September|October 2014 | Vol. 10 No. 5 A publication of the Wisconsin Institute of CPAs | www.wicpa.org
Randall L. “Randy” Miller, CPA, partner, Hawkins Ash CPAs LLP
PLUS:
What’s new with GASB? Top HR tips you should know Preparing for pending state and federal tax changes
A publication of Wisconsin Institute of CPAs | www.wicpa.org
September/October 2014 Vol. 10 No. 5
6 Features
Columns
6 Going for the win Randall L.“Randy” Miller, CPA balances accounting career with faith, family and service. By Cynthia M. Hodnett
26 TAX Significant federal and state tax developments to access now Learn about pending tax changes that could impact your practice. By Jennifer H. Jin, J.D., and Thomas R. Vance, J.D., LL.M.
10 New GASB standards will impact Wisconsin governments What’s on the horizon for the Governmental Accounting Standards Board? By Amanda R. Blomberg, CPA 14 Not scary at all: Strategic planning is good for business Clearly defining your company’s plan can make the difference between success and failure. By Patrick G. Hoffert, CPA 18 Do’s and don’ts for a CPA facing a malpractice claim Consider four key steps to take after a mistake has been made and a claim is imminent. By Ross A. Anderson, J.D.
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28 INDUSTRY New competency framework strengthens CGMA value CGMA holders have four competency skills that are prized by employers. By the AICPA Communications Team 30 HUMAN RESOURCES Top HR issues for CPAs CPAs play a key role in assisting their clients with employer compliance. By Arthur T. Phillips, J.D., and David W. Eckhardt, J.D.
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28 Departments 2
Odds & Ends | news briefs
3 Outlook | chair’s letter 5
Membership Matters | member benefits
13 In Touch | president & ceo’s message 24 Kudos | members in the news 25 Memorials | departed members
On Balance
September|October 2014
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Odd & Ends Two Milwaukee area CPA firms merge
2013 Apex Award for Publication Excellence
2014–2015 WICPA OFFICERS/BOARD MEMBERS Chair Jean M. Hansen, CPA, MBA, CGMA Chair-elect Martin D. Verhelst, CPA Past-chair Robert A. Gruber, Ph.D., CPA, CGMA Secretary-treasurer Joy L. Hertlein, CPA, CGMA Directors Lucien A. Beaudry, CPA, J.D. Kyle J. Beld, CPA Greta C. Diercks, CPA Katherine L. Hauser, CPA, CGMA Matthew A. Los, CPA Kelly K. Miller, CPA Scott D. Miller, CPA, ABV, PFS, CVA Gregory L. Ryan, CPA Wendi M. Unger, CPA AICPA Council Karla E. Blair, CPA Nicholas S. Lascari, CPA, CEA, CGMA President & CEO Dennis F. Tomorsky, CPA, J.D., CGMA Vice President of Communications Amy E. Gaeth Vice President of Membership & Marketing Barb Gamez Editor Cynthia M. Hodnett Copy Editor Joan Bahr Design & Layout Kathleen Hess Advertising Manager Ellen Engel Printing Marek Printing Join us online!
Public accounting firms Sitzberger Widmann & Company, S.C. and Hau & Associates, S.C. have merged to form Sitzberger Hau & Company S.C. The newly formed company now has 30 staff, including 16 CPAs at its Milwaukee, Pewaukee and Brookfield offices.
SVA acquires Pewaukee CPA practice SVA Certified Public Accountants has acquired Kosler & Co. in Pewaukee, according to the Milwaukee Journal Sentinel. WICPA member Thomas W. Kosler, CPA and his staff have joined SVA’s Brookfield office at 18650 W. Corporate Drive. SVA has more than 400 employees at its Brookfield, Rockford, Ill., Appleton and Madison offices.
Waukesha practice earns award The Kieckhaefer Investment Group of Wells Fargo Advisors in Waukesha is one of 23 practices named as Milwaukee’s Premier Advisors by the National Association of Board Certified Advisory Practices (NABCAP) for 2013. NABCAP is an unbiased organization that serves the needs of the investing public by helping identify top wealth managers.
WKMR named among best places to work Winter, Kloman, Moter & Repp, S.C. (WKMR) in Brookfield has been named one of the Milwaukee Journal Sentinel’s 2014 Top Workplaces for the second consecutive year. The firm also received a special award in recognition for its strong ethical standards.
Wipfli ranked among top value added resellers Wipfli has been named to the Bob Scott’s Insights Top 100 VARs for 2014 (http://www.bobscottsinsights.com). The Top 100 resellers are chosen from organizations specializing in the sale and implementation of Enterprise Resource Planning and accounting software. The selection is based on annual revenue generated by each reseller. A special report that includes names of the organizations selected for this year’s Top 100 list, ranked by revenue.
On Balance is published six times a year by the Wisconsin Institute of Certified Public Accountants (WICPA). Change of address should be sent to: Membership, W233N2080 Ridgeview Pkwy, Suite 201, Waukesha WI 53188; Phone: 262-785-0445 or 800-772-6939 (WI/MN); Fax: 262-785-0838; email: jessica@wicpa.org. Statements and opinions expressed are those of the authors and not necessarily those of the WICPA. Publication of an advertisement does not constitute an endorsement of the product or service by On Balance or the WICPA. Articles may be reproduced with permission. © Copyright 2014 On Balance.
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{ Outlook | chair’s letter } “Reinventing yourself takes commitment and vision. Challenge yourself to improve continually and remain focused on your goals.”
Reinvent yourself
I
f you feel that your career path could use a boost, don’t be afraid to reinvent yourself. This often starts with ways to improve or add value to your skill sets and understand what your organization needs. The real key is to grow your knowledge base to the level your employer depends on your expertise. Combining this knowledge with a commitment to make it happen will let you take charge of your career. Make sure to take advantage of what your WICPA membership can offer you — it is a one-stop opportunity for CPAs. Here are a few important ways to move you in that direction.
Become the go-to person Broad knowledge has value, but your goal is to become the go-to person in a niche area. Evaluate potential areas of interest by assessing your employer’s needs. CPAs who build niche expertise create extra value for their clients and employers, for which they will pay more. Become involved within the WICPA by joining a Committee or Task Force and share your knowledge with your colleagues. One of the best ways to meet the challenge of staying smart is to teach others. Share within your team, lead a group discussion, or develop opportunities to teach peers and clients outside the firm.
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Maintain a good attitude Be a positive thinker. A good attitude will greatly benefit your CPA career. When others ask for assistance, displaying a can-do attitude will help you become a resource for team members, as well as your firm’s clients. Become involved within the WICPA, and share your positivity with others by doing something fun like attending a Brewers Bash or New CPA Welcome Dinner. Self-confidence is part of having a positive attitude, but it must be tempered with humility. Know when to laugh at yourself. When we recognize our limitations and can laugh at our mistakes, others will see us as approachable, which is a workplace asset.
