Today's CPA Sept/Oct 2015 by The Warren Group

Todayâ&#x20AC;&#x2122;sCPA SEPT/OCT 2015

TE X AS SOCIETY OF

2015

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

Making the Transition from Practitioner to Professor Sustainability Reporting Standards Other Comprehensive Income, Presentations and Disclosures

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CONTENTS

CHAIRMAN Allyson Baumeister, CPA

VOLUME 43, NUMBER 2 SEPTEMBER/OCTOBER 2015

EXECUTIVE DIRECTOR/CEO John Sharbaugh, CAE

EDITORIAL BOARD CHAIRMAN

cover story

James Danford, CPA

32 TSCPA’s 2015 Rising Stars

Staff MANAGING EDITOR

society features

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

18 Spotlight on CPAs Living the Mystery 22 Capitol Interest The 84th Legislature Scorecard 24 TSCPA Annual Meeting of Members technical articles 36 Making the Transition from Practitioner to Professor

Wayne Hardin whardin@tscpa.net

40 Sustainability Reporting Standards

CONTRIBUTORS

44 CPE: Other Comprehensive Income, Presentations and Disclosures

Ali Allie; Melinda Bentley; Rosa Castillo; Jerry Cross, CPA; Anne Davis, ABC; Wayne Hardin; Chrissy Jones, AICPA; Rhonda Ledbetter; Craig Nauta; 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, CPADallas; 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, CPAHouston; 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

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columns 4 Chairman’s and Executive Director’s Message TSCPA’s Programs for Students 6

Tax Topics The U.S. and BEPS: Hurry Up and Slow Down

10 Business Perspectives The Deal Frenzy 12 Accounting & Auditing Audit Committee Collaboration Releases External Auditor Assessment Tool 14 Tech Issues Tweets, Posts, Snaps, Links … Social Media and the Changing Organizational Environment 20 Chapters 2014-2015 Outstanding Chapter Awards departments 28 Take Note 52 TSCPA CPE Course Calendar 54 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

TSCPA’s Programs for Students

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

he fall brings the beginning of a new school year, so we would like to give you an update on TSCPA’s programs designed to engage students, who represent the future of the profession. This year marks a significant milestone for TSCPA and the accounting profession in Texas – we’re celebrating our centennial anniversary! As we enter the next 100 years of our history, TSCPA continues to reach students of all ages with a message that choosing the accounting profession offers a variety of career paths and opportunities for those who major in accounting and obtain the CPA designation. TSCPA’s Accounting Career Education (ACE) and student membership programs are geared to students at Texas colleges and universities, as well as middle and high school students. ACE resources are also available for younger students – as early as elementary school. TSCPA leaders have identified building relationships with Texas educational institutions as a priority and means for connecting members to their communities. To accomplish this, the Society implements comprehensive accounting career promotions that include partnerships with the 20 chapters across the state. Objectives include building relationships with educators and utilizing educator solicitations that are created to reach a diverse student audience. The TSCPA chapters are provided with training and resources that assist in the recruitment of volunteer speakers, and the goal is to provide a connection for college and university accounting students to their local CPA communities. ACE program resources include materials and presentations on pursuing an accounting degree and career. In addition to sending volunteer speakers and materials to Texas classrooms, TSCPA hosts special events for community college and university students to share the value of earning a CPA license in Texas. Over the years, TSCPA members have visited thousands of Texas middle school, high school and college students statewide. TSCPA began inviting students as members in the 2000-2001 year. As of July 31, 2015, TSCPA has more than 1,900 student and candidate members. The Student Affiliate membership class has two categories: Students – Includes part-time and full-time undergraduate and graduate students from two- and four-year colleges or universities majoring in accounting, finance or other business-related majors. Upon graduation, a student becomes a candidate. Candidates – Includes college graduates pursuing CPA certification and those who have passed the Uniform CPA Examination, but have 4

Accounting Education Foundation’s Million Dollar Plus Campaign The mission of the TSCPA Accounting Education Foundation (AEF) is to promote and reward accounting educational excellence. The AEF accomplishes its goals by awarding scholarships to Texas accounting majors and recognizing outstanding Texas educators. For more than 50 years, Texas CPAs have generously funded AEF programs. Currently, the Million Dollar Plus campaign is underway with a goal of raising $1 million over a five-year period. You can show your support for the future of the accounting profession with a tax deductible contribution. To learn more about the AEF and the Million Dollar Plus campaign, visit TSCPA’s website at tscpa.org. not yet met the experience requirement for certification. A candidate member may continue in this status for five years after graduation or up to five years after they pass the CPA Exam. The membership dues are $35 for student and candidate members, and it includes membership in a local chapter. Benefits of membership are: • Student members majoring in accounting may be eligible to win one of four $250 tuition/book reimbursements. • Listing TSCPA on the student’s resume shows future employers a commitment to the profession. • Member discounts on CPA Exam review materials and courses. • TSCPA’s publications and communications, such as Today’s CPA, Viewpoint and other communications, keep members up-to-date on TSCPA and the profession. • Unlimited access to the website at tscpa.org, including the exclusive members-only areas.

TSCPA – Celebrating the Past and Securing the Future Throughout this fiscal year, TSCPA and the chapters will be commemorating our centennial anniversary. Be sure to check out the special 100th anniversary page on the website at tscpa.org, where you can order a copy of TSCPA’s newest history book, learn more about planned activities, read profiles of those who shaped our history, and see an impressive list of centennial celebration sponsors. Also contact your chapter for ways you may be able to celebrate locally. By reaching students and engaging the next generation of CPAs, TSCPA will ensure that the membership remains strong in the past, present and future. n Allyson Baumeister, CPA

can be contacted at Allyson.Baumeister@SBF-CPA.com.

John Sharbaugh

can be contacted at jsharbaugh@tscpa.net. Today’sCPA

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TAX TOPICS

The U.S. and BEPS: Hurry Up and Slow Down

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

he Organization for Economic Cooperation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) initiative is headed for the home stretch. Whether it will cross the finish line, however, remains to be seen. In only a few short months, the OECD will issue final, comprehensive reports and a plan to implement its BEPS initiative – the culmination of an ambitious two-and-a-half-year effort to overhaul the global tax system. The major concern: eliminating double non-taxation, or so-called “stateless” income, and putting an end to the perceived threat that multinational corporations are artificially (and improperly) shifting tax profits across borders to avoid taxation.

The Need for International Support For one thing, the initiative requires substantial international buy-in. And there is good reason to doubt whether that buy-in currently exists, particularly from some key countries. There are signs that the United States’ enthusiasm for the project is waning, as key legislators have recently questioned its efficacy, Treasury officials have expressed disappointment with the project, and stakeholders have raised concerns over its potential negative impact on U.S.-based multinationals. Some other countries have recently undertaken their own domestic tax initiatives that undermine the OECD’s call for coordinated action, signaling that they may, to some extent, go their own way.

What Exactly is the BEPS Project? The BEPS Project is an attempt to develop and implement a new global consensus on the rules of international taxation. The OECD, urged by the G-20, launched the project to measure, address and determine how to prevent the erosion of tax bases through profit-shifting schemes. With its sights set squarely on ending cross-border tax arbitrage and fundamentally reforming the international tax system, the initiative is grandiose and sweeping in its scope. The project has been spurred by a concern that existing international tax rules and treaties, largely formulated in a different era, have failed to keep pace with an increasingly borderless business environment and an expanding (if not now fundamentally) digital economy. Stakeholder countries are particularly concerned that sophisticated multinational corporations are exploiting gaps in current international tax rules – artificially shifting profits to low-tax jurisdictions and compromising the integrity and fairness of the current system in the process. The OECD hopes to close such gaps and align the taxation of income with the underlying economic activity that generates it. Despite its broad scope, the BEPS project has moved at warpspeed, at least in terms of international tax policy development. Less than three years after the G-20 commissioned the project, the OECD is now poised to publish its final set of reports and to seek implementation of its recommendations soon thereafter. It remains to be seen whether the OECD’s recommendations will be embraced and implemented with a speed and fervor equal to their undertaking – indeed, whether they will be implemented at all. The OECD will face serious hurdles converting its aspirational guidance into widespread enforceable, administrable rules of law.

How Big of a Problem is BEPS, Really? It is also – and this is a big point – fundamentally unclear just how big a problem BEPS really is. To be quite candid, the jury is still out on the underlying empirical basis for the central proposition behind the movement: that governments are losing substantial corporate tax revenues because multinationals are improperly shifting profits.1 The international buzz on the issue reached a fever pitch during the widespread fiscal austerity that followed the Great Recession, an environment that proved a fertile breeding ground for political and social backlash against a handful of multinationals, and that backlash has really been the anecdotal foundation for a movement to fix a problem whose magnitude is not clear.

Legal Hurdles Finally, there are serious legal impediments to implementing the BEPS proposals. Currently, there are more than 3,000 bilateral tax treaties across the globe.2 Treaty networks would have to be amended or modified (or circumvented) to implement the BEPS initiative. Certainly this could be accomplished, but it would be no small undertaking. The OECD, for its part, is proposing a multilateral instrument that would implement its BEPS plan in a comprehensive manner, sidestepping the practical and administrative difficulties of reworking hundreds, if not thousands, of bilateral treaties. Notably, however, the United States has not joined the 80 or so countries that are engaged in drafting that instrument, possibly signaling that it may not sign on. BEPS and United States Tax Reform The ongoing BEPS negotiations and soon-to-be-delivered continued on page 8 Today’sCPA

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TAX TOPICS continued from page 6 final OECD reports come at a time when Congress is actively working toward comprehensive tax reform. The two efforts, however, have largely proceeded on parallel tracks and, to this point, have not been particularly coordinated. But the BEPS negotiations and comprehensive U.S. tax reform are integrally related; indeed, they may ultimately be one and the same. The BEPS initiative also shines a bright spotlight on the need for U.S. tax reform. The United States, which boasts the highest corporate tax rates among OECD countries, places U.S. companies at a competitive disadvantage in the global marketplace. Taxes are, after all, a major cost of doing business. And that higher cost, the logic goes, ultimately hurts U.S. workers and shareholders. U.S. companies also face taxation on repatriated foreign earnings, a policy that has deterred them from bringing home an estimated $2 trillion that they have indefinitely parked overseas. Clearly there are significant policy issues that hang in the balance here; and clearly there are good reasons to support international and corporate tax reform of some kind.

A Little History and Perspective Many of the international tax rules and norms currently in place originated in principles that were developed in the 1920s by the League of Nations and, perhaps to a lesser extent, the International Chamber of Commerce. The principles formulated in that era were developed primarily to address the threat of double taxation. That is, of course, in many respects, the polar opposite of the current concern with double nontaxation. The shift in focus is a reflection of the fundamental underlying economic changes that have taken place; it is also emblematic of the distance between then and now. Indeed, much has changed since our current rules and norms were developed. Countries have jockeyed for and traded global economic positions, changing their respective bargaining power in the process; creditor nations have become debtor nations, and vice versa; and the global economy has undergone a digital revolution that raised the level of interconnectedness to heights unforeseeable by the policymakers of the 1920s. Tax systems interact now more than ever before; but sometimes, it seems, they still fail to interact where they should. The Current Landscape So where does the United States currently stand with respect to the BEPS debate? The U.S. has shown signs that its enthusiasm for the OECD’s BEPS project is waning. In a July speech on the Senate floor, Sen. Orin Hatch, the chair of the Senate Finance Committee, expressed “serious concerns” about the BEPS project.3 Hatch and Rep. Paul Ryan, the chair of the House Ways & Means Committee, also jointly wrote to “remind the Treasury Department that it has the ability to refrain from signing on to the BEPS final reports,” and that they “expect [Treasury] to do just that if doing so protects the interests of the United States and of U.S. persons.”4 Those are hardly words that 8

indicate Congressional approval of the BEPS project’s current direction. Together, Hatch and Ryan, the chairs of Congress’s two tax-writing committees, expressed their reservations with the BEPS process, stating that they “are troubled by some positions the Treasury Department appears to be agreeing to as part of the [BEPS] project.”5 “Regardless of what the Treasury Department agrees to as part of the BEPS project,” they warned, “Congress will craft the tax rules that it believes work best for U.S. companies and the U.S. economy.”6 This rhetoric sets an interesting backdrop for current efforts to enact comprehensive tax reform in this context. The Treasury Department, for its part, has expressed frustrations too. Robert Stack, the Treasury Deputy Assistant Secretary for International Tax Affairs and the lead United States delegate to the OECD Committee on Fiscal Affairs, lamented that he is “extremely disappointed in the output and our collective failure in the BEPS project to do more and do better work than we’ve done.”7 Stack has been critical of the BEPS project’s breakneck pace and the adoption of subjective governing standards on key issues that apply little more than, in his words, the “pornography test”8 – a reference to Justice Potter Stewart’s famous “I know it when I see it” test that is infamously difficult to administer with predictability. Many others have expressed concerns that the United States stands to be a net loser from the BEPS initiative, that the effort is a European job-and-revenue grab that will create a migration of jobs and revenues from the United States to European countries with more competitive corporate tax systems. Many have also raised concerns about the confidentiality of sensitive taxpayer data that would be required to be reported to other countries through the OECD’s recommendation for countryby-country reporting provisions. There is growing concern that requiring U.S. multinationals to provide so-called “master file” tax information to foreign tax collectors (as would be required) would come with substantial data-security risks and inadequate assurances of confidentiality. There is also a concern that requiring U.S. multinationals to provide sensitive financial data to foreign countries would put them at a competitive disadvantage, particularly where they compete with state-owned enterprises owned or backed by the very countries they would be required to report to. On the whole, current barometers indicate that the U.S. is lukewarm on the BEPS project. However, policy is politics and politics is policy, and they are subject to change, so our course and direction remains to be seen.

A Measured Approach So where do we go from here? Undoubtedly, by the time this goes to press, there will be new reflections and insights on the rapidly evolving BEPS debate. Never before, it seems, has the development and change of such truly fundamental and comprehensive tax policy moved with this speed and selfcertainty to fix a problem that, even its authors begrudgingly Today’sCPA

acknowledge, is uncertain in scope. That dynamic underscores the fact that the OECD’s BEPS initiative may be outpacing itself. It is waging war on a problem with unknown dimensions, and we might do better to slow down, step back, and take better stock of that problem before wholesale adopting the OECD’s final tenets. While it would be wrong to say that the BEPS initiative is a solution in search of a problem, it is quite possible that it may simply not be the best solution to that problem. At this point, it is hard to say. In a space as complicated and multifaceted as the intersection between and among sovereign countries’ international tax regimes, even minute changes in policy by some countries can wreak havoc. Certainly major changes could do even more damage than good. And that favors a cautious, measured approach – an approach that, so to speak, separates the baby before we toss the bathwater. n

Footnotes 1. Indeed, the OECD, in an early report on the subject, acknowledged that “it is difficult to reach solid conclusions about how much BEPS actually occurs.” While acknowledging that “[m]ost of the writing on the topic is inconclusive,” the OECD maintains that “there is,” nonetheless, “abundant circumstantial evidence that BEPS behaviors are widespread.” Addressing Base Erosion and Profit Shifting, OECD (2013), p. 15. 2. Developing a Multilateral Instrument to Modify Bilateral Tax Treaties, OECD (2014), p. 11. 3. In Speech, Hatch Outlines Concerns with OECD International Tax Project, Senate Committee on Finance, July 16, 2015. 4. June 9, 2015 Letter from Sen. Orin Hatch and Rep. Paul Ryan to Secretary of the Treasury. 5. Id. 6. Id. 7. U.S. ‘Extremely Disappointed’ in DPT and BEPS Output, Stack Says, TaxAnalysts, June 15, 2015. 8. Id.

Jason B. Freeman, JD, CPA

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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Today’sCPA Sept/Oct 2015

BUSINESS PERSPECTIVES

The Deal Frenzy

By Mano Mahadeva, CPA, MBA | Column Editor

he financial crisis of 2008 was a blessing in disguise in some ways. Uncertain of where the global economy was headed, companies began to batten down hatches with an inward focus to preserve cash, remove excesses and maintain margins. In the years following, a strong bull market, fueled by excess liquidity and low interest rates, drove corporate chiefs toward discretionary spending of share buybacks and dividends to appease uneasy shareholders and activist investors. However, the continued accumulation of cash and higher equity values on corporate balance sheets have led to deal-hungry companies on the prowl for entrees and appetizers, which has reshaped the global corporate landscape at a pace unseen in over a decade.

