News Account Colorado Society of Certified Public Accountants March | April 2010
Want2bcpa: Log On and Choose Accounting Preparing for Your Legacy: The Importance of Creating an Estate Plan The State of the Industry: Long Term Health Care and Financial Institutions
News Account A bi-monthly publication of the Colorado Society of Certified Public Accountants Vol. 55, No. 6 March | April 2010 Board of Directors Ronald L. Seigneur, Chair Sidny K. Zink, Vice Chair Michael S. Bearup, Treasurer Barbara S. Seacrest, Immediate Past Chair Mary E. Medley, Secretary Directors Daniel A. Chenoweth, Cheri Jahn, Ronald O. Reed, Mark T. Solomon, Alicia J. Sweeney, Tawnya Y. Zimmerman Editorial Board Jack Allgood, James M. Boak, Frances J. Coet, Kay R. Dragon, Deanna C. Duell, Mira J. Finé, Patrick A. Lytle, Jennifer C. Pitkin, Ronald O. Reed, Scott K. Sprinkle, Barbara J. Tedesko, Mark A. Torrey, Gregory A. Truitt, R. Stephen Van Meter, Michael West Mary E. Medley, President/CEO Elizabeth M. Julin, Deputy Director Jill M. Turner, Editor/Publisher Natalie G. Rooney, Contributing Writer NewsAccount (ISSN #10899952) is published bimonthly by the Colorado Society of Certified Public Accountants, 7979 E. Tufts Ave., Suite 1000, Denver, Colorado 80237-2847. NewsAccount is published in January, March, May, July, September, and November and reports information, news, and trends in the accounting profession. Articles, display advertisements, and classified advertisements are due 30 days prior to publication. The Colorado Society of CPAs assumes no liability for readers’ business decisions in reference to advertisements or other information included in this publication. Membership dues include a $17.77 one-year subscription to NewsAccount. Periodical postage paid at Denver, CO. POSTMASTER: Send address changes to NewsAccount, Colorado Society of Certified Public Accountants, 7979 E. Tufts Ave., Suite 1000, Denver, CO 80237-2847. Net press run = 8,850 copies; sales through dealers and carriers, street vendors, and counter sales = 0; paid or requested mail subscription = 8,450; free distribution by mail = 50; free distribution outside the mail = 0; total free distribution = 50; total distribution = 8,500; office use, leftovers, spoiled = 350; returns from news agents = 0; total sum = 8,850; percent paid and/or requested circulation = 99%. (303) 773-2877 • (800) 523-9082 Fax: (303) 773-6344 E-mail: cpa-staff@cocpa.org www.cocpa.org NewsAccount is available in PDF format on line at www.cocpa.org.
March/April 2010
Features
Table of Contents
2 Introducing the CSCPA Board and Educational Foundation Nominees Meet the new officers and directors who will lead the CSCPA, beginning May 1, 2010. 6
Call Him “Mr. Mayor”: Larry D. Fetzer, CPA Contributing writer Natalie G. Rooney profiles Sterling, Colorado’s new mayor who is using his CPA skills to lead the city of nearly 14,000.
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Want2bcpa: Log On and Choose Accounting The CSCPA’s new Web site for students interested in becoming CPAs is open for browsing, business, and fun, too. Check it out.
10 Preparing for Your Legacy: The Importance of Creating an Estate Plan Leaving estate planning to chance can be risky, especially if you have young children and/or a spouse. And, even if you don’t have either, you likely have assets you need to protect. 18 The State of The Industry: Long Term Health Care and Financial Institutions In the first article of a new series, John Brammeier, CPA, FHFMA, and Marc Hendrikson, CPA, CIFP, talk about what’s happening and what lies ahead in their respective industries.
Departments 12
Movers & Shakers
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SEC Corner
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Classified Advertising
On The Cover Want2bcpa provides resources and information for students considering accounting as a career and for those seeking to become CPAs. Read about the new features on page 8. www.cocpa.org
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2010-2011 Leadership Profiles
Introducing the CSCPA Board and Educational Foundation Nominees The Board of Directors is the CSCPA’s governing body. It controls CSCPA funds and property, supervises CSCPA affairs, and is responsible for statements of position to the public, budget approval, and other major policy matters. The Board consists of 11 members—the Chair, Vice Chair, and Immediate Past Chair who serve one-year terms; the Treasurer and six directors who serve two-year terms; and CEO Mary E. Medley who is the corporate secretary. One director is a non-CPA “public” member. The following new officers and new directors will take office, May 1, 2010. Current Chair Ronald L.
Seigneur (who becomes Immediate Past Chair, May 1st) and continuing directors Cheri Jahn (who is the public member), Ronald O. Reed, and Alicia J. Sweeney complete the 2010-2011 Board. The Educational Foundation of the Colorado Society of CPAs raises funds for scholarships to students pursuing accounting degrees at Colorado colleges and universities. The following new trustees will take office, May 1, 2010. Also serving on the Foundation’s Board of Trustees are: President Mark J. Smith, M.J. Smith & Associates,
Sidny K. Zink, Chair
Sheila M. Balzer, Incoming Director
Michael S. Bearup, Vice Chair/ Chair-elect
Gary L. Mitchell, Incoming Director
Partner, KPMG LLP, Boulder. B.S., Washington and Lee University. CPA and CSCPA member since 1988. Current Treasurer. Past member, Board of Directors; member, 2020 Committee. Member, Investment Committee. Past Chair, Audit Committee.
Managing Partner, Anton Collins Mitchell LLP, Denver. MBA, Northwestern University; MT, University of Denver; BS, University of South Dakota. CPA since 1976 and CSCPA member since 1982. Past member, Insurance Committee; Past Chair, Managment of Accounting Practice Committee; and member, Transitions Task Force.
Mark T. Solomon, Treasurer
Lori D. Nelson, Incoming Director
Partner, FredrickZink & Associates, PC, Durango. B.S., University of Nebraska. CPA since 1980 and CSCPA member since 1978. Vice Chair and Budget Committee Chair. Past Chair, Audit, Annual Meeting, and Notfor-Profit committees; past member, Board of Directors; member, Not-for-Profit Conference Planning Committee. Everyday Heroine Award recipient, 2005; former City Council member and Mayor of Durango.
Controller, St. Mary Land & Exploration Company, Denver. B.S., Lipscomb University. CPA since 1993 and CSCPA member since 1995. Member, Board of Directors, Public Company Practice Member Forum, and Editorial Board. Chair, Audit Committee.
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Englewood; Vice President Jerald R. Kaiser, GHP Horwath PC, Denver; Secretary/ Treasurer Steven E. Mithuen, Clifton Gunderson LLP, Denver; Immediate Past President Lori D. Nelson, Ehrhardt Keefe Steiner & Hottman, PC, Denver; Dr. John B. Bazley, University of Denver Daniels College of Business, Denver; Shannon G. Ellis, Tradewinds Solutions, Highlands Ranch; Marc C. Hendrikson, Citywide Banks, Aurora; Paul J. Herz, Fort Lewis College, Durango; Doug M. Laufer, Metropolitan State College, Denver; and Mary E. Medley. Susan M. Vachereau serves as executive director of the Foundation.
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Audit Partner, Holben Hay Husman CPAs LLC., Denver. BS and MS, University of Denver. CPA and CSCPA member since 1997. Past Chair, Careers in Accounting Committee; member, Leadership Council; and Past President, Educational Foundation.
Principal of Human Resources, Ehrhardt Keefe Steiner & Hottman PC, Denver. B.S., University of Nebraska. CPA since 1988 and CSCPA member since 1989. Past President, Educational Foundation.
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Griselda E. Casillas, Incoming Trustee
Tax Manager, Clifton Gunderson LLP, Greenwood Village. BS, Metropolitan State College of Denver. CPA since 2005 and CSCPA member since 2003. Member, Young Professionals Committee.
David M. Dirks, Incoming Trustee
Instructor, Johnson & Wales University, Denver. BA, DePauw University; MBA, Indiana University. CPA and CSCPA member since 1971. Past President and Past Chair, Strategic Planning Committee. Member, Accounting Careers Committee. CSCPA and AICPA Public Service Award recipient, 1996.