Fulfill highest expectations Choose to be a CPA who takes complete responsibility for results. Accountability is a state of mind in which you do everything within your power to meet expectations.
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Even when presented with complicated circumstances beyond your control, lead the search for solutions and follow up with all affected parties to ensure the best possible outcome for everyone. Become involved within the WICPA by participating in public policy at the legislative level or mentoring our young professionals. People are attracted to professionals who take responsibility, make things happen and are accountable for the outcomes. Assuming responsibility and accountability can be a transforming principle for both your career and personal life. Reinventing yourself takes commitment and vision. Challenge yourself to improve continually and remain focused on your goals. Remember that the toughest part is taking the first step. Becoming involved within the WICPA is a surefire way to get the boost you desire. Taking charge of your CPA career will be among the greatest rewards of your professional life. Let the WICPA pave the way!
Jean M. Hansen, CPA, MBA, CGMA is CFO/ vice president-finance at Manitowoc Tool & On Balance Machining LLC. Contact herSeptember|October at 920-682-8825 2014 ext. 114 or jhansen@mantool.com.
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{ Membership Matters | member benefits } “You are critical to ensuring the vitality of WICPA programs and services. WICPA staff rely on volunteer members to help ensure you receive the information, continuing education and resources you need to excel.”
Helping us helps you
W
e’ve all heard the phrase, “time is money.” We’ve heard it because it’s true. For CPAs with billable hours, there is a tangible dollar amount designated for your time. For others, the amount your time is worth might not be as specific but it’s just as valuable. Then there’s your “free” time. It may be free, but it’s even more valuable. How you spend your free time is carefully decided and divided because there’s often less of it than we’d like to have. So how do you decide what to spend your free time doing? Many WICPA members I know believe it’s important to volunteer — whether it’s within their organization, their community or within the WICPA. I’m sure they would all agree that the benefits they receive from volunteering far exceed the cost of their time.
How you help; how you benefit You are critical to ensuring the vitality of WICPA programs and services. WICPA staff rely on volunteer members to help ensure you receive the information, continuing education and resources you need to excel. Opportunities include serving on the WICPA Board of Directors, the Educational Foundation Board of Directors, or one of 14 different committees and conference planning task forces. As a volunteer with the WICPA, you will: 1. Build your professional network. You’ll meet other members you can contact for ideas, solutions, potential clients, referrals or future references. And find lifelong friends along the way. 2. Shape the direction of your association’s governance and continuing education. You know best what you need to enhance your expertise. You can help ensure we’re providing it. 3. Strengthen valuable leadership skills. You’ll have opportunities to collaborate with peers, lead meetings, take minutes and more. 4. Broaden your skills beyond accounting. It’s your chance to step out of your everyday tasks and help plan events or brainstorm creative new experiences.
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5. Add it to your resume. Showcase your willingness to go beyond what’s expected.
Promote a positive image of CPAs You can also enhance the positive image of CPAs as a volunteer for programs outside the WICPA. Whether it’s providing pro bono work for nonprofit organizations, promoting accounting careers or encouraging financial literacy among students, you’ll find it to be a rewarding experience. There are many ways you can spend a small portion of your free time. Time commitments can range from two hours to 14 for the entire year, depending on what you choose. Learn how you can help us help you at: www.wicpa.org/volunteer. Or contact me at barb@wicpa.org.
Member benefit spotlight Show your WICPA pride as a member of The Standard Above™ by featuring the WICPA logo on your business card, email signature, website and more! Visit www.wicpa.org/logo for usage guidelines and to submit a request.
Barb Gamez is vice president of Membership & Marketing of the Wisconsin Institute of On Balance September|October 2014 CPAs. Contact her at 262-785-0445 ext. 4509 or barb@wicpa.org.
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Photography by Scott Witte
Randall L. “Randy� Miller, CPA, balances accounting career with faith, family and service By Cynthia M. Hodnett
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Randall L. “Randy” Miller, CPA and daughters Katrina (left) and Gabrielle (middle); and wife, Jona (right).
On a recent afternoon, Randall L. “Randy” Miller, CPA and two of his daughters play a pickup basketball game at the YMCA in Manitowoc. No scores are kept and no fouls are called. Spending quality time as a family is what matters most. The family outing provides Miller a break from the demands of his position as partner at Hawkins Ash CPAs LLP in Manitowoc. Besides family, the Manitowoc native counts his faith, career and service to others as the guiding principles in his life. His beliefs are illustrated with his self-described acronym “G.F.W.O. for God, Family, Work and Other” and the popular W.W.J.D., “What Would Jesus Do?” “These powerful guides impact all decisions I make in my life, including my professional life — especially in my role as chair of our (Hawkins Ash CPAs) Executive Committee — and impacts the way I interact with others,” he said. “I also am a huge believer in daily prayer, which is something I have done for years. This guides me to better decisions and interactions with others as a spouse, father, friend and co-worker.”
Small-town values, big results
Miller has known he wanted to become a CPA after taking an accounting course in high school. He has lived in Manitowoc nearly his entire life, outside of college. He began working at the firm shortly after earning a bachelor’s degree in accounting from the University of WisconsinWhitewater in 1982. He earned his certified public accounting license in 1985. “I’ve had other opportunities in bigger cities, but I’ve always wanted to be here in Manitowoc,” he said. “I grew up here and went to Catholic schools throughout childhood. My friends and family are here. So when the chance for me to build a career in the area presented, I jumped at it.” Miller is a member of both the firm’s Accounting
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and Auditing Committee and Employee Benefit Plan Service Group and is chair of its Executive Committee. He also provides auditing services to commercial entities, governmental entities, nonprofit organizations and employee benefits plans. He’s also the firm’s designated partner for membership in the AICPA Employee Benefit Plan Audit Quality Center and the AICPA Governmental Audit Quality Center. “An easy-going demeanor and willingness to share his expertise with others reflect Miller’s leadership style,” said Jeff Dvorachek, CPA, director of tax at Hawkins Ash CPAs. The two men met when Dvorachek was hired at the firm in 1998. “He leads by example when it comes to work-life balance,” Dvorachek said. “Randy has an open door policy, which allows me or other staff to feel comfortable when it comes to asking questions or advice. Randy also has a wealth of knowledge, which makes him a real asset to the office and firm. “It’s nice to have him as a resource for technical issues as well as basic firm information,” Dvorachek added. “With my being on the tax side of the practice and Randy specializing with the audit and accounting side, there are numerous times when Randy is there is assist.”
