AICPA Insights

In the News: Private Company Standards are Coming

2012-05-25T07:00:00-04:00

The big accounting news this week was the Financial Accounting Foundation’s Wednesday announcement that it was creating a body to set differences in U.S. generally accepted accounting principles, where appropriate, for privately held companies. The private company standards set by the new Private Company Council might make it easier for the roughly 28 million privately held companies in the United States to follow certain accounting standards.

The AICPA announced its support for the Private Company Council on Wednesday shortly after the news broke.

Barry Melancon, CPA, CGMA, president and CEO of the AICPA, spoke about the developments in a video to members.

“With the news announced today by the FAF, we recognize and appreciate that the FAF has taken solid steps in the right direction regarding the Private Company Council. The AICPA is encouraged by this approach and awaits more of the details of the FAF decision. We look forward to continuing to work together to effect meaningful changes in U.S. GAAP for private companies and the users of their financial statements,” said Melancon,

The creation of the council comes in response to a report from the Blue-Ribbon Panel on Standard Setting for Private Companies that the FAF, the AICPA and the National Association of State Boards of Accountancy formed in late 2009. The report, issued in January 2011, called for, among other things, a separate standard-setting board to be established under the FAF.

The Wall Street Journal noted that the FAF proposed a version of the council last fall, initially called the Private Company Standards Improvement Council, whose recommendations would need to be ratified by Financial Accounting Standards Board and would be chaired by a member of FASB. The AICPA said that proposal did not go far enough in separating the council from FASB control and organized a letter-writing campaign that generated thousands of comments to the FAF from CPAs and private company stakeholders.

The new council will have the ability to identify, deliberate and vote on any proposed changes, which will be subject to endorsement by the FASB, which the FAF oversees, and be submitted for public comment before being incorporated into GAAP.

The Journal of Accountancy highlighted some additional details about the creation of the council. The Private Company Council chair will not be a FASB member, as originally proposed. The council will determine which elements of existing GAAP to consider for possible exceptions or modifications by a vote of two-thirds of all sitting members, in consultation with FASB and with input from stakeholders.

Also on Wednesday, the AICPA announced plans to develop an “other comprehensive basis of accounting” financial reporting framework to meet the needs of some privately held small- and medium-sized enterprises, as well as the users of the financial statements of these entities.

“One-size U.S. GAAP does not fit all companies, especially smaller privately held businesses,” said Gregory J. Anton, CPA, CGMA, chairman of the board of directors of the AICPA. “We recognize that the FAF has moved in the right direction and the AICPA will continue to be fully engaged with the FAF and the Private Company Council. While doing so, we will also use our resources and expertise to develop an enhanced OCBOA financial reporting framework that is objective, relevant and responsive to the concerns of preparers and users of small and medium private company financial statements where GAAP financial statements are not required.”

The SME OCBOA framework will be a less complicated and a less costly alternative system of accounting to U.S. GAAP for SMEs that do not need U.S. GAAP financial statements.

James Schiavone, AICPA Staff.

Celebrating 125 Years of Professional Pride

2012-05-24T14:00:00-04:00

This year, the profession is proudly celebrating a major milestone: the AICPA’s 125-year anniversary. We are one of the few professional organizations to reach this landmark birthday. I believe we got here because the profession’s core values—integrity, objectivity and competence—have made CPAs the most trusted financial professionals and will continue to do so. Those values have remained constant since 1887, and they will serve us well in the 21st Century.

Reaching 125 years of age deserves recognition, so we kicked off our celebration of that achievement with a special Council meeting in Washington, D.C., earlier this month. Since the Institute plays an important role in educating and influencing policymakers, the gathering began with more than 400 representatives of the AICPA and governing Council visiting their legislators on Capitol Hill to reinforce our important thought leadership role. We talked with congressional leaders about two public interest initiatives launched in honor of the occasion.

One was the AICPA’s new tool, Total Tax Insights^TM calculator, offered free to the public so people can have a clearer picture of the number and types of taxes they pay and see an estimated total of their tax obligation. The other is an effort that is close to my heart and one of the messages I want to share as AICPA chairman. What’s at Stake is an educational video on how the U.S. government’s financial statements can be used for greater understanding of the nation’s fiscal health. Educating lawmakers and citizens about the deficit, and the differences between the government’s annual budget and financial statements, is a priority that I am particularly passionate about and made one of my term’s key efforts. While Council members and others met with members of Congress, the AICPA Board of Directors met with senior advisors and cabinet representatives at the White House.

