On Balance Magazine - January/February 2018 by WICPA

January | February 2018 | Vol. 14 No. 1 A publication of the Wisconsin Institute of CPAs | wicpa.org

Spanning the globe for Joy Global Matt Kulasa | 6

Plus: Help wanted | 10 Manufacturing spells relief | 21 Cybersecurity | 28

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A publication of Wisconsin Institute of CPAs | wicpa.org

January | February 2018 Vol. 14 No. 1

6 Features

Columns

6 Spanning the globe for Joy Global

24 TAX

A three-year assignment in England broadens Matt Kulasa’s business experience.

Business tax planning moves still possible after year-end Consider seven tax-saving strategies for 2017.

By David Lewellen

10 Help wanted: Wisconsin CPAs weigh in on staffing, business outlook A shortage of qualified workers looms as the primary challenge facing state businesses in a generally favorable economic environment. By Larry Sandler

16 Global economic growth: Synchronized across markets For the first time in a decade, the world’s major economies are growing in sync.

By Michael Dowdall, CFA; Jon Adams, CFA; and John Malloy, PhD 21 Manufacturing spells tax relief

By Rick Taylor, CPA 28 TECHNOLOGY

Cybersecurity: If not us, who?

Explore the key elements of a successful cybersecurity program. By Michael Senkbeil, CISSP, CISA

31 HUMAN RESOURCES

Accounting talent: Hiring challenges in 2018

Find out what you can do to attract top accounting talent from a tightening pool of skilled candidates. By Robert Half ®

Departments 2 Odds & Ends | news briefs 3 Outlook | chair’s letter 5

Membership Matters | member benefits

15 In Touch | president & CEO’s message

34 INDUSTRY

20 Kudos | members in the news

27 Memorials | departed members

Learn 13 tips for reducing a manufacturer’s tax burden.

By Jim Brandenburg, CPA, MST wicpa.org

5 tips to better manage rapidly changing enterprise risks The risks businesses face have both increased and become more complex in the past five years. Discover five helpful hints to help you navigate the rapid change.

By Sabine Vollmer

On Balance

January | February 2018

Odds & Ends MBE CPAs LLP (MBE) acquires Rudahl, Howell & Company LLP

2017–18 WICPA OFFICERS/BOARD MEMBERS Chair William L. Komisar, CPA, JD Chair-elect Michael D. Akers, CPA, CBM, CFE, CGMA, CIA, CMA, PhD Past-chair Steven G. Handrick, CPA, CGMA Secretary-treasurer Katherine L. Hauser, CPA, CGMA Directors Jon C. Gaines, CPA, CGMA, MBA Ryan J. Hanson, CPA, CGMA Patrick G. Hoffert, CPA Debra L. Lenz, CPA, CGMA, CIA, CRMA Terri M. Lillesand, CPA Matthew A. Los, CPA Steven A. Pullara, CPA Matthew J. Schaefer, CPA, CGMA Angela C. Thomas, CPA AICPA Council Rick E. Dreher, CPA, CGMA Neil R. Keller, CPA, ABV, CVA President & CEO Dennis F. Tomorsky, CPA, JD, CGMA Chief Financial & Operating Officer Tammy J. Hofstede Design & Layout Brett Stallman Advertising Terry Felker Editors Sara Davis Marcia Tillett-Zinzow Printing Delzer

MBE CPAs LLP (MBE) has acquired Rudahl, Howell & Company, LLP of Wausau. The merged practices will retain the name MBE CPAs LLP. Their office in Wausau is located at 5410 Rib Mountain Drive. The professionals at MBE can be reached at 715-355-4401. MBE has a staff of more than 80 tax and accounting professionals at their offices in Baraboo, Dells-Delton, Mauston, Reedsburg, Sun Prairie, Tomah and Wausau.

Sitzberger & Co., SC acquires Athena Accounting & Tax LLC Sitzberger & Co., SC has acquired Athena Accounting & Tax LLC. The newly formed firm now has a staff of more than 48 tax and accounting professionals at its offices in Lake Geneva and Brookfield. Sitzberger & Co. serves privately held businesses in the construction, manufacturing, distribution, real estate and technology industries, as well as nonprofit organizations.

Wipfli LLP acquires Montana-based firm Joseph Eve Wipfli LLP recently acquired Montana-based regional leader Joseph Eve. This marks the fourth merger for Wipfli this year and the second purchase the Wisconsin-based firm has made in Montana in recent years. Wipfli acquired Helena, Montana-based firm Galusha, Higgins & Galusha in 2015. Joseph Eve provides accounting, tax and consulting services to businesses and individuals, with a strong focus on serving tribal governments and the gaming industry. Joseph Eve’s professional staff, including four partners, have joined Wipfli. The combined firm will employ approximately 1,900 associates and have 47 offices across the U.S.

AICPA launches Tax Reform Resource Center Tax reform has been a topic of discussion in Congress for more than six years. Until now, timing for it was a big question. It’s been a complex issue with many moving parts. The AICPA’s Tax Reform Resource Center webpage features comprehensive coverage of the new tax reform law and its history. (aicpa.org/taxreform)

CPA firms: Advancement programs boost recruiting, retention CPA firms that use advancement programs for their professionals overwhelmingly agree that formal promotion of mentoring, sponsorship, and gender and minority initiatives helps them attract and retain people, according to a new AICPA survey. Almost half (45 percent) of the 492 respondents to the AICPA's 2017 CPA Firm Gender Survey said their firms are using mentoring programs. A much smaller portion of firms (12 percent) use sponsorship programs, in which firm leaders take a formal role in guiding promising employees to career opportunities, professional development and promotions.

Join us online!

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; 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 2018 On Balance.

On Balance

January | February 2018

Gender initiatives (11 percent), combined diversity and inclusion programs (6 percent), and minority initiatives (2 percent) also are used by firms.

WANT YOUR BUSINESS MENTIONED IN ODDS & ENDS? Email your announcement to tammy@wicpa.org.

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OUTLOOK | CHAIR’S LETTER “We should all be extremely proud of what CPAs have created. We have standards that we all adhere to and that bankers, investors and others rely on.”

State of the economy

ur world has greatly expanded, both professionally and personally, since I started my accounting career in the mid-70s. The internet, cell phones and other technology advances have had a truly global impact on the economies of Wisconsin and the United States. Whether it’s Foxconn or Amazon in Wisconsin or China, Japan or the European Union globally, the U.S. economy is often impacted by factors over which our companies and clients have no control. On the other hand, I have been fortunate to travel throughout the world, and I realize how lucky we are to live in the United States. In spite of what seems to be ongoing political dysfunction in Washington, D.C. (and sometimes Madison), our economy stays stable and our government continues on. In the last 12 months, people in Peru, Ecuador, and Mexico have asked me what I think about Donald Trump, Hillary Clinton and other political figures. I realize that a change of political party in the United States does not dissolve our government, cause former leaders to be put in jail or threaten our underlying principles—and that is something we can all be thankful for. This is, and will continue to be, a major reason why our economy, although sometimes volatile, usually continues on in a positive way for our citizens.

We should all be extremely proud of what CPAs have created. We have standards that we all adhere to and that bankers, investors and others rely on. Whether it be financial reporting for closely held businesses and publicly traded corporations or tax reporting to government agencies such as the Wisconsin Department of Revenue, the IRS or the Department of Labor, CPAs are held to high standards. People trust us and rely on us. The result is a better reporting system and a better economy that benefits us all.

We survived the 2008 economic crisis, the stock market somehow continues at all-time highs (at least it was when I wrote this), and corporate earnings are very good. A lot of the comfort that investors feel is due to strong reporting systems built into the financial structure of companies. This, in large part, is due to our profession.

