The most significant revenue-raising portion of the legislation is a 15% minimum tax on C-corporations that averaged more than $1 billion in book income for three consecutive tax years beginning on or after Dec. 31, 2022.  

The law also includes a nondeductible 1% excise tax on corporate stock repurchases that would be effective for stock buybacks after Dec. 31, 2022. This tax is expected to raise $73 billion in revenue. 

The AICPA posted a rundown of key tax provisions contained in the Act here. 

The new law also includes supplemental appropriations of $79.6 billion over 10 years to the Internal Revenue Service and related agencies to bolster taxpayer services and enforcement of the tax code, which includes: 

• $45.6 billion for tax enforcement activities 
• $25.3 billion for operations support 
• $3.2 billion for taxpayer services 
• $4.8 billion for modernization of business services 

If you have questions about this issue or other policy matters, please contact NCACPA Director of Advocacy Robert Broome, CAE. 

2022 Short Session Tax Legislation Summary

If you have questions about these issues or other policy matters, please contact NCACPA Director of Advocacy Robert Broome, CAE.

NCACPA is working with Finance Committee leaders in both chambers to get an opportunity to review and comment upon any tax code changes before a deal is finalized.
 
Governor Roy Cooper’s budget proposal does not include tax cuts, but he indicated that he might support a $200 gas tax rebate proposed by Senate Democrats.   

“I would support relief for everyday people,” said the Governor.  “And the gas pump is one place to do that versus more overall corporate cuts and more overall income tax cuts…I would rather them go that route, but obviously these are all part of budget negotiations right now.”
 
In addition to tax cuts, Medicaid expansion could play a role in this year’s budget negotiations. Governor Cooper has consistently pushed for Medicaid expansion, and the Senate recently passed HB 149—Expanding Access to Healthcare, which includes Medicaid expansion. Speaker of the House Tim Moore has repeatedly stated that House Republicans do not want to vote on Medicaid expansion this year. 
 
Even if there is no agreement on a budget this session, there is a spending plan already in place for the upcoming fiscal year.  The biennial budget that was passed at the end of last year is already in effect.  

If you have questions about this issue or other policy matters, please contact NCACPA Director of Advocacy Robert Broome, CAE. 

As part of providing great service, CPAs help clients plan their exit and succession strategies. But all too often, CPAs don’t look at their own shop to ensure they also properly plan for an inevitable succession event. The NCACPA Succession Planning Task Force is working to provide resources and encouragement to CPAs in planning their own succession. A CPA firm that properly plans for its succession is the best course of action for the firm, for the families involved, for the clients, and for our responsibility to the public. Succession Planning Task Force members encourage you to review the succession resources, including access to a free On Demand program, at ncacpa.org/succession-planning-tools-resources. In addition, the AICPA Private Company Practice Section (PCPS) has a Succession Resource Center detailed information on the following:

• Drivers of Change for the CPA Profession
• Positioning Your Firm
• Selling Your Firm
• Merging Your Firm
• Developing New Leaders
• Turning Out the Lights
• Transition Roles and Responsibilities
• What is the Value of Your Firm
• Due Diligence
• Key Elements to a Partnership Agreement

Succession planning is clearly needed, so what are the options to consider?

Merge Up

Merging your firm can be a good solution, but don’t wait too long to plan and consider. We often tell clients to “run your businesses like it is always for sale.” This guidance certainty applies to CPA firms as well. If you think a merger would be the best succession solution for your firm, make sure you take steps to keep the value of your firm high and to be attractive for larger firms to acquire. Examples of these steps include:

• Keep your technology up to date.
• Have adequate staff in place. With today’s staffing shortages, not having adequate staff will greatly decrease the value of your firm. Leverage metrics to become an important measure of value.
• Monitor your average realization rate and keep it trending higher. Large firms will be looking at firms that have clients paying higher average rates.
• Be prepared to work for the new firm a minimum of two years to transition relationships.
• Consider having a Practice Continuation Agreement in place in case of an emergency while you explore merger options.
• Culture, culture, and culture are the three most important things to consider in identifying a merger candidate.

Selling Your Firm

Much like a merger, selling can also be a good solution Those important points to make your firm attractive for a merger also applies to a sale. Also consider the following:

• All the things listed above in the merger option.
• Are you willing to accept contingent deferred payment terms based on client retention?
• Do you want to structure your sale to receive long-term capital gain tax treatment?
• How do you identify the right potential buyer while protecting the confidentiality of your process?

