COCPA NewsAccount - 2013 - March/April Issue

NewsAccount Colorado Society of CPAs

March/April 2013

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Contents Features

} 4 2013 Colorado Legislative Outlook

COCPA legislative counsel Danny Tomlinson previews the issues the General Assembly faces this year.

8

State

Board/CDOR Update

The Colorado State Board of Accountancy will continue its rulemaking deliberations, March 20. The CDOR continues to improve its processes.

10 Can Governments Go Bankrupt?

A government offering services to its citizens can't just close up shop and disappear.

14 Coming on Board

Meet the new officers, directors, and Educational Foundation trustees who will take office, May 1, 2013.

18 Sustainability and the CFO

Executives who control the purse strings play a significant role in implementing sustainability measures.

Departments On the Cover "Denver Capitol at Sunset" by artist Amanda Neal

}

2 Chair Column 16 State of the Industry 21 Movers & Shakers 21 Classifieds March/April 2013 • www.cocpa.org •

1

Chair Column

NewsAccount A bi-monthly publication of the Colorado Society of Certified Public Accountants Vol. 58, No. 6 March | April 2013 Board of Directors Scott E. Bush, Chair Marc C. Hendrikson, Vice Chair Lora L. Finley, Treasurer Michael S. Bearup, Immediate Past Chair Mary E. Medley, Secretary Directors Carrie J. Bartow, Steven R. Corder, Peter J. Derschang, Ben T. Hrouda, Christine Riordan, Debbi C. Warden 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, Tawyna Ramirez, Ronald O. Reed, Scott K. Sprinkle, Barbara J. Tedesko, Mark A. Torrey, Gregory A. Truitt, R. Stephen Van Meter, Michael D. 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, 7887 E. Belleview Ave, Suite 200, Englewood, CO 80111. NewsAccount is published in January, March, May, July, September, and November and reports information, news, and trends in the accounting profession. 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 in Englewood, CO, and additional mailing offices.

POSTMASTER: Send address changes to NewsAccount, Colorado Society of Certified Public Accountants, 7887 E. Belleview Ave, Suite 200, Englewood, CO 80111.

Net press run = 8,550 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 • cpa-staff@cocpa.org NewsAccount is available online at www.cocpa.org.

2

• NewsAccount • March/April 2013

Time Flies and Change Happens

E

BY SCOTT E. BUSH, CPA

very past chair and president I know told me this year would fly by, and none was kidding. It’s been interesting, busy, rewarding, and filled with change. We’ve accomplished so much as we’ve charted our course through the changes we could foresee just a year ago. And much remains to be done. With Marc Hendrikson (shown above left) coming in as the next COCPA Chair, we’re well-positioned for strong leadership and structure going forward. Before I step out of this role, let’s take a look at where we’ve been.

On the home front, CEO Mary Medley and I kicked off the year with the Chair Tour events. These annual visits across Colorado got me out of my office and on roads both familiar and new. I thoroughly enjoyed meeting and discussing important issues with you.

Repeatedly, I heard about the challenges many of you face in working with the Colorado Department of Revenue (CDOR). Being a practitioner in tax myself, I understood your frustrations, and I focused much of my attention on this critical area.

After participating in many meetings with the CDOR management team, I’m confident that we’re in a much better place today. The COCPA/CDOR Joint Task Force has made very good progress. With the redesign of many CDOR processes, I hope — and expect — we’ll continue to see positive results from the groundwork we’ve laid. Of course, we still have plenty to do, working together to ensure the Colorado tax compliance environment continues to improve for those of you who practice tax, your clients, and Colorado taxpayers generally.

Internally, we moved and right-sized the COCPA office after 18 years in the same location; restructured the CPE program for long-term sustainability; implemented a new association management system and restructured staff responsibilities to enhance member service; launched the redesigned www.cocpa.org; and soon will introduce you to COCPA Link, our new online member community — just a few of the changes we undertook.

Nationally, we saw groundbreaking change. Last May, a long-awaited structure for creating differences in U.S. GAAP for private companies was implemented when the Financial Accounting Foundation established the Private Company Council. Since then, the PCC members were named, a chair appointed, and the first meeting held last December. At that inaugural meeting, the group identified four areas to research for agenda consideration: consolidation of variable interest entities; accounting for “plain vanilla” interest rate swaps; accounting for uncertain tax positions; and recognizing and measuring, at fair value, various intangible assets (other than goodwill) acquired in business combinations. CPAs with private clients will continue to experience change this next year as the PCC sets its agenda.

Since I began this journey, I’ve had many opportunities to meet with CPAs from across America. I come away with renewed appreciation for this great organization of ours. I’m grateful for the volunteers and staff who, to a person, dig in to make the right things happen and provide legendary service. I feel fortunate to have served during the AICPA’s 125th anniversary year — with our own Greg Anton serving as AICPA Chair — and to have been a part of so many changes on the state and national levels.

Thank you for the opportunity to serve. It’s been a pleasure, an honor, and an experience which far surpassed my expectations. My parting advice: Be ready for more change. s Contact Scott Bush at scott@soukupbush.com.

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March/April 2013 • www.cocpa.org •

3

On the Colorado Hill

2013 Colorado Legislative Outlook Note: This preview of the 2013 legislative session was prepared by COCPA legislative counsel Danny L. Tomlinson, Ed Bowditch, and George Dibble. Obtain further information on the Colorado General Assembly, including contact information for legislators, information on bills, committee hearings schedules, and live audio broadcasts at www.leg.state.co.us.

T

he First Regular Session of the 69th General Assembly of Colorado convened Jan. 9, 2013. Per the Colorado Constitution, the legislature meets for no more than 120 days, with adjournment sine die at midnight, May 8, 2013. The House of Representatives and Senate proceedings can be viewed both on the internet and on Comcast cable television channel 165.

2012 Election Results The November 2012 General Election saw the Democrats keep the 20-15 majority in the Colorado Senate, as well as regain the majority in the House, now at 37-28 for the 2013 and 2014 legislative sessions. Of the 100 legislative seats, 85 were up for election or re-election in 2012 — all 65 House seats and 20 of the 35 Senate seats. Many legislators were term-limited, reapportioned out of their legislative districts, or they chose not to run for re-election. Thirty-two first-time legislators were sworn in, Jan. 9 — 28 in the House and four in the Senate. Six former House members moved to the Senate.

Two initiatives and one referred measure were on the 2012 ballot. Referendum S, a proposed reform of the state personnel system passed easily. The two initiatives also passed.

Amendment 64 amended the Colorado Constitution to: • Regulate the growth, manufacture, and sale of marijuana in a system of licensed establishments overseen by state and local governments; • Allow individuals who are 21 or older to possess, use, display, purchase, transport, and transfer — to individuals who are 21 years old or older — 1 ounce or less of marijuana; • Allow individuals who are 21 years old or older to possess, grow, process, and trans-

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• NewsAccount • March/April 2013

port up to six marijuana plants, with certain restrictions; • Require the state legislature to enact an excise tax on marijuana sales, of which the first $40 million in revenue raised annually must be credited to a state fund used for constructing public schools. The excise tax must be approved by a separate statewide vote; and • Require the state legislature to enact legislation concerning the growth, processing, and sale of industrial hemp.

The legislature must establish laws that align with the guidelines of Amendment 64.

Amendment 65 amends the Colorado Constitution and Colorado statutes to: • Instruct the Colorado Congressional delegation to propose and support an amendment to the U.S. Constitution that allows Congress and the states to limit campaign contributions and spending; and • Instruct the state legislature to ratify any such amendment passed by Congress.

Major Issues for 2013 Budget Allocation of state revenues through the Long Bill will be the most important and time-consuming issue the General Assembly will address. The Legislative Joint Budget Committee (JBC) started its budget deliberations in early November 2012; its work will culminate with introduction of the FY

2013-14 budget (“Long Bill”) on March 25, 2013.