I thank each and every one of you for your commitment to our profession and to the WICPA. Please stay involved, get active and continue to make our economy and our world a better place to live.

wicpa.org

William L. Komisar, CPA, JD, is a principal at CliftonLarsonAllen LLP in Milwaukee. Contact him at 414-238-6800 bill.komisar@CLAconnect.com. Onor Balance January | February 2018

Ne Network

Implement

Learn

Succeed

School District Audit CPAs in Industry Spring Thursday, March 22 Potawatomi Hotel & Casino, Milwaukee

CPAs in Industry Spring

Wednesday, May 23 Potawatomi Hotel & Casino, Milwaukee

CPAs in Industry Fall Thursday, Sept. 20 Potawatomi Hotel & Casino, Milwaukee

Tuesday, April 24 Radisson Hotel & Conference Center, Green Bay

Not-for-Profit Accounting

Financial Institutions

CPAs in Industry Fall

Tuesday, May 8 Sheraton Hotel, Brookfield

School District Audit

Wednesday, Sept. 26 Sheraton Hotel, Brookfield Thursday, Oct. 18 Glacier Canyon Lodge, Wisconsin Dells

Tax Thursday–Friday, Nov. 1–2 Potawatomi Hotel & Casino, Milwaukee

Accounting & Auditing Thursday, Nov. 15 Sheraton Hotel, Brookfield

Technology Thursday–Friday, Dec. 6–7 Potawatomi Hotel & Casino, Milwaukee

Tuesday, May 22 Holiday Inn Convention Center, Stevens Point

Registration will open approximately eight weeks prior to each conference. learnJanuary more and register, visit wicpa.org/conferences. OnTo Balance | February 2018 4

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MEMBERSHIP MATTERS “We at the WICPA are here to support you! Our staff performs many tasks for our members and, in turn, for member firms and businesses.”

The WICPA is YOUR Support Team!

s the new calendar year starts, it’s time for many companies to complete their year-end financial statements and planning and for firms to start gearing up for busy season.

We at the WICPA are here to support you! Our staff performs many tasks for our members and, in turn, for member firms and businesses. While the list is extensive, highlights include: • Providing quality CPE and tracking CPE credits. • Monitoring legislative activity and representing the profession in Madison and Washington, D.C., on issues that affect CPAs and their firms and businesses. • Highlighting members and their talents to the profession and the public. Public accounting firms and CPAs in industry both can benefit from the “Find a CPA” directory on our website. This feature allows the general public and members in industry to search for CPAs who can assist with individual or business tax compliance and planning and business accounting and consulting. The creative “FindMyCPA” ad campaign promotes, “CPAs are your EASY Button when stressed at tax time.” The campaign has been successful in matching individuals and businesses to accounting firms across the state. Sign your firm up now at wicpa.org/FindMyCPA. It’s free for members!

Stressed for tax time? CPAs are your EASY BUTTON Find yours at wicpa.org/FindMyCPA

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For industry members, the CPAs in Industry conference has expanded to two locations. The first conference will be held on March 22 at Potawatomi Hotel & Casino in Milwaukee. The second will be held at the Radisson Hotel & Conference Center in Green Bay on April 24. The popular industry conferences will offer a variety of topics including economic updates, labor laws, Google Docs, blockchain, mergers and acquisitions, lease changes and “How 401(k) plan design impacts employee behavior” to name a few. For anyone who will need some after-tax-filing stress relief or just wants a fun night out, the WICPA will host its first Bowling Night on April 26 at New Berlin Ale House. Individual and team sign-ups are welcome, and there will be prizes! Watch your email for a registration form and more information. The new WICPA website is in the testing phase and is expected to launch by March 2018. While there will be many new features, one will be expanded member profiles that allow members to tailor items like areas of interest and communication preferences. This will require all individual members and firm administrators to update their profiles on the new site. Watch for instructions to arrive soon via email.

UPCOMING PROGRAMS AND EVENTS: New website launch! Update your profile! Watch for an instructional email soon. Sign up your firm in the Find a CPA directory NOW! MAR 22

CPAs in Industry Spring Conference (Milwaukee)

APR 24

CPAs in Industry Spring Conference (Green Bay)

APR 26

Bowling Night (New Berlin)

MAY 10

WICPA Membership Banquet & Excellence Awards (Milwaukee)

Tammy J. Hofstede is the chief financial & operating officer at the WICPA. Contact her at 262-785-0445 ext. 4518 or tammy@wicpa.org. On Balance January | February 2018

Photography by Mark Hines

As chief accounting officer for Komatsu Mining Group (which bought Joy Global last year), Matt Kulasa is responsible for reporting, systems integration and internal controls.

On Balance

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Spanning the globe for Joy Global Overseas post broadens Matt Kulasa’s business experience By David Lewellen

fter 12 years with Joy Global, Matt Kulasa says he has learned the most during a three-year stint in Europe.

Kulasa, the chief accounting officer for Komatsu Mining Group (which bought Joy Global last year), has served the company in numerous positions. But his time in the company’s office in Manchester, England, supervising accounting operations on three continents, from India to the Arctic, helped broaden him both personally and professionally. “I’m a more well-rounded business person and also a better advisor to our CFO because of those experiences,” he said recently from his office in Milwaukee. Because Joy Global built, serviced and sold mining equipment all over the world, and half its business was outside the United States, he wanted a close-up look at how the operations worked. Although accounting is similar everywhere, the markets and business cultures he encountered varied widely. “It was a big learning curve for me,” he said. Although video conferencing reduces some of the need to leave the office, Kulasa still travels for work about once a quarter, including two trips to Japan since the Komatsu acquisition was announced. “It’s a big benefit, being in the field,” he said. As chief accounting officer, Kulasa reports to the CFO of Komatsu America and is responsible for reporting, systems integration, financial planning and analysis, and internal controls. In the run-up to that deal, he was heavily involved with the diligence phase, helping Joy Global’s CFO prepare full financial information for Komatsu.

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On Balance

January | February 2018

Kulasa began his career as an auditor in the Milwaukee office of Deloitte, getting a wide exposure to the financial side of the manufacturing and telecom sectors, but eventually he decided he wanted to dig deeper into the work of one company and “see it from the other side of the books.” Joy Global had not been one of his Deloitte clients, but “I liked the people side,” he said. He felt comfortable with the mining equipment manufacturer, and the company made “quite incredible pieces of equipment.” “Matt really focuses on the business, outside of just accounting, and how his role enables the business,” said David Gay, managing partner of Ernst & Young’s Milwaukee office, which was the auditor for Joy Global. “Matt has an uncompromising commitment to doing the right thing. That’s part of why we work well together.” Although Kulasa “sees things first as a business person and second as an accountant,” Gay said, he’s also a skilled technician who can implement complex technical accounting concepts quickly. “Lots of CPAs bring strong accounting experience, but Matt goes beyond that,” agreed Kulasa’s colleague Barb Bolens, vice president and treasurer at Komatsu. By traveling and talking to people in other departments, “he does a lot to stay close to the business,” she said. Their departments work well together, she said, because “Matt’s a natural. He’s willing to ask the tough questions, but he’s also a good business partner.” After being hired as director of external reporting in 2005, he steadily rose through multiple jobs at the company, including three during his tenure in Europe. During his first stateside stint with Joy Global, Kulasa earned an MBA from Northwestern University. That experience helped him understand how different disciplines look at issues differently. And working in a cohort with classmates who came from sales, marketing, operations and other fields made it easier for him to understand the roles of those jobs at Joy Global. On a typical day, Kulasa gets up at about 5:30 a.m., works out, and answers overnight email from Komatsu operations around the globe before he goes to the office. He spends about one day a week at the Chicago-area headquarters of Komatsu

On Balance

January | February 2018

While Kulasa travels the world for his role at Komatsu, he makes time to meet with his team and other areas of the business to understand the bigger picture of the mining equipment industry.

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America, and he makes time to meet with a wide variety of people on his team and from other divisions of the business, in order to understand the bigger picture of the mining equipment industry. A broad knowledge base has bolstered Kulasa’s career. He’s held positions in a variety of areas and likes to absorb as much as possible from any given job. But he would never say he’s learned all he can. “There’s always something new to learn from an accounting perspective,” he said. Kulasa’s ultimate goal is to become a CFO. He has benefited from mentors during his career and is now in a position to help others as well. In his current job, he has six direct reports and a total of about 30 others whom he tries to groom for success by ensuring they get different experiences within the company and chances to make presentations to senior management.

“I would never say that I’ve learned all I can in a job. There’s always something new to learn from an accounting perspective.” — Matt Kulasa

“The Milwaukee office of Komatsu is definitely a collaborative environment,” he said. “There are so many different projects going on, and to be successful you need buy-in and teamwork.” Because there are so many different aspects to projects, he has to make a conscious effort to make sure everyone’s voice is heard.

In his spare time, Kulasa enjoys playing golf and rooting for Wisconsin sports teams, and he and his fiancée enjoy traveling together. His trips for Joy Global and Komatsu also have given him the chance to visit art museums around the world, “to engage the other side of my brain,” he said. David Lewellen is a freelance writer based in Glendale, Wis. Contact him at 414-477-6500 or davidlewellen@gmail.com.