FEAR, WHICH KEPT COMPANIES INACTIVE ON THE SIDELINES DUE TO THE MARKET MELTDOWN IN 2008, IS NOW CREATING THE OPPOSITE ACTION – WHICH IS DUE TO THE FEAR OF DOING NOTHING AND BEING LEFT BEHIND. CEOs of companies are driven to make their companies the best in the business, but the way they navigate to do so can be quite different. Some prefer to find a piece that fits their puzzle well and then assemble their final product. Others prefer to build from scratch and continually tweak their model. There are also those who are driven by ambition, empire building and entrenchment. The recent deal craze has arisen due to varied motivations. Fear, which kept companies inactive on the sidelines due to the market meltdown in 2008, is now creating the opposite action – which is due to the fear of doing nothing and being left behind. While rivals actively gobble up competitors and become bigger and more efficient, tactical pressures have forced executives to do something in anticipation of takeover moves by rivals or in anticipation of them to avert being ripe fodder themselves. Major regulatory shifts, such as those resulting from the Affordable Care Act, has increased pressure on many companies to join the deal frenzy, as various groups doing business in U.S. health care seek to strengthen their negotiating power with each other. The Supreme Mano Mahadeva, CPA 10

Court backing the act continues to spur deals, while tax subsidies continue to attract many new customers. The health care sector has been one of the busiest sectors in deal making, sharing in the billions of dollars distributed among health care providers, drug manufacturers, medical technology companies and pharmacy benefit managers. Tax inversions did their share to add to an already hot deal frenzy in the pharma, media and consumer sectors. The premise was that a company based in one country can benefit significantly by buying and combining with a company in another country, then becoming re-domiciled abroad where taxes are lower, reducing the overall tax. This tax structure offered a company more operational flexibility by which a foreign parent can now offer an intra-company loan for specific uses, with the associated interest expense being tax deductible. However, a tax-only benefit tactic is rarely a good reason in that it exposes the company to many risks, resulting in costs outweighing the derived benefits. After all, tax policy can change and a revenue strapped government could change its mind about a tax sweetener. Growth prospects have waned for many companies over the years. To live with prior projections, companies have looked for ways to “acquire” inorganic growth to replace unfulfilled organic growth. Companies have even gone as far as to propose unsolicited bids, with refusals to take “no” as an answer, despite the risk and distractions caused. As the saying goes, if you cannot build it, then buy it – and a merger or an acquisition offers a business vehicle of choice that offers a quick fix. Well, all the billions spent on deals over the last 18 months have yet to trigger the scale and scope of activity that truly improves the overall prospects of the economy and increase our overall prosperity. Gross domestic product eked out 2 percent in the last quarter, which does not reflect any meaningful measure of production, labor growth or investment in capital expenditures. Much has been written about deal making and subsequent performance. The results have been mixed, because the success, or the lack of, has been measured against the motives for doing so. A pure acquisition or merger of a company in itself is not a way to create value, as it has no purpose. But used appropriately, they can be purposeful in attaining a goal. So, investors need to be wary. We are well aware that mergers and acquisitions are fraught with complexities and uncertainties. The resulting activity is bumpy, rapidly changing and challenging. As a result, it is difficult to know what to do and where to look. The end zone is always hazy, with no specific goalposts. So why go through it? Well, each of us thinks our deal is the exception to the rule! Success at mergers and acquisitions should be measured in ways similar to having success in investing – that is when acquired intrinsic value is greater than the price paid. 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. Today’sCPA

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ACCOUNTING & AUDITING

Audit Committee Collaboration Releases External Auditor Assessment Tool

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

n early June, the Audit Committee Collaboration released a new resource, the External Auditor Assessment Tool: A Reference for Audit Committees Worldwide, which is designed to aid in the process of evaluating the external auditor and assessing the quality of the audit. The tool is a guide for audit committees and was created to alleviate excess work in evaluating the external auditor. This is the first tool that has been created with the intent and capability to be used internationally.

Overview of the Tool’s Components The External Auditor Assessment Tool provides a brief overview of what the assessment process generally entails for audit committees and includes key points to remember when conducting their evaluations. It includes a fourpart sample questionnaire with 18 sets of questions covering important issues to consider when assessing the external auditor. These sample questions are meant only as a guide, so each individual committee should proactively tailor these questions to meet its specific circumstances or needs. At the end of the tool is a sample survey form to be distributed to other company personnel that is useful in obtaining valuable feedback outside of the audit committee regarding performance of the external auditor. This form allows for other company employees who had substantial contact with the external auditor throughout the audit to rate the audit team using a five-point scale based on a set of sample questions similar to those found on the questionnaire. Areas of consideration include the quality of services provided, auditor independence, objectivity and professional skepticism. The form also allows space to provide recommendations for improvement on the part of the auditor. An appendix covers other resources and suggested readings that audit committees and others charged with corporate governance could reference for additional help in completing the external auditor assessment. The Audit Committee Collaboration also released an updated version of the U.S. tool for external auditor assessment alongside the new addition of the worldwide reference for audit committees. The U.S. version now provides a detailed appendix on relevant U.S. requirements and standards, including prohibited non-audit services and an overview of required communications with audit committees. C. William Thomas, CPA, Ph.D.

The Assessment Questionnaire As mentioned above, the questionnaire consists of four separate sets of sample questions relating to important topics for consideration. The first section addresses the quality of services and sufficiency of resources provided by the auditor. It highlights specific areas of deliberation, including questions such as “Did the audit team possess the necessary knowledge and skills to meet the company’s audit requirements?” and “Did the lead audit partner identify the appropriate risks in planning the audit?” The document also provides a space for the audit committee to record its observations next to each set of questions. Section two is a continuation of the first, as it also focuses on the service quality and resource sufficiency provided by the auditor. However, it highlights broader areas of consideration, including whether the audit firm possessed relevant sector experience and necessary geographical reach and how effectively it used these resources. It has a question set over inspections by regulators and how the audit firm intends to respond to their comments. The third section addresses communication and interaction, and how effectively the external auditor was able to do both. The final part of the questionnaire tackles the topics of auditor independence, objectivity and professional skepticism. Overall Benefits of the Assessment Tool Today, audit committees oversee a number of central company functions, including the financial reporting process, the audit process, the system of internal controls, and company compliance with laws and regulations. Though important, the periodical assessment of the external auditor is just one of the many tasks that committees are faced with completing on their extensive “to-do” lists. With the introduction of the new External Auditor Assessment Tool, the evaluation process has been simplified into one resource that can be easily tailored to fit the specific needs of each individual company. Audit committees worldwide can now assess the external auditor and quality of the audit, or select or recommend the retention of the audit firm, with greater ease and fluidity than ever before. 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.

For more information on the Audit Committee Collaboration’s External Auditor Assessment Tool: A Reference for Audit Committees Worldwide,

VISIT: HTTP://AUDITCOMMITTEECOLLABORATION.ORG/RESOURCES.HTML. Other contacts: Association of Audit Committee Members, Inc. Fred Lipman, 215-569-5518 or Lipman@aacmi.org Center for Audit Quality Erica Hurtt, 202-591-2601 or ehurtt@thecaq.org

Independent Directors Council Amy Lancellotta, 202-326-5824 or amy@ici.org National Association of Corporate Directors Henry Stoever, 202-572-2102 or hstoever@nacdonline.org

NYSE Governance Services Stephanie Clark, 615-512-3007 or stephanie.clark@nyse.com Tapestry Networks Amy Christenson, 781-250-0634 or achristenson@tapestrynetworks.com

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TECH ISSUES

Tweets, Posts, Snaps, Links … Social Media and the Changing Organizational Environment

By Blair Browning and Jimmy Sanderson

e really need to review our current social media strategy.” A vague sentence like that at the outset of a meeting could prompt colleagues to shake their heads in agreement, but what does that statement really mean? The plethora of issues that have arisen for both organizations and their members as a result of the numerous social media platforms that have emerged must be addressed. Due to the proliferation of so many different platforms and their uses, we need to unpack a statement like the above with more specifics. The phrase “social media” encompasses many things as it entails the virtual interactions between people’s ideas and information that are created and shared. Our goal is to briefly highlight some issues pertaining to social media in ways that will be relevant and beneficial for both an individual CPA and an organization. Social Media Presence Social media has experienced undeniable growth that has led to a mainstream acknowledgement of its existence and sustainability seen most recently (and prominently) in the IPO offerings of Facebook, LinkedIn and Twitter in 2012-13. Most people recognize Facebook, Twitter and Instagram as the widespread industry leaders with regard to platforms – as these platforms are inherently relationally driven. From a business perspective, LinkedIn has enjoyed a “first-in-market” role that has been cemented over the years despite many other job search sites being available. Another platform, Google+, now has over half a billion users. According to Business Insider, having “Google+ followers boosts the [Google search] ranking the most so this is another platform to consider from a business growth perspective.” Much of this is, once again, due to the concept of networking and connectivity, a hybrid between the personal and professional worlds. Those of us who study social media are aware that new platforms continually arise with varying degrees of success. We could certainly include YouTube as another platform that has high acceptance from the general public and though its goal is not primarily to connect people, it certainly can serve that purpose. Recently, platforms such as Snapchat, YikYak, Tumblr, Vine and Ask.fm have grabbed enough market share to warrant attention – you may be particularly aware of these domains if you have high school aged children. Universities and some businesses have gravitated toward Pinterest (84 percent of its U.S. users are women) to bring more eyeballs to their products, and we could go on and on. If you are not engaged and taking advantage of the opportunities that abound via social media, it is time to not only dip your foot in the pool, but to dive in and immerse yourself/your organization in all that these platforms have to offer. As is the case with many things that experience rapid growth, structure lags behind. For example, despite companies that appear to be “innovators” or “early adopters” by hiring a new employee (typically a fresh college graduate) for a social media-related position, many gaps exist, largely because the platforms are still developing. Moreover, even if companies 14

are actively using it in their pursuit of candidates, some do not even have a social media policy for their employees. Given the number of people using these platforms on a daily basis, there remains a dearth of information as to the practical implications for business on a day-to-day basis. Thus, we want to briefly address three areas where social media has changed the business environment: (a) how it aids and impacts the recruiting of talent; (b) how companies oversee/monitor its usage by employees; and (c) how organizations can optimize their social media presence for a positive return. The days when many senior leaders in a company scoffed at technological developments and proudly stated that they did not know how to or refused to learn to email or “to Twitter” (sic) have long since passed. That “old school” mentality simply won’t cut it in today’s global marketplace. One individual said, “The return on investment (ROI) of training up your employees on social media is that your company will still be around in five years.” As university professors, we desire to be at the intersections of where our students spend time in order to best engage them, and it is very apparent that this space is firmly couched in the world of social media. Similarly, we know that CPAs desire this same connection with their peers and clients. Some believe that social media is the classic double-edged sword, bringing both opportunities and risks. This is why constructive dialogue must occur within your organization. As such, we will now describe how a company can utilize it through what we call the “Three E’s” – entice, educate and empower. Entice – Social Media and Recruiting Most accounting firms are highly aware of the importance of attracting new talent and have for quite some time tapped into internships, which can directly lead to job offers. Consequently, it is not a surprise that many firms are active on social media to recruit prospective employees. LinkedIn has cemented itself as the go-to spot for both prospective candidates and employers. Certainly, executive placement firms will continue to have a strong presence in high-end placements, but LinkedIn has also proven to be a valuable tool for hiring, and it is part and parcel of most executive placement firms’ strategy. LinkedIn has been called a virtual or online Rolodex of connections for business people and as a business networking platform, it can be an important resource for locating and contacting prospective candidates/ companies. This platform has alleviated the necessity of always having a business card with you. Business consultant, Mark Ginsberg, said the best use of LinkedIn is joining groups, as there is one for just about every industry and profession. Once you have joined a group, you can look at members and see who you would like to connect with – in doing so, you will not only be connecting to that one person, but also to all of his/her connections. It may not be a strong connection, but these “loose ties” make up the hidden job market that eludes people who are simply scanning a jobs website on their own. The key ingredient is to know your audience. When you know where your job candidates/customers spend their social media time, you can develop Today’sCPA

your strategy and begin to interact with them in that space. In 2010, Facebook launched a professional networking application for finding jobs within its platform called BranchOut. This may be something for your company to look into, but since LinkedIn’s sole focus is on the needs of professional job seekers and recruiters, it seems to be the best place to start.

Educate – Social Media and Training/Monitoring What if you have an intact workforce and are not looking to hire any time soon? Does this mean you can put blinders on until the next job search? Not at all! If your company has a human resources representative, he/she may have already developed a social media policy for your firm. Your organization and its reputation matter, and the tweet, post, snap, link or even an uploaded picture of one individual can have a significant impact on your organization’s reputation. In the last few years, there have been far too many instances to cite regarding poor use of social media by employees. In fact, in the last few months that same statement would be true, but we will highlight three infamous examples that provide poignant examples of the ways an employees’ words and/or actions can impact the brand. Phil Robertson, from A&E’s television show “Duck Dynasty,” caused a large uproar when he made controversial statements within a GQ article. Rather than expound on the issue itself, let us point you to the outcome: A&E briefly suspended Robertson. Following this, some people threatened to boycott A&E if they showed more episodes, while others threatened to boycott if A&E didn’t remove Robertson from suspension! (He was ultimately

Today’sCPA Sept/Oct 2015

reinstated.) While this first example stemmed from an interview rather than a social media platform, it speaks to the first point that employees represent and can significantly impact organizations. However, we realize that you may be tempted to point out that “Duck Dynasty” was the largest cable show in history, so it does not really pertain to your firm or company. In our second example, we’ll focus on an employee who was not in the spotlight. When calls were made by some to boycott Chic-Fil-A over comments made by their chief executive officer (CEO), a day was selected for people to boycott the restaurant and one Arizona businessman who held the position of chief financial officer (CFO) at his company decided to take action. He not only went to the restaurant and berated a female Chic-Fil-A employee who was working at the drive-thru window, but he also uploaded footage of himself doing so onto YouTube. Not surprisingly, this footage went viral and his company fired him within 24 hours. From national reality TV stars to local businessman, your brand CAN be impacted by your employees’ behavior. The scary thing is that everyone is susceptible. Our final example is of IAC, an American media and Internet company that had to fire an employee after she tweeted “Going to Africa. Hope I don’t get AIDS. Just kidding. I’m white.” The employee, Justine Sacco, launched a Twitter mob not yet seen before and a worldwide trending hashtag took off while she was in the air from London to South Africa: #HasJustineLandedYet. It was a worldwide hashtag of someone continued on next page

TECH ISSUES continued from previous page who made a very ill-advised tweet, but not someone who was known by people prior to the tweet. By the time she had landed, she had lost her job. Oh, one other thing – she was a PR director. Everyone is susceptible. Does your company provide any type of training encouraging your employees to think before they tweet? Would your company have the ability to fire this individual? Do you have a social media policy? In a world that enables immediacy, there must be education for your employees about social media habits. Maryland became the first state to introduce legislation that protected online privacy and since that time, numerous states have passed and signed bills to protect people ranging from employees to students (and many other states have similar bills pending). It is important to know that while in some states, you cannot demand employees give you their social media passwords and cannot monitor their private accounts, there nevertheless should be awareness of and an accountability toward employees’ content. More stories are coming to the surface about a blurring of the Communication Privacy Management theory. This theory contends that people perceive that they have the right to reveal self-aspects not publicly known. However, when people perceive work aspects to be self-aspects, bad things can happen. Statements like “My tweets do not represent those of my employer” simply do not hold up when displayed for public consumption. In 2012, Reuters noted that women’s specialty retailer Francesca’s Holdings Corp said it fired its CFO Gene Morphis after an internal probe found that he had improperly communicated company information through social

media. Even more recently, in January 2014, the Securities and Exchange Commission (SEC) levied a $100,000 fine on a Navigator money manager and its president for making false claims on Twitter. The biggest mistake some people make is not realizing the potential reach of their posts.

Empower – Employee Innovation While we have focused on how to entice and then to educate employees, it is now time to empower them to be innovative with social media to optimize it for your company. For example, we have heard numerous anecdotes about everyone from realtors to hair stylists who receive the majority of their clients because of marketing through social media. Who could forget the Star Wars-themed Volkswagon Passat ad that aired on YouTube a week before the Super Bowl? It had over 1 million views in the first day and various sources say between eight to 13 million views before it ever aired on television! The ad, which was called “The Force,” has now been viewed on YouTube over 62 million times and is the most shared advertisement of all time. While your firm may not have the resources or even the desire to have this type of impact, you can still optimize it for your firm’s benefit. Twitter may be an easy place to begin. No doubt you have heard that Twitter uses something called a hashtag (#), and it can be a great way to organize or aggregate thoughts around a particular topic. For your firm, maybe you are trying to draw new clients and need something catchy. What if you launched a firm Twitter account and you doled out a quick piece of advice each day closing each

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tweet with #AvoidAnIRSAudit? If they click that hashtag, every other tweet that has that hashtag in it will appear, which can give you a great opportunity for a captive audience seeing many thoughts all connected directly to your firm.

Locate and Connect Whether it is for recruiting, training or optimizing, social media matters. Enticing quality candidates, educating them to use the platforms

well, and empowering them to be innovative to create a strong presence are all important. We encourage you to be at the intersection of where your clients are and, by any metric or study that you read, that is online with various platforms. This is precisely why you need a policy in place for your employees. Social media enables individuals to locate and connect with employers, and it enables firms to develop and enhance their brand and reputation. #socialmediamatters n

Dr. Blair Browning

(Blair_Browning@baylor.edu) is an associate professor in the Department of Communication at Baylor University.

Dr. Jimmy Sanderson

(jsande6@clemson.edu) is director of Communications, Marketing and Faculty Relations for Clemson Online at Clemson University. They have conducted research in the areas of leadership and communication, as well as social media and sport, and have also guided social media training and consulting for universities, organizations and athletic teams. They are available to visit with your firm to assist in creating or discussing social media policies, as well as consulting on best practices for preventing missteps.