We then heard from a long list of prestigious speakers, including James R. Doty, chairman of the Public Company Accounting Oversight Board; SEC commissioner Troy A. Paredes; IRS commissioner Douglas H. Shulman; Iowa governor Terry Branstad; FASB chairman Leslie Seidman; assistant Treasury secretary Janice Eberly; U.S. Small Business Administration administrator Karen G. Mills; former U.S. comptroller general and founder and CEO of the Comeback America Initiative David Walker; Forrester Research founder George Colony; and leading technology strategist and author Geoffrey Moore.

The Council meeting was a stimulating three-day discussion of our profession’s future. I believe that our Council members and other leaders of the profession came away, as I did, inspired to envision new roles for CPAs founded on the same essential skills and values that defined the profession 125 years ago. We heard lively panel discussions on hot topics for CPAs and the organizations they serve, including sessions on the future of financial and business reporting, career paths for young CPAs, rebooting business and stimulating commerce on Main Street. Videos of the panels will be available to members later this month so that you can listen in on these thought-provoking conversations.

There are many ways that all of our members can take part in our celebration throughout 2012. The June issue of the Journal of Accountancy is dedicated to the anniversary. There’s also a special printed commemorative poster available free by mail (limited quantities) or through online download that shows accounting memorabilia submitted by CPAs from all over the country. We created videos of some of the key developments in the profession’s history, as well as videos sharing the reflections of more than 20 past chairmen of the AICPA Board of Directors. And I hope you’ll take part in some of our fun social media activities, including a virtual birthday cake to which you can add your own celebratory thoughts. Visit aicpa.org/anniversary and take the journey with us down memory lane and get a glimpse of the road ahead.

Of course, our profession and its many accomplishments simply reflect the high quality of our membership and CPAs’ dedication to high standards. So it’s fitting to close by congratulating my fellow CPAs for enabling our national organization to thrive for 125 years. I look forward to taking part with all of you in our profession’s exciting future!

Gregory J. Anton, CPA, Chairman, American Institute of CPAs.

Shine a Light on What Taxes You Pay

2012-05-23T07:00:00-04:00

Every year, politicians, economists, tax practitioners and others talk about making changes to our federal and state tax systems. Some of the proposed changes are more fundamental – the adoption of a consumption tax, for example. Other proposals, on the other hand, call for varying degrees of modification to the existing system, such as adding or expanding tax incentives to encourage savings, modernizing the international tax rules, or making procedural changes to improve compliance.

In a presidential election year, and at a time when our country faces unprecedented levels of debt and extraordinary amounts of governmental-operating deficits, taxes will continue to be one of the most pressing issues for public discourse. Have you heard any of the candidates mention the “T” word lately? We all know, however, that talking about taxes in this environment takes a lot of political courage.

As a long-time advocate for sound tax policy and effective tax administration, the AICPA has encouraged a principled framework for analyzing tax law changes and one of those principles is transparency - citizens should know that a tax exists and how and when it is imposed upon them and others. Unfortunately though, many people are in the dark when it comes to money, taxes and finances so we’ve decided to “turn on the lights.” How did we do this? By linking the federal tax rules with the diversity of our country’s state and local tax laws, to create the Total Tax Insights^TM calculator - a first-of-a-kind tool to help the public understand the types of taxes they pay and their estimated amounts–no matter where in the country they live--and to make informed financial decisions.

The changes I mentioned above often focus on tax simplification and transparency is an important partner with tax simplification. Transparency in tax law should be measured by how easily taxpayers can determine how any particular tax provision--and the tax statute as a whole --affects their tax burden. The more complex a tax system is, the less transparent it tends to be, leading to confusion, frustration and the perception that taxes are unfairly imposed.

The tax system is a primary link between citizens and their government, with a significant influence on citizen attitudes toward government. In 1972, Americans rated the income tax as the fairest tax; but by 1979, most people rated it as the most unfair tax. This downward trend continues and the ultimate impact on voluntary compliance is dramatic. But taxes are needed for predictable and reliable revenue streams for government operations so maybe a bit more transparency will help to balance things out.

