NewsAccount Colorado Society of CPAs
ec D / v No 1 201
2011 Heroes and Heroines
PCAOB Revisions to Report Standards
CPA Sweeney Gives Back in Uganda
Revenue Online Tools for CPAs
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NewsAccount November/December 2011
Contents Features
On the Cover: Alicia J. Sweeney, CPA
} 2 CPAs as Agents of Change
Today’s issues are global and complex – and they affect everyone. Your expertise as a CPA positions you well for helping others adapt successfully.
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Dodd-Frank: One Year Later This legislation contains significant corporate governance, executive compensation, and proxy voting provisions. How’s implementation going?
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Revenue Online: Tools for CPAs Thinking about helping your clients with online access to their tax accounts? NewsAccount provides model language you can customize.
Living with Gratitude Alicia Sweeney, CPA, was looking for a way to give back. When she found Hope Alive!, she found the way – and it led her to Uganda.
Safe Withdrawal Rates An investor’s safe withdrawal rate can provide a starting point to evaluate sustainable spending.
Departments
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Point/Counterpoint SEC Corner State of the Industry Movers & Shakers Classifieds
November/December 2011
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News Account CPAs as Agents of Change Chair Column
A bi-monthly publication of the Colorado Society of Certified Public Accountants Vol. 57, No. 4 November | December 2011 Board of Directors Michael S. Bearup, Chair Scott E. Bush, Vice Chair Mark T. Solomon, Treasurer Sidny K. Zink, Immediate Past Chair Mary E. Medley, Secretary Directors Sheila M. Balzer, Steven R. Corder, Ben T. Hrouda, Gary L. Mitchell, Lori D. Nelson, Christine Riordan
Editorial Board Jack Allgood, James M. Boak, Frances J. Coet, Kay R. Dragon, Deanna C. Duell, Jennifer Emerson, Mira J. Finé, Georgia Z. Phillips, Patrick A. Lytle, Mark Paller, Jennifer C. Pitkin, Tawyna Ramirez, Ronald O. Reed, Scott K. Sprinkle, Barbara J. Tedesko, Mark A. Torrey, Gregory A. Truitt, R. Stephen Van Meter, Michael West Mary E. Medley, President/CEO Elizabeth M. Julin, Deputy Director Krista Flynt, Editor/Publisher Natalie G. Rooney, Contributing Writer NewsAccount (ISSN #10899952) is published bimonthly by the Colorado Society of Certified Public Accountants, 7979 E. Tufts Ave., Suite 1000, Denver, Colorado 802372847. NewsAccount is published in January, March, May, July, September, and November and reports information, news, and trends in the accounting profession. Articles, display advertisements, and classified advertisements are due 30 days prior to publication. The Colorado Society of CPAs assumes no liability for readers’ business decisions in reference to advertisements or other information included in this publication. Membership dues include a $9.90 one-year subscription to NewsAccount. Periodical postage paid at Denver, CO. POSTMASTER: Send address changes to NewsAccount, Colorado Society of Certified Public Accountants, 7979 E. Tufts Ave., Suite 1000, Denver, CO 80237-2847. Net press run = 8,850 copies; sales through dealers and carriers, street vendors, and counter sales = 0; paid or requested mail subscription = 8,450; free distribution by mail = 50; free distribution outside the mail = 0; total free distribution = 50; total distribution = 8,500; office use, leftovers, spoiled = 350; returns from news agents = 0; total sum = 8,850; percent paid and/or requested circulation = 99%.
(303) 773-2877 • (800) 523-9082 Fax: (303) 773-6344 E-mail: cpa-staff@cocpa.org NewsAccount is available in PDF format on line at www.cocpa.org.