Safeguarding the profession
A WICPA member since 1983, Miller currently chairs the WICPA Peer Review Committee. Miller began serving on the WICPA Peer Review Committee about 15 years ago. He had been responsible for the Hawkins Ash CPAs peer review for several years when he decided to join the committee in order to expand his knowledge about the process. “I wanted to know more about the processes of the peer review,” he said. “I thought getting involved with peer review would only benefit me. Of course the peer review process ensures that the audit and accounting services that CPA firms perform are of high quality. This allows the users of audit and accounting reports to trust that reports are accurate and can be relied on to make decisions. “The current peer review process requires CPA firms that audit public companies have their peer review of these entities go through the Public Company Accounting Oversight Board (PCAOB) (rather than the AICPA or a state CPA society),” he said. “The significance of this is that the federal government is the peer review administering entity versus our CPA member organizations, such as the American Institute of CPAs and WICPA. “I would believe that all CPA firms would prefer working with the AICPA or state CPA societies versus the federal government,” he said. “Unfortunately, there have been
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An avid sports fan, Miller loves
watching the Green Bay Packers, Wisconsin Badgers and Milwaukee
Brewers. He also enjoys Muskie fishing and hunting on his 80-acre
woodlands. some ‘threats’ from the U.S. Department of Labor (ERISA audits) and the U.S. Government Accountability Office (Yellow Book Audits) and the U.S. Office of Management and Budget (A-133 Single Audits) where these offices do not feel the current peer review program (through AICPA) is detecting audit quality issues with their audits. And if this continues, they are going to take over the peer review process of these audits similar to what the PCAOB does for public company audits. “Another issue is the potential decline of the number of qualified peer reviewers, which could be the result of a large number of CPAs retiring in the next five to 10 years,” he said. “Most members on the Peer Review Committee are typically seasoned CPAs who are partners at their firm and choose to volunteer on the committee.”
with his wife, Jona, and their four children: Joshua, 25; Stephani, 23; Katrina, 20; and Gabrielle, 16. Katrina is an accounting major at UW-Whitewater. An avid sports fan, Miller loves watching the Green Bay Packers, Wisconsin Badgers and Milwaukee Brewers. He also enjoys muskie fishing and hunting on his 80-acre woodlands. “I’m an outdoorsman and love just being in the woods with my family or dog,” he said. “It’s a great place to get away. It’s my sanctuary.” He also finds time to give back to others by serving as trustee and president of the finance council at his parish, St. Francis of Assisi Parish. He is also treasurer and secretary of the parish’s school foundation.
A busy schedule doesn’t keep Miller from spending time
Cynthia M. Hodnett is editor of On Balance magazine. Contact her at 262-785-0445 ext. 4516 or cynthia@wicpa.org.
Checks and balances
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On Balance
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NEW
GASB STANDARDS WILL IMPACT WISCONSIN GOVERNMENTS By Amanda R. Blomberg, CPA
W
isconsin governmental entities that belong to the Wisconsin Retirement System (WRS) will be impacted by recent statements from the Governmental Accounting Standards Board (GASB)
regarding pension reform. GASB Statements involving government combinations, disposals, and nonexchange financial guarantees will also impact entities under certain circumstances, which are reviewed below.
Amanda R. Blomberg, CPA is a senior manager at Baker Tilly in Madison. Contact her at 608-249-6622 or amanda.blomberg@bakertilly.com.
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GASB Statement No. 67: Financial Reporting for Pension Plans — an amendment of GASB Statement No. 25 and GASB Statement No. 68: Accounting and Financial Reporting for Pensions — an amendment of GASB Statement No. 27 will go into effect for fiscal years beginning after June 15, 2013 and 2014, respectively. GASB Statement No. 67 will impact the pension plan itself, while GASB Statement No. 68 will impact the employers. The primary objective of these statements is to improve financial reporting by state and local governments for pensions and for the pension plans themselves. Generally, GASB Statement No. 67 will not have a direct impact on local governments in Wisconsin as this statement is required to be implemented by the pension plan, which is the WRS for most Wisconsin governments. The new statement will require changes to the methods used to calculate pension liabilities, as well as some financial statement and note disclosure changes. GASB Statement No. 68 directly impacts local governments’ potential liabilities that will need to be reported in the governmentwide financial statements, as well as in other full-accrual funds. In other words, for a pension plan that is not fully funded, each local government will need to report its proportionate share of the unfunded
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Pension standards
pension plan as a liability. This statement shifts the focus of the unfunded balances from the income statement, which records expenditures only as payments are made, to the balance sheet. Fortunately, for Wisconsin contributors, the WRS has represented that its plan is well-funded. However, final financial information will not be available until the WRS issues its Dec. 31, 2014 financial statements. While an individual contributor may need to report a liability for its share of any unfunded balances, governments in Wisconsin should fare better than governments in other states that carry much larger unfunded balances. The WRS has stated that it will provide the necessary information to employers to implement GASB Statement No. 68. Local governments should note that these changes are strictly accounting and reporting changes and will not change the underlying financial activity of the local government or the WRS.
Timetable
Years ending
2014
Years ending WRS implements GASB No. 67
2015
State, school districts, and other fiscal year entities implement GASB No. 68 using information provided by WRS
Municipalities and other calendar year entities implement GASB No. 68 using information provided by WRS
Activities that do not apply under this statement include assets and liabilities that make up less than an entire operation, obtaining control of legally separate entity, and acquisition of an equity interest in another entity. GASB Statement No. 69 goes into effect for financial reporting periods beginning after Dec. 15, 2013, and should be applied on a prospective basis.
Nonexchange financial guarantees
GASB Statement No. 70 was created to address situations where local governments are involved in a financial guarantee with another government or nonprofit entity in which they do not receive an equal value in return. A financial guarantee is made when an entity agrees to indemnify a third party if it cannot fulfill the requirements of an obligation, thereby creating risk to the entity extending the financial guarantee. This statement promotes consistency in the treatment of nonexchange financial guarantees as either the entity extending the guarantee or receiving the guarantee. GASB Statement No. 70 is effective for reporting periods beginning after June 15, 2013, and should be applied retroactively. If you have any questions or concerns regarding the application of these new standards to your organization, consult with your auditor or another governmental accounting professional.
Government combinations and disposals
GASB Statement No. 69: Government Combinations and Disposals of Government Operations establishes accounting and financial reporting standards relating to government combinations and disposals of government operations. This statement applies to government mergers and acquisitions, transfers of operations, and disposals of government operations in which an exchange of consideration or payment may or may not be involved. Prior to GASB Statement No. 69, governments would have used Accounting Principles Board (APB) Opinion No. 16, Business Combinations, as a guide. However, this was never intended for the public sector and its application to the public sector has proven to be problematic. Examples of activities included within GASB Statement No. 69 include: • Combination of the city and county health departments into a new entity. • County purchase of a privately-owned golf course. • Creation of a regional fire protection district involving multiple municipalities.
