NewsAccount Colorado Society of CPAs
March/April 2012
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NewsAccount March/April 2012
Contents Features
} 2 Behind the Scenes
Chair Mike Bearup reflects on his year and the insights he’s gained from his time behind the curtain.
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Coming on Board Meet the new officers, directors, and Educational Foundation trustees who’ll take office, May 1, 2012.
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2012 Legislative Outlook
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CSCPA legislative counsel Danny Tomlinson provides insights on the issues and challenges the Colorado General Assembly faces this year.
CGMA: New Worldwide Designation AICPA president and CEO Barry Melancon and CIMA CEO Charles Tilley discuss the new Chartered Global Management Accountant designation.
Divorce: A Triple Threat Fran Coet and Jim TenBrook outline what CPAs need to know when advising clients going through divorce.
Departments
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Point/Counterpoint Movers & Shakers Classifieds
March/April 2012
www.cocpa.org
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News Account
Chair Column
A bi-monthly publication of the Colorado Society of Certified Public Accountants Vol. 57, No. 6 March | April 2012 Board of Directors Michael S. Bearup, Chair Scott E. Bush, Vice Chair Mark T. Solomon, Treasurer Sidny K. Zink, Immediate Past Chair Mary E. Medley, Secretary Directors Sheila M. Balzer, Steven R. Corder, Ben T. Hrouda, Gary L. Mitchell, Lori D. Nelson, Christine Riordan Editorial Board Jack Allgood, James M. Boak, Frances J. Coet, Kay R. Dragon, Deanna C. Duell, Jennifer Emerson, Mira J. Finé, Georgia Z. Phillips, Patrick A. Lytle, Mark Paller, Jennifer C. Pitkin, Tawyna Ramirez, 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 Krista Flynt, 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 802372847. 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 $9.90 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 NewsAccount is available in PDF format on line at www.cocpa.org.
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NewsAccount March/April 2012
Making a Difference Behind the Scenes By Mike Bearup, CPA
The past 12 months as CSCPA board chair have been an educational whirlwind, and I can’t begin to describe how much I’ve learned. Not only did I have the opportunity to travel around the state meeting CPAs from all areas of practice, but I also had the honor of acting as a representative for Colorado CPAs on the national level, attending AICPA Council meetings and playing a role in what I foresee to be a great future for our profession. The entire experience has been eye opening for many reasons — most of all over the course of the last year I have realized how lucky we are to live and practice in Colorado, regardless of whether we’re working for a Big 4 firm, a large corporation, a small practice, or in education or government. As I met with my fellow state society board chairs around the country and listened to the challenges they face, it really hit home that the things we’re accomplish-
ing in Colorado set us apart. The CSCPA is viewed as one of our nation’s premier state CPA societies. And that is due, in large part, to the work that our society does to establish strong relationships with all the constituencies important to our profession. For example, as an organization, the CSCPA, under CEO Mary Medley’s leadership, has established strong, trusted relationships with our regulators, legislators, and state officials to ensure that CPAs play a role in making Colorado a great place to do business, and that our input and expertise are added to the policy debate at just the right time. Relationships like these don’t happen overnight. Instead, it’s an ongoing process, cultivated by making phone calls, attending meetings, listening, and offering advice and guidance as needed. If it weren’t for the CSCPA team, CPAs would not have a consistent, resolution-focused relationship with the Colorado Department of Revenue
where we continue to push for changes that will improve Colorado’s business climate. The CSCPA is looking out for us while we’re busy with the day-today operations at our own organizations. I like to say that the CSCPA has our backs so we can go about our business. The team springs into action when needed, like the time well-intentioned Colorado lawmakers began to draft legislation to stop debt relief companies from accepting up-front payments. Recognizing this would affect CPAs working legitimately with individuals and companies going through a bankruptcy, the CSCPA team headed directly to the state capitol to help the Attorney General’s staff and legislators understand the unintended consequences of their approach. The result: CPAs were largely scoped out of the legislation resulting in a win-win scenario for Colorado citizens and CPAs. These are examples of the efforts that even I, having been actively involved with the CSCPA for many years, didn’t fully understand until I got a peek behind the curtain. So much goes on behind the scenes that we just don’t realize but benefit from every day. The work done by dedicated volunteers and the CSCPA staff brings value to us as CPAs and CSCPA members. Know that your CSCPA membership goes far beyond CPE, networking, and chapter meetings; CSCPA membership is a lifeline for all of us. I encourage you to get involved with the CSCPA this year — really connect into the organization — and see the true value of your membership dues. If you’re not plugged in, how will you know about opportunities like the AICPA’s new Chartered Global Management Accountant (CGMA) credential? See the article on page 10. This is one of the best things to happen to CPAs in industry in a long time. Are you ready to jump on board? Get involved so you can see firsthand how the CSCPA works for you. I have thoroughly enjoyed this past year. The CSCPA staff is a very special bunch of people; they work hard to deliver amazing member service. And as I traveled this year, I quickly came to realize the regard other state CPAs societies have for Colorado. It’s because of the unwavering commitment the CSCPA team has to offering the highest level of customer service and promoting our profession. Trust me when I tell you we are fortunate to have the leadership we do. So, to wrap up my last column, thank you to the CSCPA team and all of you who are helping to make our state a great place to live and work and our profession one in which we can all take pride. s Contact Bearup at mbearup@cocpa.org.
Movers & Shakers BKD promoted Robert Conner and Stephanie Schmuecker to manager. Scott Zarret, CPA, formed CPAwebengage, Inc., Denver, www.CPAwebengage.com.
CBIZ MHM, LLC and Mayer Hoffman McCann P.C. welcomed tax manager Steve Schnepel, senior associate Lana Ramirez, and tax associates Melody Kim and Brian Erickson to the Denver office. March/April 2012
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Leadership News
Coming on Board May, 1, 2012 Scott E. Bush Chair
Shareholder with Soukup Bush & Associates CPAs PC, Fort Collins, Bush received his BSBA in accounting from the University of Northern Colorado. A CPA and CSCPA member since 1991, he became a Certified Valuation Analyst in 1995. Bush is past president of the Northern Chapter, past Board of Directors member, past member of the Litigation Support Services Committee, and former treasurer and former member of the Audit and Investment committees. He chairs the Budget Committee and serves on the 2020 (strategic planning) Committee as well as on the CSCPA/CDOR Joint Task Force. Currently, Bush is vice chair of the Board. He also is a member of AICPA Council.
Marc C. Hendrikson
Lora L. Finley
Senior vice president with Citywide Banks, Aurora, Hendrikson received his BS and MBA from Regis University. He’s been a CSCPA member since 1994, a CPA since 2000, and a Certified Construction Industry Financial Professional since 2007. President of the Educational Foundation and Member Connections Committee member, Hendrikson has served on the Board of Directors, Audit Committee, and Small Business Committee. He chairs the Center for Financial Training Western States.
CFO for Johnson Capital Group, Denver, Finley earned her BS at Metropolitan State College of Denver. A CSCPA member since 1995 and a CPA since 1998, she is a past member of the Board of Directors and past chair of the Audit Committee. A past board member of the American Diabetes Association and past chair of the ADA Step Out Walk, Finley serves on the American Lung Association board.
Treasurer
Vice Chair
Peter J. Derschang Director CFO for Brakes Plus, Inc., Centennial, Derschang received his BS and MBA from the University of Denver. A CPA since 1986 and a CSCPA member since 1987, he currently chairs the CPE Board. Derschang is a past member of the Accounting Careers and Not-for-Profit committees.
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he 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 nonCPA “public” member. The Educational Foundation raises funds for scholarships to students pursuing accounting degrees at Colorado colleges and universities. The new officers, directors, and trustees will take office, May 1, 2012.
William C. Sanden Trustee
A shareholder in SSA, PC, Colorado Springs, Sanden earned his BSBA in accounting at Colorado State University. A CPA and CSCPA member since 1971, he currently serves on the CPE Board. Sanden is a past president of the Colorado Springs Chapter and former member of the Report Review, Peer Review, and Technical Standards committees. He has chaired the planning committees for the Asset Protection and Accounting and Auditing conferences. Sanden is a current director with the Colorado Educational and Cultural Facilities Authority.