Geri B. Wink, Incoming Trustee
Professor, Colorado State University-Pueblo, Pueblo. BBA and MBA, Sam Houston State University. CPA since 1979 and CSCPA member since 2005. Member, Accounting Careers Committee and Past President, Vice President, and Secretary, Southeast Chapter.
Section 7216 Guidance Available In response to the input of the AICPA and other stakeholders, the IRS has issued new guidance on Sec. 7216, including final and temporary regulations (TD 9478) and Revenue Rulings 2010-4 and 2010-5. The AICPA has developed a new practice guide which summarizes the major issues addressed by the new IRS guidance, including: •
• • •
Types of professional services considered “legal or accounting services” under Treasury Reg. Sec. 301.7216-2(h)(1)(i) Distribution of firm newsletters Contacts with professional liability insurance carriers Disclosures of tax return information for purposes of conflict reviews
In addition, the Sec. 7216 practice guide provides guidance on how to handle a client request to send a tax return to a third party such as a local bank or lender. Find the practice guide at the AICPA Tax Center at tax.aicpa.org.
March/April 2010
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From the CSCPA Chair of the Board Ronald L. Seigneur, CPA, ABV, CFF
Looking Back, Moving Forward
A
s we have moved into 2010, it seems like the outlook is just a bit brighter than it was at this time last year when I was vice chair. We’re not out of the woods by any stretch of the imagination, but the economic picture is forecast to be brighter for the coming year. After spending time in Florida recently, hearing from relatives and friends in Michigan where I grew up, and talking to clients in Nevada, I’m reminded that there are areas of our country that have felt much more economic pain than we’ve felt here in Colorado. I remain grateful that we live and work where we do. As CPAs and CSCPA members, we’ve got a lot to look forward to in 2010.
As CPAs and
New Leadership
CSCPA members, we’ve got
Sidny Zink, CPA, of Durango, will assume the role of CSCPA chair on May 1, while Mike Bearup, CPA, takes on the role of vice chair. They are poised to take us into a new decade of CSCPA leadership, along with the new CSCPA Board of Directors, and Educational Foundation trustees, featured on pages 2-3.
Networking and Learning Opportunities
a lot to look forward to in 2010.
The CSCPA roundtable events continue to grow and offer new opportunities for members. We continue to build and enhance the roundtables for the Young Professionals, Member Connections groups, and CFOs. We’ve had outstanding attendance at these events, and I offer my kudos to everyone who helped organize them. We’ve launched two new roundtables—Transitions and Financial and Valuation Services. Events like these will be a continuing element of how the CSCPA supports its members in various special interest groups. We’re so fortunate to have the CSCPA and everything it offers us. For example, I’ve learned that having chapters as active as ours is somewhat unique. Many states don’t even have chapters anymore. Other states can’t make it happen as we have. It’s just one of the many things that make living and working in Colorado special.
Legislative Efforts As our profession and many of the clients we serve continue to become more regulated, our CSCPA
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legislative and advocacy efforts gain more importance. Currently, the Colorado State Board of Accountancy is in the final phase of Sunset Review. This has been our legislative focus this year, and it’s moving to successful culmination. On the horizon is approval of the 150-hour education requirement, which, if passed by the Colorado General Assembly, will bring Colorado in line with the vast majority of jurisdictions in the U.S that already require it to become a CPA. We also hope to see passage of mandatory peer review for all Colorado CPAs and CPA firms who provide attestation services, under the same criteria as currently in place for CSCPA and AICPA members. The registration of tax preparers sprang up on our radar this year. Paid tax preparers, other than CPAs, will have to register and have minimum credentials starting in 2011. This effort should help clean up the “fringe” tax preparers that give CPAs and other dedicated preparers a bad name. As the current Congressional session proceeds, we’ll likely see a number of tax law changes being debated, continuing discussions on how best to regulate and reform financial services, and significant budget balancing issues on the local, state, and federal government levels. As CPAs, and at the CSCPA, our focus remains the same: We’ll continue to carefully monitor how all of these issues affect members, clients, and the companies and agencies we serve. As for me, while my opportunity to lead the CSCPA is coming to an end, I look forward to remaining involved, continuing to work on initiatives that will benefit the profession, and seeing what great things 2010 brings. My thanks go to the CSCPA staff. Thank you in particular to Mary Medley, Leslie O’Donnell, Terry Cervi, and everyone who helped me have a meaningful and rewarding year. I could not have done it without all of you. Thanks, also, to you and all of the CSCPA members I’ve had the privilege to meet. Thank you to my wife, Beverly, my CPA firm partners, and my staff. It has been wonderful to have such support from all corners of my world. Remember, though my official term comes to an end, April 30, you always can contact me with your comments and suggestions at ron.seigneur@cpavalue.com. s
March/April 2010
Blue Ribbon Panel to Consider Different Accounting Standards for Private Companies The American Institute of CPAs (AICPA) and the Financial Accounting Foundation (FAF), with support from the National Association of State Boards of Accountancy, have formed a blue ribbon panel to explore the future of standard setting for private companies, including whether separate, stand alone accounting standards for private companies are needed. The panel is expected to make recommendations this fall. Most of the recent discussions concerning financial reporting standards have centered on International Financial Reporting Standards (IFRS), specifically on whether the Securities and Exchange Commission (SEC) will endorse the proposed roadmap released under the previous administration that could lead to all U.S. public companies being required to use IFRS on a phased-in basis beginning as early as 2014. Yet even if the SEC eventually mandates the use of IFRS to replace U.S. generally accepted accounting principles (GAAP), the requirement would apply only to the approximately 15,000 public companies in the United States. What about the 29 million private companies that will continue using U.S. GAAP? “We need to take a fresh look at how U.S. accounting standards can best meet the needs of private company financial statement users, and that’s what this blue ribbon panel will do,” says Ron Seigneur, chair of the Colorado Society of CPAs. “I expect the panel’s recommendations to be an extremely positive development for our state’s many private companies and the CPA firms who serve them.” In early January, Rick Anderson, CEO of Moss Adams LLP, was named chairman of the panel. Anderson currently serves on the FAF Board of Trustees, was a member of the AICPA governing Council for three years, and is the immediate past chair of the AICPA Major Firms Group. The panel’s other members will represent a cross-section of financial reporting constituencies, including lenders, investors, owners, preparers, and auditors.
March/April 2010
According to the U.S. Small Business Administration, small businesses employ more than half of all private sector workers and are responsible for 44% of the private payroll in the United States. They also have produced 64% of the new jobs created during the past 15 years. Many of these companies are small and medium-sized organizations that report to a narrow range of financial statement users, such as lenders, venture capitalists, and insurers. “Small business also has been instrumental in creating new innovations and is an important element in our economic recovery,” says Robert R. Harris, CPA/CFF, chair of the AICPA Board of Directors. “We need a financial reporting system that provides financial statement users and small business owners with information they can truly use and understand. We CPAs know full well that the financial reporting needs of our private company clients or employers and their financial statement users are different from those of public companies. It’s time for accounting standards to reflect this difference, where appropriate.”
with requirements that have no relevance to their investors, lenders, and other financial statement users,” says Harris. “By doing this, we also should be able to help control financial reporting costs, something I know our members in business and industry will appreciate.” “The time has come to address accounting standards for the majority of America’s businesses at the policy level, and the recently created blue ribbon panel will do just that,” adds Seigneur. For more information on the new panel’s work, go to aicpa.org. s
In recent months there have been many calls within the accounting profession for a new and comprehensive evaluation of private company accounting. Included in those calls was the voice of the Private Company Financial Reporting Committee (PCFRC), a joint initiative of the AICPA and the FASB. For the past several years, the PCFRC has been monitoring standard setting and speaking out on behalf of the needs of private companies and the CPAs who serve them. “The goal is to bring valuable information to the users of private company financial statements without burdening those companies and their CPAs www.cocpa.org
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Member Profile: Larry D. Fetzer, CPA
You Can Call Him “Mr. Mayor” By Natalie G. Rooney As the newest mayor of Sterling, Colorado, CSCPA member Larry D. Fetzer, CPA, is keeping a close eye on the Queen City of the Plains. Born and reared in Fleming, Colorado, Fetzer ventured away for a time, but he eventually returned to his roots. Now, he is using his CPA skills to lead a city of nearly 14,000 people.