So take the Total Tax Insights “test” and turn the lights on. Did you realize how many different types of taxes you were actually paying - the calculator covers over 20 of the most common taxes levied - or how much? Did you consider that financial planning might help ease the pain of knowing? Then again, you might like what you see!

Edward S. Karl, CPA, Vice President of Taxation, American Institute of CPAs.

And The Survey Says... Increasing Demand for Forensic Accounting

2012-05-21T07:00:00-04:00

Infographics may be the rage these days, but I still like good old-fashioned statistics, data points and most of all, survey results. Maybe it's because I spent a lot of time watching Family Feud as a child, but when I look at survey results the voice in my head announces ‘and the survey says…’

If 100 CPAs across the country were asked ‘what is the fastest growing area in accounting,’ it is highly likely that forensic accounting would be one of their top answers. Backing up what many in the profession have long suspected to be true are the latest results from the AICPA Forensic and Valuation Services Trend Survey: and the survey says that forensic accountants are seeing a noticeable increase in demand for their services.

Forensic accounting services generally involve the application of specialized knowledge and investigative skills possessed by CPAs to collect, analyze and evaluate evidential matter and to interpret and communicate findings in the courtroom, boardroom or other legal/administrative venue. Professionals specializing in forensic accounting provide services to their clients, who are often attorneys and businesses across an array of industries.

Forty-seven percent of respondents saw an increase in the hours spent working on forensic accounting, compared with only 14 percent who said their hours decreased. The areas with the greatest jumps in demand within the past year included shareholder/partner disputes, contractual disputes, family law, and gift and estate issues.

And this was not just statistical noise or a random variance―CPAs expect to see increasing demand for their forensic services for the next two to five years, largely as a result of increased litigation and regulatory enforcement. The specific areas they expect to be spending more time on are shareholder/partner disputes, contractual disputes and family law. Additionally, as economic uncertainty and instability persist, respondents indicated they expect an increase in time spent working on bankruptcy, insolvency and reorganization.

This is good news for CPAs and those studying to become accountants: with an increase in demand comes an increase in jobs. In fact, one-quarter of respondents reported hiring more professionals over the past year. The AICPA also surveyed professionals in business and industry on their planned usage of forensic accountants, with 54 percent saying that their companies would increase their use of outside consultants versus in-house personnel in the next two to five years

For firms, the findings indicate that the recruitment, retention and continuing education of their professionals is going to be an ongoing priority, given the need to manage and execute an expanding workload. Succession will be a key concern for many forensic and valuation practices. As leaders who have built practices pass the reins to a new generation, younger professionals will need a combination of technical, practice development and leadership abilities.

For more information and resources on this fast growing area, visit the AICPA Forensic and Valuation Services Section.

James Schiavone, AICPA Staff.

When Opportunities Abound, Follow Your Passion

2012-05-18T08:40:20-04:00

When should you make the transition from public accounting to business and industry? That’s the question Dan Griffiths tackles in his latest blog post on ThisWaytoCPA.com, the AICPA’s hub for college students, CPA candidates and newly-minted CPAs. Touching on the core skillset that public accounting provides a young professional, Griffiths makes the argument that opportunities exist in all areas of business. What’s important is that CPAs pursue the opportunities they are most passionate about.

Heather O’Connor, Senior Communications Manager - Firm Strategy and Portfolio Management, American Institute of CPAs. Heather develops, manages and supports the communications strategy of the AICPA’s various firm relationship programs, and the Academic and Career Awareness and Peer Review teams. She also sets and manages strategic communications for accounting and auditing-related topics.

AICPA Celebrates 125 Years of Representing CPA Profession

2012-05-16T07:00:00-04:00

The AICPA has reached a remarkable milestone: being one of the few organizations to celebrate 125 years. As you can imagine, the CPA profession has changed a lot over this period. Throughout the year, the AICPA and its members will be celebrating this special anniversary and reflecting on the history of the CPA profession. Since people are what make a profession, we asked members to give us their thoughts on what the AICPA means to them and the value of being part of a strong CPA profession.

