role model for ethical behavior and senior management/ audit committee should ensure there is adequate oversight over the continued on next page

Figure 1:

Commitment to integrity

Employees held accountable for I/C responsibilities

Commitment to hire/retain competent employees

Board independence/internal control oversight

Management oversees responsibilities in pursuit of objectives

39

CPE ARTICLE continued from previous page Figure 2:

Figure 3: Selects/develops activities to mitigate risk

Specific objectives

Identify/assesses changes impacting I/C

Identify/analyze risks to the achievement of objectives

Establishes policies/procedures

Selects/develops technology related control activities

Determines potential for fraud

financial reporting and internal controls, and be aware of the risks within the organization that could increase the likelihood of fraud.

In smaller companies, access to higher management is easier and it is therefore more critical for managers to conduct themselves at a higher ethical level. Following management’s example, employees should be encouraged to report suspicions of fraud. See Figure 1.

Risk Assessment is evaluated after management determines the company’s objectives and is intended to be a written assessment of the risk that something will occur to prevent the achievement of those objectives.

After assessing the risk, controls to prevent, detect and respond to fraud/misconduct are designed, implemented and evaluated regularly due to the changes in external factors (current and potential changes in the economic and environmental climates, client needs, legislation and technology), as well as internal factors (personnel and technology changes).

The risk assessment process is likely to be less formal and less organized in smaller companies (AU316), but companies of all sizes must understand their company’s specific fraud risks. See Figure 2. Companies must determine how to manage risk, since risk cannot be eliminated and not every risk can be anticipated. The American Institute of CPAs (AICPA) along with the Association of Certified Fraud Examiners (ACFE) and the Institute of Internal Auditors (IIA) created a publication titled “Managing the Business Risk of Fraud: A Practical Guide,” which provides a framework (see Appendix 1-sample and Appendix 2-sample) for companies to document their fraud risk assessment and recommendations on ways companies can fight fraud.

Control Activities (hard controls) are related to the mitigation of risk through controls, such as segregation of duties, physical control over assets, requiring vacations for all employees and rotating 40

employee job responsibilities. See Figure 3. In addition to the traditional control activities, IT departments should have backup/ recovery policies, program documentation, hardware and password access controls, firewalls and virus detection controls. Weak control activities increase the risk of fraud. In mostly smaller companies, segregation of duties or the existence of an internal audit function may not be possible due to the relatively small number of employees.

Information and Communication either created internally or externally to support internal controls must be communicated to show the employees that internal controls are taken seriously by the company. See Figure 4. The information disseminated should be relevant to the company’s objectives – accurate, understandable, timely – and would include ethics and fraud-risk training.

Monitoring activities such as exception reports and random checks that monitor the effectiveness of the controls should be created and reviewed by management. A plan of action should be developed to respond to any identified threats. Management should also be reviewing all tips/complaints, results of self assessments/ internal audits and external audits, and establish methods of reporting and correcting any deficiencies. See Figure 5.

An internal control questionnaire was developed (Appendix 5) to assist companies in evaluating the five components of the COSO framework. Although labeled for the audit committee, it can be used by anyone independent within the organization to evaluate their compliance with the COSO framework.

Section 404 of SOX requires companies to adopt and evaluate internal controls. Since the CEO/CFO is responsible for the “accuracy and completeness of corporate financial reports,” the SEC requires them to certify the effectiveness of the internal controls.

Case in point: Marc, the CEO, filed with the SEC that the COSO integrated framework was being used as a guideline, and he and Today’sCPA

Figure 4:

Figure 5:

Obtains relevant quality information

Externally communicates relevant quality information

Evaluates internal controls

Internally communicates relevant quality information

his management team reviewed his company’s internal controls.

However, Marc did not participate and was not familiar with the integrated framework, and the company employees took advantage of weak internal controls to not record revenue within the proper period.

Although this did not result in material financial statement mistakes, the SEC charged Marc with unreported internal control deficiencies.

The Foreign Corrupt Practices Act makes it illegal for companies to bribe foreign officials to obtain business.

Case in point: According to the SEC, Weatherford International (U.S. Securities and Exchange Commission, Plaintiff, v. Weatherford International Ltd. Defendant) “authorized bribes and improper travel and entertainment intended for foreign officials in multiple countries to obtain or retain business or for other benefits.” During this same period, Weatherford did not have adequate internal controls. Weatherford had to pay over $252 million in penalties, as a result of these deficiencies.

Ineffective internal controls may increase the risk of not only fraud, but of the company’s achievement of its business objectives; effective internal controls may be limited by employee judgment (or misjudgment), employee error or misunderstandings, outdated controls, management override or collusion. Fines and penalties may be decreased for those companies showing effective compliance and internal control procedures.

Establish a Budget Especially in small companies that do not have the funds for sophisticated anti-fraud measures, it would help to create a budget whereby someone in a position of authority would compare the budgeted numbers with the actual numbers at least monthly to identify areas of potential fraud. Limits can also be set on particular expenses to better control the outflow of funds.

Today’sCPA Nov/Dec 2015

Evaluates/ communicates I/C deficiencies for correction

The budget should have reasonable budget expectations or other financial targets. The Small Business Administration (www.sba. gov) offers tips on preparing budgets.