The JBC staff prepared a memo detailing the potential effects of federal sequestration on the Colorado budget. The immediate impact would be a decrease in federal funding of about $68 million in FY 2012-13. The loss in federal funds would increase significantly in the next couple of years and doesn’t take into account the impact on the economy that would happen because of defense and space industry spending cuts.

The budget totals approximately $20 billion; this includes the state General Fund, cash funds, and federal funds. Most of the 2013 budget issues involve programs funded through the state General Fund.

General Fund Revenues The General Fund is the state’s primary budget account. Revenues to the General Fund are not collected for a specific purpose but instead are used to support the general operations of state government.

Colorado’s General Fund is composed primarily of personal and corporate income taxes (about two-thirds) and state sales and use taxes (about one-third). This makes General Fund revenue collections extremely dependent on the state’s economy in general and employment levels in particular. The General Fund will fluctuate with economic changes over time.

The challenge with this uneven revenue

is that many state services are counter-cyclical to the economy. In tough economic times, Medicaid enrollment surges, and demand for retraining expands in higher education.

As noted in the December 2012 revenue estimates by both the Office of Legislative Council and the Office of State Planning and Budgeting, Colorado’s economy continues to recover, and the General Fund is projected to increase in the next few years.

General Fund Allocations State government is organized into 20 state executive branch agencies, in addition to the judicial and legislative branches. Approximately 90 percent of all General Fund appropriations, however, go to just five areas of state government, as shown on the chart below.

Colorado now has more people, more K-12 and college students, and more prisoners than in 2000. These increases might be manageable with the increase in the General Fund over this time period (24%). However, with the number of Medicaid enrollees more than doubling over this period, the state has had to make painful budget choices — and the most notable of these has been to reduce state support for higher education.

Consider the University of Colorado.

The CU system has lost 30% of its state support, and the resident tuition at the Boulder campus has increased by more than 200% since 2000.

The Legislative Council projects: • State sales tax revenue to increase 6.4% in FY 2012-13 and 4.2% in FY 2013-14.

• Individual income taxes to be up about

2.3% in FY 2012-13 and 6.4% in FY 2013-14.

• Corporate income taxes to increase 6.1% in 2012-13 and 4.6% in FY 2013-14.

• The Highway Users Tax Fund (HUTF) to see a slight increase in revenues — from $961 million to $971 million in FY 201314. Total funding for highway construction and maintenance has held relatively flat for the past several years — partly as a result of higher MPG for vehicles, a decrease in diesel fuel revenues, and a decrease in federal funding.

• Severance tax revenues to increase from $122 million in FY 2012-13 to $180 million in FY 2013-14.

The legislature monitors General Fund revenues and will receive the next quarterly forecast on March 20, 2013. The Joint Budget Committee traditionally uses the March revenue forecast to finalize the Long Bill for introduction.

FY 2013-14 Budget The Governor’s Office projects an increase of $387 million (5.0%) in the General Fund over FY 2012-13. Gov. Hickenlooper has suggested the following General Fund budget allocations for FY 2013-14: Protecting the “Last and the Least”: 809 additional funding slots ($6.5 million) for individuals with developmental disabilities, including eliminating the waiting list for the Children’s Extensive Support Program.

In addition, the request includes $6.8 million for the Supplemental Nutrition Assistance Program, $5.0 million to address elder abuse, and $2.0 million for the Older Colo-

radans Act. K-12 and Higher Education: An additional $201.6 million for K-12 education — slightly more than funding inflation plus enrollment. The request also includes an additional $30 million General Fund for the higher education governing boards and an additional $5 million for need-based financial aid.

Economic Development: $3.0 million for the state strategic fund — expected to recruit 1,230 new jobs to Colorado; $2.0 million for tourism and unified branding for the state; and $1.6 million funding for film incentive and job retention activities.

Infrastructure: A $103 million transfer to the state Capital Construction Fund and $44 million for controlled maintenance.

Public Safety/Mental Health: Establishment of a mental health behavioral crisis response system and access to civil beds for incompetent defendants; additional funding for the Department of Corrections to address mental illness and sex offender treatment programs; and an increase in parole supervisors due to decreased incarceration rates.

State Employee Pay: A 1.5% pay increase for state employees — costing approximately $27.4 million — after four years without a salary increase.

Reserve: A 5% operating reserve or about 18 days of reserve. The last two recessions each triggered about a 16% downturn in revenues. This increase from the current 4% statutory reserve will help the state better weather future economic downturns.

Outlook

Continued on 6

March/April 2013 • www.cocpa.org •

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Outlook

Continued from 5

Long-Term Budget Challenges Although the short-term budget outlook is positive, Colorado faces many long-term budget pressures: Medicaid: The Medicaid program continues to increase at a significant rate — up 136% since 2000. In FY 2011-12, the number of individuals enrolled increased by 63,000, or more than 5,000 new Medicaid recipients per month. And, Medicaid continues to take an ever-larger share of the state budget — 33% of General Fund appropriations in 2012-13 will go to health care and human services. It is expected that Medicaid enrollment will approach 700,000 by June, 2013. Implementation of the federal Patient Protection and Affordable Care Act will have continuing budget implications in Colorado.

Higher Education: State funding for higher education has decreased from $705 million in FY 2009-10 to $513 million in FY 2012-13. If the legislature approves Gov. Hickenlooper’s funding increase request, it will help to mitigate tuition increases in FY 2013-14.

Consider that higher education is the only portion of state government that operates in a nationally competitive environment — and the declines in state support hurts Colorado’s ability to hire top faculty and recruit top students. In addition, the increase in tuition may deter many low and medium income individuals from attending college.

The Colorado Commission on Higher Education recently approved the system-wide higher education master plan which calls for increasing attainment, improving student success, reducing demographic gaps in higher education access and achievement, and restoring fiscal balance. The Department of Higher Education will also develop a performance funding mechanism over the next year for implementation if and when the higher education funding reductions that have occurred since 2008 are restored.

The Commission also is looking at possible changes to the state’s financial aid program, including targeting allocations to Pell eligible students; introducing financial aid steps to reward retention and student progress; and maintaining institutional flexibility to address individual student needs.

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• NewsAccount • March/April 2013

The Colorado legislature will once again consider a proposal to provide tuition assistance to children of undocumented immigrants. Given the composition of the legislature in 2013, passage is expected.

Economic Development With unemployment remaining at about 7.9% of the workforce and the state’s economy slowly recovering, job creation properly is the highest priority in this legislative session.

HB 12-1241, concerning enterprise zones and passed last spring, created a task force under the direction of the Office of Economic Development and International Trade (OEDIT). It met several times last year and developed recommendations for changes to the EZ program. One of those would limit to $1 million the amount of EZ tax credits that may be claimed in any tax year. This recommendation would impact total EZ credits claimed, not those earned. It’s expected that this would impact fewer than 20 large companies. The newly “captured” General Fund revenues would be used to fund enhancements and expansion of programs dealing with workforce development, small business development centers, and potentially economic gardening and other economic development programs.

Even with these rules being adopted, we won’t be surprised to see further legislative efforts regarding fracking. Gov. Hickenlooper is trained as a geologist and understands the gas and oil industry from that perspective. This may be a tension point between the Governor and his Democrat colleagues in the General Assembly.

We may see a resurgence of legislation aimed at increasing the use of renewable and alternative energy sources such as increasing the Renewable Portfolio Standards (RPS) and accelerating the implementation date; including REAs and municipal utilities; mandating eco-friendly architecture on governmentowned buildings; capture and use of coal-bed methane gas; or a new “thermal” standard.

