COCPA NewsAccount - 2016 - May/June Issue by Colorado Society of Certified Public Accountants

NewsAccount May/June 2016 Colorado Society of CPAs

Meet your new Chair and avid fly fisherman PAGE 2

Get educated. Form your opinion. Vote. The AICPA/CIMA Joint Venture Evolution PAGE 4

Contents

ONLY THROUGH MEMBERSHIP

The Hartford Offers Business Owners Insurance at Discounted Rates The Hartford is known for its industry-leading commercial property and casualty insurance. Now, COCPA members can take advantage of 5% to 25% discounts on business insurance coverage from The Hartford. A Business Owners Policy ( BOP) protects small and mediumsized businesses from a variety of risks. It includes replacement coverage for buildings and business personal property, and replacement of business income in the event of a covered loss. It also provides general liability coverage if you or your employees or products cause bodily injury, property damage, or personal injury. The discount will depend on risk factors unique to each firm or business entity. For example, the BOP discount for a CPA firm with professional liability insurance already in place would be a minimum of 10%, with the opportunity to save up to 25% if the firm represents a good risk. COCPA members in industry are eligible for similar discounts. This new member benefit is serviced exclusively by Colorado Insurance. For more information, contact Matt Travis, Commercial Insurance Specialist, Matt.Travis@ buycoloradoinsurance.com, 720-283-1722.

Features

4 6 8 10 14 21

Evolving the AICPA/CIMA Joint Venture The two organizations propose creating a new accounting association to represent the entire profession. Now is the time to learn about it and vote by June 16.

What's Change Got to Do With It? At your COCPA, we're taking on a new direction. Check out what's happened so far.

Making Time Off Work Imagine working in an organization which offers unlimited time off or provides both paternity and maternity leave in addition to paid time off. Yes, it's already reality.

Combined Reporting and the Agilent and Oracle Decisions While taxpayers were successful in both cases, certain aspects warrant further examination.

Hiring? Getting Hired? What You Need to Know About Working with Recruiters The relationship is a two-way street, and building a strong relationship brings short-term results and long-term advantages.

NFP Audit Risk Alert Issued This summary highlights recent developments specific to notfor-profit entities.

Departments

2 28

Chair Column Movers & Shakers and In Memoriam

On the Cover The cover photo of the westslope cutthroat trout was taken by Carol Ann Morris, fly fishing photographer, videographer, and watercolor illustrator, who travels the U.S. and Canada with her husband, fly-fishing author and speaker Skip Morris, speaking at sportsman’s shows and fly clubs. Her work has been published in American Angler, Fly Fisherman, Gray’s Sporting Journal, and Yale Anglers’ Journal. The Morrises live on Washington State’s wild Olympic Peninsula with their feisty cat, Olive.

Chair Column

NewsAccount

Meet Your New Chair: Mark Solomon, CPA, CGMA

A bi-monthly publication of the Colorado Society of Certified Public Accountants Vol. 62, No. 1 May | June 2016 Board of Directors Mark T. Solomon, Chair Tawnya R. Ramirez, Vice Chair Benjamin T. Hrouda, Treasurer Steve R. Corder, Immediate Past Chair Mary E. Medley, Secretary Directors Christine Benero, Ann E. Hinkins, Gregory P. Osborn, Christopher J. Telli, Dan W. Soukup, Karen F. Turner Editorial Board Jack Allgood, Alan D. Bennett, Kay R. Dragon, Georgia Z. Phillips, Lori Anne Reinwald, Laura J. Theiss, Barbara J. Tedesko, R. Stephen Van Meter, Michael D. West Mary E. Medley, President/CEO Natalie G. Rooney, Contributing Writer Blue Ocean Ideas, Design 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.

• NewsAccount • May/June 2016

fter growing up “in the sticks of Tennessee,” Mark Solomon was ready for adventure. He found it – along with a few other things – in Colorado and has been a resident for more than 22 years. A graduate of Lipscomb University in Nashville, Tenn., Solomon began his accounting career in Ernst & Young’s Nashville office. “I grew up a rambler and thought I’d ramble out here,” he laughs. “I’d never been to Denver before, but I had some buddies who said it was awesome. I figured I’d stay about two years.” Two years later to the day, his plan changed course. He joined a small oil and gas company, which would become SM Energy, the company he still is with today as vice president and controller. He met and married Tracy and realized he was in Denver to stay. “We loved it and knew we wanted to be here,” Solomon says. He’s been with SM Energy for two decades. “The job just got bigger and better, and I kept getting to do something different. It's been great.” Today, the accounting department employs 80 employees and 11 contractors who Solomon oversees. GOING NATIVE Though Solomon himself isn’t a Colorado native, his three children, Sadie (age 15),

Grant (13), and Reid (10) all were born here. The family enjoys a variety of Colorado activities. “We like to get out and explore the state,” Solomon says. “Some of us like to ski and snowboard. The boys are Scouts so we have had lots of camping adventures.” The family is also active in their church which is how he and Tracy met.

If you press Solomon on what he loves to do in his free time, the truth comes out: fly fishing. Soon after a friend introduced him to the sport, Solomon was hooked. While it’s a relatively new area of interest for him, he now works fly fishing into every trip he can, whether it was originally designed to include fishing or not. “I’m still a learner in the sport,” he says. “But I love it. It’s a great excuse to be outdoors.” Sometimes he goes out with guides, sometimes with friends, and

sometimes he just grabs his gear and fishes on Bear Creek after lunch. “I’m trying to get as much experience as I can to learn the craft.” PLUGGING INTO COCPA Solomon first got involved with the COCPA when he joined the industry world. “In public accounting, especially in a large firm, all your continuing education and resources are provided,” he says. “I went to this small oil and gas company, and I didn’t have access to those resources anymore. I needed to get plugged in.” Solomon started attending the COCPA’s Public Company Practice Forum, which meets five to six times each year. “At some point, someone mentioned my name as a potential leadership candidate. I joined the Board as a director and found myself hooked by the people and the opportunity to serve.” Along the way, Solomon served as a Board member, Board treasurer, on the Investment Committee, as Chair of the Audit Committee, and this past year as Vice Chair/Chair-elect. “It’s a critical time for the COCPA and the strategic efforts the Board has initiated,” Solomon says about the coming year. “Things are starting to take shape. We’re going to see a lot over this next year in terms of how we at the Society work and connect with members.” When he hits the road for the Chair Tour this summer, Solomon will be talking to members about the AICPA/CIMA joint venture evolution and encouraging them to “get educated, form an opinion, and vote.” It’s a message that fits whether discussing the future of the profession or a presidential election. Ask him what he really cares about in addition to his family and the outdoors, and Solomon’s easy smile spreads across his face. “Building relationships is something I’m very passionate about. It’s how we attract, develop, and retain great talent.” “A big focus at SM is people development,” Solomon explains. “To make an impact at your organization, it’s all about connecting people, forming relationships, and helping other people grow, personally and professionally. I’ve received a lot of that through my relationships at the COCPA, and I look forward to helping others make those valuable connections, too.” Solomon is excited about the opportunity to visit members on the Chair Tour. “I want to meet more people in the profession and see even more of Colorado than I have already,” he says. “I’m also thinking about taking my fly rod with me, just in case a member tells me about a favorite nearby fishing spot.” Consider this an open invitation to share not only your opinions and suggestions for the COCPA and the profession with your new Chair of the Board Mark Solomon but also your angling recommendations. s

S E E K I N G N O M I N AT I O N S Deadline June 1, 2016 Emerging Leaders

Women CPAs who — while still on the path to the highest levels of advancement — have made significant contributions to the profession and their communities, demonstrated leadership, been involved with their alma maters or other local colleges and universities, and/or created and implemented unique initiatives.

Leaders of Note

Women CPAs who have attained leadership positions within their organizations, made major or unique contributions to the profession, participated in public and community service, been published, and not only help to improve their workplaces but also mentor others.

To access the nomination form, visit womentowatch.cocpa.org.

S AV E T H E D AT E

August 19, 2016

Contact Mark Solomon at msolomon@sm-energy.com. May/June 2016 • www.cocpa.org •

AICPA/CIMA

Evolving the AICPA/CIMA Joint Venture In business, as in life, who you know is often more important than what you know.

ot long ago, Joselin Martin, CPA, CGMA, got a crash course. As CFO of Hayles and Howe Inc., which makes ornamental plasterwork and imitation marble, Martin has the perfect set of skills to lead a modern international finance team. And for years, she and her boss had sought someone with a similar mix of skills to lead the company’s UK finance operation. While serving on the AICPA Business and Industry Executive Committee, Martin met Louise Taylor from the AICPA’s joint venture partner, the Chartered Institute of Management Accountants (CIMA). Thinking Taylor could help her with her company’s UK-based talent dilemma, Martin sent Taylor an email to see if she could offer any leads. “This was something that had been floating around in the back of my head for years,” says Martin. “In less than an hour, I had a potential solution.” That is the power of collaboration. When profession leaders like the AICPA and CIMA join forces, new roads to success are paved for members of both organizations. Now, the AICPA and CIMA want to strengthen their partnership even further. ENHANCING THE PROFESSION WORLDWIDE The two organizations have proposed creating a new accounting association that would integrate operations and represent the entire accounting profession, while preserving the AICPA and CIMA membership bodies. Together, the two Institutes would provide members with enhanced advocacy, expanded resources, and additional education opportunities. The AICPA’s Board of Directors and governing Council have endorsed the proposal and 51 state CPA societies, including the Colorado Society of CPAs (COCPA), have passed reso-

• NewsAccount • May/June 2016

lutions of support. AICPA members must now weigh in through an online vote taking place between April 18 and June 16. “Numerous trends are changing the way business is done, from international regulations to interconnected supply chains,” says COCPA immediate past Chair Steve R. Corder, CPA, CGMA. “They won’t stand still, and neither can we. This proposal is an opportunity to lead the profession forward and position it for strength amid a shifting landscape. I support it and encourage COCPA members of the AICPA to vote YES, as I already have.” The new association would not replace the AICPA or CIMA. Each organization would continue to serve the unique needs of its community, with the AICPA remaining steadfast in its commitment to promoting, protecting, and growing the CPA. Members of the AICPA and CIMA would keep all of the same benefits they currently enjoy and have automatic dual membership in the new association for no additional dues. The association would act like an engine room, leveraging the strengths of the AICPA and CIMA, to power enhanced resources and education opportunities across all aspects of accountancy. Equally important, the new association would be a powerful advocate for the world’s accountants, speaking with the voice of more than 600,000 professionals to fight against onerous, unnecessary regulation increasingly originating overseas that does not protect the public interest. And, it would provide a broader platform to promote the accounting profession to the next generation. AICPA President and CEO Barry Melancon, CPA, CGMA, equates the proposal to other changes throughout the profession’s history — among them, the Securities Act of 1933

that mandated audits of public companies, the advent of peer review, the transformation of the CPA exam, the profession’s adoption of cloud-based technology, and the emergence of strategic advisory firms. “This is not unique for our profession,” Melancon says. “This is part of the continual evolution. People throughout our history have made prescient and sometimes tough decisions that gave us a platform on which to build an incredibly successful profession. Now it’s our turn.” PROTECTING THE PROFESSION’S CORE While emphasizing the need to move CPAs forward, Melancon says the AICPA also remains focused on protecting the profession’s core – a core that today stands strong. Universities are producing record numbers of accounting graduates, and an overwhelming majority of key business decision makers, 88 percent, say that CPAs are valuable to their organizations. Another 84 percent say they would have more confidence in a job done by a CPA. With that core in place and protected, there is opportunity for broader scope. This is important to AICPA members, too. Eightyfour percent of CPAs believe the AICPA should represent the diversity of members, not just those in public accounting. But they give the AICPA a 41 percent performance rating in serving members in business and industry. With nearly a 100-year history, CIMA brings a rich depth of thought leadership, tools, and resources to members in management accounting. CIMA members also are voting on whether to approve the proposal. Provided that the memberships of both organizations give it the go ahead, the changes will begin to be implemented as of January, 2017.