Join the WICPA Educational Foundation Board! The WICPA Educational Foundation is seeking members to serve on its board of directors. Some of the opportunities include: • Assisting in efforts to attract students to the profession. • Providing strategic governance in accordance with the WICPA Educational Foundation mission. • Attending Educational Foundation Board of Directors meetings and being involved in subcommittees. The foundation plays a pivotal role in supporting educational programs to improve awareness and perceptions by educating students, educators and the public about the exciting opportunities available to CPAs.

To apply, visit wicpa.org/EFBoardApplication through Feb. 28, 2018. wicpa.org

Questions? Contact jessica@wicpa.org. On Balance

January | February 2018

On Balance

January | February 2018

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2018 Wisconsin CPAs weigh in on staffing, business outlook By Larry Sandler

isconsin employers may need to put out a “missing persons” alert.

A shortage of qualified workers looms as the primary challenge that state businesses must overcome to grow in a generally favorable economic environment for 2018. That’s the consensus of several CPAs and an economist who shared their assessments of the state economy for the year ahead. “The biggest issue is finding enough workers,” says Craig Olsen, CPA, a principal at CliftonLarsonAllen in Eau Claire. “The businesses that are going to be successful are the ones that find ways to attract the talent.” It’s a challenge that cuts across sectors and regions, from construction companies in the northwest, to hospitals in the northeast, to manufacturers in the southeast, WICPA members say. The lack of workers can constrain growth for some businesses, says Jeff Stovern, CPA, controller at Red Cedar Steel Erectors in Menomonie. “We would be bidding more (projects) if we had more foremen to lead construction crews, more estimators to prepare bids and more project managers to coordinate work on buildings,” Stovern says. “I just wonder what the economy would look like if we could find enough qualified workers.” Throughout the first three quarters of 2017, Wisconsin’s unemployment rate remained below 4 percent, which many economists consider full employment, notes Brad Bertler, CPA, a tax partner in the Milwaukee office of Ernst & Young. That has led a growing number of businesses to seek technological solutions to labor issues, he says. “A lot of clients have started looking at doing things more effectively with bots and apps to free people to do more value-oriented things,” Bertler says. “When you have a bot that can do menial tasks, it can do it 24/7, and do it efficiently.”

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On Balance

January | February 2018

While Wisconsin’s job market has been slightly tighter than the national labor scene, the state economy in many ways reflects national trends. That’s a good thing for 2018, says economist Clare Zempel, principal at Zempel Strategic in Fox Point. To Zempel, the two most important questions are whether the nation will face a recession and whether a bear market will take hold of Wall Street. He sees “virtually no chance of an economic recession for the country as a whole before 2020,” with a bear market also unlikely before 2019. Since the last recession, the national economy has been growing about 2 percent a year, below the 3 percent and 4 percent growth rates of previous decades, Zempel says. He expects that slow growth to continue both nationwide and in Wisconsin throughout 2018 and 2019. Among national factors, Bertler and Olsen view tax reform as a major factor that could drive growth, while Zempel sees only “a marginally positive impact” from tax cuts. Zempel says he would be more concerned about the negative impact of more restrictive Federal Reserve Board policies, but he and other observers expect President Donald Trump’s nominee for Fed chair, Jerome Powell, to continue outgoing Fed Chair Janet Yellen’s approach of slowly raising interest rates. Within Wisconsin, many of the highest-profile business developments have been centered in the southeastern part of the state, particularly the Milwaukee-Chicago corridor. Plans call for Taiwan’s Foxconn Technology Group to build this nation’s first liquid-crystal display (LCD) screen manufacturing plant in Mount Pleasant, for Germany’s Haribo to build its first North American candy plant in Pleasant Prairie and for Sweden’s IKEA to open its first Wisconsin furniture store in Oak Creek. Meanwhile, in downtown Milwaukee, the construction of a new Milwaukee Bucks arena is just the most prominent example of a downtown building boom that in 2017 included the completion of a new Northwestern Mutual headquarters. Both the arena and the IKEA store are expected to open in 2018, while construction on the Foxconn and Haribo plants would continue for several years. However, WICPA members predict growth in every region and most sectors of the state economy. Here’s what they see ahead for each sector.

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“The businesses that are going to be successful are the ones that find ways to attract the talent.” — Craig Olsen, CPA, a principal at CliftonLarsonAllen

Manufacturing: Trends favor strong growth for manufacturers, say Bertler, Olsen and Jay Schauer, CPA, chief financial officer at Allen Edmonds Shoe Corp. in Port Washington. Olsen says some of his manufacturing clients are facing their largest backlogs in years. Growing demand is likely to translate into more spending on equipment to expand capacity and on technology to take over some jobs that manufacturers are having trouble filling, say Bertler, Schauer and Olsen. But automation only goes so far at a company

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like Allen Edmonds, where skilled workers produce high-end shoes largely by hand, Schauer says. Retailing: “We’re seeing the consumer very active,” says Schauer, whose company operates almost 80 shoe stores nationwide. Increasing use of technology is a key retail trend for both websites and stores, Schauer says. At Allen Edmonds, 2017 e-commerce business was up 25 percent over 2016—itself a “huge growth” year—while retailers are likely to invest in expanding the technological capabilities of stores and shopping centers, he says. To take advantage of growth opportunities, retailers “have to be able to adapt to that shift in how the consumer likes to shop,” Schauer says. Construction: Stovern says his company was “as slammed with work as we’ve ever been” in 2017. Its competitors were equally busy, a trend likely to continue in 2018, he and Olsen say. That’s a positive sign for the overall economy, Stovern adds, because “if (businesses) weren’t confident of the economy, they wouldn’t invest like this.” Construction companies are investing in more equipment to meet demand, Stovern says, but that also is affected by the labor shortage. His company would buy more vehicles if it could hire more foremen to drive them. Health care: With uncertainty surrounding national health care policy, “people just can’t plan for the big picture” in the health care sector, says Jim Dietsche, CPA, executive vice president and chief financial officer of Bellin Health System in Green Bay. Amid continued concern about health care costs, trends favor more consolidation, less construction of new facilities and more use of technology such as telemedicine to reach rural populations, say Dietsche and Bertler. Senior care and urgent care could be growth areas, Bertler and Olsen say. Overall, Schauer says, “I’m feeling really good” about Wisconsin’s economy. “Mostly companies are finding ways to manage the growth.”

What CPAs are saying about the economy In a recent survey on the economy, 403 WICPA members responded to 23 questions. Overall, members are optimistic about the current Wisconsin and U.S. economies but slightly less optimistic about 2018. Their beliefs will affect the strategies they maintain and the ones they change in the coming year.

CURRENT ECONOMIC ENVIRONMENT

80% GOOD OR BETTER

WIS. ECONOMY

75% U.S. ECONOMY

GOOD OR BETTER

Economic expectations are more moderate for Wisconsin and the U.S. in 2018.

FORECAST FOR 2018

66%

OPTIMISTIC OR VERY OPTIMISTIC

WIS. ECONOMY U.S. ECONOMY

58%

OPTIMISTIC OR VERY OPTIMISTIC

Larry Sandler is a freelance writer based in Glendale. Contact him at sandlerwriter@gmail.com.

— Economic survey continued on page 14 wicpa.org

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• Outsourcing • Public service/ nonbillable activities • Travel

40%

Availability of an educated workforce

24%

Pro-business climate

However, firms are also making changes in a few areas: CAPITAL SPENDING

COMPENSATION

39%

of firms are increasing compensation

50%

of firms are increasing spending

rated the current talent supply as fair to poor

Charitable donations Client retention Education budgets Employee benefits Firm marketing Layoffs

57%

• • • • • •

While members are optimistic about the economy, they do recognize that the state is facing a number of challenges. The two biggest factors that will affect the state’s ability to retain and attract new business are:

have had fair to poor success

Given the positive sentiment, a majority of members reported that their firms are maintaining current actions in a number of areas. These include:

49%

— Economic survey continued from page 13

Members report they have found it difficult to find talent in Wisconsin.

There were several other noteworthy findings.

77%

of members rated access to credit for small businesses as good to excellent

HIRING

48%

11%

of firms are increasing hiring

of firms are reducing spending

TECHNOLOGICAL INVESTMENTS

61%

of firms are increasing technological investments

A narrow majority believes the Wisconsin regulatory environment is significantly affecting the overall economic environment. On a scale of 1 to 10, with 1 = “plays little role” and 10 = “completely affects,” 52.71 percent of members rated the impact as 7 or higher. On the same scale, 47.85 percent of members rated the impact of federal regulations as 7 or higher. Just over half of members (51.79 percent) believe the economy will be the most important issue for Wisconsin voters in 2018, followed by infrastructure (17.09 percent) and education (14.80 percent).