TBD Colorado Launched in 2012, TBD Colorado (tbd. colorado.org) held 64 local meetings and six multi-regional meetings last summer and fall, with more than 1200 Colorado citizens participating. The resulting report includes recommendations concerning education, health care, the state budget, workforce, transportation, and the state Constitution. It’s likely we will see legislation to implement one or more TBD Colorado recommendations in 2013.

Local Government

Overall Budget Adequacy

Passage of Amendment 64 will be the source of several bills dealing with local government regulation on growing, selling, and distribution of marijuana.

There may be legislation to modify Urban Renewal Authorities (URA’s) and Tax Increment Financing (TIF) that is generally used to finance infrastructure within the URA. Firefighters and peace officers have indicated that there will be legislation dealing with presumptive eligibility for workers’ compensation due to “stress related” claims.

Colorado’s unemployment is down slightly, revenues are up slightly, and Colorado is on a (long) road to recovery. Some would say Colorado doesn’t have problems — we have unresolved opportunities.

Over the last ten years, the state has eliminated, reduced, or refinanced a number of state-funded programs (for example state merit-based aid in higher education and state funding for the Division of Parks). In addition, the state has substantially reduced funding for K-12 education and higher education — in spite of increased enrollment.

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% sales tax and 4.63% income tax — sufficient to provide necessary state services?

Should Colorado work towards a new taxing/revenue system that would be less cyclical? We shall see.s

Fracking/Energy In December 2011, the Colorado Oil and Gas Conservation Commission adopted rules described as the most comprehensive in the country. They require oil and gas operators to publicly disclose all chemicals used in the hydraulic fracturing of their wells, while still recognizing and protecting trade secrets.

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Office Trends That Will Disappear In The Next 5 Years

The internal switchboard and the car phone already have gone the way of the dodo bird. What's next on the extinction list? LinkdIn surveyed more than 7,000 professionals in 10 countries to find out.

15%

Business cards

16%

An office with a door

17%

USB thumbdrives

19%

Cubicles

21%

The executive corner office

27%

Formal business attire

34%

Desktop computers

35%

Desk phones

57%

Standard working hours

58%

Rolodex

71%

Fax machines

79%

Tape recorders March/April 2013 • www.cocpa.org •

7

News From the State Board of Accountancy and CDOR Rulemaking Update The Colorado State Board of Accountancy held a second rulemaking hearing, Jan. 23, 2013, on the proposed amendments to its current rules which became effective, Oct. 30, 2010. Written and verbal comments were received during the public hearing, and the State Board continued its deliberations.

The following information is taken from the State Board website, www.dora.state.co.us/ accountants: “Once the agenda material is prepared for the March 20, 2013, meeting, the UNOFFICIAL rules will be posted for information purposes ONLY as the public hearing and comment period concluded on Jan. 23, 2013. The Board has 180 days to adopt the rules pursuant to Section 24-4-103, C.R.S. from the rule making hearing date. Once the Board has adopted the rules, the rules will be posted.”

To view the March 20, 2013, agenda and unofficial rules, go to http://tinyurl. com/COmarchmeeting. For more information, contact Mary E. Medley at mmedley@ cocpa.org.

CDOR to Honor Grace Period for Farmers and Fishermen The Colorado Department of Revenue will honor the IRS grace period from March 1st to April 15th for farmers and fishermen.

The Department will not require the IRS waiver form (2210-F) to be submitted with the Colorado return. However, the Department recommends the taxpayer and/or CPA keep a copy of that form in case questions arise during return processing.

Taxpayers filing Colorado returns for the first time claiming the farmers-fishermen designation are advised that the CDOR does not receive data from the IRS confirming taxpayer eligibility until after the filing season. Consequently, the return may be reviewed and the taxpayer asked to provide proof of eligibility.

Subsequent year returns should not kick out for review because the Department should have the eligibility verification at the time of return processing.

IRS Notice 2013-5 (www.irs.gov/pub/irsdrop/n-13-05.pdf) “provides for the waiver of additions to tax under Sec. 6654(a) of the Internal Revenue Code for underpayment of

estimated taxes for certain farmers and fisherman due to the delayed start for filing 2012 tax year returns.”

Normally, farmers and fishermen who choose not to make quarterly estimated tax payments are not subject to a penalty if they file their returns and pay the full amount of tax due by March 1. This year, farmers or fishermen who miss the March 1 deadline will not be subject to the penalty if they file and pay by April 15, 2013. A taxpayer qualifies as a farmer or fisherman for tax year 2012 if at least two-thirds of the taxpayer’s total gross income was from farming or fishing in either 2011 or 2012.

Farmers and fishermen requesting this penalty waiver must attach Form 2210-F to their federal tax return. The form can be submitted electronically or on paper. The taxpayer’s name and identifying number should be entered at the top of the form, the waiver box (Part I, Box A) should be checked, and the rest of the form should be left blank. Forms, instructions, and other tax assistance are available at www.irs.gov. s

Processing Method Enhanced Individual Income Tax Return Review Process The Colorado Department of Revenue (CDOR) has added several steps to its new methodology for processing individual income tax returns, effective for the 2012 return processing season, as outlined on this flowchart.

Notice of Final Determination Letter

If Unsuccessful

Inquiry Letter Ask For Documentation

Preferred Response Methods 1. Revenue Online-Non Login (< 5MB) 2. Fax (< 10 Pages) 3. Mail GenTax

If Unsuccessful Protest & Request E.D. Hearing

E.D. Hearing

If Successful –> Return Processes As Filed

Preferred Protest Methods 1. Revenue Online-Login 2. Revenue Online-Non Login 3. Fax GenTax 4. Mail

If successful -> Return Processes As Filed

Protest

Work Items

Pay If Documentation Provided

If Adjustments

Required Evaluate Documentation

Return Adjustment Letter •

Return Method  Preferred Attachment Method • MeF  MeF; MeF  Revenue Online; Mef  DR1778 • Revenue Online  Revenue Online • Paper  Paper

8

Protest Resolution Letter

Inform Taxpayer of what will happen next per claim • Return Process as Filed, or • Return Will Be Adjusted

Work Items

If Documentation Missing

Return Filing

Inquiry Resolution Letter

If Unsuccessful Protest & Do Not Request E.D. Hearing & Do Not Make Payment

Protest Results Payment Options How to Request E.D. Hearing

  

•

Process Return As Filed

• NewsAccount • March/April 2013

If No Adjustments Required

Adjustment Explanations Link to Online FYIs

Notice of Deficiency Letter • • •

If No Response or No Reason For Protest W/in 30 days

Notice of Final Determination Letter

Payment Instructions Protest Instructions Bill w/ Statement of Account (SOA)

Key Points • • •

Separate Inquiry from Bill/Notice of Deficiency More Clear and Instructive Communication Upgraded Internal Processes for Attachment Handling

In Memoriam

Free

PHILIP B. CHENOK Former AICPA President and CEO (19801995), Phil Chenok died peacefully on Feb. 12, 2013, following a brief illness. After his AICPA tenure concluded, Phil served as a visiting professor of accounting at New York University's Stern School of Business. In recent years, he retired with his wife, Linda Stack, to Tucson, Ariz., where he served on finance-related committees and enjoyed playing golf. Known for his integrity and commitment to the CPA profession, Phil once said, "I became a CPA because I wanted to do good and protect the public interest." He will be missed.

Donations in Phil's name can be made to the Tucson Museum of Art, 140 N. Main Ave., Tucson, AZ 85701.

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March/April 2013 • www.cocpa.org •

9

Can State and Local Governments Go Bankrupt?

Lower Tax Revenues Leave Local Governments Searching for Ways to Survive

BY NATALIE ROONEY

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• NewsAccount • March/April 2013

W

hen individuals and businesses reach the point of insolvency, the end game is usually bankruptcy.