“The COCPA Board of Directors wholeheartedly supports this proposal. It dovetails with our mutual efforts to address members’ concerns regarding regulation and advocate for CPAs on tax, audit, financial reporting, and other important issues,” says Mark Solomon, CPA, CGMA, 2016-2017 COCPA Chair. “It offers the profession the opportunity to shape its future and provide additional benefits to CPAs. Further, it supports CPAs in public practice as well as those working in management accounting. I encourage members to learn more about how the proposal benefits CPAs at aicpa.org/horizons and to vote YES on this important effort to continue the profession’s success into the future.”

Voting members received their personal and confidential electronic ballots from “AICPA Independent Tabulator,” a third-party vote administrator, the week of April 18. You also can access your voting credentials at www. directvote.net/aicpa.

individual ballot. Make sure you've noted the following email address as an approved sender: noreply@directvote.net. This email also included your AICPA Account/Member Number and Vote Passcode, should you prefer to manually log into the ballot site.

HOW TO VOTE Method 1: Direct Link via e-mail If you have a valid and current email address registered with the AICPA as of March 22, you should have received your ballot information through email the week of April 18 from the third party vote administrator under the name “AICPA Independent Tabulator.” This email contained a unique link that automatically logs you into your

Method 2: Manual login If you did not have a valid and current email address registered with the AICPA as of March 22, the third party administrator sent your unique voting information through U.S. mail the week of April 18. Upon receipt, you can manually log into the voting site at www. directvote.net/aicpa to cast your vote using your AICPA Member/Account Number and unique Vote Passcode. s

OUR PROFESSION IS STRONG. AND GETTING STRONGER. As the American Institute of CPAs (AICPA) continues to evolve the accounting profession, we’re keeping it sustainable, relevant and vibrant for the future. We remain committed to promoting, protecting and growing the CPA and helping members engage in accounting issues. Here’s a glimpse of where the profession is today and where it’s headed: ENROLLMENT IN ACCOUNTING PROGRAMS IS AT AN ALL-TIME HIGH.

253,000 students enrolled in accounting at all levels in 2013 –2014, a 5% increase since 2011–2012.

82,000

A CPA’S VALUE TO ORGANIZATIONS IS INCREASING.

88% of key decision-makers say CPAs are valuable to their organizations, a 9% increase since 2013.

412,000

More than 65% of C-level respondents reported that the finance function is evolving to a more strategic role.

By 2017, 80% of small- and medium-sized enterprises will generate international revenue.

Source: AICPA and CIMA, CGMA Employer Recognition Strategy, 2014

Source: AICPA “Trends affecting the accounting profession”, 2015

THE AICPA REPRESENTS AN INCREASINGLY DIVERSE PROFESSION SERVING BUSINESSES OF ALL SIZES.

accounting graduates in 2014, a 23% increase since 2008.

Trends in the Supply of Accounting Graduates and the Demand for Public Accounting Recruits, AICPA, 2015

THE PROFESSION IS BECOMING MORE CONNECTED, COMPLEX AND SPECIALIZED.

84%

84% of CPAs believe the AICPA should represent the diversity of members, not just those in public accounting. Source: 2015 CAQ Main Street Investor Confidence Survey, 2015 AICPA brand research

AICPA members in 2016, our largest ever.

of key decision-makers would be more confident in a job done by a CPA.

Source: AICPA internal data from member data and surveys

Source: 2015 AICPA brand research

About 40% of AICPA members work in management accounting. Source: AICPA internal data from member data and surveys

May/June 2016 • www.cocpa.org •

Leadership Imperative

What's Change Got to Do With It? BY MARY E. MEDLEY, COCPA CEO

“We’re going to do this for 90 days. Then, we’ll decide if it’s working and whether to keep going. If it’s not, we’ll do something different.”

hose were my words to the COCPA staff in early October, 2015. We were in the midst of outsourcing communications and marketing to Blue Ocean Ideas (BOI, www. blueoceanideas.net), a brand management agency based outside of Baltimore, Maryland. Shortly thereafter, we added IT support to the list of services BOI provided. By Thanksgiving, the experiment had proven successful enough to keep going, and by January, 2016, we were ready to develop and implement a new IT strategy for migration to the cloud. Since October, the BOI team has designed and implemented new processes and templates for a wide range of member communications including NewsQuick, CPE marketing, and featured events for members across Colorado. Together, we’ve produced three issues of NewsAccount, with this issue being the fourth, plus countless e-communications, special events, and CPE materials such as QuickSearch; special website sections for CPA license renewal and Educational Foundation scholarship applications; the Colorado Gives Day campaign; and a streamlined membership renewal process. A new, more user-friendly www.cocpa.org website is in development, too. The first priority: Do what must be done to serve COCPA members, every day. The second priority: Change everything that needs to be changed to serve COCPA members successfully into the future. Yes, it’s all about YOU – and about how your COCPA colleagues support you and the profession. On April 1, our BOI colleagues Greg Rittler, Brody Bond, Luke Abell, and Brian Wilcox arrived to replace all our PC-based workstations with MacBook Pro laptops; up to 34” wide monitors and docking stations and to begin to migrate our systems. In addition, they upgraded the web-

• NewsAccount • May/June 2016

cast equipment both in the classroom and for use at other locations. Much has been accomplished in a few short months, and much remains to be done. All these efforts are being guided by these objectives: • Cost Savings: We will save money compared to traditional staffing and services such as IT infrastructure and marketing. • Expertise: We will bring the right skills to bear at the right time. • Capacity: We will execute on opportunities and items we previously didn’t have capacity to complete internally (website redesign, email redesign, production of communications pieces such as NewsAccount and QuickSearch, etc.). • Efficiency: We will save staff time. • Anticipation: We will seize and act on opportunities instead of adding them to the “someday” list. • Design Excellence: Our presentation (i.e. website, print materials, electronic communications, etc.) externally and internally matches our high degree of excellence in member service. • Innovation: We will implement best practices of innovation (mobile and responsive websites, email marketing best practices, etc.). • Execution: We will get it done – plain and simple. • Leadership: We will bring staff along successfully as we go through the change process together with Blue Ocean Ideas. We will provide leadership for members to be successful in their businesses, organizations, and professional lives.

The COCPA Cloud Migration Strategy focuses on the following core tenets: • Collaborative: “we” not “me” (Google Drive); less email, more conversations (Slack); on-the-fly live video conversations from anywhere (Google Hangouts) • Mobile: anyone working from anywhere; ability to work comfortably at the office and easily move around or work elsewhere; able to work from any device • Effective: fewer documents and files that are of higher quality, higher value, and shared; user device hardware is where we invest, not in expensive infrastructure; less print, more digital sharing; if you have wifi, you have what you need to work Over the next year or so, you’ll see many more experiments. You can expect some to be excellent opportunities to learn what doesn’t work and others to surprise, perhaps even delight, you. I encourage you to attend this year’s Leadership Council conference, June 13, at the Inverness Hotel and Conference Center, Englewood, where you’ll hear more of the COCPA story, as well as take home tools and content to use in your own organization. If you’ve attended in the past, this year will be different – a “give back” for all you’ve given to the COCPA. If you haven’t attended before, this is the year to come and bring a colleague or your whole team. What’s change got to do with it? At your COCPA, we’re taking on a new direction. Let me know what you think: mary@cocpa.org. s

Making Sense of A Changing & Complex World: The Anticipatory CPA and Organization June 13, 2016

Inverness Hotel & Conference Center, Englewood, Colorado Fee: $125

Whether you're a past attendee or a first-timer, this is the year to come! All COCPA members and their guests are invited. Find out what’s happened with the COCPA Strategy Initiatives since June 2015. Learn what’s happening on the national and international scenes which affects and challenges you and the CPA profession. Understand what branding is and how to use it successfully. Identify the hard trends which can help guide strategy. Prioritize what’s critical, essential, and significant to be successful as an anticipatory CPA and anticipatory organization.

Work-Life Balance

Making Time Off Work BY NATALIE ROONEY

he U.S. is known as the “No Vacation Nation.” Americans receive the least amount of annual vacation time among the top 21 of the world’s developed nations, and they use the least amount of the vacation time they do earn. As opposed to other advanced countries where labor laws mandate employers provide a minimum amount of paid vacation, the U.S. is the only country that doesn’t require employers to provide any paid time off. It’s no surprise that time out of the office and how it can be used have become a recruiting and retention benefit to attract and retain the best and the brightest. A 2015 Protiviti survey asked CFOs which workplace perk they thought their employees were most interested in receiving. Fortyone percent of CFOs said better benefits, and 19 percent said more vacation days. In a separate survey of workers, however, more paid time off (30 percent) edged out better benefits (26 percent) as most desired in 2015. FLEXIBLE TIME OFF Last fall, Grant Thornton LLP set the accounting world abuzz when it began offering employees unlimited time off. The flexible policy allows employees to take time off as needed to meet their individual needs instead of a predetermined set of paid time off (PTO) days. In addition to recognizing their employees as talented professionals, Grant Thornton’s goal is to empower employees to manage their own time and says that the new flex time