WICPA CEO Succession and Transition Task Force established WICPA President and CEO Dennis Tomorsky recently shared with the WICPA Board of Directors his intention to retire in 2019. The board directed its Executive Committee to establish and implement a process to identify and recommend to the board a successor president and CEO upon Dennis' 2019 retirement. The Executive Committee formed a Succession and Transition Task Force chaired by immediate Past Board Chair Steven Handrick, CPA, CGMA, that is developing the process for CEO succession and transition.

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IN TOUCH | PRESIDENT & CEO's MESSAGE "My WICPA staff colleagues and I welcome any questions you may have or suggestions regarding how we can better serve your needs."

Call the WICPA for help

ozens of calls and emails come into the WICPA annually from members, legislators, regulators and the general public with questions relating to the CPA profession. The inquiries we receive range from licensing and regulatory matters to technical accounting and tax questions. Calls relating to our CPE programs and member events are promptly routed to staff members who are responsible for planning these activities so callers’ questions are answered quickly by those with the most detailed information. U.S. and Wisconsin senators as well as Wisconsin’s congressional and assembly representatives who contact the WICPA are generally seeking input regarding the impact of existing or proposed statutes and regulations on lawmakers’ constituents. Since WICPA members are highly respected by legislators, calls from legislators sometimes invite WICPA members to provide hearing testimony in technical areas where they have significant experience. Members’ hearing testimony and other information shared with policymakers often shape statutory, regulatory and policy changes that have a strong impact on members’ clients and employers. When technical accounting and tax inquiries are received, we contact WICPA committee members and other members who have expertise in areas relating to members’ questions. A summary of facts may be forwarded to members of a technical committee, along with the detailed question and links to relevant guidance, as well as perhaps an analysis provided by the member making the inquiry. For decades, committee members and other members have generously shared their insights to help fellow members navigate complex authority in response to their technical questions. CPA candidates and educators routinely contact the WICPA with inquiries regarding CPA Exam and licensing requirements. In addition to providing links to authoritative resources and often an analysis of the question and authority

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that may be helpful to those with questions, responses to these questions also explain that WICPA responses are not binding on the Accounting Examining Board or Department of Safety and Professional Services (DSPS). The DSPS is copied on these WICPA responses with a request that appropriate DSPS staff contact inquiring parties directly to provide authoritative responses to their inquiries. The WICPA maintains an archive of questions that have previously been asked and answered to provide an informational resource to expedite responses to future similar inquiries. My WICPA staff colleagues and I welcome any questions you may have or suggestions regarding how we can better serve your needs.

Dennis F. Tomorsky, CPA, JD, CGMA, is president & CEO of the WICPA. Contact him at 262-785-0445 ext. 4519 or dennis@wicpa.org. On Balance

January | February 2018

On Balance

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By Michael Dowdall, CFA

Jon Adams, CFA and

s of this writing, economies around the world are experiencing synchronized growth. Many economists expect this to continue in 2018. According to the Organization for Economic Cooperation and Development, all 45 countries that are tracked have experienced growth in 2017. Moreover, 33 of these countries are forecast to have seen acceleration from 2016. This is the first time in a decade that the world’s major economies are growing in sync. Earnings growth reflects this development, with 2017 earnings-per-share growth expected to be positive across all major regions for the first time since 2010. This bodes well for financial market returns across both developing and emerging markets, but risks remain. In addition to a Federal Reserve misstep on inflation, any tightening of global trade policy could threaten emerging markets.

Fare thee well, Janet? On the monetary policy front, Janet Yellen’s term as Fed chair ends in February 2018. If February brings Yellen’s tenure to an end, how do we appraise the Fed’s actions under her leadership?

John Malloy, PhD

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Chair Yellen’s term has been characterized by a deliberate normalization process: ending quantitative easing, lifting rates and shrinking the Fed’s balance sheet, whose size increased markedly in an effort to stimulate markets following the financial crisis. Yellen and the Federal Open Market Committee undertook an October start to the balance sheet reduction, with a goal of putting the process on autopilot over the next few years. Despite this communication, markets remain quite sanguine, which is somewhat surprising given that a balance sheet reduction of this size and scope is unprecedented. While we expect the process to proceed smoothly, we can’t help but wonder if markets have been lulled into complacency, especially as the European

Central Bank (ECB) will likely slow down asset purchases in 2018.

Inflation: Too hot or too cold? As if the balance sheet was not complicated enough, Ms. Yellen or her successor face the real risk of a policy mistake due to surprisingly persistent low inflation. While the Fed hasn’t changed its expectation that inflation will stabilize at its target of 2 percent per year, and Yellen has been careful to state that the Fed isn’t certain that “the factors that have lowered inflation are going to prove persistent,” the market seems to think that low inflation is a more permanent condition. These divergent views underline the lingering policy risk: with inflation remaining low despite evidence that the labor market has little in the way of slack, it may be easy for the Fed to misread. Indeed, there is an unusual level of dissension at the Fed currently, with more dovish members like Kashkari, Brainard, Evans and Bullard contrasting with the so-called “core” of the Fed. The argument of the more dovish members is essentially that we should wait for more proof of inflation before hiking rates further. Yellen and the rest of the core argue that the Fed can’t allow itself to get behind the curve on inflation and that conditions no longer warrant the current exceptional degree of monetary stimulus. Thus, central banks like the Fed and ECB must seemingly contend with the potential for two downside scenarios: inflation running too hot and inflation running too cold. In typical times, one of these scenarios is much more likely than the other (and the policy response straightforward: raise rates in the former and cut rates in the latter). However, a compelling case can be made (and is in fact being made within central banks right now) for either scenario. We will be closely monitoring inflation readings over the next few months.

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Increasing clouds 2017 witnessed a very active hurricane season with Harvey, Irma and Maria exacting a heavy toll on the U.S. The impact of these storms is so large that the U.S. economy could face repercussions for years. In the short term, economic data for the second half of 2017 should come in slower than would have been expected absent the storms. The storms delivered a short-term jolt to inflation due to rising oil and basic material prices and also caused a spike in unemployment claims. Over the long term, however, rebuilding could contribute to further boosting of the economy, especially in 2018. There are vehicles to replace, houses to repair and roads to patch, all of which will boost growth over the coming quarters.

by Social Democrats led to the party’s withdrawal from Merkel’s coalition. The new coalition is likely to remain centrist under Merkel’s influence, but achieving such a coalition, along with a more cohesive fiscal policy in Europe, may now be more difficult. A more uncertain election looms in the first half of 2018 in Italy, where populist parties are polling strong and discontent remains high. The 2019 change in ECB leadership may infuse some additional uncertainty into Europe in the coming months. While Mario Draghi still has time, the jockeying to replace him will start in 2018, and there is sentiment that Germany feels it is time for one of their own to lead the ECB.

European populists: We’re still here Results from the German election on Sept. 24 should remind investors not to become complacent about political risk in Europe. While Angela Merkel’s victory ensures that an essential pro-integration, pro-euro voice will remain prominent, the election also saw the far-right Alternative for Germany (AfD) capture more than 13 percent of the vote, up from less than 5 percent in 2013. Moreover, a poor showing

Michael Dowdall, CFA, and Jon Adams, CFA, are both investment strategists at BMO Global Asset Management in Chicago. John Malloy, PhD, is a senior investment writer at BMO Global Asset Management in Milwaukee. Contact Michael at 312-461-3192 or michael.dowdall@bmo.com. Contact Jon at 312-461-8484 or jon.adams@bmo.com. Contact John at 414-287-8788 or john.k.malloy@bmo.com.

T O G E T H E R , we have the power to make a difference. Your contribution to the WICPA CPAC/LIF Campaign for Political Awareness allows the WICPA to: Strengthen the voice and visibility of the WICPA.

Support the election campaigns of candidates who support our issues.

Educate lawmakers about the issues impacting Wisconsin CPAs.

Ensure a healthy business climate for CPAs and the clients you serve.