Starting Out on the Plains Larry Fetzer, owner of Fetzer & Company CPAs, grew up on a wheat farm in Fleming, just 20 miles east of Sterling, the city he now calls home. After graduating from Fleming High School, Fetzer spent a year at a trade school studying electronics, but he quickly realized that wasn’t what he was cut out to do. An influential high school teacher encouraged Fetzer to pursue a career in accounting, “but I thought one year of trade school would be a lot easier than four years of college,” Fetzer reflects. His teacher encouraged him to go back to school and take accounting courses. “She was an extremely supportive mentor,” he says. “She helped me see the opportunity accounting offered.” Fetzer earned an Associate of Arts degree in accounting and later completed his BBA in accounting in Springfield, Missouri, where he met his future wife, Elsie. After accepting a job offer with Reynolds and Reynolds, CPAs in Sterling and marrying, the young couple made their home on the high plains.
Becoming a CPA—the Hard Way Already working in the accounting profession, Fetzer knew he wanted to earn his CPA designation. When he applied to the Colorado State Board of Accountancy to sit for the Uniform CPA Examination, he was told the school he had attended wasn’t approved. “So even though I had a degree, I couldn’t sit for the exam,” he recalls. He
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formulated a plan to attend the University of Denver as a graduate student. After a quarter of commuting back and forth from Sterling to Denver, while working fulltime, he was told his efforts still weren’t adequate and that he would need to earn another degree. Leaving nothing to chance this time, Fetzer went back to school fulltime, taking a break to work during tax season. He not only attended classes as a student, but also he was a teaching assistant and taught principles of accounting. After graduating with a Masters of Science in Business Administration, a professor encouraged Fetzer to pursue teaching. He and Elsie headed to Virginia, her home state, where he accepted a position at Virginia Commonwealth University in Richmond. It was 1968. His office was the attic room of an old mansion in the Fan District of downtown Richmond, and he taught in an era of “hippies, Kent State, and protests. It was an interesting time to be there,” Fetzer says.
Still on Main Street After four years in academia, the Fetzers returned to Sterling. He had been returning to Colorado each summer to work at the Reynolds firm while living on the family farm. Soon, Fetzer received an offer to become partner. The firm morphed over the years, changed names, and grew. Now the firm, which was started in 1937, is the oldest CPA firm in Sterling. “And we’re still on Main Street,” he says. Fetzer’s business location puts him in the perfect position for his current role: Sterling mayor. It wasn’t his first foray into politics; he was elected to city council in 2003 after a challenging time in the city’s history. A July 2002 fire destroyed a portion of Sterling’s downtown, including the building next to the one that housed Fetzer’s firm, and above it, his home. “We sat on the street corner and watched all night while firefighters fought the fire,” he says. “We thought our building would go, March/April 2010
too.” In the end, the building was saved, but the Fetzers were out of their home for three months and out of their office for six months. An upheaval in city management followed the fire. Fetzer saw dysfunction in the city council and decided to run for election, eventually serving for six years. Elected mayor in November 2009, Fetzer is termlimited and will serve until 2011. “I’m still learning,” Fetzer says of his role. “It takes quite a bit more time than when I was on city council.” In addition to attending various events and functions on behalf of the city, he also serves as leader of the Sterling city council, drawing on his business experience and expertise as a CPA. “We have council members who have never had to run a business, make a payroll, or make business decisions, and I think that my having that experience brings a good flavor to the council,” he says. “With a background in accounting you can look at things differently than other people.” Fetzer also cites his client work and networking as helping to prepare him for the leadership role. A challenge in Sterling’s near future includes a $29 million water treatment plant mandated by the EPA. Fetzer is involved in moving the project forward through water and sewer studies and overseeing the project’s financing. Fetzer also has served on a local economic development board as the representative from city council. He wants to help address the challenge of attracting jobs that pay well to encourage young people to stay in Sterling. “It’s a constant challenge for the city,” he says. Sterling residents can stay up-to-date on mayoral goings-on through Fetzer’s weekly radio show. “It gives people an opportunity to hear what’s going on at council,” he says. Even with his CPA credentials behind him, Fetzer didn’t take running for Sterling mayor lightly. “When I decided to run for council, people said it could be bad for business, that people wouldn’t like the decisions I made,” he says. Fortunately, he hasn’t found that to be true. He says his clients have been very supportive. “They’re pleased that I made the choice to do it,” he says. “People want leaders who are level-headed.” Fetzer encourages CPAs to become more politically involved. “Communities support us with their business, and it’s a way for us to give back,” he says. “It’s a way for us to contribute.” s Contact Larry D. Fetzer, CPA at fetzer3@mindspring.com.
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Want2bcpa Log On and Choose Accounting
C
heck it out! The CSCPA has recently launched a new Web site just for students. It contains a plethora of information for those contemplating a career in accounting and those who already have made that decision. The key navigation areas are:
What is accounting? How do I get started? What’s required to be a CPA? How do I find a job? Important Links
The information flows under each navigation button. Opportunities in accounting, courses to take in high school and college, access to scholarships, information on the Uniform CPA Examination, how to prepare for an interview, and an abundance of links about the profession all are at the user’s fingertips. The fun stuff is included, too. We all know Bob Newhart got his start in accounting. A list of others like him is included in the section on Famous Accountants and Fun
Facts. Each navigation area includes links to a variety of videos—some serious, some not so much. Need a laugh? Check out the videos under Let’s Have Some Fun. Everyone laughs at I learned it from watching you. Sing along to CPA Rapper and CPA in Hong Kong. Or, enjoy the humor of Abbott and Costello and Ma and Pa Kettle. Whether you use .org or .com, check out want2bCPA. And, pass it along to students you know who are either contemplating or have already decided on a career in accounting.They’ll be glad you encouraged them. s
2009 Succession Planning Conference Sessions Now Available Let’s face it. Topics like succession planning, grooming the next generation for leadership, and selling a CPA practice are ones you wish would take care of themselves, right? But, they don’t, and the demographics can’t be ignored. If you missed last summer’s CPE conference, Buying, Selling, Merging, Advancing, Retiring: Planning for You and Your CPA Firm’s Future, you can watch it online and hear the discussion on the following topics: •
Succession Planning Strategies: Buy, Sell, Merge, or Grow Independently—Which Will You Choose?
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Succession Planning: The Time is Now for the Future of Your Firm
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Finding Your Next Life: Cashing In on Your Wisdom
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Selling/Retiring From Your Accounting Practice: What Should You Be Doing?
To order for only $149, go to cocpa.org/homepage-article. asp?content_item_id=1211, or call the CSCPA CPE Department at (303) 773-2877 or (800) 523-9082.
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March/April 2010
Young Professionals 4th Annual Poker Tournament
Scott Barker, 1st Place winner, and his fan club
Brandon Snooks, 2nd Place Winner, with Manda Dinkel
Jesse Bean, 3rd Place Winner
Sponsored By
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Preparing for Your Legacy: The Importance of Creating an Estate Plan By Natalie G. Rooney
I
f you died tomorrow, how would your money and assets be distributed? According to a recent survey of young CPA professionals by the Colorado Society of CPAs, the state will decide the answer to this important question for nearly three-quarters of survey respondents. Joyce Nakamura, Esq., member, Hall & Evans, LLC, Denver, says those statistics aren’t uncommon. Nakamura, who specializes in estate planning, says CPAs are often so busy attending to their clients’ needs that they don’t follow their own advice and prepare the necessary documents like wills, trusts, powers of attorney, and living wills. She encourages them to change that behavior.