• NewsAccount • May/June 2016

off policy “is the model for the professional services firm of the future.” Grant Thornton used a standard PTO structure before the flexible program was rolled out. “The new policy is consistent with the culture we’re committed to creating in each of our local as well as national offices,” says Lori Davis, Grant Thornton’s Denver office managing partner. “We want people to understand that they have autonomy over their career path and how they get their work done.” When Grant Thornton rolled out the policy, Davis says her office held a Q&A session to make sure employees were comfortable coming forward with questions and concerns. Reactions to the change were all over the board, Davis says. “Most reacted very positively, especially at the manager and above levels,” she says. “They keep their own calendars and know their clients and what work needs to be done.” Below the manager level, Davis says there were definitely questions about how the system would work. “We emphasized that staff members needed to work with their supervisors to schedule their time off when it works both for the client and for them,” she says. “It takes more collaboration and communication. In the end, everyone was pretty pleased with it.” Davis says each of the service lines located in Denver – Audit, Tax, and Advisory – has its own projects and busy seasons. The new flexible time off program has opened up communication around scheduling. “We use

a specific scheduling system,” she says. “The new policy is not so much about tracking time off as it is about making sure the time gets on the schedule.” Even once the schedule is put together, Davis says there is still flexibility if something – work or vacation – needs to be shifted. “It just takes communication,” Davis emphasizes. Contrary to what you might think, no one rushed to take a month off work as soon as the policy was rolled out. “We’re still in the learning phase,” Davis says. “But I see people taking advantage of the opportunity just as they would their PTO. It was a pretty seamless adaptation. People understand what they need to do which is exactly why we felt we could have such a policy. We have a culture of trust and empowerment. We’re focused on client service, and the people who work here know that.” In addition to the flexible time off policy, Grant Thornton also closes for two weeks over the December holidays, a tradition that existed before the new policy was rolled out and continued for the 2015 holiday season. “It wasn’t a part of our formal PTO policy,” Davis says. “We wanted our employees to take a solid two weeks away from work and come back refreshed. We think it results in having more inspired workers who improve our client service.” Feedback has been favorable. Davis says people have told her the policy demonstrates the firm’s culture of trust. “The new policy is a part of our intentional culture journey,” Davis says. “The policy is part of other conversations we’re having around respect and collaboration. The whole essence of the

policy was building a differentiated culture for our firm and making sure this is a great place for our employees to work. We think it sets us apart, improves our client service, and improves our employees’ lives.” TRADITIONAL PTO Stacey Hekkert, managing partner at Anton Collins Mitchell LLP in Denver, says the firm uses the standard PTO model with vacation, sick, and personal time in one bundle. The ultimate goal, Hekkert says, is a generous policy that encourages people to take a break and reenergize. “We want them to know they have earned the time away and need to take it,” she says. Hekkert admits that it can be a challenge to make sure people use the time they are given. “We generally see higher PTO balances for people who have been with the firm for many years,” she says. “Because we allow a certain amount of time to roll over each year, some people need more regular reminders to take adequate time to recharge. They have earned it.” PTO balances are reviewed regularly and if it appears that balances are building too much, Hekkert says individual coaches meet with employees to remind them to schedule time out of the office. “Public accounting has defined busy seasons. Our people work very hard in compressed time periods. Both our teams and our clients are better served when people take care of themselves. Our philosophy is ‘go recharge.’ The firm is structured to allow for time off.” The firm’s “work-life integration” culture recognizes the need for flexibility. This includes the possibility of extended time, even if it means taking additional time off without pay. Hekkert cites the example of a manager who took four weeks off for an extended trip in addition to her other planned vacations. “She built it into her personal budget and made sure her jobs were well staffed,” Hekkert explains. “The employee was happy, and her absence gave others the chance to step up.” ACM also provides its employees time off for volunteering, community service, bereavement, teaching, professional development, etc. that does not count as PTO. ACM recently added a paternity leave policy allowing two weeks off for new fathers. Its newly upgraded maternity leave policy allows new mothers a full eight weeks at full pay, in addition to their PTO. “Let’s be honest, being home with a new baby isn’t a vacation or time to recharge – it’s exhausting,” Hekkert says. “We want people to take care of their new families and not use PTO time for that wonderful life event. Those folks still need time to recharge. We want them to return to work knowing the firm had their back. The price of not taking care of your employees is too high.” Hekkert acknowledges that life can be unpredictable. “Emergencies arise, people get sick, and kids get hurt. We want our people to have the flexibility to deal with life. These are our employees,” Hekkert says. “Taking care of them is the right thing to do. And at the same time, we are a large organization that needs structure. Our solution is not just PTO but a combination of generous policies that allows people to take time to deal with personal matters, take breaks from our compressed workloads, and reenergize.” s

2016 CPAs MAKE A DIFFERENCE

SAVE THE DATE

CPAs Make a Difference November 2, 2016

Grand Hyatt Downtown, Denver

Seeking nominations for Everyday Heroes and Heroines Contact Terry Cervi for details, terry@cocpa.org or visit heroes.cocpa.org. Nomination Deadline: September 1, 2016

Think "unforgettable, interactive, hilarious, and inspiring." That's what you can expect when keynote speaker Craig Zablocki once again headlines this special evening. If you saw him at the 2014 celebration, you know. If you missed him then, you mustn't miss him this year.

May/June 2016 • www.cocpa.org •

Colorado Corporate Income Tax

Combined Reporting and the Agilent and Oracle Colorado Circuit Court Decisions BY JOSEPH J. SCHMIDT, CPA, JD, AND LOUISE GREGORY, CPA

n Agilent Technologies, Inc. v. Colorado Department of Revenue, the 2nd district court in Colorado held that the Colorado Department of Revenue erred in requiring the inclusion of a holding company in a corporation’s combined corporate income tax returns because the holding company did not meet the definition of an “includible C corporation” under state law.1 A month later, the 2nd district court addressed overlapping issues in Oracle Corp. v. Department of Revenue.2 While taxpayers were successful in Agilent and Oracle, certain aspects of these opinions warrant further examination.

1 2

BACKGROUND The parent company in the first case, Agilent Technologies, Inc. (“Agilent”), owned holding company Agilent Technologies World Trade, Inc. (“World Trade”), which in turn owned 100 percent of four foreign subsidiaries. All of the subsidiaries elected to be treated as “disregarded entities” under the federal entity classification regulations pursuant to Internal Revenue Code Sec. 7701. Colo. Rev. Stat. (“C.R.S.”) Sec. 39-22-303(12) states that only those corporations with more than 20 percent of property and payroll within the United States

District Court, 2nd Judicial District (Colorado), No. 2014CV393, Jan. 20, 2016. District Court, 2nd Judicial District (Colorado), No. 2015CV31175, Feb. 26, 2016.

• NewsAccount • May/June 2016

may be included in a combined report. The Agilent court concluded that, as a pure holding company, World Trade had no property and payroll of its own and, therefore, must be excluded from the Colorado combined group. In the second case, Oracle Corporation (“Oracle”) owned subsidiary Oracle Japan Holding, Inc. (“OJH”), which in turn owned Oracle Corporation Japan (“Oracle Japan”). OJH sold Oracle Japan for a gain of $6.4 billion. At issue was whether OJH was excluded from Oracle’s combined report-

ing group in Colorado. The court in Oracle determined that OJH, with no property and payroll of its own, must also be excluded from the Colorado combined group. SO, WHAT’S THE PROBLEM? One of the more problematic aspects of the Agilent opinion was the court’s determination that Colorado’s adoption of the federal entity classification rules does not apply to the 80/20 test. Agilent argued that World Trade and its four foreign subsidiaries were a single entity due to the subsidiaries’ checkthe-box elections. When all five entities are viewed as a single taxpayer, more than 80 percent of its property and payroll were foreign and, accordingly, World Trade must be excluded from the combined reporting group. It appears, however, that the court misconstrued the nature of the federal entity classification rules, observing that “[t]he federal ‘check-the-box’ rules . . . allow affiliated companies to elect consolidation for federal tax calculation by choosing to be disregarded as a separate entity.” Notwithstanding that Colorado statutes provide that a corporation is defined as any entity considered a corporation for federal tax purposes, the court determined that “an entity’s choice of federal designation is not binding for purposes of state application under Section 303.” Focusing on C.R.S. Sec. 39-22-303(12), we can observe that taxpayers have, in the past, reasoned that property and payroll attributes of disregarded entity subsidiaries are considered as those of the disregarded entity’s parent for purposes of Colorado’s 80/20 test. The court’s conclusion that the federal “check-the-box” rules are not binding on the state for purposes of this test may create surprising results in a variety of fact patterns. Consider, for example, an Agilent fact pattern involving disregarded entities with domestic rather than foreign activity. Previously, we would have concluded that the intermediate holding company was includible in the Colorado combined group as a corporation with more than 20 percent of property and

payroll in the U.S. Under Agilent, however, we would instead conclude: 1. The holding company, with no property and payroll of its own, is excluded from membership in the Colorado combined group, and 2. The intermediate holding company, inclusive of its disregarded entity subsidiaries, to the extent that the excluded corporation has a Colorado filing requirement, must file returns with Colorado separately. The Agilent court didn’t stop at disrupting the interaction of the 80/20 rule and federal entity classification rules. The court went further to find that the entity classification rules are ignored for C.R.S. Sec. 39-22-303 in its entirety, including C.R.S. Sec. 39-22303(11), otherwise known as the “six unities” test. Observing that the indicia of unity incorporated into Colorado law are “largely structural,” the court expressed concern over taxpayers’ ability to game these rules: If the Department were required to import a federal “check-the-box” designation, that would create an opportunity for an entity to sidestep application of C.R.S §39-22-303(11) by subjectively defining itself. This is to say, a complex corporate entity, operating through multiple C corporations, could avoid a factbased application of subsection (11) by creating a corporate structure that conforms to C.R.S §39-22-303(8)3 through creative “check-the-box” elections. Such an outcome – rendering subsection (11) ineffectual – is inconsistent with Colorado’s corporate tax scheme. Certainly, taxpayers elect entity classification with the best tax result in mind, but rarely does the Colorado income tax tail wag the much larger federal and international tax dogs of the overall tax equation. Ironically, the court’s insistence on selectively setting aside federal entity classification creates a dichotomy that some Colorado taxpayers

might be able to exploit. We suggest waiting on the sidelines before pursuing tax planning strategies based on this aspect of Agilent as efforts to reverse it are likely to be mounted by the Department and by members of the taxpayer community. COLORADO’S SIX UNITIES’ TEST JUST GOT FUZZIER The Oracle court introduced murkiness into the six unities test that the Colorado legislature adopted for the purpose of determining when a unitary business exists. The “directors and officers” unities test found at C.R.S Sec. 39-22-303(11)(a)(V) is satisfied if “fifty percent or more of the members of the board of directors of one affiliated C corporation are members of the board of directors or are corporate officers of another affiliated C corporation.” Oracle contended that, under corporation law, officers must be appointed by the board of directors or however otherwise provided in corporate bylaws.4 Utilizing what the Department contended was the “plain and ordinary meaning” of the term “officer,” the Oracle court concluded that an individual with a working title “Senior Vice President,” though technically not a sanctioned officer under the corporation’s bylaws, should nevertheless be considered an officer. Even more unfortunately, the language used by the court suggests that having an officer title is not mandatory and that merely managing a substantial number of people and having a large budget could result in an individual being found to be an officer of a corporation for purposes of this test. The court acknowledged that “Oracle’s argument has the advantage of being a bright-line rule…,” which, ironically, is exactly what the Colorado legislature was seeking when it codified the six-unities test. Both courts broadly defined the most vague of the unity tests; “…substantial use of patents, trademark, service marks, logo-types, trade secrets, copy rights, or other proprietary materials owned by [another affiliate].” Observing that World Trade incorporates

C.R.S. Sec. 39-22-303(8) reads, “The executive director shall not require the inclusion in a combined report of the income of any C corporation which conducts business outside the United States if eighty percent or more of the C corporation's property and payroll, as determined by factoring pursuant to section 24-60-1301, C.R.S., is assigned to locations outside the United States. For the purpose of this subsection (8), “United States” shall be restricted to the fifty states and the District of Columbia.” 4 C.R.S. Sec. 7-108-301(2); Oracle, at P. 4. 3

May/June 2016 • www.cocpa.org •

Tax Update “Agilent” into its formal legal name, the court applied a “common sense” approach in concluding that such use “is important to both World Trade and Agilent in that it reflects a unified group. World Trade’s use of the trademark conveys an affiliation with Agilent to all third-parties in the ordinary course of trade.” If merely sharing a naming convention within an affiliated group qualifies as “substantial” use of intellectual property, then this unitary test just became much easier to satisfy. Again, the Oracle analysis and conclusion mirrored the Agilent decision on this issue. SETBACKS FOR THE DEPARTMENT The Department argued that C.R.S. Sec. 39-22-303(6)5 allowed it to include World Trade as part of Agilent’s combined group in order to truly reflect Agilent’s income apportioned to Colorado. The court disagreed, pointing to language in 1 Colo. Code Regs. 201-2, Sec. 39-22-303.6 which indicates that C.R.S. Sec. 39-22-303(6) “is not a vehicle for combining income of affiliated corporations, and cannot be used to circumvent the combined reporting regime found in C.R.S. §§ 39-22-303(8) through (12).”