Alicia J. Sweeney Trustee
An audit senior manager with Ernst & Young LLP, Denver, Sweeney received her Masters of Accountancy from the University of Denver. A CPA and CSCPA member since 2004, she is a past Board of Directors member, past chair of the Young Professionals Committee, and 2011 AICPA Leadership Academy graduate. She currently serves on the 2020 (strategic planning) Committee. Sweeney was named a 2011 Everyday Heroine and received the 2010 Beta Alpha Psi Alumna of the Year award from the DU School of Accountancy.
Debbi C. Warden
Mark T. Solomon
Director
Trustee
Owner of The Business Manager LLC, Greenwood Village, Warden received a BA from UCLA, a BS from Metropolitan State College of Denver, and an MS from the University of Colorado. A CSCPA member since 1993 and a CPA since 2005, she is a member of the Financial Literacy Committee and past member of the MAP Committee. She served on the Colorado State Board of Accountancy task force which helped to revise the CPE rules in 2009.
Vice president and controller for SM Energy Company, Denver, Solomon received his BS in accounting from Lipscomb University. A CPA since 1993 and a CSCPA member since 1995, he is a past Board of Directors member and currently serves as treasurer. Solomon is a past chair of the Audit Committee, member of the Public Company Forum and Investment Committee, and past member of the Editorial Board.
Carrie J. Bartow
Director
Senior manager with CliftonLarsonAllen LLP, Colorado Springs, Bartow earned her BS from Regis University. A CSCPA member since 2003 and a CPA since 2004, she currently is president of the Colorado Springs Chapter. A past member of the Governmental Conference planning committee, Bartow is a special reviewer for the Government Finance Officers Association Certificate of Excellence Program and a board member of the Colorado Springs Housing and Building Association. She received the 2010 Everyday Heroine award. March/April 2012
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Colorado General Assembly
2012 Legislative Outlook Editor’s Note: This excerpted preview of the 2012 Colorado General Assembly’s legislative session was prepared by Danny L. Tomlinson, Ed Bowditch, and George Dibble. To read the entire article, log on to www.cocpa.org. For information on the General Assembly, including legislator contact information, bills introduced, scheduled committee hearings, the deadline schedule, and links for listening to live audio broadcasts of the proceedings, go to the Colorado General Assembly home page at www.leg.state.co.us.
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he Second Regular Session of the 68th General Assembly of Colorado convened on Jan. 11, 2012, despite freezing, snowy weather and treacherous driving conditions. Per the state Constitution, the Legislature will meet for no more than 120 days, with adjournment sine die occurring not later than midnight, May 9, 2012. The session will take place against the backdrop of the upcoming 2012 elections. Colorado Gov. John Hickenlooper will remain in office as his term runs through 2014. In the Legislature, all 65 House seats will be up for election, with the Republicans trying to protect their 3332 majority. In the Senate, half the seats will be up, and the Democrats will be trying to protect their 20-15 majority. With legislators running in new seats because of term limits and reapportionment and with Colorado considered a “swing state” in the national election, 2012 will be a busy year.
Legislative Changes The 2012 elections will see races that feature newly redrawn House and Senate district boundaries. • Senators Keith King (R-Colorado Springs) and Joyce Foster (D-Denver) and Representatives Jon Becker (R-Fort Morgan), Don Beezley (R-Broomfield), Edward Casso (D-Adams County), Keith Swerdfeger (R-Pueblo West), Glen Vaad (RGreeley), and Roger Wilson (D-Glenwood
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Springs) have announced they will not run for reelection. • Democratic Representative Andy Kerr and Republican Ken Summers, both of Lakewood, will leave the House and run for an open Senate seat. • Republican Representatives Brian DelGrosso and B.J. Nikkel of Loveland were put in the same district. Neither has announced plans; we may see a Republican primary. • Republican House Majority Leader Amy Stephens and Representative Marsha Looper were put in the same district and will run against each other in the primary. A retired Air Force General contemplated running in the Republican primary as well but has withdrawn. • House Republican Randy Baumgardner will challenge Senator Jean White in a primary for a state Senate seat. • A House district vacancy committee named Jonathan Singer (D-Boulder) to fill the remainder of Boulder Democrat Deb Gardner’s term as she was appointed to fill a vacancy as a Boulder County Commissioner. • Republican Senator Tim Neville, appointed earlier this year to fill the unexpired term of Mike Kopp, will lose his seat after 2012 because his home has been moved into the district of Senator Jean Nicholson, who is not required to run for reelection until 2014. At least four legislators say they’re running for Congress in 2012. Senate President Brandon Shaffer is running against Congressman Cory Gardner in the 4th Congressional District (CD). President Shaffer has indicated that he intends to remain in his leadership position. Representative Sal Pace is running against Congressman Scott Tipton in the 3rd CD, and Representative Joe Miklosi is running against Congressman Mike Coffman in the 6th CD. Senator Kevin Lundberg has announced that he will challenge 2nd CD Congressman Jared Polis. Due to term limits, 2012 will be the last term for Senators Bob Bacon (D), Betty Boyd (D), Shawn Mitchell (R), Nancy Spence (R),
Suzanne Williams (D), and Representatives Jim Kerr (R), Tom Massey (R), Wes McKinley (D), Judy Solano (D), and John Soper (D). Representatives David Balmer (R), Larry Liston (R), and Nancy Todd (D) are in their final terms in the House, and all are running for open Senate seats. With regard to legislative leadership, Republican leadership in the House did not change. Frank McNulty (R-Highlands Ranch) is Speaker, and Amy Stephens (R-Monument) is Majority Leader. Representative Mark Ferrandino (D-Denver) was elected Minority Leader to replace Representative Sal Pace, who is keeping his seat but resigned from leadership to focus on his Congressional race. In the Senate, Democratic leadership did not change. Brandon Shaffer (D-Longmont) and John Morse (D-Colorado Springs) are President and Majority Leader, respectively. Senator Bill Cadman (R-Colorado Springs) was elected Minority Leader to replace Senator Mike Kopp.
The Governor’s Agenda Gov. John Hickenlooper’s legislative agenda was limited during the 2011 session, but it’s likely we will see more initiatives in the 2012 session. On Jan. 9, 2012, he “...unveiled recommendations to reduce government “red tape” and regulatory inefficiencies based on feedback from more than 100 business organizations, local governments, advocacy, and community groups statewide.” Read the report, Cutting Red Tape in Colorado — Making Government More Efficient, Effective, and Elegant, at http://tinyurl.com/redtapereport.
Ballot Initiatives Already, we’ve heard of proposals regarding the establishment of “personhood”; limitations on water diversion and use of Colorado streams; and establishment of “Colorado Peace Day.” Any initiative will require the signatures
of about 86,000 registered voters to qualify, and five to ten measures likely will make it onto the November 2012 ballot. Supporters of an initiative to legalize limited possession of marijuana for recreational purposes have turned in about 160,000 signatures to the Secretary of State.
Major Issues for 2012 As was the case in 2011, the condition of the state’s budget will be the most important and time-consuming issue the General Assembly will address this year. The Joint Budget Committee (JBC) started its budget deliberations last November; it continues its work to develop the FY 2012-13 budget (“Long Bill”) for introduction on March 26, 2012.
General Fund Revenues Colorado has more people, more K-12 students, more college students, more prisoners, and twice the number of Medicaid recipients than the state had ten years ago yet the General Fund (GF) has only increased by 8.1 percent. The General Fund is composed of two primary sources: personal income tax (about two-thirds) and state sales tax (about one-third). During periods of high unemployment, both these revenue sources tend to be negatively impacted, meaning fewer dollars coming into the GF. The Legislature recently received the December Quarterly Economic and Revenue Fore-
cast from Legislative Council and the Governor’s Office of State Planning and Budgeting (OSPB). The Legislative Council report indicated, “The economy has stabilized and continues to expand at a modest pace. Although the business climate continues to improve, job growth is being restrained by weakness in the real estate and financial markets, slow wage growth, higher commodity prices, and general uncertainty about the direction of the economy. The greatest risk to the forecast is the European debt crisis and its potential impact on the U.S. and global financial markets.” The Legislature monitors GF revenues and will receive the next quarterly forecast on March 20, 2012. The JBC traditionally uses the March 20 revenue forecasts to finalize the Long Bill for introduction.