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SPOTLIGHT ON CPAS

Living the Mystery As TSCPA Turns 100, One Corpus Christi CPA Recalls Her Six Decades in Accounting

By Anne McDonald Davis

hen Johnnie Ray Seale, CPA-Corpus Christi, was a little girl growing up during the 1930s, she would buy the latest Nancy Drew books (for 50 cents!) as soon as they came out. It’s sort of her explanation for her career choice. Seale chuckles: “If you think about it, accounting is a mystery. I’m nosy and I love that!” The mystery Seale had to solve in adulthood was how to make a life for herself and later on, a young family. Texas’ Public Accounting Act of 1945 had made provisions for individuals to sit for the CPA Exam even though they didn’t have college degrees or formal training – if they had trained for a number of years under CPAs. That was a useful clue to a real-life sleuth, at least one willing to take a leap of faith. “All of my accounting and bookkeeping jobs had been for CPAs, but I only had three hours in accounting classes,” recalls Seale. “CPAs had taught me what I needed to know, mentored me, but I don’t know if anybody thought I could actually pass.” Still, Seale applied to the Texas State Board of Public Accountancy to sit for the CPA Exam under the special provision. She explains: “If I had not passed it all, I would not have become a CPA, because that provision was about to be phased out. I did take one coaching course under a local CPA with several others like me. I attribute my ability to pass the first two parts to that class.” Although women in accounting were still relatively novel, Seale doesn’t recall being discouraged or disparaged by her male colleagues. She reflects: “There was never a competitive feeling among the men CPAs in Corpus Christi. The local CPA chapter was always very gracious and helpful to me; I was grateful for that. Of course … I didn’t have a college degree. I think maybe I was considered a peer, but not a threat.”

“I THINK EVERY INTELLIGENT WOMAN SHOULD HAVE A CAREER.” — NANCY DREW: DETECTIVE, 1938 There were, in fact, many college-degreed CPAs practicing after World War II, thanks to the GI Bill. Soon Seale decided that with two small boys to support, she needed a college education of her own to compete. For five and a half years, she worked during the day and then went to school at night until she had diploma in hand. Through it all, her focus was to become a true professional. Seale asserts: “I never felt like anything was beneath me: reconciling, typing letters. I had a feeling of professionalism about anything I did. I believe I look and act like a professional, and I have received the respect a professional person should have. I remember Zelda Wood, the first 18

Johnnie Ray Seale, CPA–Corpus Christi

female accounting graduate from the University of Texas. She never came to her office without a hat. Men wore hats; so did she.” By the 1980s, more women began entering accounting, which Seale was pleased to see. “I think women have patience and the ability to deal with problems and people. You have to be a compassionate person to be a first-rate CPA. I’ve been psychiatrist, business advisor, teacher.” She also thinks it’s important to have a personality and career that fundamentally blend well. “I am a rules-oriented person. If the law says such-and-such, I abide by it. I remember a client complaining once about paying a large amount of income tax, but then saying, ‘Well, that’s the law.’ I remembered that and it’s served me well. I had a job to do and I did it. Also … when you really, really love what you do, you’re going to be good at it.” When Seale retired in June, she was 88, just 12 years younger than the Texas Society of CPAs. She gives credit where credit is due to all her “wonderful employers” who funded her involvement, and hopes the next century will include CPAs and TSCPA members who continue to “behave as professionals.” She also projects a wish into the future for increased input from CPAs to regulatory bodies when new accounting legislation is proposed. “I don’t think the people writing the laws know what is workable and what is not,” she observes wryly. Congress and legislative antics aside, Seale smiles: “I’ve led a very full life and have tried to deal with the people in my life as a professional. I guess accounting has been very kind to me.” n Today’sCPA

CHAPTERS

2014-2015 Outstanding Chapter Awards

By Rhonda Ledbetter | TSCPA Chapter Relations Representative

o inspire chapters in their continuing effort to better serve members, TSCPA bestows Outstanding Chapter Awards to the small and medium-sized chapters. Selection is made by a group of past presidents from chapters of all sizes, who understand the work involved in successfully leading volunteers. Following is information about the chapters honored for the 2014-2015 year.

Help Make Your Chapter Award-Winning Members are the key to – and the reason for – chapter success. Contact your local president or executive director and find out how you can get involved in making yours an award-winning chapter! You can get contact information through the TSCPA website at tscpa.org.

Outstanding Small Chapter: Rio Grande Valley President: Joe Garcia, CPA To promote awareness of the CPA profession as a career and to help accounting students enhance their business communications skills, the chapter partnered with UT-Brownsville Career Services to host mock interviews for accounting students. The event was coordinated by a chapter board member who is on the faculty at the university. Participants included 30 students and eight CPA interviewers. A chapter board member went to campus to speak to UTBrownsville accounting students about the CPA profession and the importance of a CPA license over the lifetime of a career, as well as its increased earning power. Members of the chapter board met with the dean of the College of Business Administration at UT-Pan American. The discussion centered on developing a program for CPAs to mentor students who might be interested in accounting careers. To encourage community awareness of the CPA profession, six accounting firms sponsored the Village Accountants Cottage at the Holiday Village in Brownsville. The walk-through setting featured festively decorated cottages and holiday-themed characters for children of all ages. The chapter continued its tradition of offering an extensive amount of live CPE. There were 88 hours of CPE presented, allowing CPAs to continue their learning without having to travel beyond the Valley.

Outstanding Medium-Sized Chapter: El Paso President: Sean Ihorn, CPA A new $25,000 scholarship endowment in accounting at UTEP was created by the chapter, to be fully funded within the next five years. Nearly half of that has already been raised. The endowment is named in honor of Dr. Sid Glandon, who retired in 2014 as the chair of the Accounting Department at UTEP and as a long-active chapter and TSCPA board member. In addition, they provided $3,000 in scholarships from money raised through their 5K run. The chapter obtained a proclamation, signed by the mayor of El Paso, declaring CPA Day in honor of the chapter’s 75th anniversary celebration. The event garnered local attention, and it was featured in the local business publication and on TV. The gala included a live auction, dinner and dancing, and comedy entertainment. In addition to celebrating 75 years, the event raised funds for the newly created scholarship endowment. The chapter facilitated a site visit of Peter Piper/Burger King headquarters for UTEP accounting students to show them CPA career options in business and industry. They also continued their Mexico connection with accountants from across the border who attended chapter meetings and CPE. Several Texas state representatives and candidates spoke at a CPAPAC awareness chapter meeting. Attendees got information and were able to make the representatives aware of issues important to CPAs. n

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CAPITOL INTEREST

The 84th Legislature Scorecard

By Bob Owen, CPA | TSCPA Managing Director, Regulation and Legislation

ummer is over. We’ve all had our vacations and are eager to get back to the real world – or not. Eager or not, here we are, looking forward to new horizons. The mainstream press and most political writers are and have been writing about the national elections, but before addressing Texas elections (the primaries are still six months away), I’d like to look back at the results of the 84th Texas Legislature. Let’s reflect on results; what did legislators do or not do during their 140 days of legislative session earlier this year? Was it good, bad or somewhere in between? There are many ways to measure the results of a legislative session. Your opinion of whether they did good or bad probably depends more on your point of view than what bills they passed. Some say the fewer bills passed, the more successful the session. They passed 115 fewer bills this session than last. Others want to grade the Legislature along ideological grounds; i.e., did they pass enough “conservative” or “liberal” bills. The party faithful like to measure based on whether the Democrats or Republicans pass the most bills. The financial hawks look at spending compared to prior years – always hoping for less – or at least a smaller increase than last time. I thought I’d take a little different approach. Let’s see if the elected officials had “promises to keep.” Since the Republicans had an overwhelming majority in both the House and the Senate, I admit this measure has a definite Republican bent. The Democrats didn’t promise much, knowing that promises would be hard to keep, although some would say the Democrats did better than expected this session. The Republicans, on the other hand, made bold promises. At the beginning of the session, it was clear that the Republicans could do whatever they wanted to do, as long as they could agree among themselves. That was the rub this session – agreeing among themselves. While there was a good deal of agreement on some issues, the House and Senate clearly had different priorities; and where there was agreement in principle, there were still differences in approach and detailed solutions. Gov. Greg Abbott also had his own set of priorities, some of which were different from those of the legislative leadership. It took a lot of effort for the Republicans to reach consensus. Everyone – at least everyone who counted – promised a tax cut; it’s one of the best promises to make to get elected in Texas. The state was flush with cash, with enough funds to prepare a balanced budget that successfully addressed the state’s needs with money left over. Why not send that left over money back to taxpayers? The debate between the House and Senate about tax cuts was intense and entertaining. They had trouble agreeing on just how to cut taxes, but when the dust cleared, they definitely delivered on the tax-cut promise. The tax cut for individuals was modest and benefited only homeowners by increasing the school property tax homestead exemption from $15,000 to $25,000, saving homeowners about 22

$125. The business tax cut was a substantial 25 percent reduction in the franchise tax rate, while also giving more small businesses a shot at the even lower E-Z tax rate, which was cut over 40 percent. Second only to tax-cut promises to ensure electability in Texas are pledges to reduce gun control. Open carry and campus carry were promised political priorities and both passed. Concealed handgun licensees can now openly carry holstered handguns and can also carry their concealed handguns on university campuses, subject to campus restrictions as determined by university officials. You must still have a concealed handgun license to carry a handgun in Texas. The budget is the only bill the Legislature must enact and, as usual, it was one of the last bills to pass. There were substantial differences in the budget proposals made by the House and Senate, all of which had to be resolved at the end of the session by a conference committee. The Senate’s proposals prevailed on some major issues like border security and education, but the House prevailed on improved pension funding and pay increases for correctional officers, while losing on increased Medicaid payments to doctors. There was a substantial difference in House and Senate proposals on education. The House passed a bill to completely reorganize public school funding in the hope of preempting any court mandated changes resulting from the school funding lawsuit pending before the Texas Supreme Court. The Senate never seriously entertained the concept or the bill. The school lawsuit is likely being heard before the Supreme Court as you read this article, although any ruling is not expected until sometime in 2016. The Senate preferred to focus on education reform issues and specifically tried to deliver on campaign promises to allow some form of school vouchers permitting state funding for private school tuition. Some reform issues were passed, including a proposal to rate schools on an A-F basis, but the voucher bill, or “tax credits” as they were called in the bill that passed the Senate, was never considered in the House. Pension fund liquidity was another priority for this Legislature. This priority was more financial than political. The Texas employee and teacher pension funds are underwater and needed attention sooner rather than later to keep the problem from becoming unmanageable in the future. While the issue was not completely resolved, major steps were taken towards solvency for future retirees. Improved border security was an important announced priority by all Republicans. Time will tell whether our borders will be more secure, but the Legislature did pass bills designed to enhance border security, including increasing border security funding by $800 million. That funds 250 more state troopers to be assigned to the border, authorizes 10-hour workdays (overtime pay) for troopers and keeps the National Guard on border duty until the new troopers are in place. A transnational intelligence center is also being created and penalties for human smuggling were increased. Along with border security, political promises were made to end Today’sCPA

in-state tuition for Texas resident undocumented students. This proposal never advanced far enough to get a floor vote in the Senate or House. It was a priority of Lt. Gov. Dan Patrick and Republican senators, but the Senate rules require that 60 percent of the senators agree to debate a bill and the bill author could never garner the votes. This issue was clearly not a priority of the House leadership and it would likely have died in the House if it had made it out of the Senate. Transportation was a major priority right behind tax cuts and gun control. This priority was dictated by the public outcry for more and better roads and traffic congestion relief. The road problem is a money problem, a big money problem. It’s a difficult political problem, because the public wants the roads improved and the traffic less congested, but doesn’t want to pay tolls or any more in taxes for roads or anything else. Last session, legislators passed a proposed constitutional amendment to take money from the rainy day fund to spend on roads and retiring road debt. Voters approved it last November. This session, they passed another proposed constitutional amendment dedicating certain amounts of sales tax and vehicle sales tax revenues to roads and voters will make that decision this November. If approved, this proposal will mean that future general revenues will be reduced and future Legislatures will have to find ways to make up for that lost general revenue or cut other state expenditures. Another priority of Patrick and Republican senators was to institute a different constitutional budget cap that would be more restrictive of government budget growth in the future. This would require a constitutional amendment and they could not get the necessary two-thirds vote to pass the proposal. The House passed a budget cap proposal that was somewhat different and less restrictive than the Senate, but that bill died in the Senate. State contracting reform became a priority during the session. A contracting scandal at the Texas Health and Human Services Commission, which ultimately cost Commissioner Dr. Kyle Janek his job, disclosed major shortcomings in the state’s contracting procedures. Both the House and Senate drafted proposals to improve the system and most of those proposals did become law. The new law provides more layers of oversight both before contract signing and during contract administration. Reforms include: • Stringent conflict of interest prohibitions. • A two-year cooling-off period before state employees can take jobs with state contractors. • Establishing a contractor rating system that gives the comptroller’s office the right to ban low-performing contractors. • Requiring agencies to seek alternative proposals when using the Cooperative Contracts program, a centralized list of approved state vendors. • Prohibiting agencies from using the Cooperative Contract program for deals worth more than $1 million. • More agency contracting oversight by the Legislative Budget Board. Today’sCPA Sept/Oct 2015

Abbott announced his legislative priorities in his State of the State speech early in the session. His list included tax cuts, more road funding and improved border security, all successes as indicated above. Abbott also encouraged limiting budget growth which, as mentioned above, did not make it to his desk for signature. He also proposed expansion of pre-kindergarten programs in Texas and a bill was passed providing more funding for the programs, although perhaps not at the funding level Abbott wanted. His proposal to expand higher education research initiatives was embraced by the Legislature and a program was passed giving the governor resources to improve researcher recruiting for Texas universities. Perhaps the biggest disappointment for Abbott was the complete rejection of his ethics reform proposals. The Texas Tribune reported that during Abbott’s campaign for governor, he promised “to push for stronger laws to eliminate conflicts of interest and restore trust in the oft-maligned Legislature.” He made good on that promise by making ethics reform an emergency item for the Legislature to consider. In his State of the State speech, he said, “Let’s dedicate this session to ethics reform.” Unlike other portions of the speech, this one got only modest applause, which turned out to be a foreshadowing of the legislators’ lack of appetite for genuine ethics reform. At the end of the session, Abbott vetoed the only ethics reform bill that was passed, because he said it diluted ethics rather than strengthening them, and he was right. Looking at the session through the perspective of whether legislators and leaders accomplished what they promised, I’d have to give them pretty high marks. Does that mean the Legislature did a good job for Texans? That’s a different question, and one that only you can answer. n Bob Owen, CPA

is TSCPA’s managing director of regulation and legislation. Contact him at bowen@tscpa.net. 23

TAKE NOTE

TSCPA Annual Meeting of Members

By Rhonda Ledbetter, TSCPA Chapter Relations Representative

SCPA members, families and colleagues gathered in Dallas for the 2015 Annual Meeting of Members and Board of Directors Meeting. The event served as a kickoff for the year celebrating the Society’s 100th anniversary.

Year in Review Immediate Past Chairman Mark Lee, CPA-Houston, shared the exciting things happening at TSCPA and in the accounting profession. The Society’s efforts coalesced around his theme for the year: “Be a Part of Something Bigger than Yourself.” There has been growth in the number of members as a result of the automatic free membership program for new Texas CPAs. Chapters have been doing an excellent job of engaging these individuals locally and encouraging them to continue belonging for years to come. CPE is going strong. Conference webcast attendance continues to build steam. The TSCPA CPE Foundation has partnered with the Fort Worth and Houston chapters and will continue to look for opportunities to partner with others. A highlight of the legislative session was the elimination of the $200 professional fee/occupation tax, otherwise known as the head

THE ANNUAL MEETING SERVED AS A KICKOFF FOR THE YEAR CELEBRATING TSCPA’S 100TH ANNIVERSARY. tax. TSCPA worked with a coalition of professional groups in leading the efforts for its repeal. Another positive piece of legislation was the elimination of redundant filings for limited partnerships, professional associations and others subject to Texas Franchise Tax reporting. The Society hosted its first CPA Day of Service in May. The project was initiated by the Young CPAs and Emerging Professionals Committee. With the support of chapters and members’ employers, hundreds of volunteers participated. For details about the projects working toward these goals, please refer to the Year in Review article in the May/June issue of Today’s CPA.

AICPA American Institute of CPAs President/CEO Barry Melancon, CPA, discussed issues and initiatives the Institute is dealing with at the national level. There is currently a historic convergence of U.S. and global forces, in an age of urbanization and greater global connections. “Technology 24

TSCPA 2015-2016 Chairman Allyson Baumeister, CPA-Fort Worth; Dallas Mayor Mike Rawlings; and TSCPA CEO/Executive Director John Sharbaugh, CAE.

doesn’t care about borders,” Melancon stated. There are factors affecting the profession’s future relevance. One is evolving attitudes about paying for expertise. CPAs’ value relevance will lie in their interpretative ability. Another factor is commoditization. As an example, audited financial statements of publicly held companies are a core service of the profession. If an online information company took that content and published a condensed version, perhaps it could start to gain acceptance in a marketplace that might not value the detail CPAs provide. There are issues affecting CPA firms, including audit quality. AICPA has a six-point plan to improve audits. One component is developing the future model for practice monitoring as “a provocative vision of what practice management could become,” Melancon said. Another Institute initiative to help firms is the Center for Plain English Accounting. AICPA is constantly at work on legislation, as well as regulation and standards affecting the profession. It has called on Congress and the U.S. Department of the Treasury to create an Internal Revenue Service of the 21st century. It also monitors state matters. As the profession’s services broaden, AICPA works with state CPA societies to get their states’ definition of attest expanded and to reserve it exclusively for CPAs. The Institute helps CPAs respond to marketplace needs: • As accounting firms’ services diversify, there is a greater need for data analysis skills. • Cloud computing trends will cause increased relevancy challenges for the profession. • The market is requesting security system assurance services. • Smart data is integrated and forward-looking information that is comprehensive and contextualized. CPAs must be active members of the team interpreting it and making strategic business decisions with it. • Determining fair value involves large numbers of business intangibles. AICPA is developing two new credentials to improve quality and consistency. Today’sCPA

Ben Pena, CPA-Rio Grande Valley, and TSBPA Executive Director Bill Treacy.