Possessions and inventories are liquidated, and some creditors are paid — even if it’s only cents on the dollar.

But a government is different; a government offering services to its citizens can’t just close up shop and disappear. This has become painfully apparent since 2009 when revenues governments receive from many sources, including the federal government and property taxes, began falling precipitously, leaving cities, towns, and municipalities scrambling to pick up the trash, provide resources, pay employees, and meet pension obligations.

Municipal Bankruptcies: A Different Chapter Despite the media headlines that states and cities, including California, are about to declare bankruptcy, municipal bankruptcies are not common, says Kevin Collins, CPA, a partner at CliftonLarsonAllen LLP, Greenwood Village. Collins works with governmental entities in several different capacities, including audit and back office services and support.

From 1986 to 2011, 263 Chapter 9 bankruptcies were filed nationwide. Of the 26 filings from 2010 to summer 2012, zero filings took place in Colorado.

Chapter 9 is a lesser known type of bankruptcy that is specifically designed for municipalities, which includes cities, towns, counties, taxing districts, municipal utilities, and school districts. Chapter 9 allows municipalities to reorganize their debt by extending the timeline on repaying debts, debt refinancing, or the reduction of principal or interest on existing debts. The assets of a municipality are not liquidated under Chapter 9. The majority of cases in the last 40 years have involved utility districts and not sovereign government entities.

Although municipal bankruptcy filings are rare, they’re not unheard of. Collins says the key issue in a municipal bankruptcy filing is that it is a reorganization of debt, not a discharge of the debt or a liquidation. “You can’t liquidate a local government,” he says. “The government will still be there. Today, we're seeing municipalities that are struggling to make their pension payments. A municipality may file to see if it can readjust what payments it will be obligated to pay current and retired employees,” Collins explains.

Fiscal Struggles for Local Government Even if municipalities aren’t filing for bankruptcy, they have faced some hard decisions over the past five or six years, says Michael Jenkins, CPA, partner at McMahan and Associates, LLC, in Avon. Jenkins’ firm audits local governments of varying sizes across Colorado.

Local governments simply aren’t collecting as much tax revenue since the economic downturn. According to the 2011 Colorado Division of Property Taxation annual report, “Colorado assessed values decreased by more than $4.8 billion, representing a 5.2 percent reduction from the prior year. The statewide decrease was primarily attributable to the decline in the value of the residential, commercial, and vacant land classes of property.”

Local governments count on property tax revenues as their primary source of income, and as that declines, budgets are hit hard. Jenkins

says some of the more diversified areas, such as metro areas and resort towns, can also pull in a lot of sales tax which creates a cushion to fall back on. But sales tax revenues dipped during the recession as well.

Bottom line: There are limited opportunities to create new revenue streams when you’re a local government. “It’s not as if a government can suddenly offer a new product,” Jenkins says. “Instead, it has to look at what it can do to contain costs.” Governments will examine staffing and perhaps not replace employees lost through attrition. They may not fill open positions, eliminate positions, or have a reduction in force.

Jenkins says his clients have had to make tough decisions about essential services for constituents and how to serve them in the most cost efficient way. “They have to answer to the electorate in terms of the choices being made. They have to make sure people understand how services are prioritized so the entity can continue to function,” he says.

Why not simply raise taxes, and let taxpayers shoulder the shortfall? It would be an easy, albeit unpopular, decision. However, Colorado law, in the form of the Taxpayer Bill of Rights (TABOR), won’t allow it. Passed in 1992, TABOR prohibits state and local governments from raising tax rates without voter approval and spending revenues collected under existing tax rates if revenues grow faster than the rate of inflation and population growth, without voter approval.

Jenkins offers up the situation facing many Colorado fire districts as an example of how declining revenues are affecting services at a time when they are most needed. As a result of declining property tax values, many fire districts are cutting staff and making choices about equipment replacement at a time when the state is facing severe drought on the heels of one of the worst wildfire seasons in history.

There simply isn’t a choice to stop providing services, but the money has to come from somewhere.

The Pension Predicament Pension woes are contributing to financial problems for some government entities. There are basically two types of retirement funds.

Defined contribution plans, such as 401(k)s and IRAs, are tax-advantaged accounts owned and largely funded by employees themselves.

Some employers add contributions as a benefit. The only real risk for these funds is that the investments in the account may perform poorly.

Defined-benefit plans promise to pay benefits to retirees based on the length of time worked and former salary. If these plans run short of money, they not only leave retirees unsure that their benefits are safe, but they also create a potential cost for whoever has to bail them out — usually taxpayers.

While most state and local governments utilize defined contribution plans instead of defined benefit plans, the primary exceptions are school districts and police and fire departments. “These groups are the ones dealing with pension issues,” says Paul Backes, CPA, partner at McMahan and Associates, LLC. Because the Public Employees' Retirement Association of Colorado (PERA) is underfunded, the contribution rate by employers must continue to increase. The rate for school districts is changing from 13.85% in 2010 to just over 20% in 2018. “When you have employers that have a lot of their expenses tied up in payroll, Bankruptcy Continued on 13 March/April 2013 • www.cocpa.org •

11

The Critical Business Side of Nonprofits How CPAs Can Help Connect the Dots Many nonprofits fall into a trap. They become so focused on their nonprofit mission and operations that they fail to pay adequate attention to the business side of their operation. Often officers and executive directors who excel at technical, educational, religious, or scientific tasks may not have the skills to focus on generating revenues, implementing common internal accounting controls to prevent fraud, controlling expenses, producing accurate financial statements, managing internal or external risks to achieve positive fiscal outcomes and future sustainability, generating realistic budgets, and complying with IRS regulations.

Cues from the Corporate World In recent years, larger, more sophisticated nonprofits have begun to make significant, organic changes to their organizations to recognize and confront their business challenges. Somewhat ironically, these changes have evolved in part from federal legislation, namely the Sarbanes-Oxley Act of 2002, passed to prevent public company fraud.

While not necessarily the result of fraud potential, nonprofit boards have trended toward the adoption of many of the governance tools now found in public companies.

That may be in part because boards recognize that nonprofits, similar to public companies, have hundreds if not thousands of stakeholders on which they are dependent and which are dependent on them: donors, grantors, volunteers, members, and beneficiaries.

Examples of these tools adopted include creating an independent, formal audit or finance committee, seeking out and including skilled financial experts on the board or audit committee, and obtaining a periodic, independent, enterprise risk management report on internal accounting and operational controls.

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• NewsAccount • March/April 2013

“There are certainly some best practices from Sarbanes-Oxley that can be helpful to nonprofits,” says Steve Corder, CPA, managing director at Kundinger, Corder & Engle, PC, Denver, a firm that specializes in auditing nonprofit organizations. Corder serves on nonprofit boards as well. Over the years, he has seen a change in how nonprofits do business.

Corder says having policies for whistleblowers, document destruction, and conflict of interest are great ideas for nonprofits seeking to offer more transparency. “Nonprofits have learned that transparency and accountability are good things. They have to gain and keep the public’s trust.”

Another factor driving these trends is the growth of nonprofits in recent years which adds significant complexity to managing the operational, mission, and business functions.

And, with growth comes the need for more sophisticated management tools.

Smaller nonprofits are not immune to these business risks and the need for newer governance tools. In fact, these entities may need modern solutions as they grow even more than larger nonprofits. However, they often lack the resources to acquire and implement them. A common danger is that boards and managements may, erringly, rely on past practices and successes, hoping those will carry them into the future.

Connecting the Dots CPAs are uniquely qualified to help nonprofits of all sizes, says Tim McCutcheon, CPA, nonprofit partner at Eide Bailly LLP, Golden. “CPAs can look at a nonprofit analytically and broadly across the whole organization and then connect the dots.