“The 125th anniversary of the AICPA is a testament to the 5-letter word that engulfs the profession: TRUST.” -- Matthew D. Cekander, CPA

“Being a CPA and an active member of the AICPA gives me a great sense of pride. I am most grateful for the amazing individuals I’ve met along the way.” -- Craig M. Steinhoff, CPA, CITP

“Trust not only enhances commerce and progress, it makes it possible. For 125 years, CPAs have provided that foundation to propel a fast-changing world.” -- Jean-Luc Bourdon, CPA, PFS

“In Scrabble, Accountant (14) is worth more than either Doctor (9) or Lawyer (12).” -- Mary Denler, CPA

“CPAs passionately promote transparency and accountability in our society. We expose corruption and deception. AICPA guarantees the integrity of this high calling.” -- Emily Cummins, CPA

“Being a CPA allows you to be designated as part of a profession held to a higher standard of integrity. Organizations like the AICPA work to uphold and promote the reputation of what most CPAs strive to be.” -- Cherish T. Loog, CPA, CGMA

Add your comments below and congratulate the AICPA and the CPA profession on a successful 125 years. Visit www.aicpa.org/anniversary for more celebratory information, an interactive timeline, videos, special Journal of Accountancy articles and more.

Creating Social Capital for Not-for-Profit Support

2012-05-14T07:00:00-04:00

Ask any non-for-profit development director and they will tell you there are two ways to fundraise:

Ask 1000 people for $10
Ask 10 people for $1000

Which is the easier task? In terms of time and resources spent, certainly option B is the easier option. But in terms of broader reach and influence over a large audience, option A is a formidable contender because of something called social capital. Social capital is a concept that points to the power of networks to build a powerful entity, such as support for a cause, political candidate or even a corporate brand.

NPOs increasingly rely on the power of their social capital to help develop social connections that ensure the delivery of services, fundraise and build goodwill among the public and potential donors. Social capital also allows for greater access to detailed, confidential and fine-grained information from more extensive networks. In addition, NPOs benefit from the acquisition of influence, power and control of the stakeholders who are a part of their network.

Benefactors take into consideration numerous issues regarding an organization before they are willing to lend their emotional and financial support, so NPOs must tread carefully to ensure neutral politics (or political stances that suit the appropriate base) and use of funds are carefully controlled.

Social capital can take two forms: bonding and bridging. Bonding involves developing close interpersonal relationships with stakeholders based on shared aims and bridging builds networks between the NPOs and other organizations and various stakeholders, from big ticket donors to walk-a-thon participants.

There are several implications for the management of NPOs and how performance measurement and management controls can be used to preserve and develop social capital, as illustrated in Figure 1.

The latest CGMA report Performance Measurement and Management Control in Non-Profit Organizations discusses methods for developing performance measurement and management controls, related to social capital. The report summarizes research undertaken within two NPOs—the Tennant Centre, which provides welfare services to the disadvantaged; and Voluntary Service Overseas, which addresses poverty alleviation in developing countries through volunteering—and examines how formal performance measurement and management controls can have beneficial and damaging effects on social capital.

You can find out more about social capital and how to leverage it at your organization, by downloading the report from cgma.org.

As a CPA, CGMA, have you been able to effectively assist an NPO in leveraging its social capital?

Arleen Thomas, CPA, CGMA, Senior Vice-President - Management Accounting, American Institute of CPAs.

AICPA Tells Congress to Keep Oversight of Investment Advisers with SEC

2012-05-11T09:32:17-04:00

As the AICPA gears up for our 125th Anniversary next week, here’s a wrap up of a few interesting accounting topics recently making the news. You can follow @AICPANews on Twitter to stay on top of all the latest official AICPA news as well as articles impacting the profession.

CFO.com wrote that the AICPA raised concerns over the Investment Adviser Oversight Act of 2012 and urged Congress to keep oversight of investment advisers with the SEC. Introduced in the House of Representatives on April 25, the bill would transfer oversight of investment advisers from the SEC to a self-regulatory organization."Many of our members work for a firm that is registered as, or affiliated with, a registered investment adviser," Barry Melancon, CPA, CGMA, AICPA president and CEO, said in a statement. The AICPA's stance is that the system proposed under the bill would cost advisers much more in fees than current SEC oversight would.