AICPA President/CEO Barry Melancon, CPA, and Private Company Council Chairman Billy Atkinson, CPA-Houston.

AICPA monitors and responds to the profession’s need for talent. Some of the issues related to young CPAs are work environment, retention, leadership gap and technology’s impact on CPA functions. Developing and maintaining a new workforce require that employers offer flexibility, technology, transparency, community and diversity. Developing future CPAs remains a focus. The CPA Exam will soon see significant changes. There will be increased assessment of higher-order skills and enhanced test-taker convenience. There is concern about the candidate pipeline, because a record number of individuals are receiving accounting-related degrees, but there is a decline in those sitting for the CPA Exam. AICPA commissioned a study by an independent research firm that indicates an individual’s environment drives the pathway. One of the strongest influences for those who graduate and plan to pursue CPA certification is employers recruiting on campus. The strongest factors in actually sitting for the CPA Exam are workplace requirements to be certified, employers that cover the cost of preparatory courses and exam fees, and workplace encouragement and flexibility (including time off from work to study).

Economic Outlook Economist Bernard Weinstein, Ph.D., presented an outlook focused on the effects of the “shale revolution” and whether low oil prices will derail it, throwing Texas into a recession. A map of the continental U.S. showed current shale plays from the Los Angeles area to the Appalachians. The boom has been beneficial to the country’s overall economy. The nation is the world’s leader in oil field output growth. A chart showed that U.S. crude, after years of decline, was back to 1985 levels by 2014. The U.S. is also the world’s top producer of natural gas, according to a chart presented. Despite that, America’s exports of gas (other than to Canada and Mexico) are very low. One of the few liquefied natural gas export terminals under construction is in Texas. The Texas upstream oil and gas industry directly accounted for about 8.5 percent of all jobs added to the post-recession statewide economy – but the five-year Texas expansion cycle is over. However, he feels that the momentum built up over the past five years can keep Houston and Dallas/Fort Worth out of recession, and that Texas will do just fine.

Washington Update United States Representative Mike Conaway, CPA-Permian Basin, shared his thoughts on just a few of the issues facing the 114th Congress. He talked about the reconciliation process, which arose from the Congressional Budget Act of 1974. Reconciliation allows for expedited consideration of certain tax, spending and debt limit legislation. Congressional support for Trade Promotion Authority, also known as “fast track,” was a crucial step toward eventual completion of the Trans-Pacific Partnership. It would be the most substantial trade agreement ever conceived for the Asia-Pacific region, with 12 participating countries representing almost 40 percent of global output and 25 percent of global exports of goods and services. Texas Legislative Session Fiscal highlights from the 84th Texas Legislature were provided by state Rep. John Otto, CPA-Southeast Texas, chairman of the House Appropriations Committee. You can read about them in the Capitol Interest article in this issue. Today’sCPA Sept/Oct 2015

Profession Issues A panel discussed issues facing the accounting profession and shared their perspectives. The participants were: Larry Autrey, CPA-Fort Worth, Whitley Penn; Barry Melancon, CPA, AICPA; Lillian Mills, Ph.D., CPA, accounting department chair, University of Texas; Dominic Ortiz, CPA-San Antonio, Lucky Eagle Casino, member of the AICPA National Commission on Diversity and Inclusion; and Wendi Taber, CPA-Southeast Texas, Script Care Ltd. John Sharbaugh, CAE, CEO/executive director of TSCPA, was the moderator. When asked about students’ attitude toward the profession, Mills said that her department is focusing on educating those at the sophomore level about the appeal of an accounting career with a wide variety of employer options. “We help them see that it’s a place for people interested in providing personal service,” she explained. Panelists talked about how employers can ensure that, after students have graduated, they sit for the CPA Exam. They must be shown that continued on next page 25

TAKE NOTE continued from previous page it is important within the employer’s culture and a requirement for their career advancement. There was conversation about what should be done by employers to attract the talent needed to be successful. Autrey said, “The firm must continually grow to show staff there will be opportunities for them.” Two of those who have moved to work in industry talked about work/ life balance and greater variety of job challenges. The question arose regarding actions professional associations can take to attract talent. Melancon said they should tell students and young CPAs about employment options among their members and how cultures can be different at different-sized companies. He also said they should open the eyes of management at medium-sized and small employers about the need to take more risk in giving leadership opportunities and responsibility. Discussion turned to diversity. It was mentioned that there are many factors contributing to that, including a variety of job backgrounds. Ortiz pointed out, “You want different strengths and perspectives to navigate the waters of the future.” Opportunities for the profession connected to technology and cybersecurity was a topic that generated comments. Taber said each employer should have a security policy in place. There should also be a third-party due diligence program that identifies the requirements of IT vendors, including SAS 70 type II or SOC report. Employers should have an information security policy. She added: “Policies and procedures must adhere to the employer’s regulatory compliance guidance, as well as that for its IT vendors. And there must be disaster recovery and business continuity plans in place.” The group talked about big data and what it means for the university curriculum. Analytic and critical-thinking skills must be developed at the lower levels. In the workforce, applied data analytics are changing the model in large audits regarding the skills and number of people needed. Cloud computing allows even small firms to change the equation and redeploy resources, spending more time bringing valueadded, trusted-advisor services to clients. The last topic addressed was the effect of more standards and regulations. It prevents many clients from expanding their businesses. Others must allocate a significant portion of their money on legal services, mandated employee training and documentation of numerous compliance projects. It was observed that regulatory complexity is the profession’s biggest challenge, but also its biggest opportunity.

Texas State Board of Public Accountancy Paving the way for TSCPA, the Texas State Board of Public Accountancy (TSBPA) formed in 1915 and is celebrating its centennial year. Board member Maribess Miller, CPA, provided an update on the agency and its activities. There have been several recent revisions in the Rules of Professional Conduct that Texas CPAs must follow. Just a few of those she reported were: • Definitions – 501.52 was amended to provide an exemption from peer review for firms performing only preparation engagements or that only issue compilations for management use only where no report is required, clarify that preparation engagements are professional accounting services, and clarify that the list of examples of professional accounting services is not all-inclusive. 26

• Firm Names – 501.81 was amended to require out-of-state firms to comply with the same firm name requirements as Texas firms. • Licensing Fees – 521.13 was amended to provide notice to licensees of individual license fees changes through the Board Report, rather than by rule. • Criminal Background Checks – 525.3 was amended to provide for FBI background checks on all applicants who take the CPA Exam.

Accounting Education Foundation The Chairman of the Accounting Education Foundation (AEF) Board of Trustees, Fred Timmons, CPA-San Antonio, presented an update on the work of the AEF to provide financial assistance to students and the educators who are preparing them for a career in accounting. He provided an update on the Million Dollar Plus campaign. The goal is to raise $1 million for accounting scholarships in Texas over a five-year period. More than $100,000 had been pledged at the time of the meeting. The Kenneth W. Hurst Fellows Award is given to those who have donated at least $5,000 to the AEF during the most recent five years or have contributed outstanding service. Presentation of the award was made to Willie Hornberger, CPA-Dallas. Business Matters 2014-2015 Treasurer Jim Oliver, CPA-San Antonio, presented the year-end financial report, which can be viewed at tscpa.org. 2015-2016 Treasurer Roxie Samaniego, CPA-El Paso, presented the new fiscal year budget, which was approved. Business conducted for other TSCPA entities included: • election of directors of the Accountancy Museum of the Texas Society of CPAs, Inc., • the annual meeting of the TSCPA CPE Foundation; and • the annual meeting of the Peer Assistance Foundation. Planning for the New Service Year 2015-2016 Chairman Allyson Baumeister, CPA-Fort Worth, talked about building on the past century to take the Society into the next one. Year-long activities celebrating TSCPA’s 100th anniversary are underway, culminating at the 2016 Annual Meeting in Galveston. Projects include a video, a history book, a logo and a banner that will be taken around the state throughout the year for signing by members. There will be a special celebration in late October in conjunction with the Young CPAs Conference and a free CPE day for members. Read more about these and other exciting ideas at tscpa.org and in the Chairman’s and Executive Director’s Message in this magazine. Outstanding Chapter Awards, Speakers’ Presentations and Future Site Please see the Chapters column in this issue for information about the recipients of the Outstanding Chapter Awards, which were presented at the meeting. You can view speakers’ PowerPoint presentations through the TSCPA website at tscpa.org. Galveston is the site for the 2016 Annual Meeting of Members and Board of Directors Meeting, July 1-2, which will cap off a year of celebrating TSCPA’s centennial. n Today’sCPA

2015 Chapter Challenge Golf Tournament The winning teams are listed in order by score, starting with first place:

Executive Board 2015-2016

Dallas Chapter – Jerry Cross, Carolyn and John Sharbaugh, Rick Sowan

Allyson Baumeister, CPA-Fort Worth Chairman

Houston Chapter – Donnelle Atkinson, Gerrad Heep, Mark Lee, Mike Spartalis, Casey Stewart, Nancy and Dick Rutledge

Kathy Kapka, CPA-East Texas Chairman-elect

Southeast Texas Chapter – Josh LeBlanc San Antonio Chapter – Fred Timmons, Randy Vogel Austin Chapter – Connie and David Clark, Joyce and Rick Smith (tie) Central Texas Chapter – Alton Thiele; Panhandle Chapter – Mike Young East Texas Chapter – Robert Kapka, Rodney Overman, Jeff Tague Fort Worth Chapter – Allyson and Rick Baumeister, Steve Newcom San Antonio Chapter – Jim Oliver, Fred Timmons

TSCPA 2014-15 Award Recipients Gary McIntosh, CPA-Austin, was recognized for Meritorious Service to the Accounting Profession in Texas. This award is regarded as the highest honor bestowed by TSCPA, given for leadership and service. McIntosh has served the Society, the Austin Chapter, AICPA and the profession in a variety of roles. His service to the Society includes volunteering on 40 committees and seven years of service on TSCPA’s Executive Board, including a term as TSCPA chairman. McIntosh has also served three three-year terms on AICPA Council. In addition to his service to the accounting profession, he supports several civic and community organizations. Ray Ferguson, CPA-Abilene, was given the Distinguished Public Service award. The recipient for this recognition is selected based on outstanding charitable, community and/ or civic activities and other public service unrelated to the regular duties performed as a TSCPA member. Ferguson is committed to helping his profession, his community, his church and those in need. His service history includes leadership roles for 25 community organizations, six years of service as a board member of TSBPA and 15 years as the codirector of the Zambia Medical Mission, which provides medical volunteers to rural Zambia. Billy Atkinson, CPA-Houston, Rudy Ramirez, CPA-San Antonio, and Ken Sibley, CPA-Dallas, were elected as Honorary Fellows. Included in the criteria to be considered is leadership in TSCPA on a consistent basis for a number of years. Each has served many years on the Board of Directors and on various Society committees, and has been president of Today’sCPA Sept/Oct 2015

his respective chapter. Atkinson served as the first chairman of the Private Company Council at FASB. He has also been the presiding officer of TSBPA and board chair of the National Association of State Boards of Accountancy. Ramirez was on the AEF for nine years and on the boards of several local civic and community organizations. Sibley is a current member of AICPA Council and continues to be the co-chair of the Dallas Chapter’s annual Tax Hotline. Jason Freeman, CPA-Dallas, was named Young CPA of the Year. This award recognizes a CPA who is age 39 or under who has made significant contributions to the accounting profession and the community. Freeman’s volunteer service to TSCPA includes serving on the Board of Directors and several committees. He now writes the Tax Topics column in Today’s CPA magazine. In addition to his commitment to his professional association, Freeman serves as an adjunct professor at the Dedman School of Law at SMU and has given his time and talents to various community organizations. John Misitigh, CPA-Houston, and Wendi Taber, CPA-Southeast Texas, were co-recipients of the award for Outstanding Committee Chair. Misitigh has served as a member of the AEF Board of Trustees since 2004 and as chair for two years. He has given countless hours to directing their fundraising and scholarship initiatives. Taber chaired the Information Technology Committee since it was started as a task force in 2010. She was instrumental in the process to garner approval and funding to begin the development of a new TSCPA website. n

Roxie Samaniego, CPA-El Paso Treasurer Jesse Dominguez, CPA-Austin Treasurer-elect Mitchell G. Perry, CPA-Dallas Secretary Johnny Baines, CPA-Dallas Ryan Bartholomee, CPA-Permian Basin Edie Cogdell, CPA-San Antonio Randy Crews, CPA-Rio Grande Valley Toni McBee Joyner, CPA-Brazos Valley Christi Mondrik, CPA-Austin Stephen Parker, CPA-Houston Ben Simiskey, CPA-Houston Jerry Spence, CPA-Corpus Christi Mark Lee, CPA-Houston Immediate Past Chairman John Sharbaugh, CAE Executive Director/CEO

Special Recognition Awards

The Special Recognition Award is presented by the TSCPA chairman to honor TSCPA members who have performed an extraordinary service to the Society in a given year. Christopher G. Aaron, CPA-San Antonio Edith T. Cogdell, CPA-San Antonio James R. Oliver, CPA-San Antonio Lisa M. Ong, CPA-Dallas C. William Thomas, CPA-Central Texas

Outstanding Chapter Awards

The following awards were presented to chapters for their work serving members. Medium-Sized Chapter – El Paso Small Chapter – Rio Grande Valley

TAKE NOTE TSCPA’s 100-year Anniversary Celebration 2015 represents a significant milestone year for TSCPA and the accounting profession in Texas as we celebrate our centennial anniversary. From a small gathering of accountants in 1915 to nearly 28,000 members in 2015, TSCPA is 100-years strong. At the Annual Meeting of Members in June, the Society officially launched a year-long centennial anniversary campaign. On Oct. 29, 2015, TSCPA’s Young CPAs and Emerging Professionals will host a free CPE conference in Fort Worth to celebrate the 100th anniversary. A reception will be held at the Reata Restaurant in Fort Worth following the conference, with a variety of festivities planned. A special 100th anniversary page has been created on the TSCPA website that includes details about scheduled events, profiles of those who shaped our history, an impressive list of centennial celebration sponsors, and more. Go to the website at tscpa.org to access the 100th anniversary page. You can order your own copy of TSCPA’s newest history book. This new book highlights the watershed moments in the organization and the accounting profession in Texas. To order your copy, go to http://secure.tscpa.org/ tscpa100/index.asp. 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. Visit the apparel and accessory website at http://www.companycasuals.com/TXCPAWebsite/start.jsp to purchase polo shirts, caps, laptop and tablet cases, laptop bags and even bibs for those future CPAs. Many of the TSCPA chapters are also celebrating this milestone. 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 peer-reviewed 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, CPA, CFP®, at Brinn_Serbanic@baylor.edu. n 28

TSCPA’s Member Recruitment Campaign – The Next Century of Growth The century-old TSCPA is a resilient organization. In 1915, our original members worked to create and protect a legal identity for Texas CPAs. Over the decades, CPAs have united in increasing numbers in TSCPA to protect the prestigious identity enjoyed today, but the organization can grow bigger and better with the support of new members. The annual member recruitment campaign is now underway. 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 join: https://secure.tscpa.org/secure_apply2.asp. Send the link to your non-member colleagues and encourage them to put down their professional roots as a TSCPA member. n Today’sCPA

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TAKE NOTE CGMA Designation Provides a Powerful Array of Benefits The Chartered Global Management Accountant (CGMA) designation was created by AICPA and the Chartered Institute of Management Accountants (CIMA) to recognize U.S. CPAs and CIMA members who work in management accounting roles. The CGMA is a respected complement to your CPA license. It elevates the profession of management accounting around the world. Designation holders can stay connected to the pulse of the profession and become a knowledge leader in their organizations.