What is Estate Planning? By definition, estate planning is a process designed to help you manage and preserve your assets, while you are alive, and to conserve and control their distribution after your death according to your goals and objectives. But what estate planning means to you specifically depends on who you are. Your age, health, wealth, lifestyle, life stage, goals, and many other factors determine your particular estate planning needs. For example, you may have a small estate and may be concerned only that certain people receive particular things. A simple will is probably all you’ll need. Or, you may have a large estate, and minimizing your tax liability is your foremost goal. Nakamura says that today’s young professionals have assets they need to protect. “Today’s CPAs are well-paid,” she says. “They’re accumulating assets, and they have assets to be disposed of at death whether
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they’re single or married. Also, their spouses and children need protection.” According to the CSCPA survey, of 174 young CPA professionals who responded, 72 percent have not done any estate planning at all. Of the respondents who have done some estate planning, 22 percent have a will, 18 percent have a living will/medical directive, 13 percent have a durable power of attorney, and 5 percent have set up a trust. Nakamura advises individuals to make like Nike and “just do it” when it comes to estate planning. If you don’t and you die without a will, your assets will be distributed according to Colorado’s statutory intestate succession provisions. “Do you really want the state to decide who gets what?” she asks. While estate planning is important for everyone, it is especially important when children are involved. Without a plan, family members may have to commence guardianship and conservatorship proceedings to be formally appointed guardian and conservator for your children. Conservatorship terminates when the child attains age 21. The child would then receive all of the assets in the conservatorship estate. Even if you aren’t married or don’t have children, Nakamura encourages estate planning to ensure that your wishes are carried out upon your death.
The Estate Planning Process Estate planning doesn’t have to be a painful process. Nakamura advises individuals to work with an estate planning attorney who
will assist in gathering the necessary information, formulating the client’s estate planning objectives, and making recommendations as to what is appropriate for a client’s unique needs or assets. Linda Brandon, CPA, has created a will, power of attorney, and a living will. Brandon says she created the documents after she got married to ensure her assets went to her husband. “I’m uncomfortable with the state making my decisions,” she says. Brandon worked with an attorney referred by a family member. During the process of compiling her information, Brandon says she was surprised. “I didn’t realize how much I had,” she says. “It took awhile to get everything all together.” She took the opportunity to make special arrangements, such as donating part of her life insurance to an animal shelter and making provisions for her pets. “You have to think through the whole process,” she advises. “Think about how you want your life handled when you can’t continue.” While online programs offer seemingly inexpensive ways to create wills and other estate planning documents, Nakamura doesn’t advise using them, nor does Brandon. “I wasn’t comfortable with the complexity I had,” says Brandon. She says she feels more secure knowing that she has a copy of the documents, and her attorney does as well. “Get it done,” Brandon advises those who are putting off the estate planning project. She recounted how she was traveling on an airplane soon after she completed her estate March/April 2010
planning documents. The plane experienced problems with its landing gear. “In the end, everything was fine, but I wasn’t worried about what my husband would be left with.” Creating the documents “just isn’t that big of a deal,” she says. Survey respondents were divided as to why they hadn’t begun the estate planning process. Nearly a third said they hadn’t given the process any thought, 25 percent felt they didn’t need an estate plan right now, 15 percent felt they didn’t have anything to leave anyone, and 10 percent thought it would cost too much money. Many commented that they were just procrastinating or waiting until they had children. Deanna Duell, CPA, admits she’s in the “do as I say not as I do” category at present. “It’s been on my list, but I just haven’t gotten there yet,” she says. Duell isn’t alone. Many of the survey respondents indicate some form of estate planning is on their “to do” list but are stymied about how to get started. The AICPA’s 360 Degrees of Financial Literacy Web site at www.360financialliteracy.org/ Financial+Topics/Estate+Planning/ offers a lot of basic information to help. Duell plans to meet with an attorney and lay the groundwork. “It’s hard to put that time aside when I’m building my business and dealing with clients’ needs,” she says. “We put ourselves second to our jobs and commitments, but it could be a mess if someone doesn’t know what I want because I don’t have a plan in place.” s
Planning Documents
What They Do Why You Should Have Them Will • • •
Directs the disposition of your assets, either outright to named individuals or to a trust established for their benefit. Names an executor (“personal representative” in Colorado) to handle the affairs of your estate and file any necessary probate papers. Names a guardian for any minor children; absent this provision, a court will pick a guardian for your children.
Revocable (“Living”) Trust • • • •
•
• • • •
Extremely flexible document; allows you to leave your assets to whomever you want, in nearly any form or manner that you desire. Efficient tool for reducing, or even eliminating, estate and generation-skipping taxes. Allows for the private disposition of assets; a will, in contrast, is a matter of public record. Allows for the creation of trusts for descendants that offer creditor protection, protection from divorcing spouses, and protection from estate and generation-skipping transfer taxes. Allows for the creation of trusts in which a descendant slowly comes into his or her inheritance and learns to be a responsible steward (e.g., your daughter does not get a $500,000 check on her 18th birthday). Descendants are protected from themselves and the peer pressures that would inevitably come with large bequests (e.g., your son cannot spend his entire inheritance in a single trip to Las Vegas). Indispensible tool for structuring inheritances in blended families. Excellent tool for providing for special-needs beneficiaries without reducing or eliminating government-provided benefits. Allows for the disposition of assets if you become incapacitated. Can be “funded” (the trust owns your assets during your lifetime) or “unfunded” (you retain individual title to your assets); we typically leave trusts unfunded because Colorado probate is not an expensive or burdensome process to be avoided (unlike in some other jurisdictions).
Financial Power of Attorney •
Allows you to name an agent to handle your financial affairs (e.g., pay bills, make gifts, etc.) in the event you become incapacitated and cannot make decisions for yourself.
Medical Power of Attorney •
Contact Joyce Nakamura at nakamuraj@ hallevans.com. Contact Taylor Dix at tdix@ shermanhoward.com.
•
Allows you to name an agent to make medical decisions on your behalf (e.g., consenting to surgery, new courses of treatment, etc.) in the event you become incapacitated and cannot make decisions for yourself. In conjunction with a Living Will, allows you to name an agent to carry out your end-of-life wishes.
Living Will •
Not a legally binding document; allows you to spell out your wishes with regard to end-of-life decisions (e.g., discontinue artificial nourishment immediately, after 30 days, never, etc.).
This information was provided by Taylor M. Dix, Esq., of Sherman & Howard,LLC, Denver.
March/April 2010
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Financial Literacy News
Financial Literacy on the Hill and at the Village College Hill Library and Warren Village, that is. On Jan. 19, Sandra Kemper and Diane Wightman of the CSCPA Financial Literacy Task Force presented Developing A Spending Plan And Other Financial Management Tips at College Hill Library in Westminster. The program had a special twist. One session was held for children, while another ran simultaneously for parents. Although the attendance was light—two children and four adults—the program gained the attention of a reporter from Metro North Newspapers. An article, CPAs want to take fear out of budgets, appeared in the Jan. 28 issue of Westminster Window as a result.
when she goes in to withdraw funds. “But they just keep giving it to me,” she laments. Charella wants to learn how to control her spending and someday buy a Suburban to drive her six kids around.
Take Control of Your Finances: Plan for Your Future is a three-session program, developed by the task force to teach the benefits of developing a spending plan. The program, which began on Jan. 21 and concluded on Feb. 11, taught participants the importance of setting goals, explored the difference between wants and needs, and included understanding the importance credit ratings play in all aspects of life. Participants worked one-on-one with the task force volunteers to develop their personal spending plans as a start toward achieving their financial Standing, left to right: Amy King, Charella, Andrea, Lyndsey, goals.