On January 19, 2011, the SEC issued a staff report that found the current SEC-registered investment-adviser examination program faces hefty capacity and funding challenges. Three options were proposed to offset these challenges. One would be to impose "user fees" on SEC-registered investment advisers to fund oversight. A second would authorize one or more SROs to examine investment advisers, with oversight from the SEC. A third choice would be to authorize the Financial Industry Regulatory Authority, a leading broker-dealer SRO, to examine dual registrants for compliance with the Investment Advisers Act of 1940. All three options require congressional action. "We believe that the SEC's core mission to protect investors requires adequate regulation of the investment advisory profession. The SEC remains the proper regulatory body to protect the public's best interest." Melancon said, "Providing the SEC with resources to properly enforce their rules is the best solution for investors and the public."

Deanna White covered the Accounting Doctoral Scholars program in a recent AccountingWEB article, which noted that the program was launched in 2008, with a goal of creating 120 new accounting PhDs by 2016. The initial Accounting Doctoral Scholars program is designed to have an eight-year life span - four years to select candidates and four years for their development as PhDs. "Universities have a limit on how many PhD candidates they can accept. Before, they may have only been able to take two candidates, but now they can take three because the ADS Program will fund the third," Steve Matzke, Senior Manager - Accounting Doctoral Scholars Program, said. The program will fund each candidate's education at a cost of a cost of $120,000 ($30,000 per year) over the course of four years. If a fifth year is required, the college or university will cover that cost. "The enrollments in accounting programs are up to historic levels, and it's these programs that will provide talent to the profession. The profession needs top talent and it needs top educators to prepare that talent," Matzke said.

Mike Cohn of Accounting Today wrote an article on the AICPA letter to the leaders of the House Ways and Means Committee and the Senate Finance Committee. The letter asked them to amend the Tax Code to allow estates and nongrantor trusts to fully deduct the cost of complying with the fiduciary duties of administering estates and trusts. The AICPA wants to simplify the law by amending Section 67(e). “Congress enacted section 67(a) in 1986 to limit deductions for miscellaneous itemized deductions to those in excess of 2 percent of adjusted gross income (AGI),” wrote AICPA Tax Executive Committee chair Patricia A. Thompson, in the letter. “Congress’s purpose was to reduce recordkeeping for numerous small expenditures and eliminate deductions for many, essentially personal expenditures claimed in error. Because estates and nongrantor trusts are taxed in the same manner as individuals, Congress provided an exception to the 2-percent floor in section 67(e) for fiduciary administrative costs that would not have been incurred “if the property were not held in such trust or estate.” The Institute said it believes the proposed amendment would simplify the statute and modernize it for the prudent investor rule. The amended law would also make it easier to administer, and provide a consistent definition of AGI for estates and nongrantor trusts throughout the Tax Code.

James Schiavone, AICPA Staff.

From Tax Preparer to Financial Planner

2012-05-10T16:31:26-04:00

Congratulations on making it through another tax season! As you helped your clients prepare their tax returns, did you ask yourself any of these questions?

Who, if anyone, is looking at their overall financial picture?
What can I do to help remove financial obstacles so they can accomplish their goals?
Can I offer financial knowledge, analysis and a framework to make this person’s dreams a reality?

From those long hours, including rigorous reviews and meetings with clients, you’ve gained unique insight into their lives – insight into their incomes, spending habits, investments and life events. While reviewing those 1040s, you are able to envision potential tax impacts of financial decisions and begin considering tax planning opportunities for your clients. This is a great first step in helping them meet their overall financial planning needs, including making estate, retirement, tax, investment and insurance planning decisions to move them toward meeting their long term goals.

When I first began my accounting career in the tax department of a major firm, I didn’t even know this career path existed. Fortunately my clients, friends and family constantly asked me questions about the tax implications of various financial decisions they were making. I realized how much more interested I was in addressing these challenges than preparing tax returns. And frankly, the returns I was preparing were past the point of being impacted by planning. With personal financial planning, however, I discovered the ability to be more creative in my work and offer my clients value beyond tax planning and return preparation. I grew to love the career and am now excited to help other CPAs understand the endless possibilities in this field, and how they can be successful.