Succession Planning Resource Available for 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. n

The CGMA designation is backed by a powerful array of benefits, including:

What’s New On the TSCPA Website

• CGMA Magazine – Available both online and in print, the magazine offers management accounting news, best practices and in-depth analysis of key business issues; • CGMA Newsletter – Delivered to your inbox, the newsletter provides a quick-read weekly roundup of the most compelling news and articles from the magazine and website; • Community/Global Network – CGMA designation holders can connect to a global network of peers and access the best minds in management accounting; networking events put designation holders in touch with their peers throughout the business world; • Harvard ManageMentor – This is an online learning and performance support resource offering relevant video content and the latest collaboration features to build skills and incorporate proven practices from Harvard Business Publishing’s world-class experts; • Tools – Designation holders can drive best business practices with scenarioplanning tools, checklists, decision trees, an enterprise risk management assessment tool, and real-world case studies; • Reports – The reports provide access to leading-edge research, tools and techniques, and strategic insights from award-winning experts on key issues facing businesses in the global economy; • Products – Online professional development courses, webinars, digital publications and conferences are tailored to management accounting and available at special pricing for designation holders. To learn more about CGMA benefits, requirements and what the designation can do for your career, visit their website at cgma.org. n

Go to tscpa.org to learn more about … Anniversary Web Page – TSCPA Celebrates 100 Years This year marks a century of service and support for the elite business professionals who call themselves Texas CPAs. Go to the homepage on the website to access the special 100th anniversary page. New Posts on the Sharblog TSCPA’s Executive Director/CEO, John Sharbaugh, CAE, shares his thoughts and ideas on TSCPA and professional matters, along with an occasional post about life in general. You’ll find a link to the Sharblog on TSCPA’s website on the left side of the homepage. n

Accountants Confidential Assistance Network The Accountants Confidential Assistance Network (ACAN) is a peer assistance program that 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. You can also contact TSCPA’s Craig Nauta at cnauta@tscpa.net. To learn more about the program, please go to TSCPA’s website at tscpa. org. Under the Resource Center tab, scroll down and click on Accountants Confidential Assistance Network. n

Disciplinary Actions As a result of decisions by a hearing panel of the Joint Trial Board, the following members had their TSCPA membership: Expelled – • Weldon A. Stark of Brownwood was found guilty of violating Article III, Section (8)(d) of the TSCPA Bylaws for failure to cooperate with the Professional Ethics Committee in an investigation. The expulsion was effective July 12, 2015. 30

Suspended – • Harris W. Arthur of Houston was found guilty of violating Section 7.4.6 of the AICPA Bylaws and Article III, Section (8)(d) of the TSCPA Bylaws for failure to cooperate with the Professional Ethics Committee in an investigation. He was suspended from AICPA and TSCPA for a period of two years, effective July 12, 2015. n Today’sCPA

It’s a 24/7 world. Get a 360 perspective. The demands of modern business demand the skills and proven expertise of a CGMA®. To drive greater insights from big data. To shape strategy. To guide operations seamlessly in a global context. Learn more at cgma.org. CGM A®. The designation designed for better business.

TSCPA’s 2015

By DeLynn Deakins | Today’s CPA Managing Editor Through the Rising Stars Program, TSCPA recognizes CPA members 40 years old and younger who have demonstrated innovative leadership qualities and active involvement in TSCPA, the accounting profession and/or their communities. After receiving over 70 nominations, a task force made up of TSCPA Executive Board members selected 18 up-andcomers for 2015. We now introduce you to the members, in alphabetical order, who are the Rising Stars honorees.

Susi Barron, CPA-El Paso Financial Accountant, El Paso Electric Company; El Paso Susi Barron recently joined the financial accounting and reporting department of the El Paso Electric Company, where she assists in the preparation of financial statements in accordance with the SEC and FERC guidelines. She previously worked at Gibson, Ruddock, Patterson, LLC where she was in charge of planning and conducting audits of governmental entities and nonprofit organizations. She has served in the Volunteer Income Tax Assistance (VITA) Program and as a speaker on financial literacy topics, as well as with a number of professional and community organizations. For TSCPA’s El Paso Chapter, she served as the chairman of the Young CPAs and Emerging Professionals Committee. Barron is currently active in the Accounting and Financial Women’s Alliance local chapter as the chair of the Hospitality and Membership Committee. This organization honored her with the Excellence in Accounting & Finance award in 2013. She is also active in her church and strives to show her commitment and gratitude to the profession and community.

Josephine Behrend, CPA-San Antonio Tax Partner, Padgett Stratemann & Co., LLP; San Antonio In her position at Padgett Stratemann & Co., Josephine Behrend is the lead tax partner for the firm’s nonprofit and health care niches and also mentors several team members in the San Antonio office. She has worked hard and maintained a strong work ethic throughout her career. She is also passionate about volunteering and staying connected in the community, having served as the treasurer of The Health Cell, a local health care and bioscience trade organization in San Antonio, an advisory board member of Alamo City Cancer Council, as a speaker on relevant tax topics that might be impacting the industry, and several other organizations. Behrend is described as a CPA who does a fantastic job of balancing work and family, and as an individual who provides excellent advice and assistance to others.

Jan Beverley, CPA-San Antonio Manager, ATKG, LLP; San Antonio As a manager in her firm, Jan Beverley reviews and supervises projects and compliance work for clients, champions and drives the customer service function for the firm, and develops and mentors the staff. In addition to exemplifying ATKG’s values and sharing her passion with the people around her, she is considered to be a “rock star” at building and enhancing client relationships. She routinely assists clients with tax savings and growing their businesses. Outside of the office, she participates in a number of activities, including serving on the board of TSCPA’s San Antonio Chapter, as a member of the chapter’s Member Involvement Committee, as chair of the Young Accounting Professionals group and as a volunteer in charitable events in the local area. Her tireless efforts benefit her firm, the accounting profession and her community.

Belen Briones, CPA-El Paso Partner, Gibson, Ruddock, Patterson, LLC; El Paso Belen Briones is a talented partner at Gibson, Ruddock, Patterson, LLC in El Paso. In this position, she oversees and manages the audit process for various government and nonprofit clients. Since joining the firm, she has become one of the state’s leading experts on school district audits, is a favorite presenter at TSCPA’s Texas School District Accounting and Auditing Conference and provides training to all types of governmental entities. In addition to being active in her church and civic organizations, she is committed to helping students and advancing the accounting profession. Briones is a director-at-large for TSCPA and participates in El Paso Chapter activities. She is considered to be a driven and enthusiastic CPA, as well as a strong, up-and-coming leader. 32

Today’sCPA

Marylyn Byrd, CPA-Southeast Texas Office Manager, Jefferson County WCID No. 10; Nederland A successful young professional, Marylyn Byrd is office manager at Jefferson County WCID No. 10 in Nederland. She manages all financial affairs of the district and the separate volunteer fire department. She also handles the customer service activities. Being very active in TSCPA’s Southeast Texas Chapter, she has served as treasurer, chair of the New CPA Committee and member of the Career Awareness Committee. In her roles, she has organized the chapter’s school supply drive, recorded a financial literacy video for incoming college freshmen, presented at area career days and was a member of a CPA discussion panel for accounting students. She also volunteers for her church and several community organizations. Byrd is described as an individual with a strong work ethic who goes above and beyond the call of duty, and is a role model for employees entering the workforce.

Austin Carlson, JD, CPA-Houston Associate, Gray Reed & McGraw, PC; Houston As an associate at Gray Reed & McGraw, Austin Carlson works directly with partners on international tax controversy, corporate M&A, and various estate and tax planning matters. His number-one client development goal is to assist young entrepreneurs in getting their businesses off the ground or expanding their already successful businesses to the next level. He is an active member of TSCPA’s Houston Chapter. He is on the chapter’s Board of Directors and he has lead the chapter’s large firm initiative, chaired the Membership Committee, participated in the strategic planning retreat and represented the chapter at a Beta Alpha Psi event. In addition, Carlson is the International Tax Committee chair for the State Bar of Texas Tax Section. In his work and volunteer endeavors, he has shown a strong commitment to the profession and the clients he serves.

Ricardo Colon, Esq., LL.M., CPA-Southeast Texas Assistant Professor, Lamar University; Beaumont Ricardo Colon is an assistant professor at Lamar University. He teaches undergraduate and graduate courses, and advises students on curriculum and career planning. He is also the faculty advisor for Beta Alpha Psi. As the faculty advisor for Beta Alpha Psi, he encourages students to attend events sponsored by TSCPA’s Southeast Texas Chapter. He has been on the chapter’s Board of Directors and has been instrumental in connecting the board with students at Lamar University. He provides service to the community by planning and joining with Beta Alpha Psi students in projects for organizations such as Habitat for Humanity. Additionally, he has published various articles in peer reviewed journals such as the Oil, Gas & Energy Quarterly, Journal of Forensic and Investigative Accounting, Journal of State Taxation, Franklin Business Law Journal and Journal of Research in Accounting in Emerging Economies.

Adam Dimmick, CPA-Houston, CGMA Audit Principal, Briggs & Veselka, Co.; Houston In his position as audit principal at Briggs & Veselka in Houston, Adam Dimmick is the chair for the audit department’s recruiting team, serves as a mentor for other team members, developed and manages the audit internship program and is the department leader for construction and professional service niches. He is a principal contact for engagements, resolving client issues and challenges, and providing exceptional client service. His participation with TSCPA’s Houston Chapter includes chairing the Public Relations Committee, being a member of several committees, graduating from the chapter’s Accelerate Leadership Program and working with the student auxiliary. Dimmick is regarded as a wellrespected member of the Briggs & Veselka team, a natural leader who can truly make a difference in TSCPA, the Houston Chapter and his community. Today’sCPA Sept/Oct 2015

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Sharon Ellington, JD, CPA-Dallas, CFP® Senior Wealth Planning Strategist, Vice President, Wells Fargo Private Bank; Dallas As a senior wealth planning strategist at Wells Fargo Private Bank, Shari Ellington assesses clients’ and prospects’ current wealth planning status and makes determinations based on their goals and objectives. She utilizes financial planners to develop and deliver comprehensive plans that include cash flow analysis, wealth transfer methods, philanthropic strategies and business succession opportunities. As an active member of TSCPA’s Dallas Chapter, she was part of the founding class of the chapter’s Leadership Development Academy (LDA), chaired the 2012 LDA committee and helped establish the chapter’s Young Professionals Group that evolved from the academy. She has served on the chapter’s Awards, Investment and Professional Connections committees, and represented the chapter on TSCPA’s Board of Directors. She has been an energetic force for recruitment of young professionals, and has proven herself to be a dedicated supporter of the organization.

Kristy Holmes-Hetzel, CPA-Austin Tax Associate, Maxwell, Locke & Ritter, LLP; Round Rock Kristy Holmes-Hetzel is a tax associate at Maxwell, Locke & Ritter where she is responsible for the preparation and review of tax returns, tax consulting, managing client relationships, and recruiting interns for tax season. She has participated with TSCPA’s Austin Chapter, serving as a manager of community involvement and of education/leadership, on the scholarship committee and as chapter treasurer. Additionally, she has been a member of TSCPA’s External Relations Committee and is a graduate of TSCPA’s Leadership Development Institute. In the community, she has taught classes at the Girlstart workshop and was part of a panel discussion at Austin Community College with one of its accounting classes. Having excelled professionally, she enjoys informing young people about what CPAs do, so that they might become interested in pursuing accounting as a career.

Jimmy Hudson, CPA-Permian Basin, CGMA Accounting/Joint-Interest-Billing Supervisor, CrownQuest Operating, LLC; Midland Jimmy Hudson works at CrownQuest Operating, LLC in Midland. In his current position, he oversees joint interest billings, revenue analysis, company aircraft management and other general accounting functions. His colleagues in TSCPA’s Permian Basin Chapter describe him as a member who has a great vision for the chapter’s future. He has served as chapter president, on the Board of Directors, established a Community Outreach Committee and recruited participants for the Young CPAs & Emerging Professionals (YEP) Committee, where he served as chair. Hudson’s accomplishments include working with the committee that was responsible for placing an accounting lab in the area’s local university. He is a member of TSCPA’s Board of Directors and the state-level YEP Committee. In the community, he has volunteered as treasurer of the Young Professionals of Midland. He has a strong focus on giving back to TSCPA, his chapter and the community.

Amanda Johnson, CPA-Fort Worth Senior Accountant, AAPL/NAPE; Fort Worth Amanda Johnson is a senior accountant at the American Association of Professional Landmen (AAPL)/North American Prospect Expo (NAPE) in Fort Worth. As a valuable member of the accounting department, she is responsible for all NAPE revenue and expenses, monthly reconciliations for upcoming shows, the closing process, recommending process improvements, and analyzing and reporting on financial results for all shows. For TSCPA’s Fort Worth Chapter, Johnson has provided exemplary leadership for programs involving new CPAs, served as treasurer, vice president of membership and more. She was honored as the chapter’s Young CPA of the Year in 2010-2011 and is a graduate of TSCPA’s Leadership Development Institute. Among her activities in the community and church, she volunteers as a crew member for the Dallas/Fort Worth Susan G. Komen 3-Day® event. She is considered to be a thoughtful, experienced and qualified teammate, leader and mentor.

Dustin Michalak, CPA-San Antonio, CVA Shareholder – Audit and Business Valuations, Ridout, Barrett & Co., PC; San Antonio At Ridout, Barrett & Co., Dustin Michalak is a shareholder in charge of the rapidly growing audit and business valuation departments. His duties include overseeing the firm’s audit and attestation practice, client services, employee development and training, technology maintenance and implementation, and expanding the firm’s new business valuation niche. He became a partner at the age of 32 and has been chosen to be the firm’s future managing partner. Michalak participates with TSCPA’s San Antonio Chapter and civic organizations, having served as committee chair for the chapter’s Funlympics, committee member of St. Jude Children’s Research Hospital’s Cowboys and Angels Party and San Antonio Golf Classic, and with other organizations. Recognizing that the future is in the hands of the nation’s youth, most of his personal and community activities involve assisting and developing young people. 34

Today’sCPA

Kelly Noe, Ph.D., CPA-East Texas, CGMA Assistant Professor, Stephen F. Austin State University; Nacogdoches As an assistant professor at Stephen F. Austin State University, Kelly Noe teaches intermediate accounting, accounting information systems and graduate accounting research. She also serves on committees at the departmental, college and university levels, and is the faculty advisor for Beta Alpha Psi. She has served in several positions with TSCPA’s East Texas Chapter, including vice president and CPE chair, as well as being a member of the chapter’s Board of Directors and CPA Educational Fund, Inc. Among a number of awards and honors she has received, she was recognized with a TSCPA Outstanding Accounting Educator award in 2014. She has also been involved in her community with organizations such as the Humane Society of Angelina County, University Women’s Club, the American Cancer Society and other organizations. She is thought of as an exceptional leader who always goes the extra mile to do whatever needs to be done.

Royce Read, CPA-East Texas Manager, Henry & Peters, PC; Tyler Royce Read is a manager at Henry & Peters, PC. In this position, he is responsible for preparation and review of business and individual tax returns, as well as managing the performance of audits, reviews, compilations and other attestation engagements. At TSCPA, he currently serves as a member-at-large on the Board of Directors and a committee member of the Young CPAs and Emerging Professionals Committee. At the East Texas Chapter, Read is currently serving as the chapter vice president and chairman of the CPE Committee. His involvement in the community includes participation with the YMCA of Tyler, the Children’s Miracle Network (CMN) and other organizations. Through the CMN, his family helped to raise money and awareness for their local CMN hospital to provide equipment and assistance to families in need of care in the East Texas region. Through his readiness to step in and help with what’s needed to accomplish goals, he is recognized as a talented rising star.

Jamie Klosterman Sanders, CPA-Houston Tax Director, McGladrey LLP; Houston In her position as tax director, Jamie Klosterman Sanders manages clients’ annual compliance and yearly planning needs, reviews staff performance, works to expand business offerings, implements training programs, analyzes legal documents, and develops staff’s technical and business skills. She is actively involved with TSCPA’s Houston Chapter and community organizations. She has served on the chapter’s Young Professionals Committee and Accelerate Committee and was recognized as Rookie of the Year in 2014 and Young CPA of the Year in 2015. Her community involvement includes volunteering, planning and hosting a benefit concert for Heroes for Children, a pediatric cancer foundation, volunteering for Ronald McDonald House, participating in the Houston Estate and Financial Forum, and more. She has authored articles for professional publications and been a guest speaker for associations such as the American Women’s Society of CPAs. She is regarded as a star in the accounting field whose future will shine brightly.

Lindsey Skinner, CPA-Central Texas, CFE, CGMA Manager, Accounting & Business Consulting, Pattillo, Brown & Hill, LLP; Waco Lindsey Skinner is a manager at Pattillo, Brown & Hill, LLP in Waco. She provides oversight and direction to employees, implements departmental training, assists in the preparation and review of financial statements and tax returns, and performs other job duties. She is also a part of the QuickBooks® ProAdvisor Program. She is a valuable member of TSCPA’s Central Texas Chapter, where her roles have included chapter director, treasurer and chair of the Young CPAs and Emerging Professionals Committee. Skinner is a graduate of Leadership Waco and has donated her time to several nonprofit organizations, including the Waco Alzheimer’s Association, Toys for Tots, Women of Waco and Friends for Life, which helps the elderly and those who are unable to care for themselves. Her colleagues consider her to be an intelligent and compassionate CPA who seeks out opportunities to give back to her profession and local area.