FY 2012-13 Budget The Governor delivered his budget request for 2012-13 on Nov. 1, 2011. On Jan. 3, 2012, he submitted amendments to it which include transfer of $107 million to the State Education Fund in FY 2011-12; withdrawal of a proposed reduction in K-12 funding of $67 million for FY 2012-13; withdrawal of the proposed reduction of $30 million in higher education financial-aid programs; an additional $8 million in assistance for low-income seniors, while continuing the suspension of the Senior Homestead Exemption; and an increase of $10 million to Severance Tax Trust Fund
grants. These amendments are indicative of the negotiating points we likely will see discussed in the coming months as the budget is drafted. Colorado operates on an annual budget cycle. Because of this, it is often difficult to focus on some of the long-term (or even medium-term) budget challenges. Key state budget questions include: Higher Education Funding: In his November 2011 budget request, Gov. Hickenlooper requested a $30 million cut in the higher education operating budget and another cut of $30 million to financial aid. Although he withdrew his proposed reduction to financial aid, the $30 million operating budget reduction remains and continues the steep decline in higher education funding. This decline has resulted in substantial tuition hikes for almost all institutions — just to “keep the doors open.” Higher Education is the only portion of state government that operates in a nationally competitive environment — and the declines in state support will hurt Colorado’s ability to hire top faculty and recruit top students. In addition, the increase in tuition may deter many low- and mediumincome individuals from attending college. Note that enrollment in Colorado colleges and universities is up 35% in ten years. Medicaid: Colorado’s Medicaid program continues to increase at a significant rate (up 114% in the last ten years). In FY 2010-11, the number of individuals served increased by 57,000, or approximately 5,000 new Medicaid recipients per month. At the Jan. 4, 2012, JBC hearing on the Department of Health Care Policy and Financing, executive director Sue Birch stated that there were 614,146 Coloradans enrolled in Medicaid in November 2011, a 57.7% increase over January 2007 and an all-time high. The program faces an uncertain future as long as policy disagreements continue regarding federal health insurance. What is known, however, is that Medicaid continues to take an ever-larger share of the state budget. Nearly 33% of the state’s 201112 General Fund appropriations will go to health care and human services. Republican legislators have suggested that the state should request waivers from the federal government on certain Medicaid programs, but specific program waivers have not been identified. Gov. Hickenlooper maintains Medicaid
2012 Outlook March/April 2012
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www.cocpa.org
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Risk Management
Practice Considerations Related to Medical Marijuana Clients By: Anthony Cooper, JD, MBT, and Randy Werner, JD, LLM/Tax, CPA
Despite the federal ban on the substance, a growing number of states have continued to legalize the use of medical marijuana. Consequently, entities engaged in growing, supplying, and selling medical marijuana are starting to seek professional assistance related to tax preparation, accounting, attest, and/or financial services. Before accepting such an engagement, CPAs should carefully consider whether these prospective clients would be a good fit for their firm.
Legal/Regulatory Update As of September 2011, in addition to Washington, D.C., a total of sixteen states have legalized medical marijuana (Alaska, Arizona, California, Colorado, Hawaii, Maine, Michigan, Montana, Nevada, New Jersey, New Mexico, Oregon, Rhode Island, Vermont, Virginia, and Washington). However, federal law supersedes state law, and marijuana is still considered an illegal substance as defined by the federal Controlled Substances Act (CSA). This is true even where it is prescribed as part of a treatment regimen by a licensed physician. Initially, federal prosecutors were advised in a memorandum by the Deputy Attorney General to “not focus federal resources in [their] states on individuals whose actions are in clear and unambiguous compliance with existing state laws providing for the medical use of marijuana.” See the U.S. Department of Justice memorandum to federal prosecutors at www.justice.gov/opa/ documents/medical-marijuana.pdf. In a follow-up memorandum prepared to clarify its position, the Department of Justice stated that “[s]tate laws or local ordinances are not a defense to civil or criminal enforcement of federal law with respect to such conduct, including enforcement of the CSA. In addition, those who engage in transactions involving the proceeds of such activity may be in violation of federal mon-
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NewsAccount March/April 2012
ey laundering statutes and other federal financial laws.” For purposes of federal income tax, there is pending legislation that would put businesses that dispense medical marijuana on the same footing as other small businesses by allowing business expenses as a deduction. See HR 1978. A separate bill pending before the House would reduce the risk of federal prosecution for individuals and entities acting in compliance with state laws. See HR 283. As with most pending legislation, the fate of these bills is uncertain.
Is This a Client the Firm Would Like to Have? A variety of factors need to be considered in answering this question, ranging from the client’s reputation and integrity to its commitment to appropriate accounting practices and internal controls. Analyze the risks posed by the client by “thinking backwards through time,” a concept that helps to promote a better, more in-depth analysis of new client acceptance and review of relationships with continuing clients. In these analyses and reviews, you project the adverse situations that could develop in the future while representing the client. You then decide what, if any, decisions or choices can be made now to mitigate the potential damages to your firm in the event of such adverse developments. For example, spend time to evaluate and think about any potential damage to your firm’s reputation by being associated with a medical marijuana client. What if the client becomes the target of a federal investigation or prosecution, and the association between the client and the firm becomes public? Would your potential or existing clients view this association in a negative light, despite its legality at the state level? Federal investigation can come from several different agencies including the fed-
eral Drug Enforcement Administration, the Department of Justice, and the Internal Revenue Service. If this occurs, your firm may be subpoenaed for documents and/or depositions for testimonies. Many states do not allow dispensaries to operate “for profit.” Given that the accountant-client privilege is limited and does not cover information obtained in providing tax compliance services, have you thought ahead about what your firm would do if a client discloses something to you that could prove damaging if revealed to a regulatory body? What can you do, or should you do, now to mitigate the potential exposures to your firm if that were to occur? For example, you may want to clearly define in your engagement letter the limitations of the accountant-client privilege, as well as to specify the conditions under which you will need to fully disclose information to regulatory and/or legal bodies. Also, it may be beneficial to include in your engagement letters your billing policies and clarify that clients would be responsible for your fees and reasonable copy charges if such subpoenas or depositions are forthcoming. The business implications of rendering services to medical marijuana clients are significant aspects to your client screening assessment. Remember, there are high-risk clients and high-risk engagements. Some CPAs rank their clients according to how cooperative, knowledgeable, reasonable, difficult, or time-consuming they are. Engagements can be ranked as well by the complexity of the work. Don’t forget to include the “reputational” implications to your firm. Generally, difficult clients with complex work pose the highest risk to the CPA firm from a technical perspective. Clients that could pose significant harm to your firm’s reputation are also of great risk from a business perspective. A CPA firm presented with opportunities to take on medical marijuana clients should consider the following client screening measures:
• Situational proficiency: What are your firm’s skills and experience relative to professional standards, the complexity of your clients’ businesses, and the types of services you are asked to provide? Proficiency addresses the fit between the CPA firm and the situation, not just the technical aspects. • Discuss the potential legal ramifications to the firm with the firm’s attorney.
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waivers are not allowable by the federal government. Education: The ruling by District Court Judge Sheila Rappaport in Lobato v. State of Colorado — that the state is out of compliance with the “thorough and uniform” requirement of the Colorado Constitution — is being appealed. The judge stayed her ruling until the end of the 2012 session, so the Legislature doesn’t have to respond yet. Unless the case is overturned by the Supreme Court, the ruling raises many policy questions: • Will the state ultimately have to find more money for K-12 Education? It now accounts for 40% of all General Fund appropriations. • Will the state attempt to establish new revenue for K-12 education through a tax increase? If the voters reject the proposed tax increase, how will the courts respond?
• Discuss the illegal activities with those charged with governance of the client, and memorialize those discussions in writing. In summary, your firm’s client screening and retention policy should be able to clarify and address your firm’s risk tolerance for providing services to medical marijuana clients. Clearly, a “mismatch” in client/firm fit can spell trouble and possibly expose your
Parks). In addition, the state has substantially reduced funding for K-12 education and higher education — in spite of increased enrollment. One could say that these decisions reflect priorities and the tough choices that have to be made in tough economic times. But the continuing reductions to higher education, combined with the continuing budget strain of Medicaid, leads to a question of budget adequacy: Is Colorado’s current tax structure — 2.9 percent sales tax and 4.63 percent income tax — sufficient to provide necessary state services? Should Colorado work towards a new taxing system that would be less cyclical?