Visit www.wicpa.org/cpaclif to learn more and make a contribution today. 18

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YOUR TRUSTED TAX SOLUTION The Tax Section of von Briesen & Roper, s.c. is your resource for tax situations ranging from the traditional to the most complex including: State and Federal Voluntary Disclosures, FBAR/Foreign Asset Disclosures, Transfer Pricing, Property Tax Exemption Requests, Employee Classification Issues and State Tax Nexus Studies. Our knowledge and experience have positioned us to be your trusted solution on unique tax matters. The bottom line? We get results. To learn more about our Tax Section, please contact Robert Mathers at rmathers@vonbriesen.com.

vonbriesen.com/tax Milwaukee • Madison • Waukesha • Oshkosh • Green Bay • Appleton

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kudos Brian R. Begalke, CPA, was hired as a Tax & Advisory manager at Begalke & Associates in Sheboygan.

Andrew J. Branam, CPA

Andrew J. Branam, CPA, manager at Schenck SC in Green Bay, was named to the Greater Green Bay Chamber of Commerce’s Leadership Green Bay Class of 2018, according to The Business News. Leadership Green Bay is an experiential learning, community-based leadership program inspiring and empowering leaders since 1985.

Justin Chesbrough, CPA

Justin Chesbrough, CPA, has been promoted to principal at SVA in Milwaukee. Chesbrough works with health care practices on entity formation, financial statement presentation, benchmarking, employee structure and benefits, overhead control and tax planning.

Brian R. Begalke, CPA

Melanie Coles, CPA, was hired as manager on the audit team at Sattell, Johnson, Appel & Co. SC. Coles provides accounting and audit services to business and nonprofit clients. Melanie Coles, CPA

Andrew Cordova, CPA, CMA

Ryan Frohmader, CPA

Casey Malek, CPA, CCIFP

Andrew Cordova, CPA, CMA, was hired as manager at KerberRose SC in Rhinelander. Cordova has more than 11 years of public accounting experience, providing tax and accounting services to individuals and smallto medium-sized businesses. He also has expertise in tax compliance and reporting requirements of the Affordable Care Act. Ryan Frohmader, CPA, was hired as chief financial officer at Colliers International | Wisconsin and Inland Companies, Inc. in Milwaukee. As the company’s first CFO, Frohmader will play a key role in the company’s growth strategy. Casey Malek, CPA, CCIFP, was hired as director of operations and controller at HSI Properties in Brookfield. Malek also serves as the vice president and director of the Construction Financial Management Association of Milwaukee.

Want your

Diane Rieder, CPA

Diane Rieder, CPA, vice president and chief financial officer at Premier Financial Credit Union in New Holstein, was recognized for five years of service to the members of the credit union, according to Kiel, Tri-County News.

Scott Schumacher, CPA, MST, a partner with Wipfli LLP in Milwaukee, gave an on-air interview with Mark Siegrist, host of WTMJ Radio 620's Wisconsin's Weekend Morning News, on Saturday, Jan. 6, sharing tips with listeners on the best ways to plan, organize and execute their tax filings this year. Howard D. Siegal, CPA, has been promoted to partner at RSM US LLP in Milwaukee, according to the Milwaukee Business Journal. Siegal provides audit and accounting services to publicly and privately held companies including large, complex international engagements. Dwight E. Ziegler, CPA, was highlighted for the Norski Walk of Honor, a program that recognizes individuals who have exhibited commitment and contributions to both the DeForest Area School District and community, according to the DeForest Times-Tribune. Ziegler has served on the boards for the town of Vienna, the village of DeForest, DeForest Area Foundation, Waunakee Community School District, Community Business Bank, Windsor United Church of Christ and DeForest Lions Club. In addition, Ziegler has supported DeForest Area High School and UW-Madison students through gifts and scholarships.

Christopher C. Zwygart, CPA, CGMA

Christopher C. Zwygart, CPA, CGMA, chief legal officer at West Bend Mutual Insurance Co. in West Bend, was named Top Corporate Counsel – Community Champion by the Milwaukee Business Journal.

new job, promotion, speaking engagement or award mentioned in Kudos?

H Email your announcement and photo in JPG format to tammy@wicpa.org. H

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MANUFACTURING spells tax relief

By Jim Brandenburg, CPA, MST wicpa.org

PAs play a key role in helping Wisconsin manufacturers calculate, control and refine the costs of products and identify ways to accomplish tasks more efficiently and economically. CPAs are also charged with learning special tax rules that impact manufacturers.

To do this effectively, CPAs must scour state and federal tax laws and identify opportunities to reduce a manufacturerâ&#x20AC;&#x2122;s tax burden, including the Tax Cuts and Jobs Act signed into law by the president on December 22, 2017. Here are 13 ways manufacturing spells tax relief: On Balance

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deduction. The Domestic Production M anufacturing Activities Deduction (DPAD) is a special deduction

available to businesses that manufacture, produce, grow and extract products. It’s a noncash deduction of 9 percent of a company’s manufacturing income. This deduction is still available for 2017 but was repealed by the Act for 2018.

ccounting methods. There are a number of accounting methods that benefit manufacturers, including various inventory methods, inventory write-offs, prepaid costs, repair expenditures, warranty arrangements, accrued expenses and many more. An automatic change of accounting method can produce a favorable tax benefit or help a manufacturer that employs an improper method. It makes sense to evaluate these methods for 2017 returns, as tax rates under the Act will drop next year.

ontaxable income and nondeductible expenses. CPAs need to carefully explore nontaxable income and nondeductible expenses of manufacturers. For instance, penalties and fines are generally nondeductible, but there were some instances where deductions were permitted and these exceptions were curtailed by the Act. Nontaxable income might include collection of officer life insurance proceeds.

NICAP. Uniform capitalization (UNICAP) requires some selling, general and administration costs to be capitalized into a manufacturer’s inventory. These rules are complex, but under the Act, smaller manufacturers (less than $25,000,000 in average revenues) are not subject to UNICAP in 2018. oreign activity. More manufacturers are expanding and selling their products around the world. Any manufacturer that generates more than $500,000$700,000 in exports should explore the tax benefits of an Interest Charge Domestic International Sales Corporation (IC-DISC). The IC-DISC was unchanged by the Act.

dvance payments on orders. Some manufacturers receive advance payments before they begin work on an order. There are unique tax rules in this situation, and CPAs should determine if a manufacturer might be taxed early on any advance payments. The Act offers some new relief.

apital expenditures. Manufacturers generally spend significant amounts on machinery and equipment, and there are new provisions under the Act for bonus depreciation and Section 179 expensing that can generate tax benefits. Some of the tax savings even apply in 2017.

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ax credits. A notable tax credit available to manufacturers is the Wisconsin Manufacturing and Agriculture Credit (MAC). It’s a 7.5 percent tax credit on the manufacturing income a business generates in Wisconsin. The MAC essentially eliminates Wisconsin income tax related to manufacturing activities.

pdates. It’s important to watch for tax updates at the federal, state and local levels. Comprehensive tax reform enacted in 2017 will require IRS guidance this year, and manufacturers should closely follow these updates, including intricacies of the new qualified business income for pass-through businesses and the complex changes of the new territorial system for foreign operations.

esearch credit. Research and development (R&D) can benefit manufacturers from a competitive standpoint, but also from a tax perspective through the research credit. To qualify for this credit, a manufacturer’s research must only involve new and improved components to the company itself, not to the industry overall. It’s also important to carefully document research activities and expenses. A research study may be necessary. Further, the Act did not curtail or limit the R&D credit.

nventory and IPIC. The last-in, first-out (LIFO) inventory method offers manufacturers an opportunity to save tax dollars if their inventory costs are rising. Basically, the LIFO method allows a manufacturer to deduct the higher

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current costs it faces while leaving older/lower costs on the balance sheet. The LIFO method can provide significant tax savings over the years, but one key requirement is that a manufacturer must use the LIFO method for both book and tax purposes. The Inventory Price Index Computation (IPIC) is a special LIFO method that incorporates the inflation of many products. The index is determined monthly by the Department of Labor and may show higher inflation rates than the actual inflation the manufacturer experiences. This can result in both simpler LIFO calculations and possibly greater tax savings. As with the R&D credit, no changes were made by the Act to the LIFO method.

exus. Manufacturers often are looking to expand their businesses into new markets. Meanwhile, state taxing agencies are looking for new businesses to tax. These two goals often collide when a state agency asserts that a manufacturer is doing business in its state. This is referred to as “nexus,” and it may require a manufacturer to file tax returns and pay taxes in a new state. Manufacturers should evaluate their business operations and activities closely, determine the states in which they have nexus and file returns accordingly. In some cases,

voluntary disclosure arrangements may be available for a business to “come clean” and start filing in a state to limit its prior tax exposure.

ains and losses. In the past, if a manufacturer would trigger a tax gain from the sale or disposal of property, it may instead want to see if it could take advantage of a “like-kind exchange” and defer the gain to other similar property. The Act repeals the deferral of gain on personal property, but it is still available for real property. If the disposal would result in a tax loss, however, the manufacturer could be better off selling the property to generate a deductible tax loss. In conclusion, with a comprehensive understanding of the tax opportunities available, CPAs can play a vital role in spelling out meaningful tax savings to manufacturers in a time of fierce competition.