The article began with, “When people Sandy Kemper, Joe. Seated, left to right: Sarah Buescher, hear the word ‘budget,’ many times Laura, Debbi Warden. they cringe with fear. But the Colorado Society of Certified Public Accountants (CSCPA) wants to help ease the tension for Joe can pay his bills on time, but he can’t local families…” According to Wightman, seem to keep the rest from running through chair of the task force, “It went well. I look his fingers, including the ten percent of his forward to doing it again and hope to do it in small budget he spends on cigarettes. A other libraries as well.” budding graphic designer, Laura thinks she could cut her monthly spending by not goFive With Passion ing to Whole Foods or going out for sushi all the time. Then she’d have money to finish Meet Andrea, Charella, Joe, Laura, and her degree. Lyndsay is working on finishing Lyndsay. They are residents at Warren Vilher college degree and in the next few years lage in Denver, and they all have financial wants to buy a house. goals and dreams of a better future for themselves and their children. Andrea rides her bike wherever she goes, year-around, so she’d like to buy a car in the next year, save for a house, and someday take her son to Australia. It would be a “whole lot easier” for Charella if the bank would tell her “no”
“Ten residents came the first week, and five returned the second week. These would be the five who have the passion to do this,” says Debbi Warden, one of the four task force members who worked with these indi-
Movers & Shakers Denver wealth manager Mark J. Smith of M.J. Smith and Associates, Englewood, is one of five financial advisors named to Research Magazine’s Advisor Hall of Fame, the only Colorado advisor selected. According to the publication, those selected have passed a rigorous screening, have a minimum of 15 years in the profession, have acquired substantial assets under management, demonstrate superior client service, and have earned recognition from their peers and the broader community. GHP Horwath PC announced Angela Parsons as a new principal in the audit services department.
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viduals. Sarah Buescher, Sandra Kemper, and Amy King also provided assistance.
“The attendees are all parents with a vision. They have similar goals of wanting to build an ‘emergency fund’ and to buy a home in a few years. They just need an action plan, so they can put one foot in front of the other to get there,” says Warden. King adds, “My take-away from this adventure is that improving financial literacy is not about complicated financial transactions and topics. It really boils down to the simple principles of comparing what comes in versus what goes out and taking responsibility for putting anything leftover towards your goals.” Interested in volunteering or using these new materials? Contact Liz Julin at ljulin@ cocpa.org, (303) 741-8607, or (800) 5239082, ext. 107, for details. s
BKD LLP has been named one of the “Best Accounting Firms to Work For” in 2009 by Accounting Today magazine, marking the second consecutive year the firm has received the honor. Ehrhardt Keefe Steiner & Hottman PC (EKS&H), has released its 2010 Business Outlook Survey which provides market information and insight on what over 170 business executives from a wide variety of industries are projecting for the coming year. Access the results at www.eksh.com/businessconsulting. The firm also announced that Commerce Clearing House (CCH) has published the 2010 edition of its Sales and Use Tax Answer Book. This is the book’s thirteenth edition with state and local tax expert Bruce M. Nelson of EKS&H as lead author, along with co-authors James T. Collins and John C. Healy. March/April 2010
Educational Foundation
2009-2010 Annual Report Scholarship Success During the 2008/2009 fiscal year, the Educational Foundation of the Colorado Society of CPAs awarded $48,400 in scholarships to deserving Colorado accounting students, thanks to the generosity of CSCPA members, firms, and others who are committed to the future of the accounting profession in Colorado. The success of the Centennial Scholars Campaign enabled the Foundation Board of Trustees to fund 30 scholarships to upper division and graduate accounting students and 10 scholarships to freshman students this past year. The newly created scholarships for sophomore students who are enrolled in a Principles of Accounting class enabled the Foundation to award six scholarships for the 2009 Winter/ Spring term.
Congratulations to the following nine college students who were awarded the Educational Foundation Winter/Spring Firm Scholarships. Each received $2,500. Laurie Corradino, this year’s recipient of the PricewaterhouseCoopers LLP scholarship, is a graduate student at Colorado State University at Pueblo. She will graduate in December 2010, with a Masters of Business Administration (MBA). Sharon Prueitt is this year’s recipient of the Past Presidents scholarship. A junior at Metropolitan State College of Denver, she will graduate in fall 2010, in Nonprofit Accounting with a minor in Economics. Morgan Strakbein is this year’s recipient of the Hein & Associates LLP scholarship. A graduate student at Colorado State University, she will graduate in May 2010, with a Masters of Accountancy. Cyril Barton-Debenin and Emily Boerner are this year’s recipients of the Ehrhardt Keefe Steiner & Hottman PC scholarships. BartonDebenin is attending the University of Colorado at Boulder and will graduate in May 2010, with a Masters in accountancy. Boerner is a senior at the University of Northern Colorado, and she will graduate in May 2010, with a BS in accounting.
March/April 2010
Rachel Lasiewicz, this year’s recipient of the Gordon Scheer scholarship, is a senior at Fort Lewis College, and she will graduate in May 2010, with a BA in accounting. Nastassia Matusevich, this year’s recipient of the Mark J. Smith scholarship, is a senior at the University of Colorado at Denver, and she will graduate in May 2010, with a BS in accounting. Adam Pasha, a graduate student at the University of Colorado at Boulder, will graduate in May 2010, with a BS/MS in accounting. Jules Tybor, a graduate student at the University of Colorado at Denver, will graduate in December 2010, with a Masters in Tax. Congratulations, also, to the following six college sophomores who were awarded the Educational Foundation Winter/Spring Scholarships. Each received $1,000. Jessica Ellis, attending the University of Colorado at Boulder, will graduate in May 2012, with a BSBA and MSBA. Ruslan Garrey, attending the University of Denver, will graduate in May 2012, with a Bachelor’s in accounting. Jonathan Kaiser, attending the University of Denver, will graduate in June 2012, with a Bachelor’s in accounting. Sarah Linder, attending Fort Lewis College, will graduate in May 2011, with a Bachelor’s in accounting.
Thomas C. Fowler, Laurie Corradino, Lia Fitzgerald, Tara Cone, Lauren Pitcher, Miranda Komloski, John Omohundro, Julie Shively, Carmen Taylor, Rebecca Klausner, Yesenia Silna-Estrad, Megan Schwappach, Ms. Dan Wang, Megan Whittlesey, Ingrid K. Grygiel, R. Luke Schafer, and Shannon Fury. These students represent a bright future for Colorado CPAs.
Silent Auction Results The 2009 Silent Auction benefiting the Educational Foundation was held during the CPAs Make a Difference Gala on Nov. 5, 2009. It raised $5,000 for the scholarship fund.
Planned Giving In 2007/2008, the Foundation received its first bequest. Now it’s working to build momentum. A Planned Giving program is underway to encourage CSCPA members to include a contribution to the Educational Foundation in their
wills.