Program initiatives have fundraising and development needs to fund, start-up costs, and

BY JAMES M. BOAK, CPA AND NATALIE ROONEY

costs to continue. There are many disparate elements, and a CPA can pull them together and help the board focus.”

In recognition of the need for nonprofit boards, large and small, to better understand how to manage their entities, the AICPA published the Audit Committee Charter Matrix in 2010. This 165-page tool includes sample best practices for audit or finance committees and is specifically designed for nonprofits.

A prime example of a best practice for audit or finance committees is a written charter which provides: • Clear understanding of responsibilities and expectations for the committee itself and for the governing board.

• Future consistency of committee functions as committee member turnover occurs.

• Clear definition of committee members' roles.

• Issues and financial protocols the committee must specifically address.

Fortunately, most nonprofits recognize the need for accounting, financial, and tax advice, and CPAs can be an invaluable source of this expertise. Smaller nonprofits offer a great opportunity for young CPAs to be of assistance and to gain management and governance skills through serving on boards and audit/finance committees.

“The last four years have been hard on charities,” Corder says. “Funding sources have diminished, but demand for nonprofits’ services has grown. Many are asking themselves, ‘How do we stay relevant but also stay solvent?’” That, he says, is where CPAs can help. “It’s learning to say no. The board and the program people are ambitious, and rightfully so. But at the end of the day, someone has to ask, ‘How are we going to do this?’”

Part of the Mission The number one reason to get involved with a nonprofit organization is to feed your passion, McCutcheon says. “It’s a way we can give back and contribute to the community and to an organization

that is pursuing a cause we support,” he notes. “We can take all of our training as CPAs and really apply it directly. We can write checks, too, but giving of our time and talent is part of doing good and being a part of something larger than ourselves.”

Don’t assume that larger nonprofits don’t need guidance as their smaller counterparts do, McCutcheon adds. “A large organization needs to make sure it has the financial expertise on its board to offer advice in the more sophisticated areas,” he says. “It all ties back to Sarbanes-Oxley. What’s good for public companies is good for nonprofit organizations as well. When you have a group of people motivated by the mission, you need to balance that with people who are financial experts.”

CPAs stereotypically become treasurers, and Corder says that’s a great place for CPAs to get involved, especially in smaller organizations. CPAs can prepare the organization’s Form 990, or review it from a different perspective if it is prepared by a paid preparer. “The treasurer has an important role,” Corder emphasizes. “They can also look at the income tax return before it goes to the IRS, properly vet it, and make sure it’s a reflection of what the organization is doing. If there are any red flags, they can be addressed.”

No matter what role he plays on a nonprofit board, Corder says he’s always wearing his CPA hat. “A CPA is always going to approach a situation analytically.” It comes down to helping the nonprofit look at its “business” in a way it hasn't before. “Whether it’s having a rainy day fund or diversifying funding sources, it’s usually the CPA who has to tell the organization to do that.” s James M. Boak, CPA, is a member of the COCPA Public Company Forum and serves on the NewsAccount Editorial Board. He can be reached at boakjm@aol.com.

AICPA Audit Committee Charter Matrix Sample Topics •

Sample Committee Charter

•

Committee Member Roles and Responsibilities

•

Member Financial Expertise Considerations

•

Enterprise Risk Management and COSO Primer

•

Conducting an Audit Committee Executive Session

•

Committee Self-evaluation

•

Independence and Conflict of Interest

•

Internal Control Basics

•

Fraud Responsibilities

•

Evaluating the External Auditor

Bankruptcy

Continued from 11

that has a significant impact on their financial health,” Backes says. With no option other than contributing to the fund, school districts must make cuts elsewhere. This can mean lower pay, fewer teachers, or fewer custodians, to name a few.

In June 2012, the Governmental Accounting Standards Board (GASB) approved a pair of related statements that reflect substantial improvements to the accounting and financial reporting of pensions by state and local governments and pension plans. Statement No. 67, Financial Reporting for Pension Plans, addresses financial reporting for state and local government pension plans. Statement No. 68, Accounting and Financial Reporting for Pensions, establishes new accounting and financial reporting requirements for governments that provide their employees with pensions.

“In the past, PERA’s underfunding showed up on PERA’s financial statements,” explains Backes. “Now the underfunding will also show up on each of the employers’ financial statements for their applicable share.”

According to GASB, the guidance contained in these statements will change how governments calculate and report the costs and obligations associated with pensions in important ways.

It is designed to improve the decision-usefulness of reported pension information and to increase the transparency, consistency, and comparability of pension information across governments.

Reprioritizing Governmental entities are no different than their corporate counterparts in many regards, Backes says. “They suffer from the same problems everyone else does. Revenue hasn’t been growing, and most local governments are doing their best to reprioritize and provide services the best they can.”

Jenkins says while their clients definitely felt the pinch from revenue changes, they had planned ahead. “Fortunately our clients, big and small, have a good perspective on how their businesses run,” he says. “They can’t exist independently from the rest of the world.” As the economy began to turn south in 2008, Jenkins says clients were on board to be proactive. “That was helpful in weathering the downturn,” he says. “They had the attitude that when the economy improves again, we will have learned lessons and grown with it.” s

SAVE THE DATE Young Professionals Golf Tournament

JUNE 10 Lakewood Country Club

March/April 2013 • www.cocpa.org •

13

2013-2014 Board of Directors and Educational Foundation Nominees

New Leaders Coming on Board May 1

T

he Board of Directors is the COCPA’s governing body. It controls COCPA funds and property, supervises COCPA 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 Educational Foundation raises funds for scholarships awarded to students pursuing accounting degrees at Colorado colleges and universities. The new officers, directors, and trustees will take office, May 1, 2013.

Marc C. Hendrikson, CPA Chair

Senior vice president with Citywide Banks, Aurora, Hendrikson received his BS and MBA from Regis University. He’s been a COCPA member since 1994, a CPA since 2000, and a Certified Construction Industry Financial Professional since 2007. Past 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 is past chair of the Center for Financial Training Western States.

Sheila M. Balzer, CPA Vice Chair

A partner with Holben Hay Lake Balzer CPAs, LLC, Denver, Balzer received her Masters of Accountancy from the University of Denver. A CPA and COCPA member since 1997, she is a past Board of Directors member, a past chair and trustee of the Educational Foundation, past vice chair of the Careers in Accounting Committee, and a member of the COCPA Leadership Council and the AICPA Group of 100. Balzer was named one of the inaugural COCPA Women to Watch in 2012.

Sharon S. Lassar, CPA Director

Dr. Lassar is Director of the School of Accountancy, Daniels College of Business, University of Denver. She earned her Ph.D. at the University of Southern California, a Masters in Taxation at Bentley University, and a Bachelors in Accounting from West Virginia University. She serves on the COCPA Accounting Careers Committee, the AICPA Pre-Certification Education Executive Committee, and the Corporate Advisory Board for ALPFA. Lassar was vice president of the Florida Institute of CPAs from 2009-2010 where she solidified the financial literacy and women's leadership intiatives into standing programs. Lassar has been a CPA since 1997 and a COCPA member since 2011.

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• NewsAccount • March/April 2013

Mark J. Smith, CPA Director

Principal of M.J. Smith and Associates, a Denver wealth management firm, Smith earned his BBA in accounting from the University of Iowa. A CPA and a member of the COCPA since 1976, Smith is a frequent and highly rated CPE instructor for the COCPA and member of the COCPA’s Financial Planning and Investment Planning conference planning committees. He is a member of the Investment Committee and past president of the Educational Foundation. Smith serves on the boards of the Salvation Army and the Kempe Foundation for the Prevention and Treatment of Child Abuse and Neglect.