Jim Brandenburg, CPA, MST, is a tax partner in Sikich’s Brookfield office. Contact him at 262-754-9400 or jim.brandenburg@sikich.com.

Volunteer for

Reading Makes¢ents Sponsored by the WICPA Educational Foundation, Inc.

APRIL: National Financial Literacy Month Visit classrooms this April to help students get smart about money during Financial Literacy Month. Go to the local elementary school of your son, daughter, niece, nephew or neighbor during the month of April and read to students about the basics of money.

THE WICPA EDUCATIONAL FOUNDATION WILL PROVIDE • A prize for each student. • Handouts to teach kids about saving. • Financial literacy curriculum to leave with the teacher.

FOR MORE INFORMATION

Visit wicpa.org/reading, or contact: Mary Murray | 262-785-0445 ext. 4510 | mary@wicpa.org

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{ Tax | Saving strategies }

On Balance

January | February 2018

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{ Tax | Saving strategies }

Business tax planning moves still possible after year-end

M By Rick Taylor, CPA

ost tax planning is focused on taking action prior to year-end. However, this year practitioners faced extreme time compression when on Dec. 22, 2017, President Trump signed into law one of the most significant changes to the tax law in 30 years. But there’s still hope, even if you didn’t get to everything you wanted to do to defer income and accelerate deductions to take advantage of lower 2018 rates. In the case of most businesses (including sole proprietorships) significant tax savings still can be generated by taking action after year-end but before filing the 2017 tax returns. Here are a handful of strategies that can be implemented in early 2018 to produce savings in 2017.

1. Carefully analyze (on an asset-by-asset basis) 2017 asset additions for qualifying bonus depreciation and Section 179 expensing. 2017 is the last year that 50 percent bonus depreciation is permitted. Section 179 permits immediate expensing of up to $510,000 of the cost of new and used property placed in service beginning in 2017. Certain improvements to the interior portion of a nonresidential building may qualify for 50 percent bonus depreciation, even though the balance of the asset must be depreciated straight-line over 39 years. This applies to “qualified improvement property” placed in service after the building was first placed in service. 2. Conduct cost segregation studies to determine the correct class lives of fixed asset additions (and of existing fixed assets if careful analysis was not performed in prior years). Asset costs are "recovered" (or depreciated) over predetermined periods based on the asset’s class life. A cost segregation study is an in-depth analysis of the costs associated with the acquisition or construction of buildings or other major assets to correctly determine the classes to which the assets are assigned. The benefit of a cost segregation study is that it may identify additional property that qualifies for faster write-off. A study also will permit the identification and assignment of costs to asset components that will provide significant benefits when there are capitalized repairs and partial dispositions in the future.

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{ Tax | Saving strategies }

3. Accelerate placed-in-service dates by analyzing rules for asset additions. Property is considered placed in service when it’s in a condition or state of readiness and available for a specially assigned function. Thus, an asset can be considered placed in service prior to its actual use. “Cold openings” and targeted activities can be scheduled to proactively support placed-in-service dates. 4. Accelerate deductions by reviewing all intangible asset accounts to identify expenditures that were capitalized for GAAP purposes but may be written off for tax purposes. Compensation normally is the most likely expense to have been capitalized to an intangible asset account for book purposes but is permitted to be expensed for tax purposes. 5. Avoid costly IRS challenges to outdated uniform capitalization calculations by making a voluntary inventory method change. By carefully studying the application of the Section 263A rules to inventory, businesses may identify a method that more precisely measures the overhead that must be capitalized to inventory. The IRS is aggressively auditing these esoteric calculations and often is successful in forcing taxpayers to capitalize significantly more costs than would have been necessary if the self-designed methods used had been periodically updated. Businesses can “beat the IRS to the punch” by making a voluntary change, effective January 2017. This may help businesses avoid interest and penalties and possibly adopt a more favorable methodology. 6. Determine whether an automatic change to the cash method of accounting can be made. Using the cash method of accounting generally provides a business with the best opportunities for planning to postpone taxable income and accelerate deductions. Although the IRS has a long history of challenging the use of the cash method, since 2001 they have held a much more liberal position with respect to who can use it. As a result, businesses should determine if they qualify for a change to the

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cash method. There are three categories of businesses that can make an automatic change to the cash method including: (1) small businesses with average annual gross receipts of $1 million or less (even those with inventories that are a material income-producing factor); (2) certain C corporations with average annual gross receipts of $5 million or less where inventories aren’t a material income-producing factor; and (3) a select group of taxpayers with average annual gross receipts of $10 million or less. Sole proprietors, limited liability companies (LLCs), partnerships and S corporations can change to the cash method of accounting without regard to their average annual gross receipts, provided inventories aren’t a material income-producing factor. An automatic change to the cash method can be made under Rev. Proc. 2017-30, 2017-17 IRB 1131 by the due date of the return, including extensions, so there is sufficient time to accomplish this strategy in the coming months. 7. Obsolete, defective or subnormal inventory should be offered for sale within 30 days of its inventory date to ensure a current deduction for the write-down of the inventory. Generally, no current deduction is allowed for an increase in inventory reserves. However, unlike excess normal inventory, obsolete, defective or subnormal inventory doesn’t actually have to be disposed of before the end of the year, provided it’s offered for sale at a reduced price within 30 days of the inventory date. Even though year-end has passed, there is still hope for businesses looking to reduce their 2017 tax burdens. Fortunately, there are a number of strategies that can be deployed even after year-end. Like any planning idea with merit, however, these ideas require careful planning and a thorough understanding of the tax law associated with the strategy. Rick J. Taylor, CPA, is a tax partner with Wipfli LLP. Contact him at 414-431-9385 or rtaylor@wipfli.com.

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memorials John A. Kopnick, CPA

L. William Marsh, CPA

John A. Kopnick, a CPA in Ashland, died on Aug. 17. He was 48. Kopnick received a bachelor’s degree in business administration from Michigan Technological University. He earned his certified public accountant designation and joined the WICPA in 1999.

L. William Marsh, CPA, retired president of Franklin Ross Ltd., died on Oct. 23, according to the Milwaukee Journal-Sentinel. He was 81. Marsh earned a business degree from Marquette University, worked as chief financial officer for various companies, and then started his own turnaround management company, Franklin Ross Ltd. Marsh was also a lifelong athlete, playing hockey in school and for the Milwaukee Admirals. The Greendale resident earned his certified public accountant designation and joined the WICPA in 1969.

(1968–2017)

Howard G. Nelson, CPA (1926–2017)

Howard G. Nelson, CPA, a longtime employee of subsidiaries of the Milwaukee Journal, died on Oct. 27. He was 91. Nelson earned an accounting degree from Northwestern University in 1949 and was a life member of Delta Sigma Pi business fraternity. He became a certified public accountant in 1959, and was employed 38 years by subsidiaries of the Milwaukee Journal before his retirement in 1990. He held various financial positions for both Tempo Communications, Inc. in Milwaukee and Perry Printing Company in Waterloo, Wisconsin. Nelson also served as a longtime member of the WICPA, as director and treasurer of Christ the King Lutheran Church, and as director of the Pewaukee Yacht Club. Nelson was also a WWII veteran serving in the Pacific Theatre and in China with the U.S. Navy. He retired as a full commander serving his country from 1944-1986. The Oconomowoc resident joined the WICPA in 1959.

(1936–2017)

Edward L. Vander Grinten, CPA (1943–2017)

Edward L. Vander Grinten, CPA, a sole practitioner in Wauwatosa, died on Oct. 27, according to the Milwaukee Journal-Sentinel. He was 74. Vander Grinten received both undergraduate and master’s degrees from the University of Wisconsin-Milwaukee. He also served in the U.S. Army. The Wauwatosa resident earned his certified public accountant designation and joined the WICPA in 1970.