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IF YOU KNEW THE KEY TO RETAINING YOUR TOP TALENT... WOULD YOU TRY IT? Based on his book, Employee Retention Fundamentals... No Nonsense Strategies to Retain Your Best People, Jeff Kortes will provide insight into the thoughts and reasoning of employees who decide to or are contemplating leaving their jobs in various organizations. Through humorous, real-life stories and interactive participation, Jeff has created a program that helps organizations discover ways to gain a competitive edge when trying to retain talent to compete in the marketplace.
DURING THE PROGRAM YOU WILL Understand reasons why solid performers leave an organization AND be able to act on those reasons to increase retention. egin developing a strategic roadmap of activities that can be B implemented to drive employee retention. Identify gaps in your strategic retention plan. uild retention into key metrics of the organization so retention B becomes a competitive advantage. Understand key retention factors that are important to different generations.
EVENT DETAILS Eau Claire
Green Bay
11:30 a.m. – 2:30 p.m.
11:30 a.m. – 2:30 p.m.
Friday, Sept. 12
Plaza Hotel & Suites
Friday, Oct. 3
Radisson Paper Valley Hotel
Madison
Waukesha
7:30 – 10:30 a.m.
7:30 – 10:30 a.m.
Friday, Sept. 19 Crowne Plaza
Friday, Oct. 10
Milwaukee Marriott West
Cost: $50 members/ $60 nonmembers CPE credit: 3 hours ** Registration also includes a copy of Jeff’s book Employee Retention Fundamentals…No Nonsense Strategies to Retain Your Best People. ** 12
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Jeff Kortes has more than 30 years of experience in human resources. Throughout his career he has worked to recruit, retain and develop employees, at all levels, at companies including ConAgra Foods, industrial equipment supplier SPX, automotive retailer Midas International, and more. He has helped businesses with as few as 10 employees compete with larger employers in recruiting and retaining the “A” talent they needed to survive and thrive.
Plus
Meet new WICPA Board Chair Jean M. Hansen, CPA, MBA, CGMA and receive a brief professional issues update from WICPA President and CEO Dennis F. Tomorsky, CPA, J.D., CGMA.
Breakfast will be provided at morning programs and a light lunch at afternoon programs.
Visit wicpa.org/FallFocus for more information and to register. www.wicpa.org
{ In Touch | president & CEO’s message } “Engaging in advocacy is one important way the WICPA serves its members, their employers and clients, and the CPA profession.”
Add a skill: Learn to lobby
T
wo important components of WICPA’s mission include advocating on behalf of the CPA profession and increasing members’ knowledge, skills and competence. Since all WICPA members advocate for themselves or others periodically, my column this month shares some perspectives on increasing your competencies by engaging in advocacy.
Competency development Dramatic shifts in both academic and continuing professional education focus on building competencies rather than merely memorizing facts and measuring time spent attending lectures. Recent research and organizational trends recognize the benefits of “nano-learning” in short time increments, and have demonstrated that activities other than lectures are extremely effective in increasing competencies that are critical to professional success. Research has also established that the competencies required for professional success extend well beyond technical skills. The AICPA and Chartered Institute of Management Accountants (CIMA) conducted extensive research developing continuing professional development requirements for the new CGMA (Chartered Global Management Accountant) credential. Their research found that technical skills are only one of four competencies that are critical to accountants’ professional success and value to others. Additional important skills in the CGMA competency framework are business acumen, people skills, and leadership skills, all of which are critical to CPAs in both public practice and management accounting.
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Advocacy and advocacy skills Engaging in advocacy is one important way the WICPA serves its members, their employers and clients, and the CPA profession. During a recent WICPA Public Policy Committee meeting, committee member Thomas A. Schmitt, CPA suggested encouraging all WICPA members to serve the profession and enhance their skills by contacting their legislative representatives at the state and federal levels to share their perspectives and the perspectives of those they serve. For example, WICPA members Martin D. Verhelst, CPA; Nicholas S. Lascari, CPA, CEA, CGMA;
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Theodore E. Hart, CPA, CFE, CFF and I recently met with U.S. Rep. Paul D. Ryan (R-Wis.) to explain the adverse impact of a proposal to require many CPA firms and other businesses to use accrual accounting for tax purposes. Our advocacy on behalf of the CPA profession most certainly enhanced our technical skills, as well as our business acumen, people skills and leadership skills.
Advocate to enhance your competencies Please call, write or visit your legislative representatives to share your thoughts, demonstrate your technical skills, and enhance the leadership and people skills that are critical to your professional success. You can easily find your legislators’ contact information and advocacy resources at http://maps.legis.wisconsin.gov/ and http://www.wicpa.org/Content/Members/Advocacy/ LegislativeContact.aspx.
Dennis F. Tomorsky, CPA, J.D., CGMA is president & CEO of the Wisconsin Institute OnContact Balancehim at September|October of CPAs. 262-785-0445 2014 ext. 4519 or dennis@wicpa.org.
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By Patrick G. Hoffert, CPA
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Strategic planning
is good for business
Y
ou wouldn’t plan your annual Halloween party without lists of who to invite or what
food to buy. So don’t try to run your accounting firm without lists. Listing your business’s goals and developing a plan to achieve those goals is what strategic planning is all about. And it’s imperative to growing your business.
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As we all know,
A clearly defined strategic plan can make the critical growing
difference between business success and failure. Don’t
your business is not something that just happens; it
be afraid to start the process. It’s not something that
requires collaboration and planning. Your company
needs to drag on for months, but it should be
simply won’t grow by merely changing something; you
creative. Developing a compelling and engaging
actually have to plan it. And according to James Cash
pathway into the future can be accomplished in the
Penney, founder of J.C. Penney, “it’s the result of forces
following four steps:
working together.” Most CPA firms want to grow their practice, but many
1. Brainstorming: The brainstorming process should include the owners of the firm and the top
lack the vision for how to achieve the desired growth.
managers. This is a plan for future growth and your
The answer lies in strategic planning. Strategic planning
managers are the future of the firm; draw from their
is a systematic process of envisioning a desired future,
collective wisdom to make the decisions regarding
and then translating that vision into broadly defined
your organization’s strategic direction. During the
goals or objectives with a sequence of steps to achieve
brainstorming session, you should ask each other
them. Basically it means seeing the future you want for
questions such as:
your business and defining the steps to take to achieve
• Where are we now?
that future.