Sharon Taylor, CPA-Houston International Issue Specialist, Department of Treasury-IRS; Houston After working in Big 4 public accounting firms and the oil and gas industry, Sharon Taylor joined the IRS to use her skills and talents to serve the American public and help fund its future. As an international issue specialist at the IRS in Houston, her focus is on complex international tax issues for corporations, subchapter S corporations and partnerships with assets greater than $10 million. She also analyzes and manipulates large volumes of data, and interprets and applies the Internal Revenue Code and Treasury regulations to arrive at proper determinations. Her position requires a unique combination of project management, technical and leadership ability. She is a member of TSCPA’s Houston Chapter, as well as other professional associations, having served as vice president of the IRS CPA Society-Houston. With her work responsibilities and community affiliations, she is considered a leader in her profession among the IRS organization and beyond. n Today’sCPA Sept/Oct 2015

FEATURE

Making the Transition from Practitioner to Professor:

Opportunities Abound

By George Violette, Ph.D., CPA, and James Willis, CPA, MT

he opportunity for experienced accounting professionals to become full-time college instructors may never be better than it is right now. Due to retirements and lower enrollments in doctoral programs, many accounting programs across the country are finding it increasingly difficult to fill vacancies with academically qualified faculty holding traditional doctorate degrees. In addition, accreditation standards from AACSB (Association to Advance Collegiate Schools of Business) International, which accredits most of the larger accounting programs in the country, have recently changed, expanding the opportunity for professionally qualified faculty to be utilized. More academic institutions are recognizing the benefits, opportunities and value of engaging experienced professionals as faculty to teach their students. In fact, the Pathways Commission, developed jointly by the American Institute of CPAs (AICPA) and the American Accounting Association (AAA) to chart a strategy for the next generation of accountants, has recommended better integration of professionally oriented faculty into the educational mission of academic institutions. 36

Best Ways to Get Started There are two primary entry points to college teaching. One way is to go back to school to obtain a doctorate. This route would provide the greatest opportunity to obtain a full-time, tenure-track position at a university. However, the time commitment is substantial – generally a minimum of four to five years or more to complete such a pursuit. There are some relatively recent alternative pathways to doctoral education that are available at institutions such as Kennesaw State, Georgia State, Oklahoma State and Case Western Reserve. Nevertheless, these programs, while generally shorter in duration, will still require several years to complete. In any event, if the decision is made to pursue a doctorate option, be sure to enroll in a program from an AACSB accredited school. Be wary of online degrees or options from non-AACSB schools. It is very likely that many colleges and universities will not accept a degree from such schools. Another entry point is to pursue a position as an adjunct faculty. This experience provides an opportunity to “test the waters” and determine if teaching is enjoyable. The best way to find an adjunct Today’sCPA

position is to contact schools with which one has an established relationship, perhaps from recruitment of their students for internships and full-time hires. Individuals might also consider contacting the school from which they graduated, especially if they have maintained contacts through the years. Minimum credentials expected are normally certification as a CPA or a CMA and a master’s degree in an area that will be related to one’s teaching, such as a master’s degree in accounting or tax, or an MBA. Schools vary with their professional experience requirements and expectations, but it is fair to assume they will want several years (often 10 or more) of recent relevant experience that demonstrates significant levels of responsibility and expertise. If there is no established personal relationship with a local college or university, and college-level teaching is the goal, contact the accounting department chairperson or accounting school director and express interest in becoming involved. Offer to do a presentation on careers for the student organization on campus or volunteer to be a guest lecturer in a class. Get involved with the internship and recruiting program on campus, and get to know their students and faculty. Consider contacting faculty directly to express willingness to serve as a guest lecturer or helping students with assigned projects. Consider writing an article for a professional journal or exploring other research opportunities, and make faculty on campus aware of this interest. Having a publication or two completed makes for a very desirable candidate. Once a relationship is established, contact the accounting department chairperson to express interest in teaching as an adjunct. For those who have taught internally at their firm in the past, describe what was taught and what levels of audience were addressed. To get started with that first opportunity, be open to teaching a topic that fills a specific need the college has, even if the course is not a first choice. For example, if the school has a need in introductory financial accounting, but tax is preferred, accept the financial class and get a foot in the door. Once that first class is taught successfully with positive student feedback, it is very likely that additional future classes will be made available.

Congratulations to Texas Society of CPAs on 100 years

Accounting professionals have lots of relevant real-world experiences to share, which helps the topics presented come alive to the students. Ongoing real-world experience can be especially relevant and beneficial in helping students understand application of theory presented, especially in upper-level and graduate courses. While real-world experience is extremely valuable, remember it should only be a supplement to a well-organized course. Take care not to tell too many stories at the expense of covering necessary course content.

Opportunities for Full-Time Positions Without Having a Doctorate Finding a full-time teaching position will be easier with prior experience as an adjunct professor. Openings for full-time positions will often be for a temporary one-year appointment, as a school searches for a permanent replacement option, or someone to cover for a faculty member on leave or out for a major health issue. As mentioned previously, the best opportunity for a permanent fulltime position is to obtain a doctorate. However, there are increasing opportunities for non-doctorate, but well-experienced professionals to obtain multi-year contracts as an instructor, lecturer or professor of practice. The length of the first contract and subsequent renewal contracts varies with institutional policies, as well as what the applicant brings for background. Usually the first contract will be only for a year or two so that the school can have an opportunity to better assess an individual’s fit with their particular needs. Renewal contracts are most often for two- or three-year periods. While most of these practitioner positions have renewal options that can extend the position indefinitely, keep in mind that normally these positions are not tenure-track positions. Further, the salaries for these positions are significantly less than what is paid for tenuretrack positions to those holding a doctorate. continued on next page

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FEATURE continued from previous page Success in Teaching It is quite helpful to be able to demonstrate past success as an instructor before applying for a full-time position. Student evaluations from past work as an adjunct will be useful in supporting an application. Even with many years of professional experience in the accounting or tax profession, the amount of time necessary to properly prepare for teaching a course is extensive. Writing and grading exams, developing and grading other assignments and counseling students all take much time. Error on the side of over preparation – students will know when an instructor is under prepared. Bring enthusiasm and humor to classes, but be sincere. Get involved with student groups and activities, such as the accounting club and other events on campus where accounting students will attend. Excite the next generation of CPAs; share what is exciting about the profession. Help students understand and want more. Find out who some of the best teachers are at the school and ask to sit in on one or more of their classes to observe what they do and how they do it. Most instructors will be pleased and honored to help. However, remember that what works for one may not for another; the teaching style has to fit the individual. Exam construction and how to evaluate and grade a course are often challenges for new instructors in a new environment. Ask current faculty for samples of what they do. Obtain past grade distributions for the courses that will be taught. Be consistent with what has been done at the school in the past. Courses delivered should be challenging to students but fair, neither too hard nor too easy relative to norms at the school. Standards and quality of students do differ across colleges. Be sure to teach to the level of the student audience. Expectations and abilities vary greatly from early undergraduates to later undergraduates to graduate students. Ask colleagues for guidance and help, especially for teaching processes and procedures that are not familiar. Items such as online teaching and use of online course management processes, as well as required assessment of student learning, are areas that may require some guidance. Don’t expect perfection on teaching evaluations. Accept that one cannot please every student, so don’t let a few negative comments be upsetting, especially if the vast majority of comments are positive. Learn from the comments and try to improve; perhaps do some things differently next time. Teaching is dynamic – experiment with some new approaches with a goal of motivating and engaging the students. Understanding Scholarship and Accreditation Interest in doing applied professional scholarship and educational research would be well received at all AACSB accredited schools, especially given the new accreditation standards for Faculty Qualifications for Professionally Qualified (PQ) faculty. The new AACSB standards have expanded PQ options to two categories: Scholarly Practitioners (SP) and Instructional Practitioners (IP). One may start as an IP and become an SP through research involvement and activity. The new AACSB standards indicate that normally, at least 60 percent of faculty coverage of classes must either be from traditional Ph.D. holding academics or from 38

Scholarly Practitioners, with a minimum of 40 percent (formerly 50 percent) of coverage coming from academics actively engaged in basic scholarship (termed Scholarly Academics). Therefore, under the new standards, the SP designation can replace a segment of the traditionally academically qualified faculty. This means that a professional who is interested and engaged in doing scholarship activities will be of great interest to a university. Applied scholarship can help invigorate teaching by demonstrating real-world application of constructs and theories presented to students. An instructor should reflect on past personal experience in the profession and accounting topics that are of significant personal interest, and then seek help in developing an idea from this for publication. Most faculty would be honored to work with someone with extensive professional experience who wants to collaborate on a scholarship project, especially someone who brings a specific idea or two to the table. Successful candidates are expected to have substantial and relevant experience at hire. AACSB standards expect instructors to maintain that relevancy while employed as an instructor through additional ongoing experiences. Per the AACSB standards, SPs “sustain currency and relevance through continued professional experience, engagement, or interaction and scholarship related to their professional background and experience.” IPs “sustain currency and relevance through professional experience and engagement related to their professional backgrounds and experience.” Thus for sustained SP status, one should be demonstrating continued involvement with professional activities, along with relevant scholarship outcomes, involvement in scholarship review work and editorships, and/or substantive roles in academic societies. For sustained IP status, it will be important to be active in such engagements as consulting and professional work, significant participation in professional associations, and documented continuing professional education experiences. Most schools will expect practitioner faculty to maintain their certifications.

A Great Second Career Many firms will work with their retiring partners and midlevel career professionals to help them transition into a teaching role. Teaching college students demands enthusiasm, energy and commitment. Employment as a professor is a great way to continue to stay current with the profession, while working to excite the next generation of accounting professionals. While the pay without a doctorate is not high, the work is both personally and professionally fulfilling, as well as intellectually stimulating and rewarding. Individuals who have enjoyed working in the accounting profession, but who are ready for a new challenge, should consider whether becoming a college instructor might be the right move for them. n George Violette, Ph.D., CPA

is a teaching professor at Wake Forest University in Winston-Salem, NC. He may be reached at violetgr@wfu.edu.

James Willis, CPA, MT

is a professor of practice at Wake Forest University in Winston-Salem, NC. He may be reached at willisjb@wfu.edu. Today’sCPA

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FEATURE

Sustainability Reporting Standards:

Who Should Be in Charge?

By Beixin (Betsy) Lin, Ph.D.; Silvia Romero, Ph.D.; Agatha E. Jeffers, CPA, Ph.D.; and Laurence A. DeGaetano, CPA, MBA

ustainability or Corporate Social Responsibility (CSR) initiatives have become an important factor in the decisions of corporations. Increased awareness of social responsibility has produced a pressure from many stakeholders for sustainable products and services. This movement has resulted in an increased emphasis on costs and other accounting factors associated with enacting sustainable initiatives. In addition, as users of financial statements demand more transparent reporting, corporations are being compelled to provide more detailed information regarding their sustainable measures and initiatives. Though more and more corporations provide sustainability information voluntarily, there are currently no authoritative or uniform requirements for reporting these important initiatives. As a result, the usefulness of such disclosure is diminished. 40

In this article, we undertake a conceptual discussion regarding CSR reporting. This includes reporting on sustainability practices. To this end, we formulate the following questions: Should CSR reports and disclosures be standardized? If so, who should set the standards? Should these standards be regulated? If so, who has the authority to regulate these reporting practices? Our primary objective is to start a dialogue on sustainability reporting among all concerned parties. This discussion can be of considerable benefit to all of them and undoubtedly can lead to more informed and improved planning, control and decision making by regulators and standards setters. It can be of benefit to managers and employees of corporations, as well as externally to investors, creditors, potential stakeholders, suppliers, environmental groups, and other interested parties. It can also be of considerable benefit to accountants and auditors as they undertake their attest functions, Todayâ&#x20AC;&#x2122;sCPA

and to researchers and academics as they prepare the future leaders of society.

First Blood On the topic of sustainability reporting, recent events have created a rift between the Securities and Exchange Commission (SEC) and a relatively new organization, the Sustainability Accounting Standards Board (SASB), whose mission statement is “… to develop and disseminate sustainability accounting standards that help public corporations disclose material, decision-useful information to investors. That mission is accomplished through a rigorous process that includes evidence-based research and broad, balanced stakeholder participation.” 1 In a speech made last March, SEC Commissioner Daniel Gallagher stated: “It is the Commission’s responsibility to set the parameters of required disclosure. The somewhat confusingly named Sustainability Accounting Standards Board provides a good example of an outside party attempting to prescribe disclosure standards…” 2 SEC Commissioner Daniel Gallagher, March 27, 2014 All statements from the commissioner must be taken seriously, and respect must certainly be given to both the individual and the organization represented. However, it is also important to understand the needs and desires of the market and the responsibilities of the various stakeholders, including independent auditors who are bound by both regulations and professional standards. In response to the SEC’s comments, SASB issued a blog in which they argue that SASB’s disclosure standards elicit material information that management should assess for inclusion in companies’ periodic filings with the Commission.3 Market Forces One of the fundamental elements of an efficient market is accurate public information. For the past two decades, stakeholders have been thirsting for information concerning social and environmental issues, and the desire seems to be mounting. As governments, stakeholders, environmental interest groups and citizens become more aware of the protection of the biosphere, the requirement for environmentally friendly products and services will increase. This will result in the need for more sustainable environmental initiatives by companies that, in turn, will increase the demand for better identification, measurement and reporting of the revenues and costs, as well as the associated variables involved. Managers of companies and their stakeholders will need to evaluate whether the sustainable initiatives add value to their corporations. Furthermore, uniformity and consistency of identification and measurement of the incremental revenue and costs of the sustainable (green) initiatives will make the reporting of financial statements of companies more transparent and comparable, and will lead to more informed decisions by financial statement users. Failure by companies to properly measure and report the green initiatives could result in material omissions or errors in the financial statements of corporations. Market forces continue to be a driving force in this arena. A study by Khan, Serafeim & Yoon of Today’sCPA Sept/Oct 2015

SASB Blog in Response to Commissioner Gallagher’s Remarks “First, we’d like to clarify that SASB does not mandate disclosure, and we have no intention of displacing or undercutting the SEC’s authority to prescribe disclosure standards. Rather, SASB develops standards that help companies report on material sustainability factors in a decision-useful way for investors. This is helpful market infrastructure, not regulation. SASB is helping companies to comply with Regulation S-K, which requires material information to be disclosed. The final determination of materiality is, of course, the onus of the corporation. Our standards are designed for use in the MD&A section of the SEC Form 10-K, which helps investors see the company through the eyes of management, enhances the overall understanding of corporate performance – particularly with respect to known trends and uncertainties – and enhances financial disclosure by providing important context.”

the Harvard Business School indicates that “an increasing number of investors integrate sustainability performance data in their capital allocation decisions.” 4 Special watchdog organizations have emerged to monitor and report corporate and industry behavior. For example, GreenBiz.com provides editorial commentary. The Global Reporting Initiative (GRI) has a resource library and a disclosure database. Bloomberg database regularly publishes an Environmental Social Governance (ESG) rating for companies. Established accounting and consulting firms provide research studies, surveys and webcasts; the American Institute of CPAs (AICPA) has set up a reporting and assurance page on its website that includes a report on “The State of Sustainability Assurance and Related Advisory Services in the U.S.: Two Market Assessments,” released June 2015. Additional corroboration of the demand for environmental reporting has been observed. Beyond the social good, there exists economic value that appears to be validated by the marketplace. For example, Ernst & Young reports on their web page CorporateRegister. com, which tracks corporate responsibility reports worldwide, there were 26 reports in 1992. In 2010, it counted 5,593.”5 Furthermore, more and more evidence has pointed to the fact that sustainability has become a strategic priority for businesses. However, several challenges remain for industries and companies to integrate programs into their business strategy. A major challenge is the development of appropriate metrics and benchmarks, along with an integrated system to measure and report the progress of the efforts. Additionally, from the stakeholders’ perspective, there is the need for assessments and audits of sustainability reports. From academia, there is the need for more research and literature.

The Authoritative Guidance The lack of consistent measurement and reporting of activities presents a pressing need for a framework to identify and measure the associated environmental variables, which will enhance planning, control and decision-making. It will also allow the assessment of the continued on next page 41

FEATURE continued from previous page financial impact of the environmental variables on the corporation’s bottom line. Hence, the conceptual framework should not only include metrics used in traditional cost accounting literature, but also metrics and methods for measuring and reporting the impacts, financial and nonfinancial, of sustainability initiatives. In the international arena, the Global Reporting Initiative (GRI), the International Organization for Standardization (ISO) and the International Integrated Reporting (IIRC) have emerged as the pioneers in developing a comprehensive reporting framework and reporting guidelines to promote consistent standards. However, currently there is no mechanism and regulation in place to ensure the extent to which the reports comply with the guidelines, because no assurance statement from an independent party is required.