If you are aware of a member obituary and believe it should be included in Memorials, please send a copy of the obituary or contact Tammy Hofstede at tammy@wicpa.org.

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{ Technology | Cybersecurity }

Cybersecurity: If not us, who?

By Michael Senkbeil, CISSP, CISA

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{ Technology | Cybersecurity }

he statistics are sobering. Sixty-one percent of businesses that were hacked last year have fewer than 1,000 employees, according to Verizon’s 2017 Data Breach Investigations Report.1 One-third of small and medium businesses suffered a ransomware infection in the past year, forcing one-fourth of them to cease operations, according to a study performed by Osterman Research.2 The direct costs of a single breach are now averaging more than $36,000, according to a report in Security Magazine.3 Over the past decade, multiple trends continue to expand: massive increases in the amount of data businesses store and rely upon for daily operations, increased use of multiple cloud-based vendors that house company data, and steady increases in the number of cyberattacks and data breaches perpetrated against businesses and consumers alike. Cybersecurity should clearly be an issue getting direct attention from upper management and owners of small businesses. No longer should cybersecurity be relegated to the domain of the network administrator or outsourced IT support firm. Cybersecurity must be treated as a business risk issue, just as safety risk is in operations and competitive risk is in sales. In this article, we will survey key elements of a successful cybersecurity program, an organized business process that is intended to protect data, thereby protecting customers and, in turn, businesses themselves.

Defense in depth The phrase “defense in depth” is meant as a mission statement to inform the development of a cybersecurity program. Layers of protection need to be established at every business if we are to succeed in preventing hacks of systems and employees. Don’t forget that people are hackable, not just systems. Every business should have a technology policy, including within it a cybersecurity policy and an incident response plan. As part of an ongoing cybersecurity program, the technology policy should be reviewed in its entirety every year. Let’s review the defenses against threats that attack a business via email. Technical security measures can begin defending a network even outside the firewall. Filtering email for threats and viruses before it is allowed to get to a user’s inbox is an effective first line of defense. The firewall itself can help detect threats in the email stream, as it passes into and out of the network. The desktop or laptop PC can be protected by signature- and behavior-based antivirus and anti-malware software, providing

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another layer of defense. Finally, a well-trained computer user is the last line of defense in preventing this threat from succeeding. If a malicious email makes it through all the other lines of defense, the user can ultimately disarm a threat by deleting an email after using basic verification of suspicious data requests or by identifying malicious links in an email.

3-2-1 backup Data backups address business risks, including fire, weather, power outage, and physical computer system failures like hard drive crashes. They also are an important component in reducing cybersecurity risk. A long-recommended model for data backups has been “3-2-1,” meaning three copies of data should be maintained in at least two locations, one of which should be off site from the production computer system. The modern method for achieving this backup model is having a second copy of production data on site with the main servers, then having an additional copy of data stored in an encrypted, cloud-based repository. Now that there are three copies of company data, care must be taken to protect all three sets of data from attack. Many businesses suffering a ransomware attack have had their backup data also taken hostage if the backup systems are allowed to be visible to the main data network. Investing in a good 3-2-1 data backup system can also reduce business risk beyond cybersecurity threats. The offsite data backups can in some cases be used as a disaster recovery solution, providing ability to run servers on cloud storage for short periods of time even during disasters that include total loss of a building.

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{ Technology | Cybersecurity }

Network health maintenance The root cause of the Equifax hack of 2017 was determined to be a known vulnerability in software used by Equifax. Customers expect the businesses they entrust with data to take reasonable effort to protect that information. Reasonable effort, in my interpretation, would include running supported software and installing security updates as they are made available by vendors. The simple act of maintaining software that uses automated tools can reduce by hundreds the number of vulnerabilities on each computer in a network.

Authentication and password hygiene Compromised username and password information was utilized in more than half of the hacking-based breaches noted in Verizon’s 2017 Data Breach Investigations Report. Implementing multi-factor authentication (requiring a onetime password or code in addition to username and password credentials) massively decreases the possibility of hacking using stolen passwords. Though it’s slightly less convenient to use a multi-factor authentication system, the increase in cybersecurity is significant, relative to the effort needed to deploy the technology. Reusing passwords in multiple websites or systems is a bad habit that can be cured through use of a password “vault”

application. Password-protected spreadsheets or lists are inadequate in keeping passwords safe. Most password vault applications provide automatic password generation, topping the randomness and security of even the most creative passwords people can create. Of course, it’s critical that the password to open the vault is a good password that won’t be forgotten.

Conclusion It’s time that businesses treat the data with which they have been entrusted as the customer’s, and protect it accordingly. As consumers, many of us were justifiably upset when our data was breached during the Equifax hack of 2017. This example should serve as a catalyst for businesses to become proactive about cybersecurity preparedness. Prepare your defenses with depth, then update and test them frequently, because hackers are doing the same against you.

“Verizon’s 2017 Data Breach Investigations Report.” verizonenterprise.com. 2017 “IT Security at SMBs: 2017 Benchmarking Survey.” ostermanresearch.com. 2017 3 “The Costs and Risks of a Security Breach for Small Businesses,” Marquez, Oscar. securitymagazine.com. July 26, 2016 1 2

Michael Senkbeil, CISSP, CISA, is a partner at Chortek LLP in Waukesha. Contact him at 262-522-8248 or msenkbeil@chortek.com.

CPA firms are invited to submit their interest in performing the search for the WICPA president and CEO The WICPA invites Wisconsin CPA firms with expertise in providing executive search, succession and transition services, with significant focus on associations and the not-for-profit sector, to submit their interest in performing the search for a replacement of the WICPA’s retiring president and CEO. All interested parties must send their letter of interest, along with credentials, to Steven Handrick, CPA, CGMA, at StevenHandrickCPA@gmail.com. Letters of interest must be received no later than January 28, 2018. Firms that send a letter of interest will be contacted by a member of the WICPA Search and Transition Task Force no later than February 28, 2018.

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wicpa.org

{ Human Resources | Hiring challenges }

ACCOUNTING TALENT: Hiring challenges in 2018 By Robert Half®

t’s a good time to be a job seeker in accounting and finance. U.S. workers are buoyed by a steady economy and an unemployment rate just north of 4 percent. Wisconsinites have it even better, with a statewide jobless rate at just 3.4 percent—the lowest since 1999. But brace yourself if you need to hire. Not only is there a tightening pool of skilled accounting and finance candidates, but the state’s aging workforce, coupled with

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out-migration and slow population growth, also represent real challenges to finding the talent you need.

New recruits It can be tricky to determine how many fresh-faced CPAs will be knocking on industry doors in 2018. Many factors affect the number of new accountants and auditors entering the local job market. Most college seniors will

On Balance

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{ Human Resources | Hiring challenges }

be seeking their first full-time job, but some graduates will immediately begin a master’s program. Others will move to a different state. A few will head down a nontraditional career path such as IT, entrepreneurship or journalism.

cross-departmental collaboration is on the rise, a good accountant should possess excellent written and verbal communication skills, including the ability to explain complex financial concepts in everyday language.

To get the attention of budding accounting talent, your firm can’t afford to wait until students graduate. Establish relationships now by reaching out to university accounting programs. Attend job fairs and offer internships. Broaden your recruiting efforts to include colleges in neighboring states. Partner with associations for accounting students, such as Beta Alpha Psi. Recruit during the AICPA and WICPA conferences future accountants are likely to attend.

2018 salaries

Hot jobs Employers are eager to hire for all accounting and finance roles, but the following are especially in demand nationwide, according to the 2018 Robert Half Salary Guide for Accounting and Finance: • • • • • • •

Internal auditor Accounting manager Payroll manager Controller Senior accountant Staff accountant Financial analyst

Here’s a sampling of next year’s salary midpoints for the state’s largest cities:

Milwaukee Madison

Green Bay

CFO (financial services)

$202,000

$197,000

$173,000

Corporate controller

$171,700

$167,450

$147,050

Manager, financial systems

$126,250

$123,125

$108,125

$59,100

$51,900

General accountant, 1–3 years experience $60,600 Compliance analyst

$75,750 $73,875 $64,875

To land these and other specialists, be prepared to act quickly. A Robert Half Finance & Accounting survey found it takes an average of four weeks to fill an open staff-level position and five weeks to fill managerial roles. With a skills shortage across the state, your firm may not have the luxury of time, especially if the job seeker you’re after possesses in-demand expertise and abilities.