• What are our strengths and weaknesses? • Where are the best opportunities? • What are the biggest risks? • Where do we want to be? • How do we get there? 2. Goal setting: Define clear, measurable goals to get the firm to the future you’ve laid out in your brainstorming session. 3. Take action: Organize your goals and assign them to the individual(s) responsible. Set clear dates for monitoring and completion, and consider putting incentives in place for success. 4. Follow-up: Use metrics and key performance indicators to follow-up on the plan in regular intervals (not just at the annual retreat). Don’t let all your hard work end up on a shelf or at the bottom of drawer. Refer to the document regularly. Check up on yourself and your progress. There are several factors that have an impact on your business’s ability to implement strategy successfully. You might find balancing the sophistication and complexity of your strategic plan just as challenging as its implementation. Strive for the best implementation possible. Well-implemented strategies are better than strategies that languish because your business lacks the resources to implement them.
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“There’s
nothing spooky about it. When you live your plan, your vision will become your reality.”
Following are some tips for creating and implementing a successful strategic plan: n Do hire a professional to help in the process. CPA firms are unique in the way that owners are actively involved in day-to-day client service. We spend more time working “on” our business, instead of “in” our business. Without the use of outside experts, it is inevitable that the plan will take a backseat to billable client work. n Do have a common vision. Partners and employees need to buy-in to the ultimate goal for the process to be successful. Negativity will kill the best laid strategic plan. n Do set measureable goals. A successful plan requires accountability. If your goals are too vague, there will be no useful metrics to measure success and hold people accountable. n Don’t get complacent. A strategic plan needs to be a living document. The ever-changing audit and tax landscapes will constantly create new opportunities and risks. The plan will need to adapt to continue to be successful. n Don’t be too complex. If the plan has too many complex goals the owners and employees might get confused or overwhelmed resulting in a failure to execute assigned tasks. n Don’t get stuck on “this is how we’ve always done it.” There is something to be said for tradition, however, people and industries change. A good plan needs to adapt to succeed. A well-designed strategic plan, one that includes clearly defined objectives and strategies with measurable results, will do more than provide a vision for growing your practice. It will define priorities for your firm and unite your staff in a common goal. It will allow your firm to become proactive rather than reactive. It will re-energize your staff. There’s nothing spooky about it. When you live your plan, your vision will become your reality.
Patrick G. Hoffert, CPA, is a partner at Reilly, Penner & Benton in Milwaukee. Contact him at 414-271-7800 or phoffert@rpbllp.com.
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Do’s and don’ts malpractice claim
By Ross A. Anderson, J.D.
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ccounting malpractice (or accounting negligence) is an accounting or auditing error that falls below and/or deviates from the professional standard of care. The standard is sometimes defined and set by Generally Accepted Accounting Principles or Generally Accepted Auditing Standards. Other times it may be established by customary and accepted accounting practices and procedures. Like death and taxes, professional errors are inevitable. Fortunately, most of those errors are correctable. Unfortunately, sometimes they are not, and a malpractice claim has or will likely be made by the client. Speaking from the standpoint of a professional liability defense lawyer, how you respond in that situation can and probably will have a great bearing on the ultimate outcome.
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for a CPA facing a
This article focuses on four fundamental steps you should take after the mistake has been made and a claim is likely (not on how to avoid committing malpractice). Some of the suggestions are obvious. Nevertheless, the pressure of a potential lawsuit, combined with the natural human tendencies to avoid or deny, often results in delaying or missing these fundamental steps. Your clients expect and pay for professional objectivity from you. Even though difficult, apply that same standard of accountability to your situation.
1.
Assess. At its heart, any accounting malpractice claim has four components: duty, breach, cause and harm. A minor error might breach your duty, but not cause harm. Recognize when you have made a serious mistake, one that breaches your duty and causes damage to your client. I am not talking about a simple judgment error or miscalculation, but a professional act, failure or omission that has or will cause real harm to your client.
2.
Consult. Admitting the mistake to yourself is one thing; evaluating the claim and advising yourself on how to proceed is another. Remember, a lawyer who represents himself has a fool for a client. This axiom applies equally to accountants. Be careful, however, as conversations are probably not privileged, and can be subject to discovery if litigation ensues. Instead, consult with an objective professional such as your lawyer or insurance claims adjuster, or the person designated within your firm to deal with professional liability claims. As part of this evaluation, the decision must also be made whether to report the claim to your professional errors and omissions (E&O) carrier. Since most E&O policies are written on a “claims made� basis, the timely and accurate reporting of claims is critical.
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3.
Confront. This is perhaps not the most difficult step (see the admission inherent in steps 1 and 2), but by far the most delicate. Further dealings with the client about the mistake require you to balance professional honesty and integrity with the fear of making an admission that may later harm your defense. Professional guidance is critical to avoid making a mistake. Everything said and done at this stage could well be judged in the harsh light of future litigation. I have seen potential malpractice claims resolve at the outset with an honest and forthright explanation and reparation by the professional. I have also seen claims made worse as positions harden. How to proceed at this stage depends on the nature of the mistake and the personality of the client. The skill and objectivity of your adviser is critical to charting your way through these waters.
4.
Preserve. If you know a claim is coming, get ready. All documents, files and records (including electronic ones) pertaining to the work done for the client must be retained. These are not just documents in the client file related to the professional accounting services rendered. They include personal calendars, correspondence, time records, billing records, disbursement and financial records, notes, research, or any other documents, recordings or electronic records relating
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to the client. This step does not address document retention requirements for accounting firms. Rather, it deals with preserving documents once you have reasonable notice of a malpractice claim. At that point, state and federal discovery rules apply to all printed and electronic records having some connection to the claim. The destruction of potential evidence (intentionally or inadvertently) is called “spoliation.” Wisconsin law defines spoliation as the “destruction or withholding of critically probative evidence resulting in prejudice to the opposing party.” Neumann v. Neumann, 2001 WI App 61. Sanctions against a party destroying potential evidence can be severe, perhaps as severe as granting default in favor of the client on the malpractice claim. Spoliation sanctions can be imposed even for accidental destruction of evidence if reasonable attempts were not made by the professional to preserve the evidence. This is particularly important if your company has a document destruction policy (electronic or otherwise). In the event of a claim, you need to intervene to make sure that potential evidence is not routinely destroyed per that policy. How does it differ when your client is intent on making a claim, even if you didn’t do anything wrong? While the result of the introspective assessment in step 1 yields a different conclusion, the other steps apply equally to any malpractice claim made by the client against you or your firm, regardless of whether the claim is meritorious. With diligence, quality control and a bit of luck, you might make it through your career without being on the wrong end of a claim. If you are on the receiving end, however, be ready and avoid exacerbating an already bad situation.