Audit Results The Foundation’s financial condition is healthy, and the 2009 audit of financial statements resulted in an unqualified opinion by JDS Professional Group. For a copy of the audit report and for additional information on the Foundation, contact Educational Foundation Executive Director Susan Vachereau at svachereau@cocpa. org, (303) 741-8612, or (800) 523-9082, ext. 112. s
Oliver Tromp, attending the University of Northern Colorado, will graduate in May 2012, with a BS in accounting and finance. Megan Woodruff, attending the University of Northern Colorado, will graduate in May 2012, with a Bachelor’s in business administration/
accounting. Each year, the Foundation also acknowledges the top accounting student in each school’s accounting program with the Gold Key Award. Recognized this year for their outstanding academic achievement are: Jessica Bogner, www.cocpa.org
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SEC Corner
More Oil and Gas Changes Coming By David C. Loucks, CPA
W
e yelled from the mountain top last year, “Changes are coming! Changes are coming! We’re moving towards convergence.” One year later: Alot changed but not nearly as much as we expected. We aren’t really any closer to convergence. The SEC issued the Modernization of Oil and Gas Reporting on Dec. 31, 2008. The key points are: using the average of the first-ofthe-month price over an unweighted 12-month period; broadening the definition of what an oil and gas reserve is from a location standpoint; and inclusion of non-traditional sources such as oil sands and shale. Additionally, the new rules allow the use of reliable technology to help a company support what it calls a reserve. Optional disclosure of probable and possible reserves also now are allowed in public filings. Reporting in 10-K’s has been expanded to provide users more information and to cover these new rules. These changes were effective as of Dec. 31, 2009. Through the concept release and proposed release process, many different scenarios
on what price should be used to calculate reserves were discussed. The SEC chose to use an unweighted average of the 12-month first-of-the-month price. There is more work involved as a company will have to gather the first-of-the-month prices for oil and gas and document the traditional differences between the index price and what it actually receives for its products. There is no way to please all the users of financial statements, but this seemed to be the lesser of all evils. It will be fascinating to see the naysayers point to the lower 12-month average price rather than the year-end price that was previously the rule. As part of the broadening of the definition of reserves and the use of reliable technology, the expectation has been that companies will increase the number of locations that are defined as proved undeveloped (PUD). These PUD locations are not drilled wells but just a location that has been identified that should, when drilled, produce hydrocarbons. The SEC’s new rules broaden what can be called a PUD from basically one step away from a producing well in all four directions to any location where it is reasonably certain, with a high degree of confidence, it will be a producer. The documentation to provide evidence of the reasons why you are reasonably certain is very important. The SEC is looking for an adequate sample size to show that a selected location has in the past been converted into a producing location from a similar control point (i.e. a producing well). Of course, there is no definition as to what is an adequate sample size, so keep records and be able to provide the evidence at a moment’s notice. In addition to being reasonably certain that a location will be converted into a producer, a public company will need to have adopted a five-year written development plan of how it is going to convert the PUD locations to producers. The SEC, through a Compliance and Disclosure Interpretation (CD&I) issued on October 26, 2009, asked Question 131.03 and then made it clear that the five-year written development plan is the norm. In rare occurrences, a company could claim PUD locations past the five years. Adoption of a plan requires a final investment decision per
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Question 131.04. If it is not on the plan, it is not a PUD. Beyond being on the written five-year development plan, a company also must have demonstrated the ability to fund the costs of development and show it has run a similar-sized drilling program in the past. For smaller companies and those that receive a going concern opinion, demonstrating the ability to fund development and conduct the drilling program may be a tall task. Probable and possible disclosures are now allowed under the SEC’s new rules but are optional. There is no five-year development limit on the probable and possible disclosures, which may make the disclosures more attractive for smaller companies. However, if you make the probable and possible disclosures, you are required to make them in all the places you disclose your proved reserves. The SEC is not expecting many registrants to take advantage of the ability to disclose probable and possible oil and gas reserves. There are numerous items that a registrant will need to assemble to comply with the modifications to S-K disclosures. One requires narrative disclosure of the following information: •
The total quantity of PUDs at year end;
•
Any material changes in PUDs that occurred during the year, including PUDs converted into proved developed reserves;
•
Investments and progress made during the year to convert PUDs to proved developed oil and gas reserves; and
•
An explanation of the reasons why material concentrations of PUDs in individual fields or countries have remained undeveloped for five years or more after disclosure as PUDs.
amended in January 2010, effective as of December 31, 2009. The FASB adopted the SEC’s definitions to align the FASB’s oil and gas rules with the SEC’s, even including the statement at 932-10-15-4: “This topic does prohibit an entity from applying the full cost method of accounting.” There isn’t much new in the FASB’s amended Topic 932 that hadn’t been covered in the SEC’s new rules. One of the topics not covered by the SEC is the equity method of accounting for oil and gas. A company with equity investments is now required to report at the same level of detail on the equity investments as required for a consolidated investment. Said a different way, you need to separately state the required disclosures for an equity investment. It cannot be lumped into the consolidated totals, and only in certain cases, such as the standardized measure of oil and gas, can the sum of the consolidated and equity method amounts also be shown in addition to the separate totals. We have seen a number of comment letters over the past few years where the SEC is asking that a registrant disclose the reasons for significant reserve changes from the prior year in the standardized measure of oil and gas. Under the new codification, this requirement to disclose the reasons for significant changes is in 932-235-50-36. It states, “Additional information necessary to prevent the disclosure of the standardized measure of discounted future net cash flows
and changes therein from being misleading also shall be provided.” A registrant should have a narrative discussion of why material changes occurred to provide this additional information. In the SEC’s process of issuing this modernization, it asked in the Proposed Release if oil and gas disclosures should require the use of the eXtensible Business Reporting Language (XBRL) standard. It was odd that the question was asked, given the SEC’s position that all registrants should use XBRL. One of the reasons why was that there was no taxonomy for the oil and gas industry. As part of the amendment to Topic 932, taxonomy was included and now exists. Lastly, the FASB in Topic 932 specifically states that these amendments were not intended to address the difference between U.S. GAAP and IFRS. It will be interesting to see if we converge or if IFRS is the new metric system, used everywhere except in the United States. s David C. Loucks, CPA, is a member of the CSCPA Public Company Forum. Contact him at dloucks@opportune.com.
News Account Colorado Society of Certified Public Accountants March | April 2010
The PUD disclosures must be made in narrative form. Other items include disclosure of reserves from non-traditional sources (oil sands), disclosure of technologies used to establish reserve estimates, and disclosure of internal controls in the reserve estimation process. With the changes the SEC made, the FASB’s hands were tied, and Topic 932 was finally March/April 2010
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Accounting & Auditing Update
Developments at the SEC and PCAOB By James M. Boak, CPA
O
n Dec. 7-9, 2009, in Washington, D.C., the AICPA hosted its annual conference on current SEC and PCAOB developments at which representatives from the SEC, FASB, PCAOB, IASB, and AICPA spoke. This article focuses on the topics of interest to smaller SEC registrants and their auditors.
Globalization of Accounting Standards and Convergence The FASB, SEC, and IASB continue to work toward convergence of U.S. and international accounting standards. However, the SEC has recently backed off on the timetable. SEC Commissioner Elisse B. Walter indicated that the SEC remains committed to the international convergence of accounting standards and expects to consider further action on the SEC’s proposed IFRS Roadmap sometime in early 2010. The delay of timing and roadmap seemed to surprise many parties. As of the submission of this article, no further information from the SEC has been forthcoming. Part of the problem stems from the IFRS focus on accounting principles vs. the FASB/ SEC literature featuring accounting rules. A major challenge will be integrating the IFRS 300-pages-plus principles with the FASB 17,000-page Accounting Standards Codification. Paul Beswick, deputy chief accountant in the SEC’s Office of the Chief Accountant, discussed the “vexing” difficulties of joint efforts by the FASB and IASB to integrate accounting on fair values, and by implication, accounting for certain investments such as collateralized debt instruments.
Globalization of Auditing Standards and Convergence Turning to auditing standards convergence, even less has been accomplished. This was underscored by comments from Daniel Goelzer, Acting Chairman of the PCAOB. While inspections of U.S. registered firms has proceeded apace, inspection of nonU.S. firms has lagged considerably. Reasons for this include varying audit environments from country to country; varying local
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governmental auditing oversight, language, and communications obstacles; and difficulties in reaching agreement with foreign regulatory counterparts. An example has been the inability to share inspection information by various regulatory bodies.
Emerging and Continuing Accounting Challenges Many presenters discussed emerging and continuing accounting problems, and by implication, auditing challenges. Jason Flemmons of the SEC’s Division of Enforcement discussed use of assumptions and avoidance of “unintentional bias and intentional manipulation.” Beswick stressed the need to use well-reasoned assumptions and incorporating “current market data [and] considerations of the experts in industry…” By extension, the same approach should be used in the choice and application of all accounting judgments and to avoid a “checklist” mindset. In addition, the SEC reemphasized that it will continue to support the FASB in its standard setting and that the FASB must remain independent of political or industry influence—a reference to the recent banking crisis. Many SEC representatives discussed ongoing accounting issues. These include financial instruments disclosures, fair value applications, goodwill impairment, faulty revenue recognition, proper segment reporting, business combinations, and consolidations.
Financial Disclosures in Filings The SEC emphasized its upcoming core disclosure project and efforts to continue disclosure simplification. Registrants are encouraged to improve plain English utilization and avoid inconsistencies between Web site and earning releases versus the extensive disclosures in filings. The SEC emphasized that redundancy between footnotes and MD&A should be avoided. In other words, footnotes should focus on historical and current information, and MD&A should focus on
future information and management plans. MD&A may cross reference to footnotes when discussing many disclosure items rather than relying on repetition. Further, MD&A must increase explanation of “why” to support the quantitative data content. Meredith Cross, Director of the Division of Corporate Finance, also emphasized “the right disclosure, not more disclosure.” That is to say, quality should be added in place of sheer quantity of disclosure. Registrants were reminded that disclosure should be directed toward investors and not regulatory bodies. Cross also reported on the SEC’s current review of non-GAAP disclosures, which is a project to insure registrants are not misapplying interpretations. The concern is that the misinterpretations might result in withholding information from investors and that such information may be key to understanding financial results. A recent enforcement action further supports this advice.