During recent hearings on proposed updates to Colorado’s combined reporting regulations, the Department expressed a desire to expand its discretionary powers to combat perceived taxpayer abuse of the combined reporting rules to include or exclude affiliates from the Colorado combined filing group. As the court noted, allowing the Department such “broad authority” would “render Colorado’s combined reporting statutory regime moot.” The Oracle analysis and conclusion mirrored the Agilent decision on this issue. Additionally, in both Agilent and Oracle, the Department attempted to infer that, as pure holding companies, World Trade and OJH must have put to their own use property and personnel of their U.S. parents to use in order to conduct their affairs. The courts disagreed, citing legislative history. The Department would routinely utilize this technique on audit, finding, for example, that a parent corporation’s tax department having merely prepared tax returns for subsidiaries imbued the holding company with the property and payroll needed to pass the 80/20 test for inclusion. It would be reason-

able to assume that the Department will view these aspects of the opinion as setbacks. THE ROAD FORWARD Ostensibly taxpayer victories, the practical effects of the Agilent and Oracle decisions are mixed and uncertain. In response, the Department has issued guidance that taxpayers should not rely on Regulation 303.12(c), except as it applies to foreign holding companies. Stay tuned for signals from the Department and the taxpayer community alike on what efforts to reverse parts of these decisions will be mounted, either through the appeals process, by future regulations, or through legislative action. s Joseph J. Schmidt, CPA, JD, is a State and Local Tax Director in the Denver office of Grant Thornton LLP. Contact him at 303813-3958 or Joe.Schmidt@us.gt.com. Louise Gregory, CPA, is a State and Local Tax Manager in the Denver office of Grant Thornton LLP. Contact her at 303-813-4049 or Louise.Gregory@us.gt.com.

C.R.S. Sec. 39-22-303(6) reads, “In the case of two or more C corporations, whether domestic or foreign, owned or controlled directly or indirectly by the same interests, the executive director may, to avoid abuse, on a fair and impartial basis, distribute or allocate the gross income and deductions between or among such C corporations in order to clearly reflect income.” 5

May 24, 2016 NOT-FOR-PROFIT CONFERENCE May 25, 2016 EMPLOYEE BENEFIT PLANS CONFERENCE

SAVE THE DATE 2016 Conferences For details, contact COCPA at 303-773-2877, 800-523-9082, or go to www.cocpa.org.

August 19, 2016 WOMEN’S SUMMIT October 20, 2016 GOVERNMENTAL CONFERENCE October 26, 2016 CPAS IN INDUSTRY CONFERENCE November 14–15, 2016 TECHNOLOGY CONFERENCE November 17, 2016 ACCOUNTING AND AUDITING CONFERENCE December 13, 2016 SEC AND PCAOB CONFERENCE December 15, 2016 MIX AND MATCH CONFERENCE Date To Be Determined YOUNG PROFESSIONALS LEADERSHIP SUMMIT

• NewsAccount • May/June 2016

Performance Management

The “Four Ts” for Managing Local Government Performance Metropolitan areas continue to grow and increasingly impact the global economy. Are their local governments up for the challenges ahead?

n today’s global marketplace, closer alignments between businesses and local governments have never been more critical. But the often uneasy alliance between the two continues to be hampered by what businesses feel they need versus what governments are prepared to provide. While the majority of business leaders feel their local governments understand their needs for zoning, waste, technology, and infrastructure, 70 percent do not think their efforts in service transformation, online processes, or improved transparency add any value to their business. They believe government fails to recognize the investment opportunities that will support them. Finance management can change the status quo, creating new opportunities between businesses and governments. Success will require careful planning, execution, monitoring, and analysis of results. Yet despite the obvious need, finance currently plays a limited strategic role in many local governments. New research by the AICPA and CIMA shows effective performance management and strong financial leadership will reverse the stagnation of local governments and create sustainable public service delivery. There are four key areas where government leaders need to focus. Dubbed the “Four Ts,” they are: transformation, technology, transparency, and talent. The good news is that 70 percent of local governments are already undergoing or have recently gone through organizational transformation of their public services. Another 20 percent say they plan to do so within the next year and a half. They know the need for change exists. But does transformation add immediate value? So far, a third of government

leaders report difficulty quantifying the financial benefits of such change. Adoption of technology is central to improving these transformation efforts. Technology quickly improves the communications, efficiencies, and decision-making of local governments. Still, 40 percent struggle to manage data and share insights, and only 57 percent of them say they have the proper budget to execute their technology strategy, making it underutilized as an agent of change. Today, society demands much greater openness. As a result, local governments are making their operations more transparent. It’s a win-win for all involved, as it enhances both business and citizen trust while improving internal collaboration and organizational effectiveness. Over three-quarters of local government leaders believe transparency improves the quality of public service delivery. Unfortunately, an ongoing challenge for local governments is the recruitment and retention of top talent. While most believe they have a well-defined talent management strategy in place, almost half struggle to compete with their private sector rivals. The Four Ts can help finance leaders manage the accounting capabilities so necessary in today’s global marketplace. Working together, the four key areas help implement future-focused, evidence-based, and agile decision-making, creating stronger alliances between businesses and their local governments. s Learn more by viewing the infographic at cgma.org/FourTs. CGMA designation holders can download the full report there. Not a CGMA designation holder? Find out how to become one at CGMA.org. May/June 2016 • www.cocpa.org •

Career Focus

Hiring? Getting Hired? What You Need to Know About Working with Recruiters BY NATALIE ROONEY

• NewsAccount • May/June 2016

hether you’re a hiring manager looking for the perfect person or looking for that perfect job yourself, you’re likely to have a few misconceptions about working with a recruiter. Denae Bluethmann, owner of Executive Career Group, can clear those up for you. Bluethmann has spent the last decade coaching executives through job transitions and helping corporate clients identify and recruit best in class talent for accounting and finance, IT, supply chain, and human capital roles. The recruiting model has changed, Bluethmann says. And those changes are why companies turn to recruiters more and more often to ensure they’re attracting the right people for their teams. Companies tend to think about recruiting as a transactional issue. Bluethman says recruiting should be strategic instead. “Working effectively with a recruiter means developing a strategic partnership. Today, it’s about much more than gathering resumes and dumping them on a client’s desk,” she explains. Recruiters can provide companies with useful market data during the course of a search. When it’s taking an extended period of time to fill a position, a skilled recruiter will let you know what’s going wrong. Maybe you’re paying under market rate or you’ve developed a less than positive reputation as an employer. “Recruiters are a great source of information about what the market realities are,” Bluethmann says. “They also may tell you that your expectations are unrealistic. But if you don’t have a strong relationship with a recruiter, you won’t get that level of partnership.” In addition, recruiters can put you in touch with candidates you’d never find or who would never find you. “Good external recruiters have built a solid pipeline of candidates, and they know their candidates well,” she says. “Recruiters are an extension of a company’s recruiting efforts. They’re able to step in when companies realize they don’t have the time or skills to recruit the specific talent they need.” MORE ISN’T BETTER One of the biggest mistakes Bluethmann sees companies make is contacting too many re-

cruiting firms at once. She advises against sending an open position to every recruiting firm in town. “Companies think the more agencies they send a position to, the more candidates they’ll get, but that isn’t the case,” she says. “One recruiter may hear from another that they’re both working on the same project. Because recruiters are paid after a candidate is placed, you risk decreasing their motivation to work on that job.” Going to every recruiting firm looks bad to prospective candidates as well. “It looks like the company doesn’t know what it’s doing,” Bluethmann cautions. Instead, Bluethmann says companies need trusted recruiting advisers on their team. Identify a few recruiters with whom you can build a relationship and educate about your business needs. Then, when you do have a recruiting need, go to the one firm you really trust. “As long as you’re being realistic about what you’re looking for and what you’re willing to pay, you’ll get results,” Bluethmann assures. “Find a trusted adviser and use him or her.” TOP TIP FOR COMPANIES Spend time with the recruiter up front. Talk very specifically about the position you need to fill. Why is the position open? What are the opportunities for growth? What are the selling points of the position? What is the compensation? What will attract people to this career opportunity? “The tendency is for companies to give recruiters a job description and say ‘Go recruit,’” Bluethmann says. “But if you spend more time up front, you’ll achieve better results on the back end.” TIPS FOR JOB SEEKERS For those seeking jobs, it also comes down to building relationships with recruiters. But, Bluethmann says, don’t forget that recruiters aren’t working for you. They’re hired and paid by the company. A classic mistake by job seekers is reaching out to every recruiter as well. Choose wisely. Also, don’t make recruiters the sole source of job search leads. “Make a recruiter only twenty percent of your job search,” Bluethmann recommends. The majority of your

time should be spent networking and building relationships. Recruiters have valuable market data for job seekers as well: what companies are good to work for, who you should steer clear of, etc. “You can go to them with a list of targeted companies and find out if they have a network you can tap into,” Bluethmann says. Don’t forget that a relationship with a recruiter is a two-way street. Job seekers tend to be takers, Bluethmann says. Try thinking about how you can help the recruiter. Look at your network. Can you connect your recruiter with your CFO neighbor who is looking to grow her team? “There are currencies in recruiting, and job seekers have them as well, even if they don’t think they do,” Bluethmann says. “Take a hard look at how you can help the person on the other side of the desk. Make it a priority, and you’ll have people trying to help you in your job search.” THINKING LONG TERM Being proactive is good for everyone. Recruiting is something that executives tend not to think about until they’re in desperate need, Bluethmann says. “They’re trying to build the relationship right there and then, and it’s too late.” The same can be said when it’s time to look for a job, and you need a network. “It’s not easy to think about building your network when you’re focused on your career, but you need to take the time,” Bluethmann advises. She tells her clients to set goals for keeping in touch with their networks. “Work on building those relationships so they’re ready when you need them, and next time you won’t have to start fresh.” Start with two simple strategies: • Every Friday, make five calls to people in your network just to say hello. • Join a monthly networking group. “People need to take more ownership of their careers,” Bluethmann says. Building a strong relationship with a recruiter brings short-term results and long-term advantages. “Once you find someone and build the relationship, you can look forward to his or her help with this job transition, your next job, and so on.” s May/June 2016 • www.cocpa.org •

Human Resources

Developing the CPA Pipeline for the Future BY KIM NILSEN

o single statistic can adequately tell the story of the accounting profession’s current health and long-term forecast. But among the many trend lines the AICPA has been monitoring and responding to in recent years is the gap between the number of recent college graduates with accounting degrees and the volume of new candidates sitting for the Uniform CPA Examination. While the latest numbers for the CPA exam show that the volume of candidates who tested for the first time grew 3.36% from 2014 to 2015 – to 42,653, the exam gap persists. The number of first-time test takers was about half the number of accounting graduates. To better understand factors driving the gap, the AICPA commissioned qualitative and quantitative research by Applied Research & Consulting (ARC). The ARC researchers focused on accounting students and recent graduates and sought to uncover what influences students to decide to major in accounting; sit for the exam; and carry through with intentions to become a CPA. The research revealed the CPA brand is strong. Students and recent graduates consider the CPA a valued credential that opens doors and is relevant to broader business and finance fields. It also revealed that the environment, including a pro-CPA culture, plays a critical role in determining whether a CPA candidate sits for the exam, with those at Big Four firms having a very high sit rate and those graduates who go directly into business having a much lower one. The AICPA's Trends in Supply and Demand report and the ARC research are both part of the AICPA’s research-driven approach to building the CPA pipeline. The AICPA strategy employs continuous engagement with students, candidates, and CPAs and efforts to build a supportive pro-CPA environment throughout the pipeline.