Economic Development and the Economy The highest priority for Gov. Hickenlooper, our 100 legislators, and nearly every other public policy maker in Colorado is the creation and retention of good jobs for Coloradans.
firm to reputational damage, disputes, and even possible lawsuits. For additional information on addressing the professional standards for providing attest services to medical marijuana clients, refer to Providing CPA Services to Medical Marijuana Clients by Duncan B. Will, CPA/ABV/CFF, CFE, published on page ten of the May/June 2010 issue of NewsAccount. s
With unemployment hovering near 8% of the workforce and the state’s economy slowly recovering, this properly is the highest priority in the coming session. Proposed legislation has been or will be introduced to address the effectiveness of enterprise zones and to limit the maximum amount of EZ tax credits a taxpayer (company) could claim in a tax year; calls for regulatory analysis of proposed rule changes on private businesses; requires predictability in regulatory rule-making while permits are being considered; creates “HIRE” Colorado, which would grant preference to companies that hire Colorado residents; and focuses on broadband deployment; a tech transfer grant program; increased funding for small business development centers; a program to align college students with available jobs, and many more. These are a sample of the issues which will make for a most interesting legislative session. Visit www.lobbycolorado.com for more information as the session progresses. s
• Is a proposed solution a dedicated revenue stream or more comprehensive Constitutional reform? • What is the role of the local (property tax) share of K-12 education? The drop in residential and commercial real estate values exacerbates this. • Are local mill levy overrides part of the problem (by creating funding disparities) or part of a solution — by potentially providing additional funds if passed by voters? • What is the timing to resolve these questions? Overall Budget Adequacy: Over the last ten years, Colorado has eliminated, reduced, or refinanced several state-funded programs (e.g. state merit-based aid in higher education, state funding for the Division of March/April 2012
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Creating a New Worldwide Designation Q&A with Barry C. Melancon, CPA, CGMA and Charles Tilley, FCMA, CGMA
A
new designation, the Chartered Global Management Accountant (CGMA), was launched around the world, on Jan. 31, 2012, through a joint venture of the American Institute of CPAs (AICPA) and the Chartered Institute of Management Accountants (CIMA). The CGMA is a new global designation that recognizes CPAs working in a range of management accounting roles in businesses, industries, and governments worldwide. Those with the new designation play a critical role in helping organizations of all sizes achieve sustainable business success. Management accountants, in today’s ever-more complex business environment, have greatly expanded their roles as business partners and must have the ability to synthesize and interpret a wide range of non-financial and financial information. The CGMA signals to employers that the designee has built upon core financial expertise and business acumen and is committed to continually developing his or her management accounting competencies. CGMA designation holders have access to a new, resource-rich website, www.cgma. org, featuring a global online community of peers, thought leadership papers, practical business tools, CGMA Magazine and Newsletter, and other resources to help them stay up-to-date on important professional issues, drive critical business decisions at their organizations, and chart the best course to meet their professional objectives. AICPA President and CEO Barry Melancon, CPA, CGMA, and CIMA chief execu-
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tive Charles Tilley, FCMA, CGMA — a former London partner of KPMG and Group Finance Director of investment banks Hambros PLC and Granville Baird — discussed the new designation, its development, and the role of management accountants in the following interview. Why have the AICPA and CIMA created the CGMA designation? Melancon: Combining the AICPA’s expertise with CIMA’s more than 90 years of management accounting leadership is an effective way to create value for our members. For our 140,000-plus members who work in business, industry, and government, the CGMA will complement their U.S. CPA and will elevate their value to their employers. The CGMA is poised to be the global designation for management accounting, and this joint venture with CIMA further enhances the position of the U.S. CPA as a worldwide leader. Tilley: We are here to help people and organizations be successful by creating a global standard for management accountants. At the same time we’re bringing our resources together — our intellectual property and our people, and I’m quite convinced that one plus one will equal more than two. What we’re doing is bringing together two large communities of people — CIMA’S 183,000 members and students and the AICPA’s collective 370,000 members — together, we are over half a million professionals focused upon driving successful organizations.
AICPA members are particularly interested in the AICPA’s advocacy efforts. Can you talk about how advocacy plays into the AICPA-CIMA joint venture? Melancon: The AICPA and the state CPA societies have been extraordinarily effective in influencing legislation on both the state and federal levels. We want to extend our impact even further. Increasingly, international rule-makers and regulators have an indirect impact on the U.S. This was most recently evidenced by the PCAOB’s concept release which, if adopted, would mandate auditor rotation. That issue was also raised last year by the European Commission. In such areas and so many more, the U.S. CPA will benefit by the joint venture leveraging AICPA’s and CIMA’s combined global footprint to advocate for and on behalf of the U.S. CPA anywhere in the world as well as on key public interest issues. Through the combined voice of the world’s two leading accountancy organizations, we will have an important voice on the global stage to proactively address the critical issues for our profession and the public. What would you say to both CIMA members and CPAs in management accounting about why they should pursue the CGMA designation? Tilley: When you have the CGMA designation, you are telling your employer and others that you understand the language of business from multiple perspectives and know how to connect the dots like no other
financial professional. For those of us elsewhere in the accounting world, we know that as a U.S. CPA you will have committed to developing and maintaining your skills, your ethical standards, and your integrity. The CGMA will expand these to include the additional and specialized skills and standards you need in business, industry, and government and will show that you are an experienced business partner who can help drive organizational success. Melancon: We envision the CGMA as a designation — and an individual — that remains focused on a constantly changing world. Demographers tell us that young professionals, particularly in developed economies, will have multiple careers and different opportunities in their lives. For some it will be physical relocation and for others changes in job classification. For our young professionals now in business, industry, or government, or who start their careers in public practice, this is a designation that will evolve with them, creating value for them and their employers and, ultimately, creating value for the people who use the services CGMAs provide. For CPAs in business and industry who for years have asked for additional support in underscoring their value and contribution in the business world, this designation and its associated resources is a long-sought solution.
trusted information and thinking into that process. The future is you — the trusted business strategist — being recognized for your ability to look critically at opportunities, to think differently and broadly, and who brings discipline, ethics, commitment, and competencies to that decision-making table. Tilley: Success means widespread recognition of the value of management accounting. So many organizations have made poor decisions, mainly through a lack of information, analysis, or proper thought. Management accounting ensures that external and internal data are complete and properly analyzed; ensuring that management and the boards can make decisions based upon a complete set of information. We envision more organizations, both in the private and in the public sector, recognizing the value of management accounting, what it brings to the quality of their decision-making, and of their governance and oversight. As a benefit of the CGMA, the world will have better-run organizations in both the private and the public sectors. The CGMA is available to qualifying AICPA members. Members of the CSCPA who are also members of the AICPA can save $50 off the annual CGMA registration fee. For more information, visit www.cgma.org.s
How will businesses benefit from the CGMA?
CGMA CASE sTUDIES
Tilley: These days, it doesn’t matter if yours is the smallest organization in the world, you can still be selling anywhere else in the world through the Internet. As a result, global standards and principles are really important. Through CGMA, we’re offering global recognition of a standard of management accounting, a standard of our members’ skills and expertise. A number of CIMA case studies make it clear that this is what employers want. For example, Shell wants a global standard so that when it moves its management accountants around the world, those people have the same skills and standards. The CGMA proposition includes a virtual network where people can share problems and issues. The best people to answer your problems are people who have done the same thing and have managed to crack that particular problem. Melancon: The role of the management accountant is frequently underestimated; it is much more than a simple accounting commodity. Management accountants can be found at every level of an organization and are at the center of a forward-looking discipline combining both accounting and business expertise. The CGMA is a single designation that benefits large and small, public and private employers across the globe. Business owners and decision makers will confidently recognize the CPA-CGMA designation holder as a highly skilled business strategist who can be trusted to guide critical business decisions and drive strong and sustainable performance anywhere in the world. What is your vision of the future for the CGMA, and what does success look like? Melancon: We say the CPA is the trusted business advisor, and 50 percent of the CPA population works in business, industry, and government. Some of them are in the C-suite, but even if they’re not, a very important aspect of their skill set is being at the decision-making table. We see a group of people who bring
March/April 2012
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Advising Clients in Divorce
A Triple Threat of Emotions, Finances, and Property Divorce is difficult no matter how you look at it. Many considerations come into play, and mistakes can lead to long-term financial implications for involved parties. Frances J. Coet, CPA, CFF, CVA, CFP, CFFA, shareholder of Coet 2 Coet CPAs PC in Westminster, says she focuses on a solutions-based approach to a tax and financial quagmire. “We want the best possible outcome for our clients, both emotionally and financially,” she says. “We don’t want the IRS or the State of Colorado to be the inadvertent beneficiary of our clients’ marital dissolution.”