Creation of Whistleblower Hotlines Whistleblower hotlines should be made available to all employees to report possible fraud and strengthen company controls. The creation of a hotline supports SOX 301, which requires audit committees to create a process whereby accounting and auditing complaints can be submitted. According to the ACFE 2014 Global Fraud Study, tips are the most prevalent method of detecting occupational fraud. However, according to the 2013/2014 Global Fraud Report by Kroll, only 52 percent of those individuals surveyed have spent money on training their staff on fraud and only 43 percent of those surveyed intended to increase their investment.

The hotline should be staffed by a third party to maintain the anonymity of the tipster. The outside third-party vendor should forward anonymous and confidential fraud-related information to designated individuals within the company. The information should be forwarded to more than one member of management so that one person does not control the information. The new AICPA Code of Professional Conduct, effective in December 2014, provides ethical guidance and examples within section 2.000.010, Conceptual Framework for Members in Business regarding the use of hotlines and other safeguards to eliminate or reduce a threat that would compromise an individual’s compliance with the rules.

Stopfraud.gov is a source of information for individuals who wish to submit fraud complaints to federal agencies. The SEC’s whistleblower program (supported by Sec. 922 of the Dodd-Frank continued on next page 41

CPE ARTICLE continued from previous page Wall Street Reform and Consumer Protection Act) rewards highquality, original information that results in an SEC enforcement action with sanctions exceeding $1 million. Whistleblower awards can range from 10 percent to 30 percent of the money collected in a case. In September 2014, the SEC made the largest whistleblower payment of $30 million. Don’t wait for a scandal to happen (think Waste Management-1998) before setting up a whistleblower hotline. Waste Management created a hotline after the discovery of fraudulent accounting activity by several key management employees.

The ACFE offers a list of questions that might be asked during the checkup in the ACFE Fraud Prevention Checkup (Appendix 3).

Ethics Policies and Practices Section 406, Code of Ethics for Senior Financial Officers of SOX requires companies to disclose whether they have a code of ethics for senior financial officers, including the CEO, CFO, controller and others performing a similar role. According to SOX, a code of ethics would promote “honest and ethical conduct,” including the “handling of conflicts of interest; full, fair, accurate, timely and understandable disclosure in the periodic reports;” and “compliance with applicable governmental rules and regulations.” Codes of Conduct should contain references to bribery, corruption and general accounting practices. To achieve this goal and strengthen

Fraud Prevention Checkup Periodically, companies should review their fraud prevention policies and ensure they are in effect. For smaller companies whose controls may be lacking, the checkup should occur more frequently than larger companies with good controls.

continued on next page

Appendix 1: Managing the Business Risk of Fraud: A Practical Guide-Sample Fraud Policy Decision Matrix NOTE: This matrix can be used as a tool to summarize and visualize the responsibilities that have been defined for the organization.

This is not a standard for “who” should have “what” responsibilities.

Investigation Unit

Internal Auditing

Finance Acctg

Exec Mgmt

Line Mgmt

Risk Mgmt

PR

Employee Relations

Legal

1. Controls to Prevent Fraud

S

S

S

P

SR

S

S

S

S

2. Incident Reporting

P

S

S

S

S

S

S

S

S

3. Investigation of Fraud

P

S

S

S

4. Referrals to Law Enforcement

P

5. Recovery of Monies Due to Fraud

P

6. Recommendations to Prevent Fraud

SR

Action Required

7. Internal Control Reviews

S

SR

S

S

S

S

S

S

S

S

S

P

8. Handle Cases of a Sensitive Nature

P

S

9. Publicity/Press Releases

S

S

10. Civil Litigation

S

S

11. Corrective Action/Recommendations to Prevent Recurrences

SR

SR

12. Monitor Recoveries

S

13. Proactive Fraud Auditing

S

P

14. Fraud Education/Training

P

S

15. Risk Analysis of Areas of Vulnerability

S

S

16. Case Analysis

P

S

17. Hotline

P

S

18. Ethics Line

S

S

S

S P

P S

SR

S

S

P

S

S P

P

P (Primary Responsibility) S (Secondary Responsibility) SR (Shared Responsibility) Source: www.acfe.com (Managing the Business Risk of Fraud: A Practical Guide)

42

Today’sCPA

Appendix 2: Managing the Business Risk of Fraud: A Practical Guide-Fraud Detection Scorecard Sample Fraud Prevention Area, Factor, or Consideration

Score

Notes

We have integrated our fraud detection system with our fraud prevention system in a cost-effective manner.

Our fraud detection processes and techniques pervade all levels of responsibility within our organization, from the board of directors and audit committee, to managers at all levels, to employees in all areas of operation.

Our fraud detection policies include communicating to employees, vendors, and stakeholders that a strong fraud detection system is in place, but certain critical aspects of these systems are not disclosed to maintain the effectiveness of hidden controls.

We use mandatory vacation periods or job rotation assignments for employees in key finance and accounting control positions.

We periodically reassess our risk assessment criteria as our organization grows and changes to make sure we are aware of all possible types of fraud that may occur.

Our fraud detection mechanisms place increased focus on areas in which we have concluded that preventive controls are weak or are not cost-effective.

We focus our data analysis and continuous auditing efforts based on our assessment of the types of fraud schemes to which organizations like ours (in our industry, or with our lines of business) are susceptible.

We take steps to ensure that our detection processes, procedures, and techniques remain confidential so that ordinary employees — and potential fraud perpetrators — do not become aware of their existence.