Here’s a look at some of the initiatives: • The CPA Exam Candidate Success report, to be completed this fall, identifies and shares best practices that drive more students to licensure. One of the study’s leading recommendations is to develop an academic champion program on campuses. Previous AICPA-commissioned research had shown that a pro-CPA culture was one of the top three influences on college students’ likelihood to pursue licensure. • The AICPA has hired its first-ever Academic in Residence, Yvonne Hinson, CPA, CGMA, PhD., formerly of Wake Forest University, to launch the academic champion program. The program will identify faculty at select universities to partner with the AICPA to help promote the CPA credential. • To put more people on campuses to promote CPA, the AICPA and state CPA societies have launched a pilot program on student recruitment in seven states (Connecticut, Kentucky, Louisiana, North Carolina, New Mexico, South Carolina, and Tennessee), using co-branded materials and ultimately creating a shared student experience. Students in those states join the AICPA and their state society at the same time and have the support of both on their journey to licensure. • The AICPA has launched a program with Beta Alpha Psi (BAP) that provides soft skills training to BAP student chapters, using a local CPA and an AICPA training video. • The AICPA’s 2015 Accounting Competition, completed last December, challenged teams of undergraduates to play the role of management accountants to take a fictional business to the next level and help it reduce costs and sell competitively. The competition drew teams from 117 schools. Approximately 92% of surveyed students said the competition gave them a better understanding of the

accounting profession, and 51% said the competition positively influenced their decision to pursue a CPA license. • To address demands for accounting faculty, a second iteration of the Accounting Doctoral Scholars Program is being considered. The program’s first iteration moved 108 CPAs from practice into the classroom. • Ongoing research by the AICPA that will complement the Trends report is examining the hiring of accounting graduates in industry. This is of special interest because many accounting graduates who go straight into industry do not sit for the CPA exam. • The AICPA Pre-certification Education Executive Committee membership has been expanded, and subcommittees have been formed to thoroughly address multiple issues, such as the impact of accreditation, simultaneously. • Last year, because of members’ donations to the AICPA Foundation, the dollar amounts increased by 46% for scholarships awarded to students who plan to become CPAs. • Three unique tools are available to enhance diversity and inclusion efforts. The Accounting Inclusion Maturity Model gives firm and business leaders the opportunity to perform a comprehensive self-assessment of their progress in fostering diversity and inclusion. The Recruitment and Retention Toolkit highlights best practices for attracting, recruiting, and retaining a diverse workforce. And the monthly newsletter Inclusion Solutions curates top news on diversity and inclusion. The tools are available at aicpa.org/diversity. • In October, 2015, the AICPA and NAF’s Academy of Finance agreed to pilot a recognition program in four states (Florida, Maryland, North Carolina, and New York) that teaches diverse high school students both soft skills and technical accounting and CONTINUED ON PAGE 19

• NewsAccount • May/June 2016

Technology

Cybersecurity: What You Need to Know Now BY NATALIE ROONEY

Editor’s Note: Two of the interviewees in this article requested they remain anonymous because companies who discuss their hacking and security issues sometimes become targets.

he headlines are alarming and constant. Major corporations are hit by hackers who steal money and customer, employee, and patient data. If you think no one wants to hack into your system because you’re just a small organization, think again. No one is immune as cyberattacks and hacking become more frequent and pervasive. James Harris, president of Xlingshot, recently addressed the COCPA CFO Controllers Roundtable to discuss hacking and cybersecurity. He founded Xlingshot in 2002 after realizing small and medium-sized businesses had a big need for disaster recovery, network planning, and security services. Even though large hacking scandals are what make headlines, it’s the sneakier methods that companies are falling prey to, such as spear phishing, where perpetrators imitate someone at your organization in order to steal money, and ransomware, which locks your system or files until you pay a fee. These locking hacks are occurring at the rate of about 90,000 computers a day, Harris says. And organizations and information that were previously considered immune, such as hospital patient records, are being targeted. Employees at Hollywood Presbyterian Medical Center in California had no access to medical records until they resorted to paying $17,000 in Bitcoins to regain access to their system after hackers encrypted it. “There used to be an invisible line that hackers didn’t cross,” Harris says, “but that clearly is no longer the case.”

• NewsAccount • May/June 2016

SPEAR PHISHING Spear phishing works similarly to the email messages you’ve likely received at home claiming you’ve won something or offer a solution to lose 10 pounds in 24 hours – just click here to see the solution. Spear phishing messages appear to come from a trusted source and likely from someone within the recipient's own company and in a position of authority. Even though there have been countless warnings in the news media, from the IRS, and from your employer, these phishing expeditions often work. According to ZapFraud, these kinds of spear phishing attacks, known as business email compromise (BEC), now account for four percent of the total volume of scams, up from less than one percent in 2011. BEC fraud was the fastest-growing type of spear phishing attack last year, as reported by PhishLabs in a February 2016 report. This type of fraud cost global business more than $1.2 billion over the past two years, according to the FBI, and the number of victims increased by 270 percent during the first eight months of 2015. The average loss per scam was $130,000. Nancy Smith (not her real name), CFO of a private school in Denver, says a combination of factors caused the school to lose approximately $6,500 to a phishing scam. The incident occurred in November 2015, while Smith was on a work trip. She was checking email regularly but didn’t realize that hackers had taken control of her work

Gmail account. The school’s accounting staff has only three people, one of whom had been with the organization just seven months at the time of the phishing attack. A red flag went up for Smith when the newer employee messaged her to ask how she should code the $6,500 ACH transfer. “I immediately asked what she was talking about,” Smith says. “She replied it was the transfer we’d been emailing about. I had no idea.” A frantic researching of the situation began which revealed the organization’s email had been hacked. The hackers determined who worked in the business office, who worked for Smith, and who was authorized to do the organization’s banking. The hackers set up a filtering system so that any emails from Smith’s staff members or the bank would be sent directly to her email trash where the hackers could read it without her knowing. The original email from the hackers to the new employee in Smith’s name was simple and said in part, “Hi Name, Will you please transfer $6,500 to the account below and let me know when it’s done?” Smith says if the employee had been with the organization longer, she would have likely seen signs that the email was a scam. “My signature at the bottom of the email didn’t look quite right, the email wasn’t written how I would normally speak, and she had never been asked to do a random outgoing ACH transaction,” she says. “It took longer for this newer employ-

ee’s antenna to go up. She was just trying to do what the boss told her to do.” When Smith saw the email exchange between the employee and the hackers, she realized they’d been going back and forth for days to try to accomplish the ACH transfer. The employee was having difficulty completing the transaction, and the hackers were coaching her via email through Smith’s account, all while she was unaware. Ultimately, $6,500 was transferred to the fraudulent bank account through ACH. “We have dual controls on all outgoing banking transactions, but we didn’t have them for ACH because we rarely use it,” Smith says. The receiving bank was completely uninterested in helping Smith resolve the fraud. The school’s bank tried to reverse the ACH transaction, but the funds were already unavailable in the receiving bank account. Fortunately, Smith had purchased insurance that returned $4,000 of the school’s money. Smith says they learned important lessons after the incident. They use stronger passwords on their email and added dual control for ACH transfers. Smith adds it was alarming how much a hacker knew about the organization to make the fraud work. “They obviously knew our

setup and went through my email to know who worked with me, knew we had PayPal, knew our bank, and who would be the right person to try to do these transactions,” she says. “It’s amazing what these people can do. It opened my eyes on a personal level, as well. These hackers are out there, and it’s so easy for them.” Harris says he has seen these phishing attacks multiple times as hackers try to get into his customers’ systems. “They confirm the emails didn’t come from an internal source, and they ask us what they should do,” he says. “The best strategy is to educate your staff so they know what to look for.” RANSOMWARE Harris says ransomware takes two different forms. In one form, the cybercriminal locks you out of your computer. Your data is fine, but you can’t access it. As a home user, you’ll have the option to pay anywhere from $30 – $90 to regain access or struggle through removing the infection. Users typically pay the fee and move on. The other type of ransomware, crypto ransomware, has been making news headlines lately, shutting down business and hospitals. This type of ransomware leaves the system intact, but encrypts critical data. The hackers ask for tens or hundreds of thousands of dollars in ransom for your data which is being

held hostage behind 2048-bit encryption. “You are never going to unlock that data without the key,” Harris says. “For the average user, that’s a scary prospect. It’s even scarier for a business when you think about proprietary data. Hope that you have a good disaster recovery plan in place because the only other option at that point is to pay the ransom and move forward.” Harris recalls one client that had ransomware protection in place internally, but the company had given a vendor access to its server. One of the vendor’s computers was infected, causing a breach. Fortunately, Harris had set the client up with an hourly backup plan. When they traced the time of the infection to the hour and department affected (finance), they were able to restore the system to within an hour of the breach and lost no data or employee hours. “If the customer had only been doing nightly backups or infrequent backups, it would have lost the work of hundreds of people,” Harris says. “In today’s business environment, everything is mission critical. When you tie numbers of lost productivity and revenue to hours, it gets very expensive, very quickly.” CREATING SOLUTIONS Harris encourages organizations of every size

Human Resources continued from page 16 finance skills. It also encourages and prepares them to pursue an accounting degree at a postsecondary institution. In addition, students learn about the career possibilities available to CPAs. The first graduation will be this summer. • To further strengthen the CPA brand’s online presence at the high school level, the AICPA relaunched StartHereGoPlaces.com with 60 new resources for faculty to help guide students in their career choices. The site also contains a new financial literacy version of the popular Bank On It

online game for high school students. The financial literacy version covers topics students need to master to be money-savvy in the real world, such as balancing a checkbook, understanding credit scores and student loans, and investing in a startup company. • On the ThisWayToCPA.com site for college students, a new CPA Exam & Licensure Center tool informs students on the process and requirements to become a CPA. Because users increasingly visit sites on mobile devices, both websites are now fully responsive,

making them more accessible on smartphones and tablets. •

Recognizing the growing number of future CPAs who start out in community college, the AICPA is beefing up its community college programs by increasing scholarships and developing other resources to help bridge the gap for students transferring from two-year to four-year programs. s

Kim Nilsen is publisher of the Journal of Accountancy. Contact her at knilsen@aicpa.org. May/June 2016 • www.cocpa.org •