Internal Succession

In my opinion, this is probably the most rewarding option, but this also is the option that requires the most work and most planning. Consider the following:

• Identify the next generation of leaders of your firm early and talk to them often about the process.
• Invest in leadership development training.
• Set realistic value formulas so future owners can pay for the firm with as little risk as possible to their current income.
• Have your partnership/ownership agreements and lease agreements up to date.
• Consider a cap on the firm’s annual retirement payments as a percentage or revenue or profit before owners’ compensation.
• Transition client relationships early.
• Take some extended vacations while the Next Gen runs the place.
• Plan your personal life post career. This may be the most important part of the whole process.

Do Nothing. Turn Out the Lights

While this is an option, consider the few advantages and the many disadvantages:

• You stay in control until the end.
• What do you do in an emergency situation to protect your clients?
• How much value does your firm lose if you are unable to serve client even for a month or so? Who is your back up?
• Do you continue to invest in up-to-date technology?
• Please have a practice continuation agreement in place.

As the saying goes, nothing is more certain than death and taxes. A succession event for your firm is also as certain, please plan for it.

The AICPA has issued a proposal to update key terminology and certain ethics interpretations to better align with changes made by the SEC. The AICPA issued a temporary enforcement policy earlier this year. The goal is for this proposal to make the needed alignments. Comments are due January 5, 2022.

Learn more in this video review.

Do you agree with the proposed changes to align AICPA ethics standards with the SEC standards?

The AICPA has issued a proposal to make updates to the Peer Review standards. The changes are primarily formatting to make the standards more user friendly. There are a handful of substantive changes as well. Comments are due by December 15, 2021.

Learn more in this video review.

Do you agree with the proposed changes to the peer review standards?

Many would say that CPA firm succession is one of the most significant issues facing the profession and has been for some time. In a recent article by Marc Rosenberg, “Baby Boomers Retiring in Droves,” the succession issue was number three on the list of 14 challenges facing the CPA profession. This was followed by number seven on the list: “Firms continue to suck at succession planning.”[1] Rosenberg goes on to say that only 20–30% of first-generation firms make it to the second. Clearly the issue is still with us.

Let’s take a look at the numbers. There are currently 8,755 licensed North Carolina CPAs in public practice according to information provided by North Carolina State Board of CPA Examiners. The table below shows CPAs in public practice by age group.

As you can see from the table, 50% of licensed CPAs in public practice are 50 years and older and 30% are age 60 and older. The numbers alone would suggest there will be a lot of transition in the near future.

Several of us on NCACPA’s Succession Planning Task Force have received calls from firms desperately looking to sell or merge their practice because of an unexpected illness or retirement of a key partner. It seems these calls have increased over the past year.

It can be challenging to think about planning for succession when we are dealing with constantly changing tax laws, technology, federal programs, attracting and retaining talent, cybersecurity, diversity and inclusion, and the list goes on. Of course, most recently, a virus has impacted most everything we do and how we do it.

As CPAs, we impact many people and businesses including our team members and their families, the employees of our clients and their families, and many community organizations that we each support. This makes succession planning very important to more than just the retiring owners. Planning for succession is not just for the 60+ age group, but all age groups. In the best case, succession is baked into each firm’s hiring practices earlier on and throughout an employee’s career. Planning for the new generation of leadership takes time and effort but is well worth the investment. Time and energy invested in planning for succession creates great opportunities for the younger CPAs.

Succession planning is not easy and requires continuous attention as things can change overnight. Many firms have built succession into the fabric of their firms. For others, now is a good time to get started. Your NCACPA Succession Planning Task Force has been working collaboratively with the North Carolina State Board of CPA Examiners on this very topic. There are excellent tools and resources available to assist you.

¹ Marc Rosenberg, The 14 Trends Crushing Today’s Accountants, CPA Trendlines.

The NCACPA Succession Planning Resource Team is offering a complimentary 60-minute CPE program entitled Structuring a Successful Succession Plan led by Joel Sinkin, President of Transition Advisors, LLC, on Thursday, November 11, 2021 from 12:00 – 1:00 pm EST.  The event is free for all attendees and you are not required to be a member to participate.