We have comprehensive documentation of our fraud detection processes, procedures, and techniques so that we maintain our fraud detection vigilance over time and as our fraud detection team changes.

Our detective controls include a well-publicized and well-managed fraud hotline.

Our fraud hotline program provides anonymity to individuals who report suspected wrongdoing.

Our fraud hotline program includes assurances that employees who report suspected wrongdoing will not face retaliation. We monitor for retaliation after an issue has been reported.

Our fraud hotline has a multilingual capability and provides access to a trained interviewer 24 hours a day, 365 days a year.

Our fraud hotline uses a case management system to log all calls and their follow-up to resolution, is tested periodically by our internal auditors, and is overseen by the audit committee.

Our fraud hotline program analyzes data received and compares results to norms for similar organizations.

Our fraud hotline program is independently evaluated periodically for effectiveness and compliance with established protocols.

We use a rigorous system of data analysis and continuous auditing to detect fraudulent activity.

Our information systems/IT process controls include controls specifically designed to detect fraudulent activity, as well as errors, and include reconciliations, independent reviews, physical inspections/counts, analyses, audits, and investigations.

Our internal audit department’s charter includes emphasis on conducting activities designed to detect fraud.

Our internal auditors participate in the fraud risk assessment process and plan fraud detection activities based on the results of this risk assessment.

Source: www.acfe.com (Managing the Business Risk of Fraud: A Practical Guide) Today’sCPA Nov/Dec 2015

43

CPE ARTICLE continued from previous page the control environment, a company code of ethics should be easy to read and contain: • Organization’s mission. A primary objective of the code of ethics is to explain the company’s goals and to stress the importance of integrity. The code of ethics for Chrysler Corporation begins with a letter from the CEO: …the Chrysler Group LLC Integrity Code sets forth the Company’s firm commitment to high business and ethical standards. We are committed to operate with integrity, transparency and accountability.

• Principles used to further support the business values by including principles employees should follow. Customers’ interests, quality of service, environmentally friendly and continuous improvement may be noted in documenting business principles. Walmart published “Three Basic Beliefs” within their code of ethics: oo ­ Respect for the Individual oo ­ Service to our Customers oo Strive for Excellence

• Employee’s personal responsibility to uphold the code of ethics, which would include the legal and moral consequences for violations of the code and that the company will seek restitution from the fraudsters. Examples of specific ethical and non-ethical behavior should be provided, such as the use of company property for personal gain or the limitations on client’s entertainment and gift giving/receiving using the new AICPA Code of Professional Conduct (Section 2.100, Integrity and Objectivity) for guidance regarding conflicts of interest, client entertainment and receiving/giving gifts.

Microsoft prohibits the following gifts: oo Money or cash equivalents. oo ­ A bribe, kickback or anything with corrupt intent. oo ­ Using personal funds to accomplish what is otherwise prohibited by policy. oo ­ Gifts or hospitality to a government official’s friends or family. oo ­ Anything of value that might create the appearance of impropriety or result in embarrassment to Microsoft.

• Management support of the principles such as that documented in the Underarmour Inc. code of ethics: “All supervisory and management personnel, including all officers and directors of the Company, have a special responsibility to lead according to the standards in this Code, in both words and action.”

Employees should be notified that they will be required to recertify their understanding of the code of ethics and that they are responsible for communicating ethical issues that they may encounter within the organization. continued on next page

Appendix 3: ACFE FRAUD PREVENTION CHECK-UP Organization: Date of Check-up:

Results

1. Fraud risk oversight To what extent has the organization established a process for oversight of fraud risks by the board of directors or others charged with governance (e.g., an audit committee)?

Score from 0 (process not in place) to 20 points (process fully implemented, tested within the past year and working effectively).

Score:

2. Fraud risk ownership To what extent has the organization created “ownership” of fraud risks by identifying a member of senior management as having responsibility for managing all fraud risks within the organization and by explicitly communicating to business unit managers that they are responsible for managing fraud risks within their area?

Score from 0 (process not in place) to 10 points (process fully implemented, tested within the past year and working effectively).

Score:

3. Fraud risk assessment To what extent has the organization implemented an ongoing process for regular identification of the significant fraud risks to which it is exposed?

Score from 0 (process not in place) to 10 points (process fully implemented, tested within the past year and working effectively).

Score:

Source: www.acfe.com (ACFE Fraud Prevention Checkup)

44

Today’sCPA

Appendix 4: Sample Antifraud Program Elements Prevention

Detection

Response

Board/audit committee oversight Executive and line management functions Internal audit, compliance, and monitoring functions • Fraud and misconduct risk assessment • Code of conduct and related standards • Employee and third-party due diligence • Communication and training • Process-specific fraud risk controls • Proactive forensic data analysis

• Hotlines and whistleblower • Auditing and monitoring • Retrospective forensic data analysis

• Internal investigation protocols • Enforcement and accountability protocols • Disclosure protocols • Remedial action protocols

Source: KPMG LLP (U.S.) 2013

Appendix 5: Internal Control: A Tool for the Audit Committee-Internal Control Questionnaire Sample Control Environment—Tone at the Top

Yes

No

Not Sure

❑ ❑ ❑ ❑ ❑ ❑

❑ ❑ ❑ ❑ ❑ ❑

❑ ❑ ❑ ❑ ❑ ❑

Comments

Integrity and Ethical Values 1. Does the organization have a comprehensive code of conduct, and/or other policies addressing acceptable business practice, conflicts of interest, and expected standards of ethical and moral behavior?