What CPAs Need to Know Coet advises that as a CPA assisting a client with marital dissolution, you must: • Understand the tax ramifications of the property settlement, • Understand the tax consequences of the physical custodial relationship of parents and their dependent children, and • Recognize the other tax and financial issues that will cause problems for your clients in the current and future years. In addition, be sure to understand the laws specific to the state in which your client is getting the divorce, as laws vary by state. Be aware that some states — Colorado is not one of them — have community property laws.
The Proper Filing Status As a first step, you need to determine your client’s filing status: married filing jointly, married filing separately, single, head of household, or qualifying widow or widower. Filing status is determined as of the last day of the tax year. Know the caveats of each filing status to determine which is appropriate for your client. If there is no final decree of dissolution or legal separation by the end of the tax year, the couple may not cohabitate at any time in the last six months of the tax year, and each must have either a qualifying child or dependent parent for each of the couple to qualify as head of household.
The Issue of Dependents Dependent children add a twist to tax considerations during a divorce. Each dependent provides the taxpayer an immediate subtraction from taxable income of several thousand dollars. But the tax break is allowed only if the dependent meets IRS eligibility requirements, and those could change during and post-divorce. When several children are involved, divorced parents sometimes split the dependent exemptions, but this isn’t always the smartest move. If one spouse’s income is substantially higher than the other spouse’s income, for example, each ex-spouse will be worse off because they will have missed a chance to maximize tax savings. Coet says the IRS is taking a hard line on which parent is taking the exemption and will not allow the divorce decree or separation agreement to be used for divorces after 2008 as a substitute for Form 8332, Release/ Revocation of Release of Claim to Exemption for Child by Custodial Parent.
Determining Maintenance Maintenance is alimony which, for tax purposes, is the payment to or for a spouse under a marital dissolution, divorce, or separation instrument. The agreement must be
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in writing and involves specific rules for the payment of maintenance to be deductible by the payer and taxable to the recipient: • The payment must be in cash, not inkind. • The agreement must be in writing but does not have to be a court order. (See Grosjean, a 2011 Colorado Tax Court case.) • The written instrument must not designate the payments as not being maintenance (i.e., a waiver). • Spouses cannot cohabitate in the same dwelling beyond a thirty-day transition period. • There can be no liability to make payments after the death of the recipient spouse. • The payment cannot be “disguised” child support. • Your client and his or her spouse must not file a joint return. The laws regarding determination of maintenance vary by state. Attempts to classify a property settlement as maintenance can be thwarted by the front-loading (threeyear look-back) rule. James R. TenBrook, CPA, ABV, CVA, PFS, CFF, partner at Karsh Consulting PC in Denver, advises CPAs to be sure they’re aware of the tax treatment of maintenance. “If you don’t practice in this area, you might not understand that there could be a recapture consequence to the client during the first three years after divorce.”
Qualified Domestic Relations Orders A Qualified Domestic Relations Order (QDRO) is a court order issued pursuant to a divorce or legal separation that splits and changes ownership of a qualified retirement plan to give the divorced spouse his or her share of the asset or pension plan. Not moving retirement funds properly can have immediate tax consequences and long-term retirement planning implications.
TenBrook says he sees a lot of issues arise when QDROs are not prepared properly, and retirement funds are not handled properly. “If you’re transferring a qualified retirement account pursuant to a divorce, ERISA laws come into play, and the parties need to have a QDRO prepared,” he says. CPAs also need to know what’s required in connection with transferring IRAs (which are not “qualified retirement accounts”) between soon-to-be exspouses because there are significant penalties if you don’t follow the rules.
Principal Residence Deciding who gets the principal residence can carry nearly as much emotion as making decisions about dependents — people become emotionally attached to their home, and they often want to hang onto it to minimize the impact on children, etc. Historically, if one spouse wanted to keep the house, that spouse could refinance and buy out the other spouse’s equity. If neither of them wanted to stay in the home, it usually could be sold at a price close to their expectations within a few months, almost always without a tax issue. But the housing and refinance market over the past few years has changed this situation. The personal residence has become more of a toxic asset. Analysis will be required to determine what the best alternative is in a given situation. Currently, a couple may exclude gain of up to $500,000 on the sale of their main home if each of the following is met: • The ownership test • The use test, and • During the two-year period ending on the date of the sale of the principal residence, the spouse or former spouse did not exclude gain from the sale of another home.
Cancellation of Debt Income Coet says many clients will be shocked to hear they may have to pay tax on cancelled debts. Currently, there is an exemption for debt on the marital residence, but this exemption extends only through 2012. Other types of debt which are taxable when cancelled are credit cards, car loans, and student loans (with exceptions). The client may qualify for exclusions for debt discharged in a bankruptcy action under Title 11 or when the taxpayer is in-
solvent outside bankruptcy. The determination of COD and any exclusions require careful consideration.
The Year of Divorce and Beyond The divorce is final, but the financial implications will linger on. Responsibility for the payment of credit card debt or the payment of a car loan may be allocated to a particular party by the court, but the lender is not a party to the court order. If the party assigned the payment responsibility fails to perform on the debt, and if the debt was a joint debt, the only recourse for the spouse who was not relegated the responsibility for the payment is to go back to court. In the meantime, the credit score of the “non-responsible” spouse is impacted by the financial irresponsibility of the other. In the current credit environment, credit card companies and other lenders won’t release ANY responsible party if there is an outstanding liability on a joint debt. If at all possible, the debt should be paid off in total prior to the divorce (even if it’s replaced with individual debt), and the credit card or line of credit must be closed to prevent additional joint debt. • Capital loss carry forwards will follow the spouse who generated the loss and cannot be assigned by the court. • Passive loss activity suspended losses are not released as part of the property division. They become a basis adjustment to the spouse who receives the passive activity in the divorce. The basis adjustment — in part — may be depreciated over the asset’s appropriate life. This is an adverse consequence to the taxpayer, as it converts a potentially ordinary loss to a capital asset. • Re charitable contributions carry forwards, the spouse who made the contributions is the spouse who may carry the contributions forward. • Other items that require special attention in the Decree of Dissolution or Settlement Agreement are adoption credit carry forwards, alternative minimum tax carry forwards, and net operating loss carry forwards.
The Role of Forensic Accounting and Valuation When one party in a divorce is taking steps to hide income or assets from the other party,
TenBrook is called upon to give expert testimony regarding the valuation of a business, income determination, and tracing of assets. His first meetings are usually between a client and his or her attorney to discuss and identify the parties’ assets and liabilities. “We need to see what the marital estate looks like,” he says. By examining five years of financial and tax return data, TenBrook says he usually can determine whether or not forensic accounting will be required. “If someone is planning a divorce, it’s usually a two- or three-year process before he or she actually files.” TenBrook encourages CPAs who want to practice in the divorce area to have experience in personal financial planning. “It’s helpful in the division of assets and the determination and projection of income,” he says, adding that the additional skills are important because in divorce cases, you’re not just dealing with taxes.