Ross A. Anderson, J.D., is a shareholder and co-leader of Whyte Hirschboeck Dudek S.C.’s Litigation Practice Group in Milwaukee. Contact him at 414-978-5412 or randerson@whdlaw.com. www.wicpa.org
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Send us your nominations! The WICPA and Educational Foundation Nominations Committees are seeking candidates to serve three-year terms on the WICPA Board of Directors and the WICPA Educational Foundation Board of Directors. WICPA board members’ responsibilities include: • Keeping up-to-date on professional issues. • Providing strategic governance in accordance with the WICPA Strategic Plan, mission and vision, including: o Policy relating to legislative, regulatory or ethical matters affecting WICPA members. o Approval of budgets. • Meeting four times a year. • To apply: Visit www.wicpa.org/2014 BoardApplication.
Foundation board members’ responsibilities include: • Assisting in efforts to attract students to the profession. • Providing scholarships for college students. • Co-sponsoring a two-week, on-campus business experience for minority high school students. • Offering the only accounting-related CPE for high school accounting teachers in the state. • Awarding grants to high school teachers who develop educational programs to promote accounting career awareness. • Serving on subcommittees of the board. • Meeting two times a year. • To apply: Visit www.wicpa.org/2014EFBoard Application.
All applicants must be WICPA Fellow* Members in good standing.
Submit the completed application and your resume to, WICPA Executive Relations Manager, Jessica Murphy by Nov. 14, 2014. * A person who has obtained a valid certificate as a CPA from the Accounting Examining Board of the State of Wisconsin, or from a similar legally constituted authority in any other state, possession or territory of the United States or the District of Columbia.
Financial statements now available online The Finance Committee of the WICPA Board has reviewed and approved the WICPA audited financial statements for the fiscal year ended April 30, 2014. The WICPA Educational Foundation Board has reviewed and approved the audited WICPA Educational Foundation financial statements for the fiscal year ended April 30, 2014. In order to make the audited financial statements available to WICPA members in the most cost effective and efficient manner the complete audited financial statements will be available for all members to view at www.wicpa.org/FinancialStatements rather than published in On Balance. Your username (your last name, apostrophe and hyphen included) and password (your membership ID number found on your dues invoice) is required to access the statement online. Members may also request a printed copy of the audited financial statements by contacting WICPA Chief Financial & Operating Officer Tammy Hofstede at tammy@wicpa.org or W233N2080 Ridgeview Parkway, Suite 201, Waukesha, WI, 53188. Sincerely,
Jean M. Hansen CPA, MBA, CMGA, WICPA Chair
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Dennis F. Tomorsky CPA, J.D., CGMA, WICPA President & CEO
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kudos Michael A. Bark, CPA, CVA, MST of Edge Advisors, LLC in West Allis was named to National Association of Certified Valuation Analysts’ inaugural Top 40 under 40 class.
Michael A. Bark, CPA, CVA, MST
Stephanie A. Barganz-Ryan, CPA, SPHR, CFF, CVA was recently named chief human capital officer at Ryan Evolution LLC in Madison.
James R. Kieckhaefer
Scott G. Basler, CPA was recently named CFO of Holiday Automotive in Fond du Lac, according to The Fond du Lac Reporter.
Stephanie A. Barganz-Ryan, CPA, SPHR, CFF, CVA
Jeffrey S. Hertel, CPA was recently promoted to vice president of finance of Paul Davis Restoration & Remodeling in Southeast and Fox Valley Wisconsin, according to the Appleton Post-Crescent.
Joel G. Nettesheim, CPA
James R. Kieckhaefer, senior vice president-investment group of The Kieckhaefer Investment Group of Wells Fargo in Waukesha, recently received the 2014 Five Star Wealth Management award. Kieckhaefer was also named premier advisor with Wells Fargo Advisors’ Private Client Group for the fourth consecutive year. Joel G. Nettesheim, CPA, principal and co-leader of the Business Advisory Services Group at SVA in Brookfield, has been selected for the Five Star Certified Public Accountant Award. The award is given to CPAs who score the overall satisfaction based on research conducted by a national independent research company.
John R. Jensen, CPA was recently named global CFO of Harken in Pewaukee, according to the Waukesha Freeman.
Want your
promotion or
award mentioned in Kudos? Email your announcement and photo in JPG format to cynthia@wicpa.org.
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memorials Robert L. Gueldenzopf, CPA (1926–2014) Robert L. Gueldenzopf, CPA died April 17, according the Sheboygan Press. He was 87. Gueldenzopf served in the United States Army. He later graduated from the University of Wisconsin-Madison in 1949. He earned his certified public accounting license in 1952. His accounting career included a position at Plenco in Sheboygan. He retired as the company’s controller in 1993. The Sheboygan resident joined the WICPA in 1974.
Clarence E. “Bud” Holtze, CPA (1932–2014) Past WICPA Chair Clarence E. “Bud” Holtze, CPA died May 9. He was 82. Holtze earned a Bachelor of Business Administration degree from the University of Wisconsin-Madison in 1955. He later earned his certified public accounting license in 1957. His accounting career includes positions at several firms, including partner at what is now Deloitte in Milwaukee. He joined the WICPA in 1977. He later served on several committees and was chair from 1987–1988. He was a resident of Rosemount, Minn.
Paul R. Rozek, MPM (1956–2014) Paul R. Rozek, MPM died April 29, according to the Milwaukee Journal Sentinel. He was 58. Rozek graduated from the University of Wisconsin-Oshkosh and earned a master’s degree from Keller Graduate School. He was associate director of Risk Services for Schenck SC in Milwaukee. The Whitefish Bay resident joined the WICPA in 2013.
Roger O. Symdon, CPA (1931–2014) Roger O. Symdon, CPA died April 25, according to the Wisconsin State Journal. He was 82. Symdon served in the Air National Guard from 1951–1954. He later earned an accounting degree from the former Madison Business College. His accounting career included positions at the State of Wisconsin’s tax department and at what is now Baker Tilly Virchow Krause, LLP. He earned his certified public accounting license in 1971. The Oregon resident joined the WICPA in 1971.
James N. Wolter, CPA (1936–2014) James N. Wolter, CPA died on April 9, according to the Milwaukee Journal Sentinel. He was 77. Wolter graduated from Marquette University in 1957. He began his accounting career in 1959 at Frazer & Torbet. He earned his certified public accounting license in 1968. He then became partner at Bersch & Co. before leaving in 1971 to form Walsh Wolter & Co. with a friend, Pat Walsh. The firm later merged with what is now CliftonLarsenAllen LLP. Wolter retired as partner there in 1997. The Tucson, Ariz. resident joined the WICPA in 1968.