Current Reporting Requirements in the United States Although the market demand for sustainable reports has been strong, regulators and authoritative bodies have been cautious and guidance has been sparse. The SEC’s guidance concerning the disclosure of sustainable and social issues has been limited. The “Specialized Disclosure Requirements” have focused on select industries, in particular “resource extraction issuers” (oil, natural gas and minerals). Although these requirements have existed for years, expanding requirements to other industries has been stagnated. 6 Rather, the SEC has comments focused only on the adequacy of Management Discussion and Analysis (MD&A) environmental and product liability disclosures. Auditing Standards Reporting information regarding a corporation’s sustainability practices may be material to the financial statements. Empirical evidence has shown that these practices have value to corporations. Numerous studies have found that positive relationships exist between sustainability initiative practices in corporations and many of the variables used as proxies for company and shareholder value. Hence, the information can be construed as material information that as a minimum should be included in the disclosure of financial statements of corporations. Both the Public Company Accounting Oversight Board (PCAOB) and AICPA address the auditors’ responsibility for determining materiality, and although the standards do not specifically address CSR reporting, they in effect encompass those issues that impact stakeholder behavior. For example, in Auditing Standard No. 11, Consideration of Materiality in Planning and Performing an Audit, PCAOB references the Supreme Court, which states that “. … a fact is material if there is a substantial likelihood that the … fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available …” Similarly, AU Section 312, Audit Risk and Materiality in Conducting an Audit, references “Financial Accounting Standards Board (FASB) Statement of Financial Accounting Concepts No. 2, Qualitative Characteristics of Accounting Information,” which defines the auditor’s consideration of materiality as “a matter of professional judgment and is influenced by the auditor’s perception of the needs of users of financial statements.” 42

Research has shown that sustainability practices are important factors in corporations, and there is a demand from users regarding reporting them. Hence, the perceived needs of users in the discussion of materiality must be considered by auditors. However, there is caution on the part of auditors in the reporting on the initiatives. Literature has shown that auditors have felt deficient in this area and crave for more guidance, training and help from standard setters and other professionals. In 2005, a study was conducted on the type of assurance services provided by Big 4 and non-Big 4 auditing firms, and the levels of assurances provided. The study found that the major reason for auditors not providing high levels of assurance is “the nature of the subject matter, the lack of appropriate criteria or performance standards, the cost/benefit considerations, lack of appropriate evidence and users’ needs.”7 Another study shows that over 60 percent of the assured sustainability reports worldwide are issued by Big 4 auditing firms. However, in countries that have the English common law system (e.g., UK, U.S.), fewer sustainability reports are issued with assurance statements and most of the assurers are non-Big 4 firms. The discrepancy may be due to the risk of litigation8 .

Applying and Complying In response to stakeholder needs, almost all major corporations publish CSR information. However, given the limited CSR reporting requirements, most companies prepare a standalone CSR report independent of the SEC filings. This allows companies to cherry pick ‘the nature,’ ‘the extent’ and ‘how’ information is communicated to stakeholders. In addition, many corporations find that their reporting has been limited by the lack of tools to gather and measure relevant information. The result is that practitioners are faced with a conundrum. Market forces have created a demand, if not a requirement, for assurance services relating to material environmental and social information, yet guidance is vague. This lack of guidance and the litigious nature of society create a risk that is difficult for practitioners to manage. Enter SASB SASB (http://www.sasb.org/) is a nonprofit organization and defines its purpose as “… establishing industry-based sustainability standards for the recognition and disclosure of material environmental, social and governance impacts by companies traded on U.S. exchanges.” Undoubtedly, the words “traded on U.S. exchanges” caught the attention of the commissioner, triggering the comment quoted at the beginning of this article. SASB’s response states that they do “not mandate disclosure and have no intention of displacing or undercutting the SEC’s authority to prescribe disclosure standards.” However, they go on to say “Our standards are designed for use in the MD&A section of the SEC Form 10-K …”9 This is a rather confusing response and raises additional questions regarding the applicability and authority of SASB’s standards. Interestingly, the SASB Board of Directors includes former SEC Chairman Mary Schapiro, JD, former SEC Chairman Elisse Walter, JD, and former FASB Today’sCPA

Chairman Robert H. Herz, as well as members from industry, the investment community and academia. SASB’s standards are industry specific. They can be downloaded at http://www.sasb. org/standards/download.

Back to the Future The questions remain whether CSR reporting should be standardized and if so, who should set the standards? Should the reporting requirements be regulated and if so, who has the authority to regulate? All of these questions entail complex issues. Since all major corporations have issued some form of CSR reports, our answer to the first part of the first question is “Yes, CSR reporting should be standardized.” It is therefore important that the reports follow consistent guidelines. Otherwise, the usefulness of CSR information will be limited. Hence, it is clear that oversight is necessary. However, the SEC has been slow in responding to this need. Obviously, SASB’s statement of its objective has stepped on the toes of the SEC, leading the SEC’s commissioner to issue his comments. Nevertheless, it must be noted that the SEC has been relying on the private sector (FASB) in the development of Generally Accepted Accounting Principles (GAAP) and it has proven to be an overall advantageous public/private partnership. Hence, it is possible that a similar collaboration can also be undertaken between the SEC and private sector groups. In addition, there are already a few internationally recognized players, such as the GRI, the IIRC and the ISO, which to some extent are already backed by AICPA. However, both the GRI and IIRC have only issued framework and guidance documents. The ISO, in addition to providing guidance in ISO 26000:2010 Social Responsibility, issues ISO 14000 series Environmental Management Systems, which can be certified. The revision of the core standards of the series, ISO 14001, is currently under review, with the new version due to be published by September 2015. The question is who will come out as the “winner?” Ideally, a single set of global sustainability reporting standards is the best way forward, but we know that there will be many obstacles and challenges to achieving such a lofty goal. Nevertheless, it is clear that standards along with authoritative guidance are needed in corporations. In addition, “the total market size for sustainability assurance and related advisory services in 2013 was $171 million. That is expected to grow to $258 million in 2017 …” (AICPA).10 Standardization of reporting and benchmarking would only increase the value of and need for assurance services. A Starting Point In this article, we undertook a discussion on whether sustainability reporting in corporations should be standardized and regulated. It is hoped that this brief discussion can serve as a starting point for engagement and discussion among standard setters, practitioners, academics, researchers, managers and others as we move forward on the selection, development and reporting of sustainable practices in corporate organizations. n Today’sCPA Sept/Oct 2015

Beixin (Betsy) Lin, Ph.D.

is an associate professor in the Department of Accounting, Law & Taxation at the Montclair State University’s School of Business. She may be reached at linb@mail.montclair.edu.

Silvia Romero, Ph.D.

is an associate professor in the Department of Accounting, Law & Taxation at the Montclair State University’s School of Business. She may be reached at romeros@mail.montclair.edu.

Agatha E. Jeffers, CPA, Ph.D.

is a professor in the Department of Accounting, Law & Taxation at the Montclair State University’s School of Business. She may be reached at jeffersa@mail.montclair.edu.

Laurence A. DeGaetano, CPA, MBA

is an instructional specialist in the Department of Accounting, Law & Taxation at the Montclair State University’s School of Business. He may be reached at degaetanol@mail.montclair.edu.

Footnotes 1. SASB http://www.sasb.org/sasb/vision-mission/. October 2014. 2. http://www.sec.gov/News/Speech/Detail/Speech/1370541315952#.UztZG4XPt34. 3. Remarks at the 26th Annual Corporate Law Institute, Tulane University Law School: Federal Preemption of State Corporate Governance by Daniel M. Gallagher, New Orleans, LA, March 27, 2014. http://www.sasb.org/response-commissioner-gallaghers-remarks/ Rogers, Jean, SASB blog in response to Commissioner Gallagher’s remarks, published April 4, 2014. 4. “Corporate Sustainability: First Evidence on Materiality” Khan, Serafeim, and Yoon. Downloaded July 14, 2015. http://www.hbs.edu/faculty/Publication%20Files/15073_8a7e13e5-68c5-4cc3-a9a0-a132bbef3bc7.pdf. 5. http://www.ey.com/US/en/Services/Specialty-Services/Climate-Change-andSustainability-Services/Six-growing-trends-in-corporate-sustainability_Trend-1. EY web page October 2014. 6. http://www.sec.gov/news/studies/2013/reg-sk-disclosure-requirements-review. pdf. “Report on Review of Disclosure Requirements in Regulation S-K as Required by Section 108 of the Jumpstart Our Business Startups Act,” December 2013. 7. Hasan, M., Maijoor, T., Mock, T., Roebuck, P., Simnett, R. and Vanstraelen, A., “The Different Types of Assurance Services and Levels of Assurance Provided,” International Journal of Auditing, 9(2), 2005, pp. 91-102. 8. Fernandez-Feijoo, B., Romero, S., Ruiz, S., “Auditor Specialization in Assurance of Sustainability Reports,” 2014 (working paper). 9. http://www.sasb.org/response-commissioner-gallaghers-remarks/. 10. The State of Sustainability Assurance and Related Advisory Services in the U.S.: Two Market Assessments. June 2015. Published by the AICPA Assurance Services Executive Committee Sustainability Task Force. Downloaded July 14, 2015. http://www.aicpa.org/InterestAreas/BusinessIndustryAndGovernment/Resources/ Sustainability/DownloadableDocuments/Sustainability-TwoMarket.pdf.

CPE ARTICLE

Other Comprehensive Income, Presentations and Disclosures By Josef Rashty, CPA

Curriculum: Accounting and auditing Level: Basic Designed For: Industry (public and private) and public practice Objectives: To propose a practical approach for presentations and disclosures of other comprehensive income and accumulated other comprehensive income Key Topics: Other comprehensive income, accumulated other comprehensive income and XBRL Prerequisites: None Advanced Preparation: None 44

Todayâ&#x20AC;&#x2122;sCPA

In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This guidance requires entities to disclose the current period changes in the components of “accumulated other comprehensive income” (loss) (AOCI).

• Unrealized gains and losses on defined benefit pension plans (beyond certain thresholds) and their subsequent amortization due to revision of expectations in return on defined benefit pension plan assets or obligations; e.g., amortization of prior-service costs (ASC Topic 715). • Foreign currency gains and losses due to translation of foreign subsidiaries financial statements, and foreign currency gains and losses arising on inter-company currency transactions where settlement is not planned or anticipated in the near future (ASC Topic 830).

ASU 2013-02 FASB issued this ASU after significant outreach with preparers and users. The guidance provides a practical approach from preparers’ points of view and also satisfies the needs of users for greater transparency about the impact of reclassification adjustments of AOCI on net earnings. This ASU applies to all entities (PBEs and private companies) that provide a full set of financial statements to report their financial position, results of operations, cash flows and other comprehensive income in any period. The standard became effective for PBEs for annual periods and interim periods within those years, beginning after Dec. 15, 2012. Nonpublic companies could have adopted the guidance for annual periods beginning after Dec. 15, 2013, and interim and annual periods thereafter.

Topic 220, “Other Comprehensive Income,” requires that changes in components of Other Comprehensive Income (OCI) be reflected either as a continuation of statement of income or as a freestanding statement preceded by statement of income. In March 2013, FASB issued a draft of implementation guidance to demonstrate the modeling of transactions related to changes in AOCI and OCI using the elements in the U.S. Generally Accepted Accounting Principles (GAAP) Financial Reporting Taxonomy (UGT), FASB U.S. GAAP Financial Reporting Taxonomy, Implementation Guide Series – Other Comprehensive Income. This guidance provides Extensible Business Reporting Language (XBRL) tagging guidance for public business entities (PBE) and examples of XBRL tagging for changes in AOCI reflected either on the face of financial statements parenthetically or as footnotes to financial statements. This article, based on FASB’s guidance, presents a practical approach and an illustration of disclosures and presentations requirements for changes in components of AOCI and OCI on net-of-tax basis. (The guidance permits both before-tax and net-oftax presentations.) Even though the discussions related to XBRL appear to be relevant to PBEs, 16 Hrs CPE, 13.5 MCLE credit for 2-day workshop the concepts presented in examples and illustrations can be similarly applied to private 8 Hrs CPE, 6.75 MCLE credit for 1-day workshop companies.

Components of OCI and AOCI OCI and AOCI reflect certain changes in the fair value (FV) of certain assets and liabilities not reflected in earnings. The following is a list of items that are usually included in OCI or AOCI (ASC 220-4510A): • Unrealized gains and losses on availablefor-sale securities (AFS), as opposed to trading and held-to-maturity securities (ASC Topic 320). • Gains and losses on cash flow hedges; e.g., foreign currency forward contracts (ASC Topic 815). Today’sCPA Sept/Oct 2015

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CPE ARTICLE continued from previous page Table 1

Balance Sheet Equity Components Dimension (Axis) ________________ AOCI beginning balance (net-of-tax $--, $--, $--, $--, $--)

Member 1

Member 2

Member 3

Member 4

Member 5

Unrealized Gains and Losses on Available-for-Sale Securities ________________

Unrealized Gains and Losses on Cash Flow Hedges

Unrealized Gains and Losses on Foreign Currency Translation ________________

Total Unrealized Gains and Losses

________________

Unrealized Gains and Losses on Defined Benefit Pension Plans * ________________

________________

OCI adjustments before reclassifications (net-of-tax $--, $--, $--, $--, $--) OCI reclassifications - current period (net-of-tax $--, $--, $--, $--, $--) AOCI ending balance (net-of-tax $--, $--, $--, $--, $--) *This column presents a simplified defined benefit pension plan and does not reflect transactions discussed earlier, such as net prior-service (costs) credits or net transition asset (obligation).

Presentation of AOCI Reclassifications ASU 2013-02 requires entities to reflect reclassifications from AOCI in a single location, either on the face of statement of operations parenthetically or as a separate single footnote disclosure. Substantially, all the disclosure requirements under this guidance are disclosed elsewhere under U.S. GAAP. However, this guidance requires disclosure of amounts reclassified out of AOCI be reflected in a single place, and in some cases, cross-references are required to related footnote disclosures (e.g., the components of AOCI included in the computation of net periodic pension cost). During FASB’s deliberations, a few FASB board members indicated that many companies may decide to present AOCI information as a separate footnote rather than on the face of financial statements since the numerous reclassifications to and from AOCI and their parenthetical presentation may clutter their financial statements. Furthermore, a majority of users indicated that presenting this information on the face of financial statements could give undue prominence to such transactions (BC 15 – ASU 2013-02). As expected, most registrants decided to reflect AOCI reclassifications as a separate footnote disclosure to their financial statements either before or net-of-taxes. The author surveyed a number of the SEC registrants’ filings and noted that the most prevalent practice is for companies to reflect a roll-forward presentation of AOCI as a footnote to their financial statements. The parenthetical presentation of AOCI changes on the face of financial statements, for the reasons noted at the time of deliberation of this guidance, has rarely been used in practice. Among other things, an entity that decides not to reflect reclassifications of AOCI parenthetically on the face of financial statements must identify the line items of the statement of income that have been affected by such reclassifications. However, entities are not required to identify the statement of income line items for certain components of AOCI that are not required to be reclassified in their 46

entirely to earnings, such as periodic pension cost partial amortization. An entity should also present the amount of income tax expenses or benefits allocated to each component of OCI and their reclassifications from AOCI (ASC 220-10-45-12). If an entity presents the information as a footnote to its financial statements, the disclosure can be either before-tax or net-of-tax; whereas, if an entity elects to present the classifications parenthetically on the face of its statement of income, the presentation must be made on a before-tax basis. In some instances, in addition to what was discussed earlier, disclosure on the face of the statement of income may turn out to be problematic due to a delay in recognition of these expenses in earnings. For example, companies that have defined benefit pension plans may defer certain costs and capitalize them in fixed assets or inventory rather than reflecting them in earnings. In such instances, the amount reclassified from AOCI will be reflected in earnings at a later date when inventory is sold or a fixed asset is depreciated or disposed of. As a result, most entities have opted to present adjustments and reclassifications in AOCI as a footnote to their financial statements.

Presentation of OCI Adjustments Topic 220 requires that OCI statements appear as either a continuous statement of income with the top part as a traditional income statement and OCI items serving as adjustments to net income to arrive at “comprehensive income” on the bottom part or as a freestanding OCI statement that begins with net income, adjusted for the OCI items, to arrive at “comprehensive income” (ASC 220-45-1). The author believes that the latter presentation method has been more prevalent. NetApp presentation (discussed later in this article) also depicts a freestanding statement for presentation of OCI. continued on next page Today’sCPA

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CPE ARTICLE continued from previous page

Chart 1 NETAPP, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended (in millions) April 25, 2014

April 26, 2013

April 27, 2012

$637.5

$505.3

$605.4

3.5

(2.9)

(6.7)

Defined benefit obligation adjustments

0.7

(3.9)

(4.4)

Income tax effect on defined benefit obligations

(0.4)

2.6

0.0

Reclassification adjustment for actuarial net losses from defined benefit obligations into earnings

0.6

0.0

Unrealized holding gains (losses) arising during the period

(2.5)

7.3

1.5

Income tax effect on unrealized holding gains (losses)

1.3

(0.2)

0.5

Reclassification adjustments for gains included in net income

(1.3)

(0.6)

(0.5)

Unrealized holding gains (losses) arising during the period

(3.5)

3.7

20.6

Reclassification adjustments for losses (gains) included in net income

2.0

(2.2)

(18.9)

0.4

3.8

(7.9)

$637.9

$509.1

$597.5

Net income Other comprehensive income (loss): Foreign currency translation adjustments Defined benefit obligations:

Unrealized gains (losses) on available-for-sale securities:

Unrealized gains (losses) on cash flow hedges:

Other comprehensive income (loss) Comprehensive income

XBRL Implementation Guidance The purpose of this guidance is to demonstrate the modeling of transactions related to changes to AOCI based on the elements used in UGT. This guidance focuses on detail tagging only (Level 4) and does not include any elements for text blocks, policy text blocks and table text blocks (Levels 1-3). The OCI elements representing a cash flow hedge component, available-for-sale securities component or foreign currency translation component are modeled with credit balance types, and the corresponding reclassification elements are modeled with debit balance types. On the other hand, the OCI elements representing pension components before reclassification are modeled with a debit balance type, and the corresponding reclassification elements are modeled with a credit balance type. Defined benefit pension plans are vehicles used to provide fixed retirement benefits to employees after their retirements. The following is a list of accounts related to defined benefit pension plans that have corresponding XBRL tags in UGT: • Prior-service costs are recognized as expense over the future service period. As a result, any adjustment to prior-service costs is reflected in AOCI (in the equity section of the balance sheet) and 48

their amortizations are reflected in earnings from AOCI during the amortization period in future years. • Periodic actuarial calculations of pension plans create net gains and losses that affect the pension expense only if they exceed an amount equal to 10 percent of the projected benefit obligations, or 10 percent of plan assets, whichever is higher. This threshold amount is referred to as the “corridor.” However, even if the net gains and losses exceed the corridor limit, the excess is not charged to pension expense at once. As an additional concession, U.S. GAAP permits only a portion of the excess to be included in earnings in each period. • The minimum amount that should be included as pension expense in earnings is the amount of excess above the threshold divided by the average remaining service period of employees expected to receive benefits under the plan. As a result, any excess net gains and losses are initially reflected in AOCI and their amortizations are reclassified in earnings from AOCI.