2. Is the code distributed to all employees?

3. Are all employees required to annually acknowledge that they have read, understood, and complied with the code?

4. Does management demonstrate through actions its own commitment to the code of conduct?

5. Are dealings with clients and other constituents, customers, suppliers, employees, and other parties based on honesty and fair business practices?

6. Does management take appropriate action in response to violations of the code of conduct?

7. Is management explicitly prohibited from overriding established controls? What controls are in place to provide reasonable assurance that controls are not overridden by management? Are deviations from this policy investigated and documented? Are violations (if any) and the results of investigations brought to the attention of the audit committee?

❑ ❑ ❑

8. Is the organization proactive in reducing fraud opportunities by (1) identifying and measuring fraud risks, (2) taking steps to mitigate identified risks, (3) identifying a position within the organization to “own” the fraud prevention program, and (4) implementing and monitoring appropriate preventative and detective internal controls and other deterrent measures?

❑ ❑ ❑

9. Does the company use an anonymous ethics and fraud hotline and, if so, are procedures in place to investigate and report results to the audit committee? (See also the tool “Sample Whistleblower Tracking Report,” in this toolkit.)

❑ ❑ ❑

Commitment to Competence 1. Are the level of competence and the requisite knowledge and skills defined for each job in the accounting and internal audit organizations?

2. Does management make an effort to determine whether the accounting and internal audit organizations have adequate knowledge and skills to do their jobs?

❑ ❑ ❑ ❑ ❑ ❑

Board of Directors and/or Audit Committee 1. Are the audit committee’s responsibilities defined in a charter? If so, is the charter updated annually and approved by the board of directors? (See also the tool “Audit Committee Charter Matrix,” in this toolkit.)

❑ ❑ ❑

Source: www.acfe.com (Managing the Business Risk of Fraud: A Practical Guide) Today’sCPA Nov/Dec 2015

45

CPE ARTICLE continued from previous page • Adherence to international, national, state and city laws, as well as specific laws or regulations such as the Foreign Corrupt Practices Act or the United Kingdom Bribery Act of 2010 may be referenced if they are anticipated to be a problem within the company, or it can be kept general such as Toyota states in their code of conduct: oo ­ Toyota will use its best efforts to comply with all labor and employment laws and regulations of the countries where it is active, as well as the spirit thereof.

At times, the terminology of code of conduct and code of ethics may be used interchangeably, but the code of ethics outlines a set of principles that affect decision making and the code of conduct outlines specific employee behaviors that are required/prohibited.

The new AICPA Code of Professional Conduct (Section 2.400, Acts Discreditable) provides ethical guidance and examples regarding the adherence to rules and regulations.

Patricia Z. Galletta, CPA (New York State), CGMA, MBA-Information Sciences (Pace University),

In addition to legal and regulatory compliance, the most obvious benefit of a code of conduct is to provide employees with consistent guidelines to refer to when faced with an ethical dilemma. Knowing that the company cares about the integrity of its employees, and stressing that the employee’s integrity will contribute to the success of the company, will help the employees feel more connected and increase employee loyalty.

A company must keep their code up to date by periodically (at least annually) reviewing their code of ethics. Amendments to a company’s code of ethics applicable to senior management must be reported on SEC form 8-K.

Remaining Diligent Establishing effective policies and procedures can assist you in protecting your company from fraud. The article provided an overview of the tools available. These tools can help your company in its efforts to detect, deter and prevent fraud. n

is an assistant professor of accounting at College of Staten Island. She may be reached at pzgalletta@gmail.com.

Appendix 6: Sources of Information Internal Control and Fraud Prevention Guidance Name

Description

Website

1. Good Practice Guidance on Internal Controls, Ethics, and Compliance

Guide for establishing effective internal controls, ethics and compliance programs.

www.oecd.org

2. Commission Guidance Regarding Management’s Report on Internal Control Over Financial Reporting

Guide for evaluating and assessing internal controls over financial reporting.

www.sec.gov

3. Section 13(b)(2)(B) of the Exchange Act

Recordkeeping and Internal Controls Provisions

www.sec.gov

4. Section 30A of the Securities Exchange Act of 1934

Anti-Bribery Provision

www.sec.gov

5. U.S. Federal Sentencing Guidelines of 2005

Guide for sentencing individuals and organizations convicted of frauds including tax fraud and provide guidance for an effective ethics program.

http://www.ussc.gov/

6. FCPA Guidance's 10 Hallmarks of Effective Compliance Program

Anti-bribery provisions of the Foreign Corrupt Practices Act

www.sec.gov

7. UK Bribery Act of 2010

Recommended procedures/principles for preventing bribery

http://www.legislation.gov.uk/ ukpga/2010/23/contents

8. Management Override of Internal Controls: The Achilles’ Heel of Fraud Prevention

Guide to determining and responding to the risk of internal controls override

www.aicpa.org

9. USA Patriot Act

Deter and punish terrorist acts including requiring financial institutions to create internal controls as part of anti-money laundering programs.

http://www.fincen.gov/

10. NYSE listing standards (Section 303A)

Guide related to internal control procedure and code of conduct requirements

http://nysemanual.nyse.com/lcm/

Source: http://www.legislation.gov.uk/ukpga/2010/23/contents (UK Bribery Act of 2010 Website)

46

Today’sCPA

WHAT CAN YOU EXPECT

FROM TSCPA BESIDES Personal and Career Development Cutting-Edge Professional Information and CPE Enhancing the Image of the CPA Profession

New Member Benefit Radiate360 is an easy-to-use digital marketing platform that enables CPAs to manage their

web presence, social media accounts, business directory listings, online reputation and digital/mobile media campaigns – all within one interface. For more information, a demo or to set up a meeting, visit http://www.radiate360.com/tscpa, or contact Robert Hernandez at 866-825-9005 or Robert.Hernandez@RadiateMedia.com.