Technology to take hacking seriously. “Smaller organizations think no one cares about their data, but that’s no longer the case,” he says. “It costs a hacker nothing to encrypt your files and get a key. Whether you pay or don’t pay doesn’t matter. The hacker will move on and find someone who is willing to pay, leaving your data locked.” Harris recommends a multi-tiered approach to security: educating employees and disaster recovery. Training and education: “First and foremost, educate your employees about threats,” Harris advises. “Training and awareness are huge. In reality, most breaches are the result of unbeknownst human interaction. Someone clicked on something he or she shouldn’t have. Just getting your staff to recognize and be careful is important.” Web content filtering: Harris says a web filtering solution is a critical part of system security. By analyzing inbound Internet traffic and alerting users of risk before infection, you can significantly reduce your risk. It’s also possible to put blocks in place, such as making it impossible for employees to open a Word document or ZIP files if it’s not necessary for their job or blocking malvertisements so employees won’t even see them and have the opportunity to click on them. Antivirus software: Make sure antivirus software on employees’ computers is current and patches are downloaded. Have a good firewall in place with the right configurations to block inbound and outbound security risks. “Some viruses have to go out and get a key from the criminal server to encrypt your data,” he explains. “If you can keep that from happening, you can block that infection.” Backup and recover devices: A Symantec study shows that 25 percent of home users don’t backup their systems making them prime candidates for data loss. The same study shows the average ransom paid by home users to save their family photos is $300. The average business is willing to pay

• NewsAccount • May/June 2016

approximately $10,000. “Backups are critical,” Harris says. “Otherwise, you may be out of business if you can’t pay the ransom.” Cyberinsurance: Harris says cyberinsurance is becoming more prevalent, but it’s not always the perfect solution. “A lot of ransomware is new so companies aren’t providing insurance yet, but there is insurance for when you’re hacked and customer data is taken,” he says. “If your customers have to use Lifelock or a credit monitor, insurance would kick in to help you cover those costs.” Is one of these steps more important than the other? Not really, says Harris. “If you leave out one part, you’re leaving a pretty big hole in your strategy.” FINDING THE HOLES The realization of cybersecurity’s importance is growing. According to an article in Accounting Today, nearly three out of four organizations now include cybersecurity risks in their internal audits. The annual survey, by the consulting firm Protiviti, found that 73 percent of the organizations it polled now include cybersecurity risk in their internal audits, a 20 percent increase year-overyear. More than half (57 percent) of the companies surveyed said they have received inquiries from customers, clients, and/or insurance providers about the organization’s state of cybersecurity. Jim Davis (not his real name), an auditor at a Denver oil and gas company, worked with an outside vendor to conduct an external penetration test of the company’s IT structure and how it faces the Internet. The company interviewed several firms and hired one that works with the Department of Defense and the CIA. “We paid them to hack us,” Davis says. “We told them not to move if they did get into our system.” While the company’s website contains mostly contact information versus customer data, the penetration test did reveal that copiers and printers, which are maintained and serviced by outside vendors, were connected to the Internet. “There were some

settings that someone potentially could have gotten through,” Davis says. “The consultants were able to get those devices to respond to them. It wasn’t a terrible thing since the devices were not compromised, but it wasn’t a good thing. Someone could have flooded that portal with information, effectively shutting it down.” Davis says the real security concerns were about the internal penetration tests and exposure to social engineering and phishing scams. At risk might be royalty owner identification, tax information, and intellectual property. In addition to testing its IT systems, Davis said the company wanted to protect itself against social engineering, which sounds like something out of a movie: a clean cut individual gets onto an elevator carrying something with your organization’s logo and gains access to your offices. Maybe he’s holding two cups of hot coffee and is standing outside the door so someone holds the door open for him because he clearly can’t access his own id card to scan himself in. He’s done his homework so he knows the names of people in finance and accounting. He goes to an empty office, cubicle, or conference room. Maybe he even picks up a spare laptop lying around. Internal security controls may still stop him, but he’s attempting to access your Ethernet from within. “It’s incredible to think about, but people do pull it off,” Davis says. Everything for the penetration test was conducted remotely. “This is what this company does all day,” Davis says. “They’re the good hackers.” For organizations considering a penetration test, Davis says to start by thinking about how big a target you are. What have you got to lose? “You need to understand your vulnerabilities,” he says. “Even if you’re not that risky externally, you can be easily phished internally. Your employee gets an email that looks like it’s from your IT help desk or HR telling him to click on a link, and he’ll fall for it every time.” s

FASB Update

NFP Audit Risk Alert Issued BY TIM McCUTCHEON, CPA, AND REPRINTED WITH PERMISSION OF EIDE BAILLY LLP

he AICPA has issued its Audit Risk Alert (Risk Alert), Not-for-Profit Entities Industry Developments—2016 which provides an overview of recent economic, industry, technical, regulatory, and professional developments affecting not-for-profit entities (NFPs). Many of those developments pertain to all industries and entities. The purpose of this summary is to highlight the developments specific to NFPs and not those generally applicable to all entities. The Risk Alert can be purchased at: www.cpa2biz.com/AST/ Main/CPA2BIZ_Primary/NotforProfit/ PRDOVR~PC-022286/PC-022286.jsp. SUSTAINABILITY Concerns continue over the financial sustainability of NFPs. Boards are reevaluating governance structures and composition, operating procedures, and protocols, with increasing emphasis on: • Fundraising, especially as government funding is shrinking.

• Strengthening codes of ethics and going beyond whistleblower policies. • Stepping up the “tone at the top,” emphasizing increased transparency, accurate reporting of financial and programmatic results, and assessment of the organization’s programs. • Increasing the quality and diversity of board members, i.e., building the right board for the organization. • Analyzing profitable vs. unprofitable programs and initiatives. DONOR-ADVISED FUNDS Assets held in donor-advised funds (DAFs) topped $70 billion in 2014, with distributions of $12.5 billion. The IRS has been actively scrutinizing DAFs out of concern they may be generating questionable charitable deductions, impermissible economic benefits to donors, and management fees for promoters of such funds. Upon examination, the charitable deductions for contribu-

tions to the fund could be disallowed; excise taxes could be imposed on donors, recipient organizations, managers and promoters; and/or the charity’s 501(c)(3) exemption could be revoked or denied. CYBERSECURITY NFPs are being targeted by credit card thieves, who often use online websites to test whether the stolen card information works. Business retailers need certain personal information to set up an account and ship goods. NFPs often forego requiring this same level of information in order to make donating simple, which makes them an easier target for testing stolen credit card data. NFPs with real-time credit card authorization and settlement are more likely to fall victim than are NFPs without realtime processing because of the limited value to criminals from testing the cards without realtime authorization. NFPs bear the burden of repaying fraudulent donations as well as paying fees related to the refunds. May/June 2016 • www.cocpa.org •

FASB Update U.S. banks have been migrating to the use of chip technology for credit and debit cards, which usually results in issuing cardholders updated credit card information in the form of new card numbers, expiration dates, or both. NFPs storing donor credit card data for recurring giving likely will find the donor’s card information stale and unusable, which could result in delayed or lost revenue. Thus, they should establish a process to keep recurring donor card data current. UNIFORM GUIDANCE NFPs receiving federal awards are subject to the new Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) for fiscal years beginning on or after December 26, 2014. The Risk Alert presents a brief summary of the key changes stemming from the new guidance, referring readers to the actual guidance for complete information. IRS SHIFT TO DATA-DRIVEN INQUIRIES In recent years, the IRS selected organizations for examination largely through compliance projects, for example, the Colleges and Universities Compliance Project and the Employment Tax Compliance Project. Beginning in 2014, it shifted to data-driven decision making, wherein it screens answers included on Form 990 to identify issues that may require examination. An example would be an NFP answering “Yes” to the question of the occurrence of a significant diversion of the organization’s assets but then failing to explain it on Schedule O. NFPs should review Form 990 carefully before filing. REVENUE RECOGNITION CONSIDERATIONS FASB Accounting Standards Update (ASU) No. 2014-09, Revenue From Contracts With Customers, replaces virtually all existing revenue recognition guidance. The guidance affects all entities—including NFPs—that enter into contracts with customers to transfer goods or services, or enter into contracts to transfer nonfinancial assets (unless those contracts are within the scope of other stan-

• NewsAccount • May/June 2016

dards such as for leases, financial instruments, or insurance contracts).

deduction from the carrying amount of that debt liability (and not as an asset).

The overarching principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The AICPA Not-for-Profit Revenue Recognition Task Force is considering several issues that could affect an NFP’s implementation of this standard:

ASU 2015-07 Disclosures for Investments in Certain Entities That Calculate Net Asset Value Per Share (or Its Equivalent) eliminates the requirement to categorize within the fair value hierarchy those investments for which fair value is measured using NAV as a practical expedient. Those investments may be removed from the fair value tabular disclosure in the footnotes. NFPs should continue to disclose information about those investments to help users understand the nature and risks of the investments, including the probability they may be sold at amounts different from NAV.

• Contributions are excluded from the standard because a donor is not a customer. • Transactions that are part contribution, part exchange (e.g., special events and certain memberships) will need to be bifurcated and each element accounted for separately. • The most controversial issue involves how to apply the standard to government grants. The government may not be a customer, considering that it is not receiving the return benefit from the grant—rather, citizens or society as a whole receive those benefits. NFPs may need to reevaluate their classifications of grants between exchange and contribution. Grants previously fitting criteria for recognition as exchange transactions may better align with the definition of conditional contribution and not that of a contract with a customer. NFPs with public debt must adopt the new revenue recognition standards for annual reporting periods beginning after December 15, 2017. All other NFPs must adopt the new guidance for annual reporting periods beginning after December 15, 2018. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016. ASU’S EFFECTIVE IN 2015 ASU 2015-03 Simplifying the Presentation of Debt Issuance Costs – Debt issuance costs related to a recognized debt liability will now be presented on the balance sheet as a direct

The ASU is effective for NFPs with public debt for annual reporting periods beginning after December 15, 2015, and for all other NFPs for annual reporting periods beginning after December 15, 2016. Early adoption is permitted. ASU 2016-01 Financial Instruments— Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities allows an NFP to choose, investment-by-investment, to report an equity investment that neither has a readily determinable fair value nor qualifies for the practical expedient for fair value estimation using NAV, at its cost minus impairment (if any), plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issue. Impairment of such investments must be assessed qualitatively at each reporting period. The previous requirement for NFPs with public debt, derivatives, or assets of at least $100 million to disclose the fair values of financial instruments measured at amortized cost has been eliminated. NFPs must disclose their financial assets and liabilities by measurement category and form of asset (e.g., securities or loans and receivables) either on the face of the statement of financial position or in the accompanying notes. The ASU is effective for NFPs for annual reporting periods beginning after December

15, 2018. The provision to eliminate the requirement to disclose the fair value of financial instruments measured at cost may be adopted now. Earlier application of all other provisions is permitted only as of annual reporting periods beginning after December 15, 2017. TECHNICAL QUESTIONS AND ANSWERS TQA 5250.15, regarding disclosure requirements of nonpublic entities that do not have uncertain tax positions, was deleted due to confusion about whether disclosure of open tax years was required in all instances. As with all GAAP requirements, disclosures not material from a quantitative or qualitative perspective are not required. Therefore, if an NFP has not recorded and disclosed assets or liabilities in connection with uncertain tax positions, the disclosure of open tax

years would most likely not be informative to users of the financial statements. RECENT DECISIONS NOT IN THE RISK ALERT The Risk Alert describes an issue arising out of ASU 2015-02 regarding when an NFP that is a general partner in a limited partnership should consolidate a for-profit limited partnership. Since it was issued, FASB, at its March 30, 2016 meeting, decided to amend the consolidation guidance in Subtopic 958810 to maintain current practice. Therefore, an NFP that is a general partner is presumed to control a limited partnership unless the limited partners are able to exercise substantive kick-out or participating rights. ON THE HORIZON FASB continues to redeliberate its proposed ASU Not-for-Profit Entities (Topic

958) and Health Care Entities (Topic 954): Presentation of Financial Statements of Notfor-Profit Entities, and has divided its consideration into two different workstreams. The first workstream includes items that many of those providing feedback through the roundtable and comment letter process supported, and which will be included in a final standard in the near future. The second workstream contains those items believed to require extensive redeliberations over a longer term. s

For the latest information on the status of the redeliberations go to: http://www.fasb. org/cs/ContentServer?c=FASBContent_ C&amp;pagename=FASB%2FFASBCo ntent_C%2FProjectUpdatePage&amp; cid=1176159286112.