Avoiding Conflicts of Interest Coet reminds CPAs working with divorcing clients to be wary of conflicts of interest, referring CPAs involved in divorce cases to the mandates in the August 2011 revision of Circular 230, Regulations Governing Practice before the Internal Revenue Service. Using the CPA who has prepared the parties’ tax returns in the past or the CPA for any businesses the parties own is usually not a good idea if it is a complex marital estate. TenBrook says if the parties end up in court, you can expect the first question from the disgruntled spouse’s attorney to the CPA to be, “Who is your client after the divorce is over?” s March/April 2012
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Partnering in Financial Services
Collaborating with Financial Advisors a Growing Trend by Chad Greenberg, CPA/PFS and Karl Frank MA, MBA, MSF
E
ven in a difficult economic environment, CPAs continue to find ways to deliver additional value to their clients. CPA firms providing financial services either bring the model inside the firm (internal), exclusively refer out the services (external), or use a collaborative approach. Today, approximately 33 percent of firms provide their financial services and products using the internal approach, through one or more employees or partners inside the firm. In stark contrast, in 2004, 55.4 percent of firms provided financial services in-house. Perhaps the 2008 stock market crash and associated stress caused many CPA firms to reconsider the internal approach. This might lead some to believe the external approach would be more appealing, yet only one percent of firms who provided financial services did so exclusively through outside partners, down from 44.6 percent of firms in 2004. Today, the most popular way for CPAs to deliver financial services is through collaboration. More than 65 percent of surveyed CPAs use the collaborative model. The CPA provides financial services and products through employees or partners and through financial advisors outside the firm. The financial advisor takes the fiduciary risk, and the CPA and advisor grow their businesses together. Using collaboration, the CPA must choose whether to partner with an investment generalist or a wealth manager. The investment generalist offers a broad range of financial products and services without specialization and generally takes a transactional approach to business. Wealth managers take a consultative approach, focusing on establishing and fostering close long-term relationships with their clients and their clients’ other professional advisors in order to fully understand and address their clients’ most important financial concerns. Today, two-thirds of CPAs providing financial services use a wealth management approach — a stark contrast with the finan-
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cial advising industry. Accountants are the trusted advisors for their clients, and the consultative approach used by the wealth manager comes naturally to them. Furthermore, the wealth manager compensation model is closely aligned with the CPA’s values and traditional compensation. By far the largest source of revenue for accounting firms providing financial services is recurring assets under management based fees. Of the additional revenue, 84.2 percent comes from assets under management (AUM). In Colorado, CPAs are able to register with the state and receive AUM fees. Of note, 91 percent of CPAs providing financial services are registered as Investment Advisor Representatives, 41 percent are affiliated with a broker dealer, and very few have a life insurance license. Collaboration requires a close affinity in business values, work ethic, and clientele. Success factors include committing the resources to the financial services practice; 91 percent of collaborative firms say this is the most important key to their success. Another important element is having partners identify prospects for the financial services practice and being able to access financial service professionals on a case-by-case basis. The range of services offered by CPAs providing financial services is growing. It’s more than just providing mutual funds, ETFs, and individual securities. Today’s accounting firms provide 529 plans, managed accounts, life insurance, variable annuities, selected private money managers, derivative transactions, deferred compensation programs, hedge funds and hedge fund-offunds, long-term care insurance, private equity investments or private equity funds, and some even provide health insurance. It’s no wonder that the collaborative approach with experts is growing in popularity for today’s CPA firms — the range of products is vast. Collaboration between CPAs and financial advisors is a growing trend. At a much greater rate today (88.8 percent) than in the recent past (51.0 percent in 2004), CPAs predict they will be better able to leverage
their accounting practices to drive business to their financial services practices. A large majority, 82.4 percent, of CPA firms today believe that providing financial services will make them more competitive. Not surprisingly, 71.2 percent believe that more and more accountants will provide financial services in the future. For further information and for a copy of the white paper, Succeeding Amid Adversity: How CPA Firms Are Building Financial Services Practices in Today’s Economic Climate, contact the authors. s Contact Chad Greenberg, CPA/PFS, Sr. Vice President, 361 Capital, at (303) 2243900 or chad@361capital.com. Contact Karl Frank MA, MBA, MSF, Certified Financial Planner, President, A&I Financial Services LLC, at (303) 690-5070 or karl.frank@assetsandincome.com.
Introducing The Wisdom Series Sponsored by the Transitions Committee and held from 4:30 p.m. to 6:30 p.m. at the CSCPA office, these free events include the presentation, discussion, networking, and light refreshments. To RSVP, contact Terry Cervi, tcervi@cocpa.org, or (303) 741-8610.
April 24: Adding Financial Services to Your Practice with Chad Greenberg, CPA/PFS, 361 Capital May 15: Exit Pathways with Steven I. Levey, CPA/PFS, GHP Horwath PC June 19: Building and Managing Client Relationships - A Panel Presentation August 21: Finding the Firm to Buy/Starting the Firm – Trends in the Current Environment with Albert S. Williams and Adam Allan, CPA, Lang Allan & Company CPAs PC
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Our expertise and integrity. Your financial independence. 5613 DTC Parkway, Suite 650 • Greenwood Village, CO 80111 T303.768.0007 • www.mj-smith.com March/April 2012
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15
Point/Counterpoint:
Server or Cloud? A Server is All You Need
The latest buzz in the business world is how cloud computing will make us faster, better, and more efficient, all at a lower cost. We are led to believe that if we don’t embrace cloud computing, we will be left in the dust of obsolescence. There are risks in the cloud, and it is imperative that these risks be evaluated and carefully considered. Neglecting to do so may result in nothing short of disaster for a company. Cloud computing involves five risks that all firms and companies should be aware of: data security, lost connectivity, limited customization, level of service, and availability. Data Security Data that is accessible on the web is vulnerable to hacking. The leaking of confidential data through a cloud computing system can trigger tremendous risks and georgia Phillips, CPA loss to a company. Data is no longer on your own premises — data may be saved in a foreign country data center without your knowledge. There is also the issue of ex-employee access. In the good old days, if an employee left your company, simply revoking the IT account would be sufficient to prevent unauthorized access. With different vendors for different services, employees can end up with multiple passwords and different access rights. If an employee leaves, it is more complex and difficult to check that access to all services has been removed. Lost Connectivity Cloud computing relies solely on internet connections — no internet connection, no data — it’s as simple as that. Workflow can be severely affected if a connection is down, with mission critical data and information suddenly inaccessible. A company may need to subscribe to two or more internet service providers to avoid connectivity issues, but the result is increased costs. Even though the applications are available in the cloud, it’s unrealistic to send your staff to the nearest coffee shop armed with their laptops when your internet connection is down. This also could mean that while out at a client’s site, your staff may be relying on client or cell internet and be unable to work away from the cloud. Limited Customization If your company requires in-depth customization of software applications for daily business functions, cloud computing may not accommodate those needs. Cloud computing applications generally al-
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To the Cloud!
I’ve always been fascinated by technology — perhaps a bit too much. Yes, I’m geeky. No apologies. Sometimes living on the tech edge is bloody, and sometimes it’s sweet. My life in the IT Clouds has been so sweet! Here’s my story. Wait. I jumped the gun. What is “Cloud Computing”? You might also see it referred to as SAAS (software as a service). The data, and perhaps applications, reside on computer servers owned and operated by someone else and are accessed via the internet. I like the “someone else” concept. These servers are maintained in a server farm overseen by super geeks. Now, my story. About two years ago, Two Rivers Water Company (OTC: TURV), where I’m CFO, was in transformation. Wayne Harding, CPA Two Rivers was moving from real estate loans and real estate development into farming and water. This transformation required rethinking all processes and infrastructure, which of course included IT. We reduced our staff size in Denver and began to expand operations into Pueblo and Huerfano Counties. This gave me a chance to reform our IT architecture, and I knew that the IT cloud is great for diverse geographic environments. First on my target list was the server room in the office and its monolithic server rack full of power consuming, humming servers and 24/7/365 air conditioning. Wow — so much power for 20 employees and way too much power for fewer than 10 employees. One of the employees to leave was the full time network administrator. We assisted him in moving to part time with us and finding him additional work. We are now totally weaned from in-house IT, because the IT help is in the clouds. So what did we replace existing in-house IT infrastructure with? For email: Outlook; sharing files and collaboration: SharePoint. We went with Microsoft’s BPOS (Business Productivity Online) for $10/mo/user. For sharing large amounts of data and giving others outside the company the ability to post and retrieve files, we use Egnyte (www.egnyte.com). The cost is $50 per month for 10 “power users” (employees), 250 standard users (outside users), and 1 terabyte of data storage. We host our QuickBooks Enterprise via Myrealdata.com with a cost of $130 per month for three users, and Bemo (www.bemopro.com) for our project management (Micro-
server continued
Cloud continued
low little or no customization, so existing applications may need to be integrated with online applications. This could require a change to your business processes or to your current infrastructure to make things work smoothly. The cloud vendor will define your internal processes, removing your opportunity to capitalize on your unique strengths. Level of Service When you sign up for cloud computing, you will have a service level agreement with your provider. Guarantees regarding service are in this agreement, but it is up to you to make certain that the type of performance that is guaranteed is delivered. Finding a dependable service provider and monitoring what is being delivered can be a tiring and time-consuming job. Availability A financial collapse, legal battle, or legally sanctioned seizure involving your cloud service provider can make your data unavailable for an unspecified period of time. Your data and your business can be impacted by circumstances beyond your control. Conclusion The cloud has a number of issues that could severely impact a company’s well-being and productivity. So what’s the alternative? An in-house IT person who has a vested interest in your company’s success. If you have a problem, a live person can tend to it immediately. Your critical data is maintained onsite and is securely backed up. Updates, maintenance, and repairs are done on a timely basis. You have a professional available who ensures things run smoothly and efficiently. In terms of where it’s at in the information age, it’s definitely not in the cloud.s Georgia Phillips, CPA, is a tax manager with Bauerle and Company, PC, Denver, and a member of the Editorial Board and the Joint CSCPA/CDOR Task Force. Contact her at gphillips@ bcdenver.com.