Illustration Presentation of OCI as a Freestanding Statement In this presentation, the OCI statement is presented as a freestanding statement preceded by statement of income. The items in this statement can be presented either before-tax or net-of-tax (ASC 220-45-10B). Today’sCPA

Chart 2 NETAPP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The amounts reclassified out of AOCI are as follows (in millions): Year Ended April 25, 2014 OCI Components

April 26, 2013

April 27, 2012

Amounts Reclassified from AOCI

Statements of Operations Location

Recognized losses on defined benefit obligations

$0.4

$0.0

Operating expenses

Realized losses (gains) on available-for-sale securities

(1.3)

(0.6)

(0.5)

Other income, net

Realized losses (gains) on cash flow hedges

2.0

(2.2)

(18.9)

Net revenues

$1.1

($2.8)

($19.4)

Total reclassifications

Chart 3 NETAPP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Changes in accumulated other comprehensive income (AOCI) by component, net of tax, are summarized below (in millions):

Foreign Currency Translation Adjustments

Defined Benefit Obligation Adjustments

Unrealized Gains on Available-for-Sale Securities

Unrealized Gains on Derivative Instruments

Total

$4.9

($4.4)

$4.9

($0.5)

$4.9

Other comprehensive income (loss) (OCI) before reclassifications

(2.9)

(1.3)

7.1

3.7

6.6

Amounts reclassified from AOCI, net of tax

0.0

(0.6)

(2.2)

(2.8)

(2.9)

(1.3)

6.5

1.5

3.8

2.0

(5.7)

11.4

1.0

8.7

Other comprehensive income (loss) (OCI) before reclassifications

3.5

0.5

(1.2)

(3.5)

(0.7)

Amounts reclassified from AOCI, net of tax

0.0

0.4

(1.3)

2.0

1.1

3.5

0.9

(2.5)

(1.5)

0.4

$5.5

($4.8)

$8.9

($0.5)

$9.1

Balance as of April 27, 2012

Net OCI Balance as of April 26, 2013

Net OCI Balance as of April 25, 2014

The NetApp example, which will be discussed later in this article, reflects the OCI statement on before-tax basis, whereas the presentation in Table 2 on the following page reflects them on net-oftax basis. Many registrants, who have presented elements of OCI net of any significant tax amounts, have disclosed the amounts of taxes parenthetically. Parenthetical disclosures of tax amounts require XBRL tags corresponding to amounts of taxes disclosed. UGT provides XBRL elements associated for such tax amounts.

Footnote Presentation of AOCI Table 1 on page 46 illustrates the disclosure of changes in each component of AOCI as footnotes to financial statements andw as required by paragraphs 220-10-45-24A and 220-10-55-15A of ASU 2013-02. UGT provides elements for both net-of-tax and before-tax presentations. In the illustration, the author has used net-of-tax elements for the sake of consistency with the earlier example regarding OCI presentation in this article. The XBRL calculation assertion is in the form of axis and members. continued on next page

Today’sCPA Sept/Oct 2015

CPE ARTICLE continued from previous page

Table 2 Net income Other comprehensive income (loss), net-of-tax: Changes in available-for-sale-securities: Unrealized gains (losses) during the period, net-of-tax Gains (losses) classified to earnings, net-of-tax Net change, net-of-tax benefit (expense) Changes on cash flow hedges: Unrealized gains (losses) arising during the period, net-of-tax Gains (losses) classified to earnings, net-of-tax Net change, net-of-tax benefit (expense) Changes in defined benefit pension plans: Unrealized gains (losses) before reclassification, net-of-tax Reclassification adjustment, net-of-tax Net change, net-of-tax benefit (expense) Changes in foreign currency translation: Unrealized gains (losses) during the period, net-of-tax Gains (losses) classified to earnings, net-of-tax Net change, net-of-tax benefit (expense) Other Comprehensive Income (loss), net-of-taxes Comprehensive income (loss)

Presentation Example Charts 1, 2 and 3 provide NetApp’s presentation and disclosure of OCI adjustments (as a freestanding statement preceded by statement of income) in its Form 10-K for the fiscal year ending April 25, 2014, filed on June 17, 2014. It can be viewed at http://www.sec.gov/Archives/edgar/ data/1002047/000119312514239169/d691214d10k.htm, pages 66, 95 and 96. In this presentation, NetApp has reflected adjustments to OCI on before-tax basis in its OCI statement as a freestanding statement, whereas AOCI reclassifications and adjustments are presented, as a footnote to its financial statements, on net-of-tax basis. Recent Developments Extended Tags The SEC has observed a steady decline in use of custom tags (extended tags) by large accelerated filers during the phase-in period and thereafter. However, staff did not note the same trend among smaller filers. Commission staff intends to continue monitoring the use of custom tags. Depending on the results of this effort, commission staff may issue further guidance or pursue other action (http://www.sec.gov/dera/reportspubs/assessment-custom-tagrates-xbrl.html#.U8QU46VtdDQ). The author believes that, in most instances, the registrants can avoid using extended tags in presentation of AOCI and OCI since UGT has a comprehensive set of tags for AOCI reclassifications and presentations. However, there might be instances that some 50

particular transactions, in particular AOCI reclassifications related to defined benefit pension plans, would require use of custom or extended tags, but nevertheless that would be rather rare.

Calculation Relationships The SEC has emphasized that registrants include calculation relationship in their XBRL tagging. The SEC has also published “Sample Letter Sent to Public Companies Regarding XBRL Requirement to Include Calculation Relationships” http://www. sec.gov/divisions/corpfin/guidance/xbrl-calculation-0714.htm. The following is an excerpt from that letter. “Our rules also require that you include calculation relationships for certain contributing line item elements for your financial statements and related footnotes. Through our selective review, we have noticed that your filing does not include all required calculation relationships.” The registrants must pay special attention that calculation relationships are properly reflected in their filings in presentation of their AOCI and OCI tables. XBRL Implementation Guidance FASB closed its comment deadline on XBRL “Other Comprehensive Income” implementation guidance in 2013. However, it is planning to propose new revised guidance on that within the next few months. Final Remarks OCI and AOCI are fundamentally losses and gains and accumulated losses and gains left out of net earnings. These transactions have received significant scrutiny and attention by analysts recently. Consequently, the SEC has focused not only on proper presentation of these transactions, but also on their XBRL tags assignments. This article presents a practical approach to, and an illustration of, disclosure and presentation requirements for changes in components of AOCI and OCI. A random survey of several PBEs by the author confirmed that some registrants have difficulties with proper presentation and reclassifications of AOCI and OCI transactions, and there is a variety of methods in presentation format and disclosures. One reason for inconsistency in practice is simply differences in businesses and their presentation requirements. The author recommends that companies analyze the provisions of the guidance thoroughly prior to adopting it to their specific needs. It is also recommended that they review their peer presentations and their XBRL tags. Improper presentation of AOCI and OCI may result in improper XBRL tagging and use of extensions instead of standard UGT elements. n

Josef Rashty, CPA

is a member of the Texas Society of CPAs and has held managerial positions with several high technology public companies in the Silicon Valley region of the Bay Area in California. He can be reached at j_rashty@yahoo.com. Today’sCPA

CPE QUIZ

By Josef Rashty, CPA

Other Comprehensive Income, Presentation and Disclosures 1 __________ issued draft of XBRL tagging implementation guidance on AOCI and OCI. A. AICPA

D. PCAOB

XBRL US

FASB

2 The author claims that this article provides guidance for: A. PBEs

D. Neither a or b

private companies

Both a and b

3 There are __________ components in AOCI. A. Three

D. None of the above

Five

Six

4 One component of AOCI is gains and losses on fair value hedges. A. Yes

5 ASU 2013-02 requires that reclassifications from AOCI to be reflected: A. as footnotes to financial statements

to financial statements, they must be presented net of taxes. A. Yes B.

8 For XBRL presentation purposes, all elements of OCI are modeled on a debit balance basis with the exception of: A. pensions B.

cash flow hedges

available-for-sale securities

D. foreign currency translation

9 Extended tags for AOCI classification: A. cannot be used under any circumstances B.

should be avoided if possible

is preferable

D. all the above

on the face of financial statements parenthetically

both a and b

10 Which of the following statements is correct? A. Calculation relationships are used in AOCI reclassifications tagging

D. either a or b

6 The author claims that in practice, most companies have decided to reflect reclassifications from AOCI on the face of their financial statements parenthetically. A. Yes

7 ASU 2013-02 requires that if AOCI reclassifications are reflected as footnotes

The SEC has been scrutinizing the use of calculation tags lately

Both a and b

D. Neither a or b

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 Oct. 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. A 2. A 3. C 4. B 5. B 6. D 7. C 8. A 9. B 10. D Today’sCPA Sept/Oct 2015

TSCPA CPE COURSE CALENDAR

Mark Your Calendar â&#x20AC;&#x201C; October and November CPE Courses Date

Course

CPE Credit

City

10/5

Personal and Professional Ethics for Texas CPAs

Houston

10/6

Audit Workpapers: Documenting and Reviewing Field Work

Austin

10/7

Audit Workpapers: Documenting and Reviewing Field Work

San Antonio

10/16

Personal and Professional Ethics for Texas CPAs

San Antonio

10/19-10/20

2015 Single Audits & Governmental Accounting Conference

Austin

10/19

Top Tax Issues for Partnerships and LLCs

San Antonio

10/20

Compilation and Review Annual Update: A Seminar Designed for Smaller Firms

Dallas

10/21

2015 Accounting and Auditing Conference

Addison

10/22

Annual Accounting Update and Review for Accountants in Industry

Houston

10/22

Applying the Uniform Guidance for Federal Awards in Your Single Audits

Fort Worth

10/23

2015 Forensic, Litigation and Valuation Services Conference

Houston

10/23

Governmental and Not-for-Profit Annual Update

Fort Worth

10/26

Compilation and Review Annual Update: A Seminar Designed for Smaller Firms

Houston

10/26

Recognizing and Responding to Fraud Risk in Governmental and Not-for-Profit Organizations

Dallas

10/26

Federal Tax Update Individual, Business & Corporate

San Antonio

10/26

Applying the Uniform Guidance for Federal Awards in Your Single Audits

San Antonio

10/27

Accounting and Reporting for Not-for-Profit Organizations

Dallas

10/27

Financial Statement Presentation and Disclosures - A Realistic Approach

Houston

10/27

Federal Tax Update Individual, Business & Corporate

Dallas

10/27

Governmental and Not-for-Profit Annual Update

San Antonio

10/28

Federal Tax Update Individual, Business & Corporate

Houston

10/28

Performing Single Audits in 2015 and Beyond

Austin

10/29

Audits of 401(k) Plans: New Developments and Critical Issues for an Effective Audit

Austin

10/29

Tax Considerations and Consequences for Closely Held Buinesses

Houston

10/29

Personal and Professional Ethics for Texas CPAs

Addison

10/29

Young CPAs and Emerging Professionals Conference

Fort Worth

10/30

A&A Year in Review: Exploring the Latest Issues and Challenges Facing CPAs

Austin

10/30-10/31

2015 Accounting Education Conference

Austin

10/30

Form 990: A Comprehensive Approach to Accurate Preparation

Houston

11/3

LLC and Partnership Errors and Omissions

Fort Worth

11/3

Nexus Update: Latest Developments in State Income, Franchise and Sales Taxes

Dallas

11/4

International Taxation

Dallas

11/4

Personal and Professional Ethics for Texas CPAs

Houston

11/5

LLC and Partnership Errors and Omissions

Dallas

11/5

Nexus Update: Latest Developments in State Income, Franchise and Sales Taxes

Houston

11/6

International Taxation

Houston

11/9

Oil and Gas Taxation: Nuts & Bolts

Dallas

11/9

Top Tax Issues for Partnerships and LLCs

Houston

11/10

Tax Considerations and Consequences for Closely Held Businesses

Dallas

11/10

Oil and Gas Taxation: Nuts & Bolts

Houston

11/11

Form 990: A Comprehensive Approach to Accurate Preparation

Dallas

11/12

Form 990: A Comprehensive Approach to Accurate Preparation

Austin

Todayâ&#x20AC;&#x2122;sCPA

TO LEARN MORE AND REGISTER, GO TO THE CPE SECTION OF THE WEBSITE AT TSCPA.ORG. Date

Course

CPE Credit

City

11/12

Personal and Professional Ethics for Texas CPAs

Addison

11/13

Annual Accounting Update and Review for Accountants in Industry

Dallas

11/13

Nexus Update: Latest Developments in State Income, Franchise and Sales Taxes

Austin

11/16

The Top 50 Mistakes Practitioners Make & How to Fix Them: Individual Tax & Financial Planning

San Antonio

11/16

Applying the Uniform Guidance for Federal Awards in Your Single Audits

Houston

11/16

LLC and Partnership Errors and Omissions

Houston

11/17

Construction Contractors: Accounting, Auditing and Tax

Dallas

11/17

Effective and Efficient Senior-Level Review of Individual Tax Returns

San Antonio

11/17

Governmental and Not-for-Profit Annual Update

Houston

11/18

Personal and Professional Ethics for Texas CPAs

Fort Worth

11/18

Real Estate Accounting and Financial Reporting: Tackling the Complexities

Dallas

11/19

Construction Contractors: Accounting, Auditing and Tax

Houston

11/19

Compilation and Review Annual Update: A Seminar Designed for Smaller Firms

Fort Worth

11/19-11/20

2015 Texas CPA Tax Institute

Richardson

11/19-11/20

2015 Texas CPA Tax Institute

San Antonio

11/20

Annual Yellow Book Update and Review: A Realistic Approach

Fort Worth

11/20

LLC and Partnership Errors and Omissions

Austin

11/20

Real Estate Accounting and Financial Reporting: Tackling the Complexities

Houston

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TSCPA offers opportunities for members and non-members to advertise in the Classifieds section of Today’s CPA magazine.

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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 n 55

STRASBURGER & PRICE, LLP

2015 ANNUAL TAX SYMPOSIUM Offering a depth of knowledge in transactional tax and tax controversy MONDAY, SEPTEMBER 28

Westin Galleria Dallas 13340 Dallas Parkway Dallas, TX 75240 972.934.9494

TUESDAY, SEPTEMBER 29 Grand Hyatt San Antonio 600 E. Market Street San Antonio, TX 78205 210.224.1234

AGENDA: 11:15 a.m.

Registration and Buffet Lunch

11:45 a.m.

Welcome Remarks

11:55 a.m.

Texas Margin Tax and Sales Tax Update

12:40 p.m.

Tax Aspects of Equity Incentive Plans for LLCs and LPs

1:10 p.m.

Affordable Care Act after King v. Burwell

1:40 p.m.

Worker Classification

2:10 p.m.

BREAK

2:25 p.m.

Alternative Routes to Tax-Exempt Status

2:55 p.m. The Symposium qualifies for 5.0 hours of CPE for Texas CPAs, 5.0 hours of MCLE for Texas attorneys, and 6.0 hours of CE for CFP Professionals. 3:30 p.m.

CUT HERE

Handling IRS targeted Audits, Voluntary Disclosures and Reporting Foreign Assets Net Investment Income Tax Update

4:05 p.m.

Business Succession Planning

4:40 p.m.

Estate Planning for 2015 and Beyond

5:15 p.m.

QUESTIONS

2015 ANNUAL TAX SYMPOSIUM

PAYMENT & REGISTRATION DEADLINE: Monday, September 21. No Registrations accepted or refunds issued after September 21, 2015. FEE: $90/person (Includes cost of materials, food, and beverages). Please make checks payable to Strasburger & Price, LLP. No credit cards. LOCATION: Which symposium will you attend? Please check one. Dallas: Monday, September 28

San Antonio: Tuesday, September 29

{{

RSVP Contact: Caitlin Cecil caitlin.cecil@strasburger.com | 214.651.2304 To ensure your symposium registration, please complete this form and return it with your payment by Monday, September 21, 2015 to FULL NAME TITLE & COMPANY

Caitlin Cecil Strasburger Tax Symposium 901 Main Street, Suite 4400 Dallas, Texas 75202

ADDRESS CIT Y, STATE, ZIP E-MAIL PHONE

www.strasburger.com

Austin • Collin County • Dallas • Houston • New York • San Antonio • Washington, D.C. • Mexico City - Strasburger & Price, SC