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TSCPA has partnered with Pearl Insurance to offer the TSCPA Member Insurance Program.

The program offers a variety of personal and professional insurance plans, including the TSCPA Private Health Care Exchange.

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TSCPA Magazine Subscription Program Discounts on magazine subscriptions 800-603-5602

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ProPay Discounts on credit card processing 888-227-9856

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You can expect special deals and discounts

Discounts on computer and technical products 888-289-6424 AntiSpam/AntiVirus Protection 214-446-0089

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Monroe Systems for Business Discounts on calculators and other supplies www.monroe-systems.com

Bank of America TSCPA credit card programs – BankAmericard Cash RewardsTM Visa Signature Credit Card, CPA logo and other benefits.

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Please visit the Member Benefits Marketplace at tscpa.org for complete information and links to each of our Member Discount Programs.

Questions? Contact the Member Benefits Administrator at 1-800-428-0272 ext. 216 or craffetto@tscpa.net.

CPE QUIZ

By Patricia Z. Galletta

CPE Article: Treatment Without Prevention is Unsustainable: Tools to Prevent Fraud Within Your Company 1 Of COSO’s five components of internal control, which one deals with the “tone at the top” whereby senior management reinforces the importance of internal controls?

A. Control Environment B. Control Activities

C. Monitoring D. Risk Assessment

2 In the article, which of the following does NOT stress the need for stronger Securities Exchange Act of 1934 Sarbanes-Oxley Act of 2002 Securities and Exchange Commission Federal Sentencing Guidelines

C. Reported on form 10-K. D. Does not need to be reported.

C. Fair Credit Reporting Act. D. COSO Integrated Framework.

8 The usage of exception reports are part of the:

Control Activity Ethics policy Criteria in hiring a new employee Something that would ensure the effectiveness of a hotline

4 The primary purpose of a whistleblower hotline is to: A. B. C. D.

A. Reported on form 8-k.

B. Reported on form S-X.

A. Sarbanes-Oxley Act of 2002.

B. Foreign Corrupt Practices Act.

3 Segregation of duties is an example of: A. B. C. D.

6 Changes to the code of ethics for senior management must be:

7 The Weatherford International case dealt with violations of:

anti-fraud policies?

A. B. C. D.

C. Budgets are not useful tools to prevent fraud in smaller companies.

D. Segregation of duties or the existence of an internal audit function may not be possible.

Review fraud prevention policies.

Ensure compliance with applicable governmental rules and regulations.

Ensure accuracy and completeness of corporate financial reports.

Report possible fraud and strengthen the company’s controls.

5 Which of the following is NOT true about smaller businesses combating fraud?

A. Access to higher management is easier.

B. The risk assessment process is likely to be less formal and less organized in smaller companies.

A. Control Environment.

B. Control Activities.

C. Monitoring Activities.

D. Risk Assessment.

9 Who is responsible for designing and implementing programs and controls to prevent, deter and detect fraud according to AU 316?

A. CEO. B. CFO.

C. Management.

D. Auditors.

10 Which section of the AICPA Code of Professional Conduct provides ethical guidance regarding the use of hotlines?

A. B. C. D.

Section 1.2000, Independence Section 2.1000, Integrity and Objectivity Section 2.3000, General Standards Section 2.000, Introduction/Conceptual Framework for Members in Business

Today’s CPA offers the self-study exam above for readers to earn one hour of continuing professional education credit.

The questions are based on technical information from the preceding article.

PARTICIPATION EVALUATION

Mail the completed test by Dec. 31, 2015, to TSCPA for grading.

3. The article and exam were well suited to my background, education and experience: 5___ 4___ 3___ 2___ 1__.

If you score 70 or better, you will receive a certificate verifying you have earned one hour of CPE credit – granted as of the date the test arrived in the TSCPA office – in accordance with the rules of the Texas State Board of Public Accountancy (TSBPA). If you score below 70, you will receive a letter with your grade. The answers for this exam will be posted in the next issue of Today’s CPA.

5. It took me___hours and___minutes to study the article and take the exam.

To receive your CPE certificate by email, please provide a valid email address for processing.

After completing the exam, please mail this page (photocopies accepted) along with your check to: Today’s CPA; Self-Study Exam: TSCPA CPE Foundation Inc.; 14651 Dallas Parkway, Suite 700; Dallas, Texas 75254-7408.

TSBPA Registered Sponsor #260.

(Please check one.) 5=excellent 4=good 3=average 2=below average 1=poor 1. The authors’ knowledge of the subject is: 5____ 4____ 3____ 2____ 1____.