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Significant federal and state tax developments
to access now
By Jennifer H. Jin, J.D., and Thomas R. Vance, J.D., LL.M.
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This article highlights some key developments that may have significant impact on your practice. FEDERAL Circular 230 (Still) Has You Covered
Starting June 12, 2014, you should have deleted the Circular 230 disclaimer from your emails. Revised regulations, include a major change: removing the “covered opinion� rules of former Section 10.35. Revised Section 10.37 provides principles applying to any written advice. These rules provide a list of standards to which a practitioner must adhere. Practitioners must use reasonable efforts to identify and ascertain the relevant facts, consider all relevant facts that the practitioner knows (or should know), and base all written advice on reasonable factual and legal assumptions. The new rules do not require that written advice recite all relevant facts, assumptions and representations before applying the law. Instead, the extent to which they should be explicit is based on all appropriate facts and circumstances.
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{ Tax | Federal and state changes }
Also important are the responsibilities of those who oversee a firm’s practice. Leaders are now responsible for developing adequate procedures ensuring all personnel comply with Circular 230, and taking steps to ensure the procedures are followed.
IRS offshore program changes
The Internal Revenue Service (IRS) has introduced a streamlined Offshore Voluntary Disclosure Program (OVDP) for taxpayers who owe taxes, but did not willfully fail to comply. The new program requires filing returns and forms for open years and paying a 5 percent offshore penalty (rather than the standard 27.5 percent penalty). Participants must certify that they did not act willfully and will not enter a closing agreement or receive any special protection from criminal prosecution, thus it is not for all taxpayers. The IRS also made important changes to the regular OVDP. After Aug. 4, 2014, the offshore penalty in the regular OVDP is increased to 50 percent for accounts with foreign financial institutions or facilitators that are publicly identified as being under investigation or cooperating with an investigation. Also, procedures for filing delinquent Reports of Foreign Bank and Financial Accounts (FBAR) and information returns (when no additional tax is due) are now separately set out. The IRS website (www.irs.gov) has important details about these programs.
Proposed partnership regulations
Proposed regulations (NPRM REG119305-11) would transform the allocation of partnership liabilities under Section 752. Partners are entitled to increased basis if they bear the economic risk of loss for a partnership liability. A partner can recognize losses and reduce gains with increased basis. Often the risk of loss is allocated through guarantees and indemnities. The proposed regulations would deny basis for certain guarantees of partnership debt. The regulations are intended to target those guarantees
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not on commercial terms, given solely to increase a partner’s basis in the partnership (like certain bottom-dollar guarantees). Many commentators have criticized the new rules as going too far because they would not respect many guarantees that are often required for commercial reasons. These regulations, if adopted, could upset the economic balance in many partnerships, and practitioners must be ready to manage the fallout.
governments from taxing Internet access and from imposing discriminatory Internet-only taxes. Without congressional action, ITFA will expire Nov. 1, 2014. Expiration may cause significant nationwide changes to Internet taxation. To avoid that disruption, there are several proposals for extending the law. Some proposals would eliminate the grandfather clause that allows certain states, including Wisconsin, to tax Internet access.
STATE State courts differ regarding constitutionality of click through nexus
U.S. Supreme Court may redefine scope of credits for tax paid in other states
Under the standard set by the U.S. Supreme Court in Quill v. North Dakota, sellers must have substantial nexus (specifically, physical presence in the state) before that seller is subject to the state’s sales and use tax. As the market share of online retailers continues growing, states are setting new standards to identify online contacts establishing nexus. “Click through nexus” occurs when the online seller pays a state’s resident commission when customers click through links from the resident’s website to the online retailer’s website. A growing number of states are adopting the concept since the U.S. Supreme Court denied certiorari in the combined challenge to New York law by Amazon.com and Overstock.com. The Supreme Court’s refusal to hear the case upholds the New York click through nexus law. Illinois’ click through law did not fare as well. In 2013, the Illinois Supreme Court invalidated its click through nexus statute in Performance Marketing Association v. Hamer. However, the court sidestepped the Commerce Clause issue and instead relied on federal preemption by the Internet Tax Freedom Act (ITFA). The decision provides online retailers an alternative argument against click through nexus laws.
Changes to ITFA could significantly impact Internet taxation
ITFA bars federal, state and local
Traditionally, states that tax a resident’s full income will give the resident a credit for taxes paid to another state. This prevents double taxation of income, which would violate the Commerce Clause. Uniquely, Maryland limits the credit to taxes paid only to another state and gives no credit for local county taxes. In Comptroller v. Wynne, the Marylandresident taxpayer owned 2.4 percent of a company doing business in 39 states. The taxpayer paid $123,434 in income tax to Maryland after applying a credit of $84,550 for taxes paid to other states on income earned outside of Maryland. Maryland disallowed the credit to the extent it offset county income tax. The taxpayer challenged whether Maryland’s failure to allow a credit for county income taxes violated the Commerce Clause. Maryland’s highest court ruled it unconstitutional not to give credit for county income taxes. The U.S. Supreme Court has agreed to hear the appeal in Comptroller v. Wynne. Practitioners should monitor this case for the potential impact on income taxation.
{ Tax | Federal and state changes }
“The new rules do not require that written advice recite all relevant facts, assumptions and representations before applying the law. Instead, the extent to which they should be explicit is based on all appropriate facts and circumstances.”
Jennifer H. Jin, J.D., is an attorney at Whyte Hirschboeck Dudek S.C. in Milwaukee and a member of the firm’s State and Local Tax Team. Contact her at 414-978-5314 or jjin@whdlaw.com. Thomas R. Vance, J.D., LL.M. is an attorney at Whyte Hirschboeck Dudek S.C. in Milwaukee and a member of the firm’s Taxation Team. Contact him at 414-978-5348 or tvance@whdlaw.com.
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As the accounting profession evolves, so does the set of skills required of individuals and their teams. Over the past two years, the American Institute of CPAs has joined Chartered Institute of Management Accountants (CIMA) in reaching out to companies around the globe. We heard that executives are looking for finance professionals with strong technical and people skills, an understanding of the business, and the potential to be leaders within the organization. The new Chartered Global Management Accountant (CGMA) Competency Framework helps management accountants and their
{ Industry | CGMA Competency Framework }
New competency framework strengthens CGMA value By the AICPA Communications Team
employers identify the competencies needed to adapt to these shifting business demands.