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BY MIKE BEARUP, CPA
Change isn’t a word people outside of our profession typically associate with those of us in the CPA profession. But change is a part of everything I read, hear about in meetings, and talk about with my CPA colleagues these days. The issues we face today are global and complex, requiring skills that our accounting forebears never imagined. After spending considerable time with CSCPA members, both the AICPA and the CSCPA leadership, and learning more about the shifting landscape of business and regulation, I assure you we’re all going to be affected. Regardless of whether you’re with a Big 4 firm, a family business, a nonprofit, a governmental agency, or own your own practice, weighty matters loom ahead. Revenue Recognition: A joint project of the FASB and the IASB, this project is designed to clarify the principles for recognizing revenue from contracts with customers. It applies to all contracts with customers except leases, financial instruments, and insurance contracts. The FASB previously indicated that it expected the effective date for public entities to be no earlier than annual periods beginning on or after Jan. 1, 2015, but it will reconsider the proposed effective date, and other aspects of the Exposure Draft, before issuing a final standard. Leasing: In another example of the convergence of U.S. GAAP with International Financial Reporting Standards, the FASB and the IASB continue to move forward on a converged standard for accounting for leases, both from the lessor’s and lessee’s perspectives. Essentially, the lessee will record an asset that represents the value of the right to use the related asset and a liability representing the obligation to pay the contractual cash flows. Initially, the lease liability would be measured at the present value of the estimated lease payments and subsequently amortized on the effective interest method. The right-of-use asset initially would be measured at an amount equal to the lease liability plus any initial direct costs and prepaid rent, and subsequently amortized, generally on a straight-line basis. Lessors would be required to recognize a lease receivable and a residual
NewsAccount November/December 2011
asset in the statement of financial position. As most clients and employers are lessees, you can see that this will have a significant impact on their balance sheets. The Boards have decided to re-expose their proposed lease accounting standard, and a final standard likely will not be issued until the second half of 2012. Stay tuned for the final rules. The issues of revenue recognition and leasing are a wake-up call for smaller and regional firms because of their pervasiveness— one or the other, or both, likely will impact every single company we serve or work for. Now is the time to take CPE courses, talk to your clients, and speak with users of financial statements to educate them about what these new standards will mean and help them understand the changes they’ll see on the balance sheet and other financial statements. Both of these issues will require us as CPAs to understand the literature and the impact on our clients and companies so we can take the appropriate next steps. There will be massive changes beyond accounting. Controls will have to be changed and systems adjusted. Anyone doing client write-up work, reviews, and audits will need to understand these standards as well. PCAOB Concept Releases: After much deliberation and discussion, the PCAOB has issued a concept release on auditor independence and audit firm rotation. While the majority of the questions in the concept release focus on mandatory audit firm rotation, the PCAOB also has requested comments about other measures that could enhance auditor independence, objectivity, and professional skepticism. Examples the PCAOB cited for consideration include enhancements to audit committee oversight to improve auditor independence, enhanced or improved PCAOB inspection that would focus on professional skepticism, and broader alternatives such as mandatory joint audits or a requirement for the audit committee to solicit bids on the audit after a certain number of years. The PCAOB also recently issued a concept release on the auditor’s reporting model that could have wide-ranging implications for the role the auditor plays in communicating
financial information to investors and other users of public company financial statements. The concept release outlines four alternatives for possible changes to the auditor’s reporting model, and the PCAOB seeks specific comments on these or other alternatives that could provide investors with more transparency into the audit process and more insight into companies' financial statements or possibly other information outside the financial statements. The alternatives would retain the pass/fail opinion of the current auditor's reporting model and are not intended to alter the auditor's responsibility to obtain sufficient and appropriate audit evidence to support the audit opinion. The concept release also states that the alternatives are not intended to qualify or piecemeal the auditor's opinion or to shift the requirement to assess the risk of material misstatement of the financial statements from the auditor to investors or other users of financial statements. The four alternatives presented in the concept release are: (1) auditor's discussion and analysis; (2) required