2. The comprehensiveness of the article is: 5____ 4____ 3____ 2____ 1____.

4. My overall rating of this self-study exam is: 5____ 4____ 3____ 2__ 1____.

Name _______________________________________ Company/Firm__________________________________________ Address (Where certificate should be mailed)_____________________________________________________________ City/State/ZIP_________________________________________________________________________________________ Email Address________________________________________________________________________________________ Please make checks payable to The Texas Society of CPAs. __ $15 (TSCPA Member) __ $20 (Non-Member) Signature_____________________________________________________________________________________________ TSCPA Membership No._______________________________________________________________________________

Answers to last issue’s self-study exam: 1. C 2. C 3. D 4. B 5. D 6. B 7. B 8. A 9. B 10. C 48

Today’sCPA

TSCPA CPE COURSE CALENDAR

Mark Your Calendar – December and January CPE Courses Date

Course

CPE Credit

City

12/2/2015

Exempt Organizations: Compliance Issues

8

Beaumont

12/2/2015 - 12/3/2015

CPE EXPO Conference

20

Arlington

12/3/2015

Fiduciary Income Tax Returns - Form 1041 Workshop

8

Houston

12/4/2015

The Complete Trust Workshop

8

Houston

12/7/2015 - 12/8/2015

CPE EXPO Conference

20

San Antonio

12/8/2015

Fiduciary Income Taxation

8

Austin

12/10/2015 - 12/11/2015

CPE EXPO Conference

20

Houston

12/14/2015

Fraud Update: Detecting and Preventing the Top 10 Fraud Schemes

8

Fort Worth

12/14/2015

Top Tax Issues for Partnerships and LLCs

8

Dallas

12/15/2015

Internal Controls and Risk Assessment: Key Factors in a Successful Audit

8

Fort Worth

12/16/2015

Personal and Professional Ethics for Texas CPAs

4

Addison

12/17/2015

Fiduciary Income Tax Returns - Form 1041 Workshop

8

Dallas

12/18/2015

The Complete Trust Workshop

8

Dallas

1/4/2016

LLC and Partnership Errors and Omissions

8

San Antonio

1/5/2016

Advanced Individual Income Tax Returns Issues

8

Dallas

1/6/2016

Advanced Technical Tax Forms Training LLCs, S Corporations and Partnerships

8

Dallas

1/6/2016

Top Tax Issues for Partnerships and LLCs

8

Fort Worth

1/7/2016

S Corporation, Limited Liability and Partnership Update

8

San Antonio

1/7/2016

Advanced Individual Income Tax Returns Issues

8

Houston

1/8/2016

Advanced Technical Tax Forms Training LLCs, S Corporations and Partnerships

8

Houston

1/8/2016

Individual Income Tax Update

8

San Antonio

1/11/2016

LLC and Partnership Errors and Omissions

8

Houston

1/11/2016

Personal and Professional Ethics for Texas CPAs

4

Austin

1/12/2016

S Corporation, Limited Liability and Partnership Update

8

Austin

1/13/2016

LLC and Partnership Errors and Omissions

8

Fort Worth

1/14/2016

S Corporation, Limited Liability and Partnership Update

8

Dallas

1/15/2016

Business Tax Update

8

Austin

1/15/2016

Individual Income Tax Update

8

Dallas

1/15/2016

Top Tax Issues for Partnerships and LLCs

8

Houston

1/18/2016

Advanced Controller and CFO Skills

8

San Antonio

1/19/2016

Advanced Controller and CFO Skills

8

Austin

1/20/2016

Federal Tax Update 2016

8

Beaumont

1/20/2016

Personal and Professional Ethics for Texas CPAs

4

Addison

1/21/2016

S Corporation, Limited Liability and Partnership Update

8

Houston

1/22/2016

Individual Income Tax Update

8

Houston

1/25/2016

S Corporation, Limited Liability and Partnership Update

8

Fort Worth

1/26/2016

Single Audit Primer

8

Austin

1/26/2016

Individual Income Tax Update

8

Fort Worth

1/27/2016

Personal and Professional Ethics for Texas CPAs

4

Houston

1/28/2016

LLC and Partnership Errors and Omissions

8

Austin

Today’sCPA Nov/Dec 2015

49

CLASSIFIEDS To place a classified ad, email ddeakins@tscpa.net Positions Available Austin CPA firm grossing $325,000. Rapidly growing firm in expanding southwest Austin. Practice of 65% tax and 35% accounting services yielding a 50+% profit. Retirement minded CPA wanting to hire senior tax accountant for tax season and possibly groom for eventual purchase.

North Central Texas – CPA firm seeks manager level CPA with minimum of five years’ experience in public accounting. Some current partners are approaching retirement in a few years and the firm offers an opportunity to the right candidate for ownership interests within 3 to 6 years. Large long-term stable and diverse client base of tax, write-up and auditing. Great community to raise your family. Please send your resume to careers@vernoncpas.com.

Lake Jackson CPA with successful, diverse practice seeks CPA who wants to join the practice now and own it in 2 to 5 years. Excellent opportunity for the right person to own a successful practice in an area with a vibrant economy and enjoy work life balance. Email resume to hfkoester@sbcglobal.net.

Sugar Land, TX area CPA sole practitioner with 3 employees seeks manager to administer a $500,000+ gross revenue CPA firm in anticipation of the sole practitioner’s retirement in a few years. Sale of practice to manager expected with 2 to 8 years of initial employment.