Enforcement Activities Ponzi schemes have not been far from the public’s attention. Thus, the SEC has proposed stepped up examinations of investment advisors, improved procedures for following up on tips, plus the PCAOB’s recent inclusion of auditors of brokerdealers in its registration process (though not yet in the inspection process). Robert Khusami, new Director of Enforcement, further discussed the SEC’s planned scrutiny of boards of directors and audit committees for possible misconduct or absence of due diligence and care in overseeing accounting and audit matters. In addition, Mary Schapiro, SEC Chair, discussed the recent establishment of the Division of Risk, Strategy, and Financial Innovation (Risk Fin). She said that this “new division will enhance our capabilities and help identify developing risks and trends in the financial markets. By combining economic, financial, and legal analysis in a single group, this new unit will foster a fresh approach to exchanging ideas and upgrading agency expertise.” March/April 2010
SEC Resources Wayne Carnall, Chief Accountant of Corp Fin, and Angela Crane, Associate Chief Accountant. discussed resources available to registrants and auditors. During 2009, the SEC completed its goal of revising and updating its Financial Reporting Manual (formerly known as the SEC Staff Training Manual) and has made this resource available on its Web site. This invaluable document provides many internal interpretations of how to deal with a multitude of questions that frequently arise. Of special interest to auditors and registrants alike is the new section on independence. Crane described ways to obtain interpretive guidance from Corp Fin on accounting issues using the Corporation Finance Request Form for Interpretive Advice and Other Assistance (“Intake Form”) available on the SEC’s Web site. Requests may be made on a “no name” basis, and phone calls are acceptable. More formal written requests relative to pre-filing questions may be addressed to dcaoletters@ sec.gov. Such letters should clearly state the issue, relief sought, facts, supporting research, any unique circumstances, and possible alternative solutions. Carnall
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stressed that registrants should “make [their] last response [their] first response.” Both speakers strongly suggested that this advice should apply to SEC comment letters as well and that registrants should strive to avoid inefficient jousting efforts with the SEC staff that often result in unnecessary delays in issue resolution. More information can be found on the FASB, SEC, and PCAOB Web sites: sec.gov/news/ speech/2009; sec.gov/divisions/corpfin/ cffinancialreportingmanual; sec.gov/ rules/proposed/2009; pcaob.org/News_ and_Events/Events/2009/; pcaobus.org/ news_and_events/news/2009/. In addition, an AICPA presentation, SEC/PCAOB Conference Highlights Webcast, can be purchased at cpa2biz.com. s James M. Boak, CPA, is an audit partner with Eide Bailly LLP, Denver, and a member of the CSCPA Public Company Forum and Editorial Board. Contact him at jboak@eidebailly.com.
CPA Certificate Renewal Coming In April, the Colorado State Board of Accountancy will mail 2010 CPA certificate renewal forms to all Colorado CPAs. Now’s the time to check your address and ensure you receive your renewal form. Colorado rules require that the Board be notified, in writing, of a change of name or address within 30 days of the change, and it’s easy to accomplish. A change form is available, online, at dora.state.co.us/accountants. The deadline for renewing your certificate is May 31, 2010, and it’s necessary for all certificate holders, whether active, inactive, or retired. Avoid possible late fees, penalties, and extra work. Update your address information today, and renew your certificate as soon as you receive your renewal form.
www.cocpa.org
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The State of The Industry: Long Term Health Care and Financial Institutions By Natalie G. Rooney Throughout 2010, NewsAccount will be talking to CPAs from various industries that are an important part of the U.S. and Colorado economies to get their views on the “state of their industry.” What’s happening today? What factors will affect these industries over the course of the next 12 months? In this issue: Long term health care and financial institutions.
Long Term Health Care John Brammeier, CPA, FHFMA, Chief Financial Officer, Piñon Management Inc., Lakewood, CO
About The Organization Piñon Management operates 13 nursing homes and assisted living facilities, mostly skilled nursing facilities, in Colorado and New Mexico. We own some of the facilities and manage others. Additionally, we currently consult in 15 other skilled nursing facilities. Our company’s goal is to de-institutionalize elder care, making facilities less like a hospital and more like a home. We give people choices about when they eat, what they eat, when they go to bed and wake up, what activities they’d like to do, etc. We even work to accommodate people’s dogs so they are not giving up their pets to come to one of our facilities. The majority of our residents are on Medicaid so we have to be creative with our spending.
Describe the current state of the long term care industry. What challenges are you facing? We operate in a highly regulated environment. While these regulations are important to protecting the health and safety of our residents, the regulations can be cumbersome and operationally challenging. It’s also a highly litigious environment. The regulations are necessary and an important part of protecting people because of poor operators out there. Not adhering to the strict regulatory requirements can be costly to your reputation and also your financial operations. As an industry we’re facing an aging workforce; the average age of a registered nurse is approximately 50 years old. We continue to deal with a nursing labor shortage, which remains a national crisis, and it’s not getting any better. A major factor currently is the lack of clinical educators. The economic downturn has been challenging because of
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state and federal budget shortfalls, but in terms of lower paying labor, we have very few open positions. Our primary difficulties lie in finding enough professional nurses.
What challenges lie ahead over the next 12 months? What changes will we see? While a team of experts will oversee the regulatory guidelines, labor standards, immigration requirements, OSHA guidelines, compliance issues, etc., my ongoing role will be to focus on the financial concerns of the organization. Issues like reimbursement rules, billing requirements with Medicare and Medicaid, and managing the team that handles all of the federal billing guidelines are ongoing concerns. The government has created a complex billing system that requires highly trained staff. The rules aren’t straightforward and can be difficult to interpret. It’s imperative that we submit claims correctly. Incorrect claims can lead to delays in reimbursement, which can lead to problems when you’re trying to make payroll or pay vendors. If the government suspects fraud or abuse, it can lead to investigations that utilize significant time and resources to defend even with proper billing practices. One of the biggest concerns from the financial side is health care reform and state budget shortfalls because we still don’t know what our federal and state payments are going to look like next year. Internally, our health insurance premiums are going up significantly due to insurance premium increases each year. In terms of our residents, a majority of whom are on Medicaid, we’re basically receiving our allowable cost for reimbursement. That reimbursement doesn’t include taxes, some legal and shareholder services, marketing, etc. With costs going up and state and federal budgets being cut, our industry will be severely impacted in the coming years. It will require careful financial management to ensure we can provide the level of service we want for our residents utilizing our resources effectively. While the economy is improving, we’re not out of the woods yet. We continue to work to effectively manage every dollar in our homes, but we are working with people not widgets. We need to be thoughtful every time we need to reduce our costs. Proposed cuts to Medicare are troublesome. In 1998, the Balanced Budget Act changed nursing home reimbursement so drastically that one-third of homes went into Chapter 11.
We’re concerned about this happening again. Health care reform is needed, but it’s not a simple solution. Audits and cracking down on fraud and abuse are important, but they’re not going to save the billions of dollars needed. Changes to Medicare and Medicaid must be made with the frail and elderly in mind.
Is this a good time to be in the long term care industry? I do love what I do although it is very challenging profession. To me, it’s the value and purpose of the company I work for. We’re a mission-driven company that is driven by innovation and customer service that allows us our success in this challenging environment. As an industry, we need to ensure that we receive the funding necessary to take care of the frailest, weakest, and elderly in our communities. We cannot allow cuts to our reimbursement that would lead to harm for these residents. There are a great deal of challenges we face every year, but it’s an honor to serve these people in our community.
Financial Institutions Marc Hendrikson, CPA, CCIFP, Vice President, Commercial Lending, Citywide Banks, Aurora, CO
About The Organization We are a community bank in Denver. Founded as Aurora National Bank in 1963, we became Citywide Banks in the late 1990s. We have 13 branches that serve the Front Range business sector. Community banks fill an important void in lending to small businesses, which large banks are not as flexible with. We don’t operate under different standards, but the “box” we underwrite in isn’t as small or well-defined as it is in larger institutions. We can step in and sometimes be more creative with financing, working capital lines of credit, or capital when other banks say they don’t like what they see. We are smaller and locally based, so loan decisions are made in our office rather than sending a loan package away to be analyzed by someone who is unfamiliar with the customer.