and expanded use of emphasis paragraphs; (3) impact our business decisions have on the auditor assurance on other information out- world. Understanding, measuring, and comside the financial statements; and (4) clarifica- municating the true cost of a business decition of the standard auditor's report. The bot- sion will be critical in this model, and that is a tom line is that the PCAOB is proposing that strength of CPAs. It’s also a huge opportunity auditors communicate directly with investors for us as CPAs and for the accounting profesand financial statement users. This opens up sion. a healthy debate for our profession to make From where I sit, it’s exciting to see all of sure we continue to stay relevant to the in- the elements that make up the foundation of vesting community. See the SEC Corner ar- our profession—objectivity, independence, ticle on page 14 for more details. analysis—coming together in such a way that Shared Value: I recently read an article we will be the ones to help clients and emabout the concept of shared value (The Big ployers break through the complexity and figIdea: Creating Shared Value, by Michael E. ure out how they will continue to thrive. Porter and Mark R. Kramer), and it got me Change: It speaks to our core strength. thinking about how companies think about How are you preparing? s profit and how auditors play a role. We’re Contact CSCPA Chair Mike Bearup at going to continue to hear about things like mbearup@cocpa.org. shared value, corporate susLate-breaking News from PCAOB tainability, and As this NewsAccount was going to press, the PCAOB released addieconomic value tional proposed amendments to “increase transparency of public comcreation—ideas pany audits by providing investors with information about certain key that examine the participants in the audit,” according to PCAOB Chair James R. Doty. The proposal would require PCAOB-registered accounting firms to disclose the name of the engagement partner in the audit report and on the PCAOB Annual Report form. It also would require disclosure in the audit report of other accounting firms and other persons not employed by the auditor who took part in the audit. Comments on these proposed amendments are due, Jan. 9, 2012, at comments@pcaobus.org.
AICPA Chair Greg Anton and CSCPA Chair Mike Bearup talk principles and standards even when riding in the Colorado Rockies. Photo by Will Avgerakis, AICPA Creative Director November/December 2011
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Point/Counterpoint:
Social Media
NewsAccount has established a new column — Point/Counterpoint — where we’ll look at opposing member views on wide-ranging issues of the CPA profession. In this first column, members speak out on the use of social media.
BY MARK PALLER, CPA
BY JENNY PITKIN EMERSON, CPA
Carol Bartz, the CEO of Yahoo, was just dismissed in September of this year. The Wall Street Journal reports, “As web traffic explodes, Internet companies are struggling to profit.” Then it goes on to say, “The more information is created, the more the value is reduced.” I flash back and reminisce about the “good old days” when many businesses opened at 9:00 a.m., professionals like me wore white shirts and ties, people regularly used the words “please” and “thank you,” and we had family dinners, exchanged stories, taught morals and ethics, and learned life lessons about deferred gratification and hard work. Today, I’m a father of two daughters — the younger is 20 and attending the University of Kansas. She’s a journalism major. To communicate with her, I have to send text messages, leave voice mails, and follow-up with an e-mail. She has told me emphatically that electronic communication is where it’s at! It’s all about YouTube, Facepage (oops, Facebook), blogging, and being able to work all the time, anywhere, and being in constant communication. Social media is how people know what’s HAPPENING! Really, when all of a sudden, is everything IMPORTANT and requiring IMMEDIATE ATTENTION? I’ve never been told not to send a postcard from a vacation or Christmas card during the holidays. Have you? But, I’ve requested to be taken off an e-mail blast. And my daughters have told me that they have had to “un-friend” people they don’t hang with any longer. No doubt, the Internet is an incredible tool. It’s changed our world, and become the new Yellow Pages and classifieds. I know we’ll never go back to the “good old days,” but constant tweets, texts, and “facepage” updates — what’s that about? To grow and do quality work, how about a personal note, a smile, a thank you, some planning with real, two-way communication, and a commitment to do a quality job? Let’s not get caught up in the paradigm that “more is better.” Rather, let’s focus on providing information that’s both valuable and worthwhile. Tweeting, texting, fan pages, and e-mail barrages, REALLY? s