Christine Benero Public Member

Benero is President and CEO of Mile High United Way, Denver. She holds a B.S. in special education from Boston University, a Masters in Education from the Harvard University Graduate School of Education, and was selected as a 2007 Gates Fellow for the Senior Executive Program at the Kennedy School of Government at Harvard.

She serves on numerous corporate, nonprofit, and governmental boards. The Colorado Women’s Chamber of Commerce recently named her one of the 25 Most Powerful Women in Denver.

Brenda M. Clarke, CPA

Educational Foundation Trustee Clarke is a partner with Seigneur Gustafson LLP, Lakewood. She earned her BSBA from CU-Boulder in 1993. Clarke is an adjunct professor at the University of Denver and has published numerous articles on taxation and business valuation-related subjects. She chairs the NACVA Litigation and Forensics Board. She also serves on the AICPA Family Law Task Force and the Family Law Conference planning committee. Clarke has been a CPA since 1995 and a COCPA member since 2008.

Stephanie S. Hernandez, CPA Educational Foundation Trustee

Campus Recruiting Manager with KPMG LLP, Denver, Hernandez received her BSBA in accounting from the College of William and Mary in Williamsburg, Virginia. She started her career with KPMG’s Washington, DC, office in the audit practice. She has been a CPA since 2003.

March/April 2013 • www.cocpa.org •

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The State of the Industry

Ranching In this column, NewsAccount talks with CPAs from various industries that are important in the U.S. and Colorado economies. We ask: What’s happening today? What factors will affect your industry over the the next 12 months? In this issue, we focus on ranching.

BY NATALIE ROONEY PHOTO BY MATHEW KURT BARNES

Timothy D. Bachicha, CPA

What challenges face Colorado’s ranching industry?

About the Organization

The U.S. Department of Agriculture Census of Agriculture shows that Colorado lost more than 2.4 million acres of farmland between 1987 and 2007. The reduction of acreage means there is less private land to be used for forage and grazing. This means more producers will have to rely more on public land leases for grazing. Because of restrictions for environmental reasons, public lands normally used may be less available in the future. Land for grazing is critical, but also land to produce forage and other feeds can sometimes be converted to other crop production.

It would be hard to overstate the negative impact of the estate tax on all family farms, but ranches are being hit especially hard. The IRS values land at its highest and best use for estate valuation purposes. Typical farmland used in crop production may, but not always, be valued for estate purposes at close to its real fair market value because the highest and best use of that land is production of crops. And unless a corn field is close to a growing suburb, that remains true. However, many ranches are located in areas where the highest and best use might be development or splitting into 35-acre ranchettes. That will drive the estate value to three, four, or five times its value for ranching.

This is especially true in the mountain areas west of I-25, particularly for land close to rivers and recreation areas. Most ranches have developed their value over at least two generations, and that value is in their land and animal inventory, not cash. This forces a family to either re-mortgage the land, or sell some of it to

SLV Farm & Ranch Business Services Monte Vista, Colo.

SLV Farm & Ranch Business Services is the successor to the San Luis Valley Farm & Ranch Management Association. SLVFRMA was part of a statewide cooperative program funded by its members, under the auspices of the Colorado State University Cooperative Extension.

Association personnel provided financial record-keeping and tax management assistance to members. It also gathered real, not survey, data from member farms and ranches for use by the University’s Department of Agricultural and Resource Economics (DARE). In 2003, the University ended its involvement, and SLV Farm & Ranch Business Services took over as a private organization to fulfill the needs of the agriculture community.

What role does ranching play in Colorado’s economy?

According to USDA statistics, Colorado is among the top 10 states which account for 58% of all cattle and calves in the U.S. Agriculture overall is Colorado’s second largest industry. Farms and ranches report over $7 billion in cash receipts and represent approximately $20 billion of economic activity. Nearly 60%, or $4.1 billion, comes from ranching, which includes all meat and other livestock production. Beef cattle and calves alone account for $3 billion of the cash receipts. Other livestockrelated income — hogs, sheep, dairy, and poultry — makes up the rest. Beef and livestockrelated products are Colorado’s top export.

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• NewsAccount • March/April 2013

pay the tax bill. At the macro level, reduction in acres has a certain impact. But at the micro level — at the family level — to reduce acreage of a ranch can have a devastating impact. It might mean the operation will no longer work.

Organizations like the Colorado Cattlemen’s Agricultural Land Trust (CCALT) are assisting ranchers ease the burden of estate taxes and loss of ranch land. Though not appropriate for everyone, by granting a conservation easement to a qualified organization, ranchers can be assured that the land will be kept in agricultural production. In addition, conservation easements also have benefits related to charitable contributions and state tax credits.

Because of the increasing costs of land, the barrier to entry is high and actually can be impossible to overcome for someone trying to break into the business. The net returns from small family operations may not cashflow the debt service for large mortgages, and bankers are hesitant to lend money on new operations.

This means that unless a young person is already part of a family operation, the likelihood that individual will be a rancher is slim.

In addition, because land values are increasing, some operations are taking advantage of the higher prices they can get and selling out to developers or others who will not keep the land in production. This increases the pressure because less land is in use and also because the new owners may not be as amenable to having operations close by with the attendant smells and other realities of raising livestock.

Farm program payments from both the USDA and the Natural Resources Conservation Service can be very helpful in operating a ranch. Those programs have very specific

guidelines, as well as specific public benefits to be gained, especially in resource conservation, water projects, etc. Specific subsidies for particular commodities help to ensure that the prices of our food products are not subject to wild swings.

There can be some negative side effects, such as causing temporary artificial demands in the market, and these can be exacerbated when other conditions are present. For example, some believe that the government subsidy of milk has indirectly caused an increase in the price of hay. But without that subsidy, the price of milk would be in excess of $6 per gallon.

The rancher feels that impact in the increased cost of production. Offsetting this somewhat is the fact that ranchers are temporarily receiving higher prices for their slaughter calves, and that’s because overall numbers are down.

The increased cost of feed, as well as the restrictions on grazing lands, is making it harder to achieve a positive bottom line. The direct impact of the current drought means that ranchers who rent land from the government may not get the full use of the land because the grasses are not as abundant. This results in shorter grazing times, causing increased pressure on the demand for other feed that is raised in farming operations. That increased demand also affects the price of feed and the cost of production. In addition, the drought has resulted in less available water for the cattle to drink in their grazing allotments. The cost of hauling water for the cattle also causes the rancher to bring the cattle off the range sooner than is optimal.

For ranchers who raise their own feed, the availability of water for crops is very important.

But increased pressure on aquifers by those who drill wells and pump water also affects the availability of surface water. Many times, senior water right holders do not get the full benefit of that water right because someone close by is pumping out of the aquifer which pulls the surface water toward those wells. In our area, as well in those over the other major aquifers in the mid- to east part of Colorado, water users are becoming more and more subject to special regulations and special water districts.

The full impact of these regulations is yet to be seen, but many producers are already subject to higher costs for water.

Generally, capital is fairly available, and interest rates are very low. This might seem to be an opportunity to use leverage for expansion. But as both lenders and producers know, strong net equity is the key to viability of a family farm or ranch. While prices for their products are at really good levels now, comparatively speaking, this should be a reason to actually build a stronger net equity rather than reaching out and expanding. Those who are carefully managing their cash flow to improve their own liquidity will be in a better position to capitalize on opportunities that may arise to acquire additional lands for their own operations. Along with rising prices for their own products/animals, we have seen substantial growth in the costs to operate. Because of the drought, there have been reductions in herd sizes. It will take years to rebuild, and those with strong balance sheets will be better positioned to use the opportunities. In addition, ranchers would do well to develop short- and long-term plans for continuation and transfer of their operations. Whether to sell out, or to

pass it on to the next generation already working in the operation, these decisions are much easier to make when the operation is not highly leveraged, either for operating loans or mortgages.