Please visit https://www.ncacpa.org/succession-planning-tools-resources/ for more information on this event and other succession planning resources from NCACPA.

This week’s GLS blog addresses the final standards that were issued by the AICPA, FASB and GASB in the third quarter of 2021. While it was a light quarter from a standard setting perspective, some of the issued standards address implementation issues which are always helpful. As we expect some big standards to issue in Q4, a light quarter is likely a good thing as all standard setters have big projects on their plate as well!

Learn more in this video review.

What impact will these standards have on organizations?

Does your client need a single audit?

Much of the new pandemic funding is subject to single audit rules. Not all recipients of this funding will need a single audit. However, when a non-federal entity spends $750,000 or more of federal awards in a fiscal year, a single audit is required.

Many recipients of pandemic funding have never had a single audit before and may not know what is required. Your existing clients may need a single audit for the first time or you may begin working with new clients who have never even had a financial statement audit before. Here are some tips for you to help your clients through the evolving single audit process.

Ask clients what funding they have received.

Talk to your clients about what type of funding they have received from the beginning of the pandemic in 2020 to the present. In some cases, you may consider helping them review their grant agreements to identify what is needed on their end, and then on your end as the auditor. Additionally, you could email clients with news related to the funding they’ve received or update your website with the most current information. The sooner your clients know about important and relevant information, the better prepared they are and the better audit you can perform — so it is a win-win.

Encourage your clients to be proactive and ask questions about funding they have received. For example, one controller contacted her CPA as soon as she knew her organization would receive funding. She knew this funding had stipulations but didn’t know yet that a single audit would be required. Finding out early in the process was a huge benefit.  But many organizations may be unaware of all the requirements in the funding they have received.

Communicate openly with your clients.

This is a time when having open lines of communication with your clients is especially important. Learning whether your clients have reviewed and truly understand the guidelines for the type of funding they received is key, as well as that they have procedures in place to comply.

Also, clients need to know — even if they are under the $750,000 threshold — that administrative and other requirements of federal funding apply even if a single audit is not needed. For example, the funds may only be spent for certain purposes. This is an important concept for clients to understand.

Be aware of audit quality concerns.

Some first-time single audit clients may be concerned with audit costs because they are required to undergo an additional audit. While cost is always one consideration, in this situation, it is also important to focus on the experience of the firm to make sure they are getting the highest-quality audit possible.

Also, as auditors, you have a duty to the public to perform high-quality audits. Single audits have a significant public interest component as they involve taxpayer dollars and federal agencies rely on them as part of their administrative responsibilities for determining compliance with the requirements of federal awards. Because of this, audit quality should always be at the forefront of every auditor’s mind.

Make time for continuing education and pay attention to developments.

Firms should ensure auditors receive the required training for all specialization areas. For example, generally accepted government auditing standards (referred to as the Yellow Book) require auditors who perform single audits to maintain their competency through CPE hours and topics listed in the 2018 Yellow Book.

If you take on a single audit, there is single audit learning available through NCACPA and the AICPA, among other sources, to help you gain the fundamental knowledge you need. Regarding the new COVID-19 funding, you may want to pay close attention to any training provided by federal agencies.

Additionally, you can access the AICPA’s GAQC website, in particular its COVID-19 Resource page, which outlines many resources. You may also want to contact other firms on their single audit and pandemic-related resources. It’s useful to speak to your peers about what they’re doing and learn from their experiences. Keeping on top of things is important.

Looking Ahead

The pandemic has drastically changed work in many industries, and the accounting profession is no different. The next few years will see many more single audits being performed by more public accounting firms across the country.

Keeping up with all these changes while continuously striving to be that trusted adviser for your clients is tough. In these times, in addition to all the other tips above, it is especially important to be mindful of staff well-being. Organizations need to provide support to staff so they can remain engaged and avoid burnout. Focusing on well-being can enable staff to do their jobs better, which allows them to better serve their clients and, ultimately, contributes to enhancing audit quality

These are challenging times in the single audit arena for sure. But the tips above should help provide a pathway to success.

The AICPA’s Professional Ethics Executive Committee (PEEC) has issued a proposal to revise the rules around unpaid fees. The current rules use a one year period with no considerations of materiality. The proposal would move to a principles based approach with a threats and safeguards application. Comments are due December 20, 2021.

Learn more in this video review.

Do you agree with the move towards a principles based approach?