I have worked in the recruiting industry since 2002, specializing in accounting and finance. I started using social media around 2006 because of work — I thought it would be part of the future of recruiting and networking. I quickly realized Facebook was more appropriate for personal connections. There, I share personal updates about my life; post pictures of my daughter; share articles; keep in touch with friends, especially those out of state; view pictures of my friends’ children; and allow myself a few minutes of distraction. I use LinkedIn daily for general networking, business development, and recruiting. I connect with current and past candidates and clients; reach out to new contacts; connect with professionals I meet; recruit for jobs; and post jobs on groups. I think social media has its place in both our personal and professional lives in moderation. I will be honest: I was reluctant to use Facebook — I mean, who has time for another distraction? Apparently, I do! For me, it’s somewhat of a guilty pleasure — like chick flicks or a cheesy novel. I think there is entertainment value to Facebook because I like people’s funny thoughts about their day, the articles they share, pictures of their families — it all makes me feel as if I know what’s going on with people even if I don’t have time to call or see them. I appreciate the Facebook community for what it is — a way for me to feel connected to people I know and to enjoy their exciting news, or commiserate on their horrible days, or laugh at one of life’s funny twists. I am constantly talking with individuals about what they can do to network, both now and in the future, to find a new position. I always encourage people to use LinkedIn to connect with former and current colleagues, classmates, and other professionals. It’s also a great way to search for new contacts who you might have something in common with if you need advice on a specific issue or want to find a new opportunity. It’s a great tool for anyone who wants to be connected in the professional world without having to spend a ton of time managing contacts — and it’s free. Over time, your LinkedIn network even grows on its own. Perhaps, you’ll want to reach out to that attorney you met a few years ago or a former colleague. You might not have a current e-mail address or phone number, but LinkedIn will continuously be updated with changes in your professional network. You never know when all that social media will come in handy. s
Mark Paller, CPA, Paller Financial Services, Inc., Centennial, is a member of the CSCPA Editorial Board. Contact him at mpaller@ qwestoffice.net.
Jenny Pitkin Emerson, CPA, Emerson Search LLC, Denver, is a member of the CSCPA Editorial Board. Contact her at jenny@emersonsearchllc.com.
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NewsAccount November/December 2011
Regulatory Update
Dodd-Frank: One Year Later On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Dodd-Frank contains significant new corporate governance, executive compensation, and proxy voting provisions that impact all U.S. public companies and imposes substantial new rulemaking requirements on the Securities and Exchange Commission (SEC) with respect to such matters. As of Sept. 21, 2011, the SEC had missed many of Dodd-Frank’s rulemaking deadlines, and several Republicans in Congress are calling for the repeal of some of Dodd-Frank’s more onerous provisions. This article provides a brief update on several key aspects of DoddFrank affecting public companies. Proxy Access: Dodd-Frank authorized the SEC to adopt rules providing directors nominated by shareholders with direct access to company proxy statements. Shareholders historically have not had the ability to require companies to include shareholder nominees in the proxy statement. The SEC promptly issued final rules on proxy access on Aug. 25, 2010, and these rules were quickly challenged in court by the Business Roundtable and the U.S. Chamber of Commerce. On July 22, 2011, the U.S. Court of Appeals for the D.C. Circuit vacated the SEC’s proxy access rules, characterizing them as “arbitrary and capricious” and stating that the SEC had failed “adequately to assess the economic effects” of the rules. The SEC subsequently announced that it will not seek a rehearing or Supreme Court review of the decision by the U.S. Court of Appeals. On Sept. 15, 2011, the SEC released a notice that the revisions to Rule 14a-8, which were stayed during the proxy access litigation, would be effective for the 2012 proxy season. These revisions, known as “private ordering,” will allow shareholders to submit proposals for consideration in proxy statements that request changes in director nomination procedures. Say-on-Pay: Dodd-Frank directed the SEC to adopt rules requiring shareholder votes on executive compensation (“say-on-
pay”). The rules were effective for the 2011 proxy season and require public companies to hold an advisory vote on named executive officer compensation at least every three years. In addition, at least once every six years, public companies are required to conduct an advisory shareholder vote on whether the say-on-pay vote should be held every one, two, or three years. Approximately 40 public companies failed to receive shareholder approval of their executive compensation during the 2011 proxy season. Nine of these failed say-on-pay votes have resulted in shareholder lawsuits. Shareholders also generally tended to vote in favor of holding the say-on-pay vote every year. Smaller reporting companies are exempt from say-on-pay for three years. Whistleblower: On May 25, 2011, the SEC adopted final whistleblower rules, as required under Dodd-Frank. The rules create a whistleblower bounty program that rewards individuals who voluntarily provide the SEC with original information leading to enforcement actions that result in over $1 million in sanctions. Eligible whistleblowers can earn a