What is your role within your organization?

I am an advisor to my clients. I strive to provide good information that they can use to make good decisions related to their business in the areas of management of operations, as well as tax management and transition planning. Because of my background with Cooperative Extension here in Colorado, I have access to many resources across the country in other land grant universities and Extension programs.

Is this a good time to be in the ranching industry?

For the majority of my ranch clients, small to medium-sized ranch operations, the answer depends on one quantitative factor and one subjective factor. The quantitative factor relates to how highly leveraged one is, is the cash flow sufficient to meet the obligations and still have a little left over to live on, and possibly put a little away into savings or retirement account?

The subjective factor is related to the realization that most ranchers didn’t get into this to make a lot of money. Like most other agricultural producers, they actually live in the business, and it is a lifestyle as much as it is a way to make a living. For many ranch families, the spouse usually has another job in town to help meet the family’s needs, and help sustain this way of life.s March/April 2013 • www.cocpa.org •

17

CGMA Tips for the Finance Team

CFOs Increasingly in Driver’s Seat on Sustainability As sustainability measures increasingly gain favor at organizations worldwide, the executives who control the purse strings are playing a more significant role in implementing them.

Twenty-six percent of CFOs reported that they are the person in the organization who is accountable to the board for their company’s sustainability strategy in a recent Deloitte Touche Tomatsu Limited (DTTL) global survey. That’s an increase of nine percentage points over 2011.

A majority of CFOs (53%) said their involvement in sustainability increased in the past year; even more (61%) expect greater involvement in sustainability in the next two years.

Chief operating officers (COOs) also are more involved; they were identified as the person accountable to the board for the sustainability strategy in 10% of organizations, up from 3% in 2011.

DTTL Sustainability Leader Dave Pearson says the increased attention from CFOs and COOs is an important development for sustainability practices. “Often the sustainability agenda has sat outside of those functions where they have less political clout, less ability to implement, less ability to influence the CEO and the board agendas,” Pearson notes. “By moving that to the CFO and COO… it’s meaning that companies are much more serious about this being important to their future.”

Pearson says sustainability is “turning the corner a little bit” in terms of gaining a prominent foothold in companies’ cultures, governance, and practices. For years the dollar value of sustainability practices has been questioned in many companies because significant costs often were required to generate comparatively small savings in energy or resource uses, for example.

That appears to be changing, as 49% of CFOs surveyed said they see a significant

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• NewsAccount • March/April 2013

link between sustainability performance and financial performance. And 34% of respondents said they are in the process of implementing an organizational transformation relating to energy, the environment, and sustainability.

Melissa Swift, DTTL’s associate director for sustainability, says increasing energy costs appear to be contributing to the rising popularity of sustainability practices. She says that as energy costs increase, volatility in those energy costs has more of an effect on the bottom line for companies. When prices are high, a price change by even a small percentage means a bigger number in terms of actual currency.

“You’ve got this sort of multiplied impact of higher costs, and companies are having to look at that holistically,” Swift says. “… so they’re starting to really look at the topic strategically and say, what can I do, fundamentally, not just in the demand side of the equation but by changing the supply side as well? They start looking at things like on-site renewables as a solution or changing their building’s energy mix. We’re at a very interesting transition point where higher costs are forcing a more strategic look at the issue.”

Technology often provides at least part of the solution. Fifty-six percent of CFOs said they plan to invest in video conferencing as companies begin to use virtual meetings to reduce travel costs. More than one-third (35%) plan investments in electric vehicles to take advantage of the fuel savings associated with them. And 52% plan to put money into efficiency equipment that will decrease energy costs for their data centers.

Part of the effort to reduce energy costs has included implementation of systems to capture more energy data. Pearson says one of the new challenges companies face is deciphering all the numbers and figuring out how to use the data strategically.

“If you’ve implemented strong energy management systems, you have more data than you can probably ever imagine,” Pearson says. “And now you have to process that to make sure you’re implementing the right

changes, the right controls.”

Pearson says the operations function usually is responsible for developing the energy strategy, but the CFO gets involved in discussions of which energy-saving processes to invest in and what the return on those investments might be.

Eric Hespenheide, global leader of the DTTL sustainability group within audit and enterprise risk services, says CFOs also look for opportunities for strategic sourcing and cost savings in their supply chains, where sustainability performance also is important.

There is risk involved for companies who do not consider sustainability in their supply chains.

Technology such as social media has made it easier for supply-chain sustainability problems to become public knowledge, Pearson says. That same technology makes it easy for the public to connect supply-chain sustainability shortcomings to companies at the top of the chain — and hold them responsible.

“You’re known by the company you keep and perhaps by the products that you sell,” Hespenheide says. “Increasingly, we see evidence that if a company has a problem in its supply chain, it could result (in problems for the company.)”

Pearson sees sustainability gaining traction more quickly in Europe and emerging markets, while Hespenheide says U.S. businesses have more of a “prove it to me” attitude. The increasing involvement of CFOs could be evidence that the use of sustainability measures is destined to grow as a way to foster innovation.

“I think the fact that the organizational structure is putting the CFO in a level of responsibility for the sustainability agenda is going to lead to it being operationalized more often,” Pearson says. “Also, that tells us that it’s being perceived as relevant to those particular companies.” s

Enhancing Value Through Sustainability

M

ore and more, business customers are trying to determine whether the companies they’re dealing with are operating effectively from an environmental and social standpoint to drive out costs, and to manage reputational risk. “If you’re a shoe company and you’re having your shoes manufactured by a company that’s using child labor or has a human rights and labor policy that’s not conducive to your values, your reputation could be shot,” says Stephen T. Starbuck, CPA, Americas leader of climate change and sustainability services at Ernst & Young LLP. As more companies report such non-financial information, demand for independent verification is also increasing. “As companies start engaging accounting firms to do the [assurance or] audits of sustainability reports, it’s the CFO and the finance function that will work with the auditors,” Starbuck adds.

For companies developing sustainability reporting initiatives, Starbuck recommends the following: Don’t operate in isolation. It’s important that the people responsible for social, economic, and environmental reporting “aren’t just sitting in some office doing it without some benefit of having a cross-functional, cross-geographical team working with them,” Starbuck says.

Involve R&D. “R&D is huge because the development of new products to meet the sustainability demands of the market — and the involvement of R&D in the measuring of the environmental footprint in the lifecycle of a product — is important,” he says.

Tell your sustainability story. A company’s sustainability story has offensive and defensive benefits. On the offensive: “If you’re not telling the story, you’re not getting credit for it, and somebody else who’s not doing as good a job as you might get the credit,” Starbuck says. Defensively speaking: “To the extent that you do have a foot fault, having established a strong sustainability framework, you can lean on that to get yourself through the potential firestorm — particularly if you get hit with something that goes viral.” A strong sustainability framework — one that transparently reports on what the company is doing well and what it needs to work on — may lessen the blow.

Starbuck also suggests that finance professionals: Learn who’s who among the specialized sustainability rating agencies to prioritize the ratings most vital to your organization.

Pay attention to sustainability-related shareholder resolutions that come up at annual meetings, and advise the board and top executives on which issues would be best to pursue.