soft Project 2010 Professional, SharePoint 2010, and Nintex Workflow) with a cost of $100 per month per user. I love using GoToMeeting (www.gotomeeting.com). For $50/month we get unlimited, web-based meetings where documents on your computer are shared with others. This includes video conferencing and recording. Bottom line: Our old cost per month with in-house servers and support was approximately $10,000. We now are spending under $1,000 per month for a robust set of applications and IT infrastructure. Not a bad savings! Now for the question asked often (albeit less often than in the past): What about security? In my case, the cloud security is stratospherically greater than what we had. Our in-house servers were in a large closet with a door that was sometimes locked. Compare this with our cloud providers. They all have white papers on their data security, redundancy, and disaster recovery. In my review, top notch. What about some nefarious person or entity “grabbing” your data transmission as it flies to the cloud? Only work with those providers (and that’s all of them) that offer secured data transmission. You know this from a web address that begins with “https:” Since we are a public company under a $75 million market capitalization, this year we need to comply with SOX 404A. Having the cloud architecture on our side thrilled our auditors. Having auditors happy makes me happy — ‘nuff said (or written).s Wayne Harding, CPA, is a former chair of the CSCPA and received the AICPA Special Recognition Award for his groundbreaking work in XBRL. Contact him at wayne@wayneharding.com.
Clarification
Nov/Dec 2011 NewsAccount, page 20 — CAMICO Mutual is one part of the CAMICO insurance program. CAMICO adopted a dual operating structure in 2009 which consists of CAMICO Mutual and CAMICO Insurance Services. CAMICO Mutual insures smaller CPAs firms (policy limits of less than $3 million) while CAMICO Insurance Services places larger CPA firms with Liberty International Underwriters. CAMICO’s A.M. Best ratings as of September 2011 are:
CAMICO Insurance Program Liberty International Underwriters CAMICO Mutual Insurance Co.
A
B++
Through CAMICO Insurance Services 1800 Gateway Drive, Suite 300 San Mateo, CA 94404 Rachel Painter, Colorado Representative (800) 652-1772 ext. 6773 inquiry@camico.com www.camico.com March/April 2012
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Practice Management
Merger Mania: Will the Trend Continue? by natalie rooney
Over the past three years, accounting firm mergers have taken place at a record pace. On Nov. 1, 2011, Clifton Gunderson LLP and LarsonAllen LLP, ranked as two of the nation’s top 20 firms, announced plans to merge on Jan. 2, 2012. The new firm, CliftonLarsonAllen LLP (CLA), is headquartered in Milwaukee, WI, and Minneapolis, MN. On Jan. 6, 2012, Eide Bailly LLP and Wipfli LLP announced their plans to merge. Pending regulatory approval, the two firms will officially combine on June 1 and be known as EB Wipfli, LLP. The firm’s headquarters will be in Minneapolis. These are just two examples of firms with a presence in Colorado that are part of the national trend.
What’s Behind the Many Mergers? Carl George, CPA, senior executive partner at CLA, who previously served as CEO at Clifton Gunderson for 16 years, helped his firm complete seven mergers in 2010. George says merger activity tends to fall into two buckets: organizational drivers and practice drivers.
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There are five key reasons for firms to merge for organizational benefit, says George: Succession — It takes work to find someone to take over a firm. “In the next ten years, more partners will retire from the profession than in the last three decades,” George says. “We’re not filling the pipeline as quickly as we should. In the next fifteen years, seventy-five percent of today’s CPAs will be retired.” Leadership — The firm doesn’t possess the visionary and leader qualities in the current partner and staff ranks to take it into the next generation. A lack of leadership training means there may not be anyone currently in-house to take the reins. Competition — A lot of firms have similar business, and clients are scarce. “You need to be able to demonstrate that you can compete effectively and that your firm has the bench strength and depth of expertise a client needs,” says George. Regulations and Standards — Keeping up with regulations and standards is an ongoing battle, George says. “You’re trying to serve your clients, and make sure you’re on top of the overwhelming number of regulations and standards facing the profession. It’s driving a lot of firms to the table.”
The Economy — Over the course of the last three years, some clients have been making different decisions in terms of services from their professionals. At the same time, the best firms are reviewing their practice models and making adjustments to how business is done. It means practicing more efficiently, being empathetic to client needs, and providing world class service. On the practice side, George says the lack of a defined long-term vision and strategy drives many firms to realize they can’t keep up. Lack of infrastructure plays a role as well. Experiencing problems in any of these areas may lead a firm to consider combining with another firm that can help fill the holes. Who’s asking who about a merger first? It goes both ways, George says. Bigger firms are targeting firms they know fit their criteria, and smaller firms are looking at firms they know will maintain the legacy of their firm. James Lyons, CPA, partner-in-charge of Colorado offices for Eide Bailly, LLP, and Rick Higgins, CPA, partner in the firm, are no strangers to the merger process. Higgins merged his firm, R T Higgins & Associates, with Eide Bailly in August 2010. Lyons and Higgins once again find themselves facing integration of practices with the merger of Eide Bailly and Wipfli. When Higgins merged his firm with Eide Bailly, he was looking to create a succession strategy for himself, his clients, and his employees. “I knew I needed to do something to make sure my clients were taken care of if something happened to me.” The resulting merger was a near perfect fit; Higgins and his employees eased into Eide Bailly as if they’d always been there. Now the Wipfli merger will bring new opportunities. Lyons says that while the primary driver for this merger was the consultative practice that Wipfli offered coupled with Eide Bailly’s more expansive geographic footprint, compatible cultures, similar industry niches, and a strong talent pool offered all the makings of a successful merger opportunity.
No End in Sight The merger trend that has developed over the last few years isn’t just a flash in the pan. “The factors driving mergers aren’t going to go away quickly,” George says. He anticipates at least five more years of merger activity, maybe more, before the dust settles. When that happens, who will be left standing? George says firms which don’t address the various drivers — depth, infrastructure, long-term vision — will struggle. In addition, he sees profit margins decreasing for firms that operate under an
outdated model. The result? They won’t be able to attract the best and brightest recruits. In short, they may not survive. There’s good news for firms who do address the key factors and merge successfully. “You’ll see a different landscape,” George predicts. “Some names will go away, but the people, culture, and legacies will endure.” “A lot of change is still occurring,” says Lyons, who doesn’t see the Big 4 shifting, but predicts continued activity in the next tier. “Merger activity continues to happen in the top twenty-five to fifty firms, those super-regionals with anywhere from three
hundred million to nine hundred million in revenue.”