Explore your opportunities at aicpa.org/aicpacredentials.

May/June 2016 â&#x20AC;˘ www.cocpa.org â&#x20AC;˘

Specialty Credentials

How a Few Letters Can Change Your Career

hen there are hundreds of thousands of financial professionals at work in public accounting, business and industry, government, academia and consulting, how can you stand out in such a crowded profession? Many financial professionals do this by leveraging the rapid growth of advisory services. By offering specialized knowledge to your clients or employer, you’re positioned to be more competitive in the marketplace and are able to differentiate yourself from others in the field. And that translates into increased compensation and career advancement opportunities. When you move beyond compliance work

• NewsAccount • May/June 2016

to more future-oriented, value-added work, you are able to do more for your clients, serving them in new ways. Organizations with credentialed professionals realize increased profit margins through the management of risk, improved controls, process and workflow improvements, and faster decision-making through simulations and data analytics.

through 2017. Financial planning follows closely at a growth rate that is double that of the accounting profession.

The fact is, value-added services are not just a trend, and they are not going away. Of Accounting Today’s Top 100 Niche Services, business valuation consistently has ranked in the top five for the past 15 years. Also, an IBISWorld 2012 report projects that forensic accounting will grow at a rate four times that of the U.S. accounting profession

UNLOCK THE POSSIBILITIES The AICPA offers the only credentials built on the foundation of competency, objectivity, and integrity: Certified in Financial Forensics (CFF®), Personal Financial Specialist (PFS™), Accredited in Business Valuation (ABV®) and Certified Information Technology Professional (CITP®).

According to the Robert Half 2016 Salary Guide, the need for financial professionals with technology experience is rising, given the complexities of systems and tools, and emerging technologies.

Exam Requirement

Business Experience Requirement

Education Requirement 75 hours of forensic accounting continuing professional education (CPE) within the five-year period preceding the date of the CFF application

CFF

Pass the CFF Examination

1,000 hours of business experience in forensic accounting within the five-year period preceding the date of the CFF application

PFS

Pass one of three comprehensive exams: Personal Financial Specialist (CPA/PFS), Certified Financial Planner ® (CFP) or Chartered Financial Consultant (ChFC)

3,000 hours of personal financial planning experience within the five-year period preceding the date of the PFS application; up to 1,000 hours of tax compliance experience can count toward the total experience requirement

75 hours of personal financial planning CPE within the five-year period preceding the date of the PFS application

ABV

Pass the ABV Examination (this is waived for Accredited Members and Accredited Senior Appraisers of the American Society of Appraisers)

Either 6 business valuation engagements or 150 hours of business valuation experience within the five-year period preceding the date of the ABV application

75 hours of valuation CPE within the five-year period preceding the date of the ABV application

CITP

Pass the CITP Examination

1,000 hours of business experience in information management and technology assurance within the five-year period preceding the date of the CITP application

75 hours of information management and technology assurance CPE within the five-year period preceding the date of the CITP application

Table 1

CREDENTIALS AT A GLANCE Forensic accounting has become one of the fastest growing specialty-practice areas for U.S. financial professionals who want to demonstrate their knowledge, skills, and experience in the forensic accounting area. The CFF credential encompasses fundamental and specialized forensic accounting skills that you can apply in a variety of service areas, including bankruptcy and insolvency; computer forensic analysis; family law; valuations; economic damages calculations; and fraud prevention, detection, and response. In addition, the CFF credential sets you apart as an expert witness in the courtroom. The PFS credential showcases a financial professional’s expertise in personal financial planning. This credential is an excellent next step for financial professionals seeking to expand or diversify a tax-focused practice. Your comprehensive knowledge in financial planning and tax enable you to bring a holistic approach to your clients’ financial needs, whether advising in retirement, estate, tax, risk management, and/or investment planning. Two major factors are driving up the demand for financial planners. First, given the complexities of ATRA and the new net investment income tax that will affect every area of financial planning, clients are looking for objective guidance. Secondly, large

numbers of boomers are heading into retirement and seeking advisers to help them plan accordingly to avoid outliving their financial resources. The ABV credential is ideal for financial professionals who want to enter this in-demand area by positioning themselves as a premier business valuation service provider who goes beyond the core service of reaching a conclusion of value to creating value for clients through the strategic application of this analysis. The rise in demand for business valuation experts and firms that offer this service has been fueled by a rapid increase in merger and acquisition activity, gifting and estate transfers, and the Small Business Administration’s requirement for independent business valuations on loan regulations. Other valuation services include valuing a business due to transfer of ownership, divorce settlement, fair value accounting, ESOP valuations, economic damage calculations, and expert witness or litigation support. Financial professionals who have considerable expertise in information management and technology assurance should seek the CITP credential. Those who have earned it are recognized for their unique ability to provide technology-related assurance and business insight by leveraging knowledge

of information, data relationships, and supporting technologies. This credential spans a broad base of knowledge — from IT assurance, IT risk management and security, and privacy to analytics and emerging technologies. CITP credential holders are helping their clients or organization improve operations, ensure financial data integrity, determine risks associated with financial reporting, and prevent and detect fraud. THE REQUIREMENTS In addition to being an AICPA member in good standing and signing a Declaration of Intent to comply with the requirements of credential recertification, each candidate must meet the requirements displayed in Table 1 above. AICPA RESOURCES No matter which credential you pursue, the AICPA supports you every step of the way by providing everything from exam prep materials to exclusive tools and technical resources that will help you, as a credential holder, maintain the highest level of competency in delivering advisory services. When you’re ready to take your career to the next level with an AICPA credential, visit aicpa. org/aicpacredentials. s

May/June 2016 • www.cocpa.org •

Not-for-Profit Organizations

How Audits Should Work BY TIM McCUTCHEON, CPA

Audit time doesn’t have to be all that stressful. Honestly. What follows is a solution to ensure the most zen-like audit you’ve ever experienced.

tart by adopting the right mind-set so that your thoughts, which rule your actions, match the underlying reality of the audit cycle and the way audits actually get done. Stephen Covey, best-selling author of The 7 Habits of Highly Effective People, suggested we all should ask ourselves the question, “Is real life more like school or the farm?” At school, it’s sometimes possible to slack off for a while, then cram the night before the exam, and still get by with a passing grade. Does that work on the farm — to slack off — then at the last minute till the soil, plant the seeds, water the plants, pull the weeds, and grow the crops the night before the harvest? Of course not. So why this comparison? Because the audit is like the farm. The lesson is that you can reduce, if not eliminate, audit stress by being the farmer, tending your crops throughout the year so that when harvest time arrives, you are ready to enjoy the bountiful fruits of your labor.

gratulations. You are well on your way to a reduced-stress audit. If you’re not quite there yet, here are a few things to consider for your month-end closing checklist. Note: The steps for every month are not as comprehensive as those that will be needed for your year-end close, so they aren’t overly burdensome but are absolutely necessary to stay on course. Do These Monthly Analyze, review, and reconcile significant balance sheet accounts, preferably using a “rollforward” type schedule to capture all the account activity, e.g.: Beginning balance + additions – reductions +/- adjustments = Ending balance Primary Balance Sheet Account(s)

The rollforward schedule ensures that the account balances roll forward from the prior month-end to the current month-end, and in so doing, also provides assurance that the income statement effects of the changes have been properly recorded. Do this every month during the year, and come audit time, you have rolled forward all your accounts for the year, and your auditors will save themselves, and you, a lot of time. And, during the year, you and your Board of Directors will be assured of having accurate financial statements on which to base important decisions. See Table 1 below for the primary balance sheet accounts (and related income statement accounts) you will want to recRelated Income Statement Account(s)

Cash

None–perform reconciliations only, as there generally is no need to roll forward these accounts

Investments

Net investment return

Accounts receivable

Program revenue

Here are the steps you can take to get the most from your audit with the least stress.

Promises to give

Contribution income

Prepaids

Various expenses

IDENTIFY BEST PRACTICES, DO THEM, REPEAT Accounting systems that function well do so because they are designed to continually selfcorrect. Chances are your system is good at this for everyday things, like processing customer/donor billings, receiving payments, paying bills, and making payroll. You probably also do some things every month, like reconcile the bank accounts, and that’s great.

Accounts payable

None–perform reconciliations only, as there generally is no need to roll forward these accounts

Accrued expenses

None–perform reconciliations only, as there generally is no need to roll forward these accounts

Deferred revenue

Program revenue

Debt, including capital lease obligations, and deferred debt offering costs

Interest expense and amortization expense

Net assets, including reclassifications of temporarily restricted net assets in satisfaction of time or purpose restrictions

Contribution income, reclassifications of temporarily restricted net assets in satisfaction of time or purpose restrictions (e.g., expenditures in satisfaction of donor restrictions), losses on uncollectible promises to give, and amortization of discounts to present value

But do you have a solid month-end closing checklist and timeline to ensure an accurate (and self-correcting) month-end close, along with preparation of accurate, reliable monthly financial statements? If so, con-

• NewsAccount • May/June 2016

Table 1

oncile and rollforward every month. Add other accounts to meet your organization’s unique needs. Generally it is not necessary to perform monthly rollforward analyses for property and equipment, as the detailed schedules of these assets often are posted only quarterly or annually. If this is the case, estimated depreciation expense can be recorded monthly, pending a “true-up” adjustment later at quarter-end or year-end. Talk to your auditor. Okay, maybe not every month but certainly often throughout the year. Talk about difficulties you’ve encountered, accounting questions you have, and the risks as well as the opportunities you’re seeing within your industry and organization. If you have the right auditor, they will be able not only to answer everyday questions but also provide sound business advice and counsel that comes from years of working with many organizations over time and through various business cycles. If your auditor can’t or won’t do this, it’s time to find a new one. PLAN AND PREPARE Don’t expect your audit to go smoothly without some advance planning. Investing in careful planning now will pay out in multiples later. Don’t underestimate how important this step is to a successful audit. Do These Things Two or Three Months Before Year End Sit down with your auditor to plan the audit and set the audit timeline, in detail. Be sure you both understand the who, what, when, where, how, and why for each step of the audit process, from engagement letter to delivery of the final reports. The result of these efforts should be a matrix of roles, responsibilities, and dates you both can agree to uphold and will treat as an unbreakable promise to one another. Review all the audit confirmations, schedules to be prepared, documents to be pulled, and other support functions your

organization will be expected to provide to the auditor. Ask your auditor for workpaper templates, sample confirmation letters, and other items that can help reduce your work in preparing for the audit. Accountability here is critical to ensuring that your audit will stay smooth and on track, ultimately providing that zen-like experience.

ing you present your financial statements on a GAAP basis, of course). Here you will be updating your fixed assets schedules, adjusting depreciation, recording all payables and receivables, adjusting bad debt allowances, etc. The objective is a closed general ledger that will not need to be further adjusted by your auditor.