Describe the current state of financial institutions. What challenges are you facing? Things are certainly better than they were in 2008 and 2009, which were difficult years, and we are seeing signs of improvement. One thing I often tell people is that the banks’ hangover tends to last longer during these March/April 2010
economic downturns. It takes a year to 18 months or longer after the rest of the economy begins to rebound until we feel good again. Many banks have returned to profitability or mitigated significant loan losses by raising capital. While there are still more challenges coming, I believe we’ve seen the worst of it. While things aren’t perfect, banks are better capitalized and generally feeling better about the overall environment.
What challenges lie ahead over the next 12 months? What changes will we see? One of the biggest challenges will be continuing loan losses, especially in the commercial real estate sector. Investment-owned properties continue to present challenges. The public and media have expressed frustration with banks for not lending. But banks need to show adequate reserves for loans that are distressed, even when a business hasn’t failed yet or a building is not totally vacant but is clearly “underwater.” In addition, in late 2006, the FDIC issued a guideline that banks could not lend more than 300 percent of their capital in the form of investment real estate and 100 percent in pure construction loans. Since community banks rely heavily on these types of loans to build their balance sheets, this rule has, in some cases, literally shut banks off, even if they weren’t experiencing heavy losses. As a result, some banks cannot lend at all until they get under that arbitrary 300 percent benchmark. So as a group, it’s not that we can’t lend at all, but we’ve been severely limited by the FDIC in that asset class. The result is, while we still have room to lend money, we’re being incredibly picky so as not to go over the FDIC limits. It’s certainly difficult for us, and it’s obviously difficult for companies and investors that need loans. When people ask why we’re not lending, my response is: We are lending, we’re just being very, very careful.
then, we feel that most of the declines in value have occurred. In terms of interest rates, as an industry, we need them to go up to ease shrinking margins, which are making it even more difficult for banks to absorb loan losses. When and by how much they’ll increase, we can’t predict. We are waiting to see what happens with fair value. It presents multiple issues. Fair value impacts us the most when the value of an asset drops suddenly. For example, if we have a $1 million building with a $750,000 loan against it and the building value drops to $750,000, we suddenly have a 100 percent fully leveraged asset that in theory we would have to reserve $250,000 against to bring in line with our margin and underwriting requirements. The regulators have indicated that as long as the investor is paying the bank, i.e. is current on the loan, we can “let it ride”—the regulators aren’t going to make us write that loan down. But in the old days, you might have had to. We’re definitely hoping that fair value and other accounting issues will positively impact us, but we are still uncertain in this regard. As fair value relates to exotic financial instruments, there is huge balance sheet and capital risk to banks, much of which is being addressed currently by an easing of the valuation rules—but this is much more a big bank issue. Finally, as it relates to balance sheet lending, there is much uncertainty, specifically related to the issuance of financial statements under Fair Value GAAP and how that might impact the assets that back working capital and equipment loans. Goodwill is another area that has hit banks hard. In the past, goodwill was amortized. Under the new rules, if goodwill is no longer worth what we think it was, we have to take the hit immediately, which again impacts capital. This has the potential for creating major losses,
heavily impacting our balance sheets on noncash related events, further perpetuating the capital erosion cycle in banks. All of these things combine to create a situation that makes lending difficult. It’s hard to convey that to the public.
Is this a good time to be in the banking industry? To me, it’s a phenomenal time. There’s so much to learn. It’s so scary, it’s exciting! And yet, we’re in the middle of it all. Banks, big or small, are the engines that drive a significant portion of overall economic activity. When everything gets cleaned up, the expansion in the industry will be incredible. As with everything in these difficult economic downturns, patience is important. The concept that banks should lend people or businesses out of their problems simply doesn’t work. Businesses and the people who run them need to work through their problems; then, we will work through the problems with them. Structural issues need to be addressed first. Get yourself positioned properly. Get profitable, and then the bank can work on restructuring debt. Rarely does loaning more money by itself solve problems. It’s tough medicine, but greatly needed advice. Money isn’t the gold that sits at Fort Knox. Money expands and contracts with the economy like any other commodity. As a result of the current downturn and elimination of significant non-bank lending sources, there simply is less money in the world than there was. As the economy strengthens, banks again will create money and thereby aid in expanding the economy. So, while it hasn’t been a particularly fun time to be in the industry, it is going to be very interesting as we move through this difficult time. Stay tuned!s
As for the regulatory environment, it will continue to morph. There is much discussion in Washington about combining regulatory agencies, streamlining the process, and making it more transparent. There hasn’t been a major restructuring event in the banking industry in this regard since the Depression, so the potential restructuring that’s currently being discussed is significant. However, this is all discussion only; we don’t know what changes, if any, there will be, so we are in a state of flux as an industry. One thing is for certain: the regulators are not going to back down from keeping a tight grip on banks for the foreseeable future. On the economy, we expect 2010 to be flat, but OK. The commercial real estate sector continues to be a question mark, but even March/April 2010
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Classified Advertising Office Space Executive Penthouse Office, Denver—Great penthouse for rent with amazing views of the front range. Convenient and central location on Colorado Blvd., modern office with access to full kitchen, garage parking, and conference room. $950 per month plus deposit. Move in immediately! Please contact Susanne: (303) 358-1702 or scrobertcpa@gmail.com.
Opportunities Well-established, full service CPA firm is seeking a tax and accounting practice to merge into our South Denver office. Will consider clients, owners, and staff into this very attractive office. Please reply with name and phone number to Box 375, Colorado Society of CPAs, 7979 E. Tufts Ave., Ste. 1000, Denver, CO 80237-2847.
Practices for Sale, Purchase, or Merger Fred Mehring, Select Business Group, Inc., specializes in the sale, merger, and acquisition of accounting and tax practices. Over 20 years of experience. Confidentiality stressed! Call Fred Mehring at (303) 771-3100; e-mail: fmehring@ selectbg.com, www.selectbg.com.
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Sole practitioner approaching 65 wants to sell part or all of practice located in SE Denver area. Compilations, tax returns, and consulting areas of practice with approx. $250K gross. Will remain as consultant. Respond to Box 374, Colorado Society of CPAs, 7979 E. Tufts Ave., Ste. 1000, Denver, CO 80237-2847.
In Memoriam We regret the loss of the
We sell practices! Confidential, professional, and stress free. Call for a FREE sales package and confidential consultation with our regional director, Rick Harrison, CPA, at (888) 295-3716 or www.prohorizons.com.
following CSCPA members.
Miscellaneous
Herbert R. Bigalk
CYMA IV Accounting for Windows. Advanced accounting features at an affordable price. Award-winning software features “non profit” and “for profit” editions. For a free demonstration, call Clay Williams, CPA, (303) 337-0607 or www.cyma.com. You already have a good practice—now make it great! It isn’t just adding more revenue. The real secret is to add more highly profitable, “A” level clients to your practice. Find out how at www.acctbizdevelopment.com.
We extend our sympathy to their families and friends.
Aurora, CO Member since 1963
Larry A. Hagen Evergreen, CO Member since 1963
March/April 2010
Colorado Society of Certified Public Accountants 7979 East Tufts Ave Suite 1000 Denver CO 80237-2847
Periodicals Postage
April CPE Courses Coming Your Way FASB Review for Industry
Annual Update for Controllers
Course #0121001
Course #0121021
April 19 Mark Dauberman, Instructor Update Level
April 21 Vincent Flynn, Instructor Update Level
Internal Control Essentials for Financial Managers, Accountants, and Auditors
Negotiating Skills for Financial Professionals: Get What You Want When You Want It
Course #0121011
Course #0121031
April 20 Mark Dauberman, Instructor Basic Level
April 22 Vincent Flynn, Instructor Intermediate Level
All courses will be held at the CSCPA Education Center, Denver, from 8:30 a.m. to 4:30 p.m. The course fee for each is $329 for CSCPA members and $470 for nonmembers. To register or for more information, go to cocpa.org, or call (303) 773-2788 or (800) 523-9082.