If You’re Thinking Merger George advises getting your ducks in a row sooner rather than later. While many factors will be at play when two firms start talking to each other, George, Lyons, and Higgins agree that the number one issue is making sure the two cultures are compatible. Other issues include aligning strategies, aligning clients, making sure leadership and talent is present, and an economic fit, which includes partner compensation models.s
Members Weigh in on NewsAccount “Fewer technical articles.” “Discuss some of the meatier issues we face in the real world.” “I would like to receive it electronically only.” “I may be old school, but I still enjoy receiving the printed copy.” “More for people in industry.” “More on small business.” “Articles on growing a practice.” These are just a few member comments we received from the NewsAccount readership survey conducted in December 2011. In addition to including it in issues of NewsQuick, we sent the survey to 1,262 members in three random sample groups: overall membership, industry, and under age 30. Out of the groups queried, we received 126 responses.
What We Discovered Most respondents were middle-aged and work in public practice. They read each issue of NewsAccount, and most like to do so online. They’re more inclined to read only the articles that are of interest to them, but overall, read at least half of the articles. Most respondents find value in NewsAccount but aren’t watching their mail for its arrival.
What to Expect in the Future No more SEC Column. Articles for this column are written by CSCPA Public Company Forum members, and they have recommended changing the column to Financial Reporting Issues because the content isn’t exclusive to SEC matters. An emphasis on articles about business in Colorado, and updates on the profession, Colorado Deptartment of Revenue, State Board of Accountancy, and regulatory issues important to profession will continue. NewsAccount is already available online at www.cocpa.org. Beginning this May, members will be able to opt out of receiving the hard-copy version by mail. If you’d like to weigh in on NewsAccount, contact Liz Julin at ljulin@cocpa.org.s
What Respondents Want to Read Respondents are more likely to read technical or businessoriented articles, such as professional updates and State of Your Industry. Point/Counter Point is a new column, and it’s already generating a moderate level of interest.
Amount of Coverage Provided For the most part, NewsAccount provides the right amount of coverage for most topic areas. Respondents think there is slightly more coverage of SEC content and member profiles than desired.
March/April 2012
www.cocpa.org
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Announcing LeadFit 2012 Applications Now Being Accepted
P
erhaps you’ve been wondering where to go to obtain the leadership tools and skills you need. Or, you know someone who’s got great potential and needs additional training and development to be well-positioned for promotion. Maybe your star employee or colleague needs a boost with those everimportant interpersonal skills and/or supervisory skills. Consider LeadFit 2012, sponsored by the Colorado Society of CPAs specifically for CPAs and CPA-track accounting professionals who are looking to grow professionally and personally. This innovative new leadership development program, created in collaboration with Interface Consulting, LLC, is designed to enable participants to gain the knowledge, skills, and practice to achieve their desired professional and personal results including interacting effectively with, leading, and managing people. Par-
ticipation is limited to 18 participants who commit to attending all sessions. Each participant also is encouraged to identify an individual from his or her firm or company who will serve as the participant’s sponsor. Delivered over four months, with sessions scheduled on July 13, Aug. 17, Sept. 21, and Nov. 2, at the CSCPA Education Center, the program is recommended for 24 hours of continuing professional education credit. It includes two 8-hour and two 4-hour group workshops, individual coaching, a welcome BBQ hosted by CSCPA leadership, and a celebration event at its conclusion. The introductory registration fee is $1195 and includes all class instruction, one-on-one coaching, meals, and materials. For more information and an application form, contact Terry Cervi at tcervi@ cocpa.org. The application deadline is June 15.
In Memoriam We regret the loss of the following CSCPA members. We extend our sympathy to their families and friends.
Arthur W. Johnson Member since 1953 Denver, CO
Harold L. Schofield Member since 1968 Denver, CO
Charles D. Sickles Member since 1965 Colorado Springs, CO
Classifieds Job Opportunities Senior Tax Accountant, 2-5 years tax experience in public accounting. Must have an active CPA license or be a CPA candidate. Must have solid technical skills and be able to maintain important client relationships in a professional office. Articulate, deadline-oriented atmosphere demands an organized individual who can prioritize projects efficiently. Email resume to HR@ dalbycpa.com. Visit www.DalbyCPA.com. Manager of Financial Reporting. It’s official. Exempla Healthcare and the Sisters of Charity of Leavenworth Health System have integrated to form SCL Health System! This new organization has 15,000+ employees across 4 states in 11 acute care hospitals, over 500 employed physicians in multiple clinics, and other related health care operations. The new organization is headquartered in Denver. Our new structure has created numerous career opportunities including the po-
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NewsAccount March/April 2012
sition of Manager of Financial Reporting. Please review the following position summary and qualifications. If this sounds like an opportunity you’d be interested in pursuing please go to www.exemplajobs.org and apply for job 11142. The position provides day to day leadership and direction to SCL Health System non-hospital accounting processes and internal and external financial reporting; and maintains sound internal controls to ensure data integrity and issuance of financials in accordance with generally accepted accounting principles. Provides leadership and development for an accounting staff of 6. Qualifications: Bachelor’s Degree in Accounting, Finance, or related fields. A CPA is strongly preferred. Minimum of five years of progressively responsible financial administrative experience in a corporate, notfor-profit, or public accounting environment with at least two years in a managerial capacity.
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 25 years of experience. Confidentiality stressed! Call Fred Mehring at (303) 7713100, fax (303) 477-6010, or fmehring@ selectbg.com.
Miscellaneous CPA Focused IT Support. Live Consulting is the complete IT solution for CPA firms in Denver, Boulder, and Castle Rock. Plans and packages available to meet your unique needs. Solutions for Cloud Computing, Scanning and Document Management, Service Agreements, Virus and Spyware Removal, Complete Network Design, and Troubleshooting. To find out how you can save on recurring IT costs, go to www.LiveConsulting.com or call (303) 217-3000 today! Client references available upon request.
+ + Young Professionals Golf Tournament Saturday, June 16 1:30 p.m. Shotgun Start Arrowhead Golf Club Littleton, Colorado Tournament to benefit First Descents, sponsor of outdoor adventure programs for young adult cancer survivors $150 per player $520 per foursome
Fee includes: Green fees, cart fees, range balls, personalized Arrowhead bag tag, lunch, all oncourse snacks and non-alcoholic beverages, post-tournament refreshments, and prizes.
Presented by • •
Colorado Society of CPAs Young Professionals Committee National Association of Insurance and Financial Advisors Young Advisors Team
Register
By phone: Terry Cervi at (303) 741-8610 or (800) 523-9082, ext. 110 Online: www.cocpa.org www.cocpa.org
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Colorado Society of Certified Public Accountants 7979 E. Tufts Ave. Ste. 1000 Denver, CO 80237-2847
Periodicals Postage
Spring into CPE 3/14 Colorado Board of Accountancy
4/25 FASB Review for Industry: Targeting
Statutes, Rules, and Regulations (webcast) Review the Colorado State Board of Accountancy statutes, rules, and regulations and how these bodies of law apply to practical, everyday experience for a CPA in public, private, and government practices. Instructor: Rosemary Weiss. $75 members. $107 nonmembers.
Recent GAAP Issues Analyze recent FASB and AICPA standards that have a major effect on all industries and gain an understanding of the latest pronouncements and exposure drafts to enable you to develop implementation strategies. Instructor: Joann Cross. $345 members. $493 nonmembers.
4/23 iPad—An Effective Business Tool
4/26 Common Frauds and Internal Controls for
Maximize your return on your iPad investment. Explore key business issues: security, connecting to the cloud, and working with common file formats, including PDF documents, Excel spreadsheets, and Word documents. Instructor: Tommy Stephens. $160 members. $229 nonmembers.
Revenue, Purchasing, and Cash Receipts Help your clients establish a cost-effective system of controls to minimize fraud and other misstatements while getting the "biggest bang for your buck." Instructor: Joann Cross. $345 members. $493 nonmembers.
4/23 PDF Forms — What Accountants Need to Know Discover how to quickly and easily turn routine forms into interactive, fill-in PDF documents: convert timesheets, expense reports, job applications, time-off requests, and all of your other forms into interactive PDF documents that are automatically distributed. Instructor: Tommy Stephens. $160 members. $229 nonmembers.
4/24 Excel-Based Dashboards Create high-impact dashboards with Excel’s greatly enhanced charting and graphing capabilities, along with the program’s ability to handle much larger volumes of data and present the data as actionable information. Instructor: Tommy Stephens. $315 members. $450 nonmembers.
To register, go to www.cocpa.org, or call (303) 773-2877 or (800) 523-9082.