The firm has 50% tax and 50% QuickBooks monthly accounting clients. Candidate must have a minimum 5 years like kind experience with a CPA firm. Send resume and personal financial statement to File Box #5212, Texas Society of CPAs, Attn: DeLynn Deakins, 14651 Dallas Parkway, Suite 700, Dallas, TX 75254.

TAX MANAGER North Dallas - $250,000 firm serving small business. Take over ownership as sole proprietor retires. Reply to movingup15@gmail.com.

I own a small CPA firm in far southwest Houston, and am seeking a currently practicing CPA to join my firm. The ideal candidate would be someone who is interested in managing the daily operations of the combined firms, eventually acquiring my firm when I retire. Staff and office infrastructure is in place. I have been practicing for more than 31 years and wish to phase into retirement over a two to three year period. Please respond to: File Box #5213, Attn: DeLynn Deakins, Texas Society of CPAs, 14651 Dallas Parkway, Suite 700, Dallas, TX 75254.

Waco, Texas Senior/Manager Accountant CPA with 3 to 5 years public accounting experience. Competitive salary depending on experience plus benefits with Partnership opportunity after proven success. Email resume to Frank@mts-cpa.com or mail to Metzgar, Traplena & Sullivan LLP, 4216 Franklin Avenue, Waco TX 76710-6944.

Practices For Sale ACCOUNTING BROKER ACQUISITION GROUP 800-419-1223 ext. 21 | Accountingbroker.com Maximize Value When You Sell Your Firm $110,000 gross. Austin Central. Traditional sale or retirement minded CPA seeks public CPA with billings of $40,000 or more for office cost sharing, part-time assistant and future buyout/ merger. Excellent street visible location, where public has called on CPA for 25 years. Tax & write-up. Sole proprietorship.

Reply to lapcpa@att.net.

50

Well established reputable practice with quality clients in northwest Houston area looking to sell practice with $500,000+ in annual gross revenues. Long term and knowledgeable support staff in place. Tax (74%) Accounting (20%) and Other (6%). Reply to File Box No.#5212, Texas Society of CPAs, Attn: DeLynn Deakins, 14651 Dallas Parkway, Suite 700, Dallas, TX 75254. $170,000 gross east Texas CPA practice. Well established 40+yrs.

Revenue 60% tax, 40% accounting services. Good potential for growth in audit. Please respond to: File Box #6001, Attn: DeLynn Deakins, Texas Society of CPAs, 14651 Dallas Parkway, Suite 700, Dallas, TX 75254.

CPA FIRM IN HOUSTON (GALLERIA AREA) This CPA firm located in the Galleria area of Houston offers revenues of approx. $1.2M, with a heavy concentration in the healthcare industry.

DALLAS AREA CLIENT LIST FOR SALE This tax practice offers gross revenues of approx. $25k, with most clients located in the Dallas area.

Selling? We offer a personalized, confidential process and seek to bring you the “win-win” deal you are looking for. Contact us TODAY to receive a free market analysis!

Kathy Brents, CPA, CBI Office 866-260-2793 Cell 501-514-4928 Kathy@AccountingBizBrokers.com Also visit us at www.AccountingBizBrokers.com Member of the Texas Society of CPAs $45,000 GROSS. Addison. CPA desires to partially retire and sell 1040 work plus 4 1120S and other miscellaneous. All good quality long-term clients with amount based upon 2014 payments. 81+ 1040 clients (plus some states). Will be available to assist in client transition. Reply to jcolawcpa3@sbcglobal.net.

Well established west Texas CPA firm for sale. 95% tax, 5% write-up, no audits. Good location in oil & gas area with growth potential. Gross $60,000. All inquiries confidential. Please reply to: File Box 5211, Texas Society of CPAs, Attn: DeLynn Deakins, 14651 Dallas Parkway, Suite 700, Dallas, TX 75254-7408.

6-1-15 North Dallas $620,000 | High quality small business clients, 65% tax – 35% compilation/reviews, year round cash flow, longterm staff, owner transition, reply to dallasfirm1@gmail.com.

SELL YOUR PRACTICE NOW!! … CASH BUYERS WAITING! Contact USA’s No.1 accounting brokerage network: PROFESSIONAL ACCOUNTING SALES for a FREE sales package with tips on getting your practice ready to sell. We provide financing so you can cash out at closing! Let our 32+ years of expert experience work for you! No upfront fees.

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Contact Leon Faris in our Dallas office …

PROFESSIONAL ACCOUNTING SALES ... 972-292-7172 OR VISIT OUR WEBSITE: WWW.CPASALES.COM. PRACTICES FOR SALE or MERGER … North Dallas $550,000+ . . . Dallas Plano area $500,000+ … Waco CPA $250,000+ …

Austin San Marcos area $300,000+ … Houston Cypress area $150,000+ … Contact Leon Faris, CPA, in our Dallas office at PROFESSIONAL ACCOUNTING SALES … 972-292-7172 or visit our website: www.cpasales.com.

Today’sCPA

AKINS PROFESSIONAL BROKERAGE: Successful transitions require experienced, confidential, professional services you can trust.

This is what Akins Professional Brokerage provides. Specializing exclusively in the brokerage of CPA firms, we have no upfront fees.

List your firm with a professional. Call David Akins, CPA, at 877277-0272. Visit our website at www.ProfessionalCPAbroker.com.