The research The AICPA and CIMA conducted extensive global research with employers, identifying the competencies organizations require to drive better business. The research, which was used to develop the competency framework, was conducted in three phases: • Face-to-face interviews performed with 67 organizations from the United States, Malaysia, South Africa and the United Kingdom. • Roundtable discussions held in 13 countries in the Americas, Asia, Europe and Africa. • Online survey taken by nearly 3,400 CIMA members, students, academics and tuition providers. Research participants included both finance and non-finance staff in mid- to senior-level positions from a wide range of industries in both the private and public sectors.
Read more information at: • http://tinyurl.com/cgmaframework
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The new employer-driven framework is designed around four knowledge areas that have a series of relevant integrated competencies, or functions. Each competency prescribes a series of skills that assist in the CGMA’s professional development and can be performed at, and measured by, four proficiency levels. Knowledge areas within the framework include:
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Knowledge and skills define designation standard
{ Industry | CGMA Competency Framework }
“The new CGMA Competency Framework helps management accountants and their employers identify the competencies needed to adapt to these shifting business demands.” • Technical skills that enable finance professionals to collect, store, process and analyze information to be shared with stakeholders. • Business skills that allow finance professionals to use their knowledge of the business and its environment to transform data into strategic insights. • People skills that influence the decisions, actions and behaviors of decision makers, others throughout the organization and stakeholders. • Leadership skills that span peer, functional and strategic levels. The proficiency levels for each competency skill are foundational (staff/entry level), intermediate (supervisor/manager), advanced (senior manager) and expert (executive/C-suite). The importance of each skill varies by proficiency level, and the more important the skill is at a specific level, the higher it will be weighted on a 100-point scale. As a result, as individuals advance in their proficiency, and career, the weighting of individual skills will change accordingly.
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For example, finance professionals at the foundational level will receive the highest weighting for technical skills. Yet, as they progress along proficiency levels the weighting for technical skills will decrease while weightings for business, people and leadership skills will increase consistently with their career progress. At the advanced level, the importance of business skills and people skills level off and the importance of leadership skills increases.
Framework drives qualification syllabus and assessment exam
The framework is the foundation that will demonstrate the relevance and capabilities of a CGMA as a trusted finance and business strategist because it’s the underpinning of the CIMA syllabus, which will be covered in the mandatory CGMA strategic case study exam next year. To learn more about the framework, contact Nancy Marc-Thrasybule, technical manager, AICPA Management Accounting Team at nmarcthrasybule@aicpa.org.
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for CPAs By Arthur T. Phillips, J.D., and David W. Eckhardt, J.D.
Human resource issues are becoming increasingly technical and deserve more attention than ever. With the impending enforcement of the employer mandate under health care reform, as well as increased scrutiny regarding nonqualified deferred compensation, CPAs are well-positioned to assist with reporting obligations and to assist in their clients’ general compliance efforts. Teaming with legal counsel can provide assurance that various implementation strategies are compliant and documentation requirements are followed.
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{ Human resources | IRS }
Top HR issues
{ Human resources | IRS }
{
“CPAs are well-positioned to assist with reporting obligations to the IRS and to assist in their clients’ general compliance efforts.”
Affordable Care Act The employer mandate under the Affordable Care Act (ACA) takes effect for health plan years beginning on or after Jan. 1, 2015, for certain large employers. The mandate generally requires that employers either offer affordable and minimum value health insurance to full-time employees or pay a penalty. In particular, employers with 100 employees or more will become subject to the employer mandate for plan
{
4. Implement administrative procedures for changes in employment status in compliance with Treasury regulations. 5. Determine whether to use safe harbors for compliance with the affordability requirement. 6. Coordinate compliance efforts with union health plans, which are ultimately the employer’s responsibility. 7. Comply with IRS reporting requirements regarding
years beginning 2015. Employers with fewer than 100
the affordability and minimum value aspects of the
employees are exempt from the employer mandate, but
health plan, and employee data for coordination with
must provide certification to that effect to the Internal
the IRS and the marketplace for premium tax credits to
Revenue Service (IRS). Employers with 50 or more
employees, or provide certification to the IRS if there
employees will become subject to the employer
are fewer than 100 employees.
mandate for plan years beginning in 2016. Employers subject to the employer mandate should consider the following: 1. Determine all entities within the same controlled group and calculate the number of full-time employees for purposes of becoming subject to the employer mandate. 2. Decide whether to use the look-back measurement method for determining full-time employees. This requires setting up look-back periods, administrative periods, and stability periods. All plan documents should be updated to reflect the administrative procedures for determining eligibility and coverage under the health plan. 3. Implement administrative procedures for tracking employee hours to determine full-time status in compliance with U.S. Department of the Treasury (Treasury) regulations.
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8. Review employer reimbursements for health plan premiums or other tax-favored arrangements to ensure the reimbursements are compliant with recent IRS notices and provided on a tax-free basis.
Nonqualified deferred compensation plans and Internal Revenue Code Section 409A The IRS is getting ready to ramp up enforcement of Section 409A of the Internal Revenue Code. The federal agency recently announced the launch of a new project to assess the level of taxpayer compliance with Section 409A — the provision that regulates nonqualified deferred compensation plans. In general, under Code Section 409A, all amounts deferred under a nonqualified deferred compensation plan are currently includible in income to the extent not subject to a substantial risk of forfeiture, unless the
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{ Human resources | IRS }
plan meets each of certain specified conditions.
compensation plans subject to Code Section 409A.
The failure of a plan to satisfy Code Section 409A
With the assistance of benefits counsel, these plans
requirements in its terms, i.e., document, or operation
should be reviewed with an eye toward the three
results in the inclusion in the participant’s income of
key areas, as well as other operational and document
all amounts deferred under the plan. Interest and a 20
issues. Many compliance problems can be voluntarily
percent penalty on all included amounts also apply.
disclosed and corrected under the IRS Code Section
The IRS intends to target a limited number of large
409A correction programs — before the IRS com-
companies — perhaps fewer than 50 — that have
mences an examination. Once an examination begins,
been previously selected for employment tax audits.
correction efforts are generally not available.
The IRS will focus on three key areas: 1. Initial deferral elections. 2. Subsequent deferral elections. 3. Distribution events under Code Section 409A, including the six-month delay for specified employees. CPAs should seriously consider “mock examinations” or recommend self-audits of nonqualified deferred
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Arthur T. Phillips, J.D., is a shareholder at Whyte Hirschboeck Dudek S.C. in Milwaukee and is a member of the firm’s Employee Benefits Team. Contact him at 414-978-5382 or aphillips@whdlaw.com. David W. Eckhardt, J.D., is an attorney at Whyte Hirschboeck Dudek S.C. in Milwaukee and a member of the firm’s Employee Benefits Team. Contact him at 414-978-5348 or deckhardt@whdlaw.com.
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