Take preemptive action on governance-related sustainability issues to avoid being forced to react to them. s

acm provides a local firm experience while opening the door to global opportunities

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March/April 2013 • www.cocpa.org •

19

Checkoff Colorado – A Simple Way to Give •

• Colorado Nongame and Endangered Wildlife • Colorado Domestic Abuse Fund • Colorado Homeless Prevention Activities • Special Olympics Colorado • Western Colorado State Veterans Cemetery • Pet Overpopulation • Healthy Rivers • Alzheimer's Association • Military Family Relief • Colorado Breast and Women's Reproductive Cancers • Make-A-Wish Foundation of Colorado • Colorado 2-1-1 First Call for Help • Colorado Unwanted Horse Alliance • Goodwill Industries • Families in Action for Mental Health • Adult Stem Cell

Giving Back to the Future COCPA members Kevin S. Hettler and Brittany Dreher recently volunteered at Glenwood Springs Elementary School to teach students about business concepts.

Pictured is Brittany with the students and their certificates of achievement for completing the “Our Nation” curriculum — Junior Achievement's fifth-grade program that introduces students to the concept of globalization of business as it relates to the various careers students may choose to pursue and the need for them to be entrepreneurial in their thinking.

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• NewsAccount • March/April 2013

A

dhering to the adage that "a rising tide lifts all boats," the Checkoff Colorado public awareness campaign is a collaborative effort focused on educating taxpayers and tax preparers about check-off giving — the program that allows taxpayers to make voluntary contributions to charitable organizations when they file their state income tax returns.

Tax preparers are a critical link to increasing the effectiveness of the campaign by making their clients aware that they can make a big difference for Colorado nonprofits by making a simple donation.

"What easier and better way can there be than checking a box to make your charitable contribution?” asks Make-A-Wish Foundation of Colorado President and CEO Joan Mazak. “Nonprofits suffering from donor fatigue need our help, now more than ever," Mazak observes.

This year, 15 charitable funds are eligible for voluntary donations through the checkoff program; each of the funds was established after intensive review by the Colorado State Legislature.

With the goal to increase the statewide percentage of checkoff giving, the funds collaborate in getting the word out to Col-

orado taxpayers and preparers while raising the visibility of the diversity of causes represented — including Alzheimer’s research, pet overpopulation, healthy rivers, homeless prevention programs, unwanted horses, and military family relief.

So, how's it going? In 2011 nearly 154,000 contributions were made totaling almost $1.6 million in donations through the checkoff program, with an average donation of $10.24. Compare that to the $836 million plus that Colorado taxpayers received in refunds that year — an average of $533 — and it's clear more needs to be done to help the listed funds.

“The beauty of the tax checkoff program is that even a small donation goes a long way,” says Jon Pushkin, spokesperson for Checkoff Colorado. “Regardless of their income or the amount they give, taxpayers can know they are making a real difference.

It really is a simple way to give.”

Consider checking the box yourself, and encourage your clients to do the same. Share the information with those who might be interested. Help these worthwhile organizations keep their respective boats afloat.

For more information on Checkoff Colorado, log on to www.checkoffcolorado.com. s

IFRS

A Breakdown or Delay in Convergence?

BY ROBERT L. POLEY, CPA

F

or several years, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have been working on a major, joint project to converge U.S. GAAP and International Financial Reporting Standards (IFRS) toward the goal of a single, worldwide set of standards. Through 2011, the two boards made slow but steady progress. That progress appears to have stalled. The SEC has been largely silent on IFRS adoption since it issued a report on IFRS in July 2012. That report made no recommendation on U.S. adoption but described many obstacles to it.

Meanwhile, at the December 2012 AICPA/SEC Conference, several influential policy makers gave presentations that might be seen as questioning the future of the convergence effort.

FASB Chair Leslie Seidman pointed out that U.S. (public company) financial reporting needs more precise, clear guidance than the IASB’s broad, principles-based approach offers.

Seidman made two interesting points: • Inconsistent IFRS implementation across the world due to cultural, business, and economic differences in different countries and regions is a challenge for true comparability with IFRS. • Precise accounting rules guidance is necessary in the United States, which has a more litigious culture than many other countries.

She added that the U.S. financial reporting system can’t function over the long run with accounting standards that provide only broad principles, and history shows that standards for U.S. registrants must be clear, unambiguous, understood consistently, and accompanied by very specific interpretive guidance.

Paul Beswick, acting chief accountant in the SEC’s Office of the Chief Accountant, emphasized that while convergence is an important factor in the decision about whether to adopt IFRS in the United States, the SEC believes that the ability to consistently enforce

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the application of such standards within and across jurisdictions is equally important.

In recent months, this indecision has been accompanied by some unraveling in the convergence projects. For example, after initially and tentatively agreeing to a “three-bucket model” for expected credit loss in the impairment of financial instruments, the FASB developed its own “Current Expected Credit Loss” model. As justification for the change, Seidman cited complaints from stakeholders who had trouble understanding the three-bucket approach.

Even IASB Chairman Hans Hoogervorst said at the December conference that the uncertainty about the SEC’s decision has not been a good backdrop for the convergence projects as the boards attempt to reach consensus on difficult issues such as revenue recognition, leases, and financial instruments. “Already, on some issues, it is getting increasingly hard to find common solutions,” Hoogervorst said. “If we cannot achieve converged outcomes within a convergence program, then how will we maintain convergence once the program has ended?”

One SEC expert offered detailed insights into considerations countries typically weigh as they decide on adoption. Without directly channeling any guidance she would offer to the full commission, Julie Erhardt, SEC deputy chief accountant, said where countries have made a switch to IFRS, it's been to achieve some economic objective bigger than just adopting new accounting standards. Erhardt said countries that have adopted IFRS are usually looking for some improvement in capital markets or the greater society that can only be achieved by adopting IFRS. The implication is that the U.S. does not have that need. s Robert L. Poley, CPA, is an independent consultant in Boulder. He is a member of the COCPA Public Company Forum and the COCPA SEC PCAOB Conference planning committee. Contact him at rpoley@ comcast.net.

In Memoriam

We regret the loss of the following COCPA member.

We extend our sympathy to his family and friends.

Movers & Shakers Mitchell S. Hoffman, CPA/ABV, has been named a partner with Harper Hofer & Associates, LLC, Denver.

Brent A. Lind Member since 1990 Berthoud, Colo.

RubinBrown LLP added Tanna Curtin, CPA, as a manager.

Contributions in his memory may be made to the Educational Foundation of the COCPA and sent to the COCPA office, in care of Susan Vachereau.

BKD CPAs & Advisors promoted three individuals to manager: Danielle Scholl, CPA; Nikki Kubly, CPA; and Paul Masar, CPA. March/April 2013 • www.cocpa.org •

21

Colorado Society of Certified Public Accountants 7887 E. Belleview Ave., Suite 200 Englewood, CO 80111-6076

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April CPE Line-Up NEW! Excel Financial Projection Model for Business Plans, Acquisitions, Annual Budgets, and Cash Flow Forecasts • April 22 — COCPA Gain the tools, training, and direction you need create up to five years of financial projections. $355/$507*

Business Law Essentials for Accountants • April 23 — COCPA

Avoid costly litigation for your company or clients and learn to build viable defenses when faced with legal matters in bankruptcy, employment law, intellectual property, securities regulations, and more. $345/$493*

Annual Update for Controllers: Current Issues and the Latest Trends • April 24 — COCPA and Webcast

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Controller and CFO Skills: Advanced CFO & Controller Leadership Skills • April 25 — COCPA and Webcast

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NEW 2-hour Course! Healthcare Reform: Where Are We Today?

Where Are We Headed Tomorrow?

• April 26 — COCPA and Webcast

Get a synopsis of the Patient Protection and Affordable Care Act, and consider its impact on businesses and consumers — the good, the bad, and the ugly. $75/$107*

NEW 2-hour Ethics Course! Barriers to Ethical Behavior and Leadership • April 29 — COCPA McCoy's description of the Parable of the Sadhu dilemma and Lincoln Hall's near-disaster on Mt. Everest will be contrasted using leadership attributes in this thought-provoking course. $75/$107*