Tax services, 0-1 year experience $46,460

Top skills

Perhaps you yourself are eyeing a new position and putting out feelers to explore your options. The picture looks rosy for seasoned accountants, especially those with a CPA license. All types of organizations—corporate, public and financial services—are looking for accountants with five or more years of experience and are ready to pay for them. Hiring is especially brisk in health care, real estate, nonprofits, construction and IT.

Top accounting and finance candidates are tech savvy, with advanced proficiency in Excel, QuickBooks and Hyperion (for financial analyst roles). They understand data analysis and are familiar with SAP, Oracle and/or Microsoft Dynamics GP enterprise resource planning (ERP) systems. And they get bonus points if they have working knowledge of a cloud-based system like Workday or NetSuite. But hard skills alone aren’t enough. In fact, it’s often easier to train new employees on your systems and platforms than it is to teach them essential soft skills such as empathy and quick comprehension of all sides of a situation. As

To recruit top accounting talent, be prepared to pay competitive starting wages. The 2018 Salary Guide has the latest compensation ranges for more than 190 positions. Use our Salary Calculator to customize the data for your location.

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January | February 2018

$45,310

$39,790

The above salaries are for employees with an average skillset and experience level. You’ll need to offer more for professionals with specialized certifications and extensive work history, or if the role is complex and strategic in nature.

Attracting and retaining top performers Above-average wages will help your firm land and keep talent, but that alone isn’t enough. The entire compensation package should be competitive to ensure your top choices

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{ Human Resources | Hiring challenges }

don’t go somewhere else. Of the HR managers surveyed for the 2018 Salary Guides, 81 percent said their companies offer performance rewards or other financial incentives, such as signing bonuses. Benefits are another way to compete with other area employers. Besides the usual basket of insurance plans, you can woo prospective financial talent by reimbursing them for the cost of earning certifications. Some firms even offer cash to employees who complete and pass their CPA Exam within a certain number of years of being hired. Don’t forget about the power of perks. These are the seemingly small privileges that actually play an outsized role in whether some professionals, such as working parents, accept a job offer and stay on with the firm. Some of the most sought-after offerings: • Flexible or compressed work schedule. • Option to telecommute. • Generous paid time off and parental leave policy.

• Onsite gym or free or subsidized gym membership. • Free or subsidized meals. • Regular social activities. As you can surmise from the list, today’s professionals value a healthy work-life balance. If they have that, they’ll be more likely to stick around for the long haul than if they are stressed and overwhelmed. The new year looks like it will be a year of measured but steady growth for Wisconsin businesses. Whether you’re hiring or job hunting in 2018, it pays to stay on top of employment and compensation trends. This article is provided courtesy of Robert Half, parent company of Accountemps, Robert Half Finance & Accounting and Robert Half Management Resources. Robert Half is the world’s first and largest specialized staffing firm placing accounting and finance professionals on a temporary, full-time and project basis. For career and management advice, follow our blog at roberthalf.com/blog.

Distinguish yourself as a strategic leader. Earn the global designation for financial professionals. Explore the CGMA Program: A lifelong professional learning journey that puts you on the path to take your career to a new level. You’ll learn and acquire the skills it takes to become a more strategic, confident, secure and insightful leader. Get started at CGMA.org/Program ®

Holly Rodillo Bernstein, CPA, CGMA Director of Accounting, SoulCycle

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On Balance

January | February 2018

{ Industry | Enterprise risk management }

By Sabine Vollmer

xecutives are aware that the risks businesses face have increased and become more complex in the past five years, but most companies arenâ&#x20AC;&#x2122;t fully equipped to manage the rapid changes, according to research released by the Enterprise Risk Management (ERM) Initiative at North Carolina State Universityâ&#x20AC;&#x2122;s Poole College of Management and the Association of International Certified Professional Accountants. About 60 percent of the 586 CFOs, finance professionals and other executives who participated in the global survey said that enterprise risks have become more numerous and more interconnected. Many respondents reported actual

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events or operational surprises in the past five years: 71 percent in Africa and the Middle East; 53 percent in Europe and the U.K.; 46 percent in Asia, Australia and New Zealand; and 32 percent in the U.S. But less than one in three said their companies have robust enterprise risk oversight. Companies in Asia, Australia and New Zealand appeared the most prepared, the survey suggests. Thirty percent of respondents in the region said they have complete ERM processes in place, and 23 percent described risk management oversight as mature. â&#x20AC;&#x153;This region has historically been a leader in risk management best practices, suggesting a business culture

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{ Industry | Enterprise risk management }

there that is in tune with the benefits of improved risk management thinking,” said Mark S. Beasley, CPA, a professor of enterprise risk management, the ERM Initiative’s director, and a co-author of the study. Enterprise risk oversight was least robust in Europe and the U.K., where 21 percent of respondents said they had complete ERM processes in place or described risk management oversight as mature. In the U.S. and in Africa and the Middle East, about one-quarter of the respondents reported they are fully prepared. Businesses’ risk management efforts have improved in the past decade. Seven years ago, 16 percent of U.S. respondents and 39 percent of respondents from outside the U.S. called their ERM oversight robust. Still, considering the rising potential for harm as well as business opportunities, most companies could benefit from strengthening their ERM approach, Beasley and co-author Bruce C. Branson said. “Implementation of an ERM process can provide a framework for an enhanced understanding of the risk environment the entity is facing and hopefully an opportunity to identify emerging risks before they have the potential to significantly impact the entity,” said Branson, a professor of accounting and the associate director of the ERM Initiative. The survey identified three main barriers to improving companies’ ERM approach: • About half of the respondents believe they don’t have sufficient resources to ensure their ERM processes work well, especially those in Europe and the U.K. (52 percent) and in Africa and the Middle East (53 percent). • Other, competing business priorities restrict improvement of ERM processes, particularly in the U.S. (46 percent) and Europe and the U.K. (45 percent). • ERM processes are perceived as unneeded bureaucracy and lacking in value, especially in the Africa and Middle East region (47 percent and 41 percent, respectively). “Many see risk management as a compliance or bureaucratic initiative that isn’t focused on adding value,” Beasley said. “They forget the fundamental relationship of risk and return, which is demonstrated in their failure to integrate their risk management efforts with their strategic management efforts.” About half of respondents said they consider risk exposures when they evaluate possible new strategic initiatives. One likely reason is a lack of useful data, the survey found. About

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one-quarter of the companies participating in the survey do not maintain inventories of their key risk exposures. The survey results suggest that lack of leadership may be another hurdle, especially in Europe and the U.K. where only 42 percent of participating companies had a management risk committee (64 percent in Asia, Australia and New Zealand; 56 percent in the U.S.; 53 percent in Africa and the Middle East). Also, fewer than half of the companies participating in the survey have a formal policy statement regarding their enterprise-wide approach to risk management, except in Asia, Australia and New Zealand (57 percent). And in most regions, risk management activities are used only rarely to determine compensation for management performance (20 percent in Asia, Australia and New Zealand; 15 percent in Europe and the U.K.; and 13 percent in the U.S.). In Africa and the Middle East, a region that respondents perceived as most risky, 29 percent of participating companies tied performance-based compensation to risk management. Educating business leaders more about ERM and helping them to communicate what they learn might be beneficial, Beasley and Branson suggested. Most companies (80 percent or more) haven’t focused on providing executives formal training or guidance on risk management in the past two years, the survey found.

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{ Industry | Enterprise risk management }

To better manage the rapidly changing enterprise risks, Beasley and Branson offered executives five tips:

Be willing to admit that you may be facing a lot of unknown issues and understand that enterprise risk management is an evolutionary process that will yield more insight as it is refined and tailored to a specific organization.

Ask your peers to identify the top five strategic initiatives and the top five to 10 risks likely to derail them. Ask them to bring their lists to an executive meeting and engage them in a conversation. Determine whether there’s a consistent and coherent understanding amongst them that managing top risk exposures can lead to opportunities that create value.

Identify the key assumptions in senior executives’ business models and challenge how confident they are that their assumptions are reasonable and won’t change.

4. 5.

Recognize that enterprise risk management doesn’t require significant new resources.

Assess the company’s overall culture and how it might affect risk management. Determine to what extent individuals understand the processes they should use to escalate risk issues to the top and to what extent they’re willing to deploy ERM.

Sabine Vollmer is senior editor of Financial Management magazine. Contact her at Sabine.Vollmer@aicpa-cima.com. This article first appeared in CGMA Magazine. © 2017 Association of International Certified Professional Accountants. All rights reserved.

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