Enlist (conscript if you must) the support and commitment of your staff to execute on the audit plan because, if the team won’t come together, neither will the audit. Each person on the team should be ready, willing, and able to do his or her part. You can help ensure this by scheduling adequate time for each member to perform that part in preparing for the audit, as well as time during the audit to be responsive to the auditors’ needs and questions.

As part of the closing process, you will have completed all the rollforward schedules and account reconciliations, and the rollforward schedules will have been tied out to the final general ledger balances. They are now ready for the auditor. The next step is to complete any other audit schedules or other information items requested by the auditor. Here, the objective is to have everything— yes, everything—ready for the audit team when it arrives on the first day of year-end fieldwork.

Make others in your organization aware of the audit timeline, and tell them what to expect in terms of anticipated interactions with the audit team. Reserve space for the audit team to use when on site, and ensure that adequate electrical power, internet service, photocopying/scanning, and other resources the audit team needs will be provided. This will make the audit go faster and won’t suddenly crop up as a surprise emergency to be handled on the first day of the audit. BRING IN THE HARVEST Now comes the payoff for all your hard work, which is not to say the audit itself is a cakewalk. Yes, it will be somewhat disruptive, at times irritating, and probably will cause you and your team some inefficiency compared to days in the office with no auditors around. Deal with it—harvest time is chaotic. The crop must be brought in at just the right time and before a killing frost (as must the audit, except for the frost part). Do These Things at Year End Close the books, but only after you have finished recording all the activity for the year, including accruals and adjustments to put your books fully on GAAP (assum-

Repeat: Talk to your auditor. Communication throughout the audit will produce the best results while reducing everyone’s stress along the way. If you stop and think about it for a moment, you’ll realize that you and your auditor make up the team that actually gets the audit done, so be a team player. Your auditor wants you and your organization to be successful and hopes to help you by providing a high-quality audit, sound advice, and personal support to you throughout the year. Take advantage of it all. Bringing in the harvest is almost always accompanied by celebration. So don’t forget to celebrate the successful completion of your audit. It was a long process well done, and you deserve to feel great (zen-like, even) about it. Then, it’s back to tending those crops. s

Tim McCutcheon, CPA, is a partner with Eide Bailly LLP, Golden, specializing in notfor-profit auditing. Contact him at tmccutcheon@eidebailly.com.

May/June 2016 • www.cocpa.org •

Movers & Shakers The Seff Group, P.C., Denver, promoted Mark A. Zeiden, CPA, from senior tax manager to partner.

Holben, Hay, Lake Balzer CPAs, Denver, promoted Laura Theiss, CPA, to senior tax manager.

CPAs Boyd J. and Sharalee Pederson, with TransAmerica Financial Advisors, Inc., relocated their offices to 100 E. Gothic Ave., Gunnison, phone 970-641-6900.

C. Travis Webb, CPA, was elected Chair of the Board for CACI, the Colorado Association of Commerce and Industry, Denver. Past CACI Chair A. Marvin Strait, CPA, continues to serve as Treasurer.

To submit an announcement for publication, email the information to Mary Medley at mary@cocpa.org and note in the subject line, “For COCPA Movers & Shakers.” Note that announcements for individuals are published for COCPA members only. The COCPA may edit content for space and reserves the right to decline publication of an announcement.

Accountants and Consultants www.acmllp.com

In Memoriam

Herbert R. Dunham, CPA Herb Dunham served as COCPA president in 1965-66. Having been involved fifty years ago, you’d think Herb long since had let go of his ties to the organization and the profession. You’d be incorrect. He loved nature (particularly annual fishing trips with the guys), his family, his work, and his profession. He didn’t miss the opportunity to attend events honoring COCPA past presidents, even at age 90. And, as his daughter Cindy put it when she notified the Society office of Herb’s death on April 20, 2016: “Like all good CPAs, he waited for tax day to be over.” Born in New York in 1918, Herb graduated from college, summa cum laude, at age 19. After serving in the Air Force during WWII, he began his accounting career with Deloitte Haskins & Sells; later was a partner in his own firm which did most of the audits of Colorado counties; and subsequently became controller for the University of Colorado, a position from which he retired. As former COCPA executive director Gordon Scheer remembers, “Herb always was a gentleman and a gentle man, with a broad smile and a great sense of humor, as well as a way with words.” Herb was known to offer wise counsel to his family, his colleagues, and his clients. That ever-present smile was the visible evidence of his unflagging, positive attitude, expressed in a quote his pastor shared at his memorial service: “There’s a solution here somewhere; we just don’t know what it is.” Then, as the story goes, he would set about to find that solution. A man of deep faith, Herb was a servant leader who kept making his mark long after his professional career ended. As Rev. George Anastos noted, “When I came to First Plymouth 11 years ago, I began by visiting members of the congregation in their homes. I’d be greeted with ‘Oh, I thought you were Herb because he said he would drop by,’ or ‘Herb was just here,’ or Herb would be there. He was making those visits at the young age of 87!”

Live Here. Work Here. Play Here.

imagine the possibilities tm

Memorial donations in Herb Dunham’s name may be made to First Plymouth Congregational Church, UCC, 3501 South Colorado Blvd., Englewood, Colo. 80113.

ACM is a locally owned, locally committed accounting firm. We understand why you live here, why you do business here and what you expect from your advisors. ACM is committed to providing integrated, value-added, assurance, tax and consulting services. How can ACM help you? Contact us to find out: info@acmllp.com

303.830.1120 Boulder ∙ Denver ∙ Northern Colorado ∙ Laramie

• NewsAccount • May/June 2016

We also regret the loss of the following COCPA member and extend our sympathy to his family and friends.

Arthur P. Ford III Member since 1981 Papillon, Neb.

LeadFit 2016

Perhaps 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 in those ever-important interpersonal and supervisory skills to be well-positioned for promotion. Consider LeadFit 2016, sponsored by the Colorado Society of CPAs, a program specifically for CPAs and CPA-track accounting professionals who are looking to grow professionally and personally.

APPLICATION DEADLINE: JUNE 24, 2016

MAJOR SUBJECTS

• Relationship Building – listening and presence; professional and personal • Managing a Team v. Leading a Team – goal setting; conflict resolution • Performance Evaluation and Feedback – acknowledgement; confrontation; resolution; rewards • Negotiation – message tailoring; requesting • Rainmaking – thinking styles; generational styles • Role Definition – qualitative and quantitative • Defining Your “Best Work” – linking to purpose, commitment, and boundaries

LEADFIT FACILITATOR

Lorrie Blanchard Tietze is the founder and manager of Interface Consulting, LLC, Castle Rock, Colo., a consulting firm focused on helping companies enable change and build productivity through process, tools, and skills. She is committed to helping people help themselves and their businesses. Lorrie consults with Fortune 500 companies, governmental agencies, and not-for-profit organizations. The COCPA chose her to help create and facilitate LeadFit because she understands the professional services world and the importance of the human dimension in creating meaningful, sustainable relationships. Her high energy approach and commitment to personal growth guarantee that you will not only gain the skills you need for success but that youwill truly enjoy the learning experience. Before establishing her consulting practice, Lorrie worked in the manufacturing and engineering fields. She is adept at maintaining strong customer relationships, developing international, multi-functional teams, and working in fast-paced, challenging environments.

SPECIALTY INSTRUCTION

This innovative leadership development program, created in collaboration with Interface Consulting, LLC, is designed to enable you to gain the knowledge, skills, and practice to achieve your desired professional and personal results including interacting effectively with, leading, and managing people. The program is limited to 16 participants who commit to attending all sessions. You are also encouraged to identify an individual from your firm or company who will serve as your sponsor. Delivered over five months, the program is recommended for 24 hours of continuing professional education credit. It includes two 8-hour and two 4-hour group workshops, a special debriefing session, individual coaching, a welcome BBQ hosted by COCPA CEO Mary Medley and COCPA leadership, and a celebration event at its conclusion.

TO APPLY/FEES

SESSION DATES JUNE 28-JULY 5

Pre-call with each participant to determine individual goals, wants, and needs/Optional call with the participant’s sponsor.

JULY 7

| 6:30 p.m. to 8:30 p.m., Home of COCPA CEO Mary Medley Welcome BBQ for all participants, with LeadFit Facilitator Lorrie Blanchard Tietze and COCPA leadership

JULY 8

| 8:30 a.m. to 4:30 p.m., COCPA Education Center, Englewood. Breakfast and lunch included. Session I: Relationship building, listening, and presence skill building – customer, client, family, supervisor, subordinates, and team applications.

AUGUST 12

| 8:30 a.m. to 12:30 p.m., COCPA Education Center, Englewood. Breakfast included and optional lunch. Session II: Conflict resolution, team commitment.

SEPTEMBER 9 |

8:30 a.m. to 12:30 p.m., COCPA Education Center, Englewood. Breakfast included and optional lunch. Session III: Message communication inside and outside, generational differences, thinking style differences.

OCTOBER 19 |

4:00 p.m. to 6:00 p.m., Home of CEO Mary Medley. Refreshments included. Debrief: An opportunity for you to discuss your experiences in applying what you’ve learned so far.

NOVEMBER 15 |

8:30 a.m. to 4:30 p.m., COCPA Education Center, Englewood. Breakfast, lunch, & reception included. Session IV: Goal and expectation setting, role definition, performance feedback (confrontation, correction, acknowledgment), rewards, and graduation celebration.

INDIVIDUAL COACHING

Also, you will receive, over the five-month period, up to two hours of optional, individual phone coaching to address your specific needs. Additional coaching time will be available for purchase at a discounted rate. All coaching and group sessions are confidential.

Request an application form from Terry Cervi, terry@cocpa.org, or go to leadfit.cocpa.org. Complete and return it by June 24, 2016. You will be notified of your acceptance. Your sponsor will be invoiced for the $1295 program fee, which is payable on receipt and no later than June 30, 2016.

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

Periodicals Postage

Mark Kuhn

SOCIAL SECURITY WINDOW CLOSING (CHOOSE ONE)

MAXIMIZE BENEFITS WEEP WITH REGRET

President & Founder

Scott Ranby, CFP®

Financial Advisor STRATEGIES AND SERVICES OFFERED:

“I don’t know, honey. What do you think?”

Investment Management Social Security Planning

SOCIAL SECURITY RULES ARE CHANGING. Is it time to revisit client retirement strategies?

Pre-retirement Planning Charitable Giving

A limited opportunity for married couples to use previous rules expires May 2016. Congress recently terminated certain strategies many folks were counting on to increase their Social Security benefits in retirement. Attend a one-hour complimentary session to learn how these changes may impact retirement plans. Attendees are eligible for a free consultation to discuss retirement income and investment strategies.

KuhnAdvisors.com

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, Certified Financial Planner™ and CFP® in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements. Kuhn Advisors, Inc. is a registered investment adviser. More information about Kuhn Advisors, Inc., including its advisory services and fee schedule, can be found in its Form ADV Part 2, which is available upon request.

Retirement Income To register for our ONLINE WEBINAR VISIT: kuhnadvisors.com/ investor-education 2373 Central Park Blvd. Suite 100 Denver, CO 80238 303.803.1016 scott@kuhnadvisors.com