BY JASON DAY
payout of 10% to 30% of any monetary sanctions collected as a result of the information they provide. The rules are particularly controversial because they do not require whistleblowers to first report through a company’s internal compliance process and under certain circumstances even allow culpable employees and internal compliance personnel to provide whistleblower tips to the SEC. If an employee first reports a potential whistleblower claim internally, the rules essentially provide companies with 120 days to conduct an internal investigation before the whistleblower can report to the SEC. Many companies believe that this does not allow adequate time to investigate complex matters. In addition, the rules provide significant anti-retaliation protection to whistleblowers. Many commentators believe that the business community will challenge these rules in court. Executive Compensation: Dodd-Frank directs the SEC to make rules requiring public companies to disclose the relationship between executive compensation actually paid and the
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2011 SEC and PCAOB Conference “I’m so impressed with the professionalism and quality of the speakers. This is truly an opportunity to learn about breaking new developments and SEC and PCAOB issues that will help all of us professionally.” — Kristine Brands, Regis University, Colorado Springs
Online registration at www.cocpa.org
Dec. 14, 2011
Hyatt Regency - DTC, Denver $335 CSCPA Members, $479 Nonmembers November/December 2011
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Does Your Organization Need an Electronic Media Use Policy? BY NATALIE ROONEY
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f it seems everyone you know is using social media, you’re almost right. Nielsen recently released a report on the state of social media and found 80 percent of U.S. Internet users use social media or read blogs. The study also found that 40 percent of consumers find social media content using their phones, and the number of people 55 and older using social media on their mobile devices has more than doubled. This proliferation of people reaching out to other people may be great for everyone’s social life, but it has created new dilemmas in the workplace — to permit employees tuse the Internet or not? The use of the Internet at work, and now more specifically the use of social media, has already made its way into America’s courtrooms. Demonstrating that lawsuits involving employers, employees, and social media are still evolving, a National Labor Relations Board (NLRB) judge in September ruled a New York nonprofit must re-hire five employees who were fired after complaining about their jobs on Facebook. The judge found that the employer’s discharge of the five employees was unlawful and ordered them to be reinstated with backpay. Although logic seems to say that every company should have an electronic
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media use policy to avoid a legal battle, Leah P. VanLandschoot, managing member of The Litigation Boutique LLC, recommends giving careful consideration to a potential Internet use policy before you put one in place. Does every company need an electronic media use policy? Yes, and no, says VanLandschoot, and the final answer depends on your company’s goals. There are few instances where she would recommend not having a policy. For example, if a company isn’t going to enforce a policy or isn’t going to enforce it consistently, it’s better from a legal standpoint not to have one at all. “Lack of consistency begets liability,” VanLandschoot says. Regardless of whether a company wants to encourage or discourage Internet usage, some sort of policy is the way to go. In fact, VanLandschoot recommends incorporating a policy on electronic media use into an existing code of conduct which likely already covers parameters of appropriate employee behavior. Extending those parameters into employees’ social networking and Internet use is a natural and intuitive step.
Policy Content VanLandschoot has a few recommendations on what a basic electronic media use policy might contain: • Acknowledgment. After employees have read the policy, have them sign and date it, demonstrating their acknowledgment and acceptance of its terms. • Authority. Outline for employees what their authority is, or lack of, to speak on behalf of the company. • Parameters. Address what types of websites employees may or may not visit, and if they can do so on-the-clock. Some organizations, such as Internet-based businesses, may want to encourage social media use. If an employer
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wants to limit access to certain sites, this should be addressed in the policy. • Monitoring. Employers should inform employees if they will monitor Internet usage from time to time. Employees will be giving permission to do so by signing the acknowledgment at the end of the policy. • Discipline. If you have a policy, outline what disciplinary measures are in place for a violation. Follow the policy consistently with all employees.