Texas Practices Currently Available Through Accounting Practice Sales: North America’s Leader in Practice Sales Toll Free 1-800-397-0249 See full listing details and inquire/register for free at www.AccountingPracticeSales.com $464,000 gross. Tyler/Longview Area CPA firm. Rapidly growing, loyal client base, caters to govt. audit clients (63%), tax (22%), accntg (13%).

TXN1305 $550,000 gross. Wichita Falls CPA firm. Tax (47%), bkkpng and payroll (29%), financial services (18%), cash flow to owner nearly 60%!

TXN1315 $163,000 gross. Gainesville CPA firm. Tax services 85% of gross, strong cash flow to owner close to 60%, and seasoned staff in place. TXN1378 $295,000 gross. Lufkin CPA firm. Tax (60%), accounting services (40%), high-quality client base, good fee structure, knowledgeable staff in place. TXN1389 $48,000 gross. East Ft. Worth tax firm. Individual and business client base offers opportunity for expansion of services and growth through referrals. TXN1390 $308,000 gross. Richardson CPA firm. Tax (67%), accounting (33%), strong fee structure, experienced staff in place, rapidly growing.

TXN1392 $309,000 gross. Addision CPA firm. Tax (85%), accounting/bkkpng (15%), high-quality client base, strong fee structure, central location.

TXN1394 $186,000 gross. DFW mid-cities area CPA firm. Accounting/ bookkeeping (56%), tax (44%), solid fee structure generating strong cash flow around 50%. TXN1395 $235,000 gross. Carrollton CPA firm. Primarily tax, strong fee structure, cash flow 50%+, no lease obligation, most clients mail in/electronically submit info. TXN1396 $267,000 gross. North Dallas CPA firm. Primarily tax, solid fee structure, cash flow about 45%, quality client base, seller flexible with transition.

TXN1397 $160,000 gross. Northeast Dallas CPA firm. Loyal client base, strong fee structure, cash flow over 60%, turn-key practice. TXN1398 $1,315,000 gross. Coastal Bend area CPA firm. Highly profitable around 83% of gross, good mix of tax, acctng, consulting/planning. CPA staff in place. TXS1146 $65,000 gross. Schulenburg area CPA firm. Accounting (55%) tax (45%), part-time staff available after purchase. TXS1155 $140,000 gross. East Texas CPA firm. Tax (69%), accounting (31%), quality client base and staff available to assist with smooth transition.

TXS1161 $39,400 gross. W. Houston CPA tax firm. 2015 revenues estimated to be around 49K. Can be worked remotely or easily transitioned to another location. TXS1162 $85,000 gross. SE Houston tax firm. Individual return averages $150, opportunity for expansion of services, bilingual or Spanish speaking Today’sCPA Nov/Dec 2015

buyer ideal. TXS1164 $340,000 gross. NW Harris County CPA firm. Tax (65%), accounting (34%), nice location, competent staff, steadily growing, seller flexible with transition. TXS1165 $110,000 gross. Bellaire-Galleria area CPA firm. Tax (69%), accounting (31%), office and staff available, but is portable. TXS1167 $51,100 gross. Kingwood area CPA firm. Bookkeeping (71%), tax (29%), portable to nearby location, seller available to assist with smooth transition. TXS1168 ACCOUNTING PRACTICE SALES For more information, call Toll Free 1-800-397-0249 See full listing details and inquire/register for free at www.AccountingPracticeSales.com

Practices Sought Accounting Broker Acquisition Group “Maximize Value When You Sell Your Firm” You Sell Your Firm Only Once! Free Report: “Discover the 12 Fatal Errors You Must Avoid When You Sell Your Firm!”

Purchase • Sale • Merger Texas CPA Practices Our M&A Brokers Are 100% “Ex-Big Four” CPAs! Call or email now for Free Report 800-419-1223 X101 maximizevalue@accountingbroker.com accountingbroker.com SEEKING CPA FIRM SELLERS Accounting Biz Brokers has been selling CPA firms for over 11 years and we know your market. We have a large database of active buyers ready to purchase. We offer a personalized, confidential process and seek to bring you the “win-win” deal you are looking for. Our brokers are Certified Business Intermediaries (CBI) specializing in the sale of CPA firms. We are here to assist you in navigating the entire sales process – from marketing to negotiating, to closing and successfully transitioning the firm. Contact us TODAY to receive a free market analysis!

Kathy Brents, CPA, CBI Office 866-260-2793 Cell 501-514-4928 Kathy@AccountingBizBrokers.com Also visit us at www.AccountingBizBrokers.com Member of the Texas Society of CPAs BUYING OR SELLING? First talk with Texas CPAs who have the experience and knowledge to help with this big step. We know your concerns and what you are looking for. We can help with negotiations, details, financing, etc. Know your options.

Visit www.accountingpracticesales.com for more information and current listings. Or call toll-free 800-397-0249. Confidential, no-obligation. We aren’t just a listing service. We work hard for you to obtain a professional and fair deal.

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Miscellaneous Michael J. Robertson, CPA, Texas Sales Tax Solutions Need a specialist in Texas Sales Tax? Former Comptroller of Public Accounts - Audit Group Supervisor assisting accounting professionals with Sales Tax Audits and Client Compliance issues. Is your client overpaying Texas Sales Tax? Call 817-478-5788 x12. Texas Sales Tax Solutions

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