AICPA members are seeing increased demand from their clients for financial planning services. CPAs, who are trusted advisors to their clients, may have an advantage on other investment professionals. “We're in a natural position of trust with clients to expand into financial planning,” said Lyle Benson, CPA/PFS, of the executive committee of the AICPA's Personal Financial Planning Section. The economic conditions in the U.S. and abroad have only added to the perception that CPAs are a great option when looking for a financial planner and the AICPA is ensuring that members who wish to expand their financial planning services have the resources they need.

There is an entire profession of CPA financial planners dedicated to advising clients on the financial decisions that will impact every facet of their lives. If you enjoy interacting with people, are good with numbers, have an interest in providing value-added and profitable services to your clients and like to have a positive impact on others, a career as a CPA financial planner or CPA/Personal Financial Specialist may be right for you.

Join me for a free webinar, Break into Financial Planning: How CPAs Can Get in the Game, to be held 2 to 3:30 p.m. ET on May 16, to learn what it means to be a CPA financial planner. Our panelists will share the different paths each of them took to achieve the career of their dreams. This webinar is ideal for both emerging CPAs trying to move into this niche career path and seasoned CPAs who want to expand their existing practices with this value-added service.

For those who would like to make financial planning a permanent part of their practice, we are offering a webinar series, From Tax Preparer to Financial Planner: The Road Best Traveled, detailing the pathway to transition from tax preparer to financial planner.

I wish you much success in your endeavors and encourage you to reach out to the AICPA’s PFP team for help along the way.

Andrea Millar, CPA/PFS, Sr Technical Manager - PFP, American Institute of CPAs. Andrea leads the AICPA Personal Financial Division. Her responsibilities include working with the PFP Executive and PFS Credential committees to drive the advocacy, education and other initiatives on behalf of the 7,500 AICPA members who specialize in providing estate, retirement, tax, investment and insurance advice to their individual clients.

Friends, Family and Finances

2012-05-09T07:00:00-04:00

Relationships and finances can be very tricky; whether between parents and children, roommates or spouses. In fact, financial matters are the most common source of discord among American couples, prompting an average of three arguments per month, according to a survey conducted for the AICPA by Harris Interactive.

More than half of adults, 55 percent, who are married or living with a partner said they do not set aside time on a regular basis to talk about financial issues. This leaves them at a huge disadvantage. It’s important for all parties involved to be aware and understand where their money is going.

The National CPA Financial Literacy Commission offers the following four tips to help couples establish financial harmony:

Get full disclosure. Before saying ‘I do’ to moving in together or combining assets, people in a relationship should offer full disclosure of their finances as part of a joint financial planning process. And the disclosure shouldn’t end there. Each person should agree to routinely review credit card accounts, bank statements and credit reports to ensure all data stays in the open.
Set a money date. At least once a month—and preferably weekly—set aside time without other distractions to meet about family finances. This ensures an ongoing, open dialogue about money at a time when both people can free themselves from outside distractions.
Divide and conquer. It’s typical in a relationship for one person to take the role of chief financial officer, managing accounts and paying bills. This arrangement can lead to unnecessary stress, tension and, at times, confusion. Split the duties. One person can act as bill payer, the other as money tracker, for instance. This removes the burden from one person and provides a check-and-balance on the family finances.
Hire an advisor. A neutral third-party is sometimes the best option to diffuse or avoid tensions over money. A financial advisor can work with couples to establish financial goals, pay bills, monitor accounts and help notice any unusual spending patterns, should they arise.

“Money is a lightning rod for conflict in relationships because it’s a sensitive topic and each person brings a different perspective based on their past experiences,” said Jordan Amin, chair of the National CPA Financial Literacy Commission. “It’s critical for couples to communicate openly and regularly about financial matters in order to establish a common language around money and move toward shared goals.”

What tips do you offer your clients for successfully co-managing their money?

Melora C. Heavey, Senior Manager - Communications, American Institute of CPAs. Melora manages the CPA profession’s volunteer effort, 360 Degrees of Financial Literacy, and the award-winning public service campaign, Feed the Pig. She serves as the staff liaison to the National CPA Financial Literacy Commission, the leadership body and primary spokespeople for 360 Degrees of Financial Literacy.