Policies in Action Anton Collins Mitchell LLP (ACM) implemented an electronic use policy about a year ago when social media websites really took off. ACM’s Human Resource Manager Kristin Holthus said the firm wanted to make sure it covered both employees and the firm to make sure employees were using sites appropriately and not putting themselves, or the firm, at risk. “We did not have any specific incidents that required us to create the policy. When social media websites started being used more, we wanted to be proactive and help our employees understand how they should be using these sites regarding our firm and information they posted,” she says. “For example, we do not allow our employees to post compensation information on these types of sites.” ACM’s guidelines were developed in response to the firm’s acknowledgment that, due to the nature of public accounting, employees spend a lot of time at the office, Holthus says. The firm’s policy allows employees to take care of personal online transactions, such as banking and checking personal e-mail, as well as using websites, such as Facebook, during office hours. “We do have the ability to monitor time spent on the Internet. While our employees are working in our offices, we ask them to keep Internet usage to a minimum, such as checking in the morning, on their lunch hour, or just once or twice during the day,” she says. “Limiting use on these types of websites also helps us to keep costs down with respect to purchasing
additional bandwidth. While our employees are working at client locations, we ask that they not access these types of Internet sites. Most of our clients also have the ability to monitor Internet usage.” ACM’s two-page written policy includes a signature page and covers things like Twitter, social media sites, YouTube, blogs, online shopping, e-mail message forwarding, and spam messaging. The firm’s information technology department generated the policy which was then reviewed and approved by management. The City and County of Denver has developed the Information Technology Acceptable Use Policies and Procedures document. It applies to all employees, contractors, vendors, and other authorized individuals who utilize any information technology, electronic, or other communication device owned and provided by the City and County of Denver. It also covers anyone who is granted access to any Local Area Network and/or Wide Area Network or other service maintained and provided by the City and County of Denver. The policy addresses topics such as access to electronic devices, e-mail usage, Internet usage, security of devices, and how violations will be handled. s
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financial performance of the company; the median of annual total compensation of all employees; the annual total compensation of the CEO; and the ratio of total annual CEO compensation to that of the median employee. The SEC currently expects to issue proposed rules on these topics by Dec. 31, 2011, and final rules between January and June of 2012. The SEC is also required to make rules requiring companies listed on national securities exchanges to adopt policies requiring current and former executives to repay certain “erroneously awarded” incentive compensation if there is an accounting restatement triggered by material noncompliance with any financial reporting requirements under the securities laws. Current and former executives who received incentive compensation during the three-year period preceding the date on which the company is required to restate must pay back any incentive compensation in excess of what they would have been entitled to receive based on the restated financial information. The clawback does not require any wrongdoing by the executive. The SEC currently expects to issue proposed clawback rules
by Dec. 31, 2011, and final rules between January and June 2012. Compensation Committee: DoddFrank directs the national securities exchanges to issue rules defining the “independence” of compensation committee members. The definition of independence for compensation committee members likely will be similar to that currently required for audit committee members. Dodd-Frank also explicitly empowers compensation committees to retain, appoint, compensate, and oversee advisors, including compensation consultants and legal counsel, and to consider factors regarding advisor independence. Companies will also be required to disclose certain conflicts of interest relating to compensation consultants. Proposed rules relating to compensation committee independence were published in April 2011. The SEC expects to adopt final rules by Dec. 31, 2011. Other: The SEC has already proposed rules regarding conflict minerals, mine safety disclosures, and resource extraction disclosure. It currently expects to adopt final rules by Dec. 31, 2011. s Contact Jason Day, of Perkins Coie LLP, Denver, at jday@perkinscoie.com.
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Client Authorization and Access:
Tips and Tools for Colorado CPAs The joint Colorado Society of CPAs/Colorado Department of Revenue Task Force developed the following information. The model language is intended to provide you with the basic steps to request client authorization to access online tax information. For more information, or assistance with a client matter, contact Mary E. Medley at mmedley@cocpa.org. Revenue Online, www.Colorado.gov/ RevenueOnline, the Colorado Department of Revenue’s secure portal where taxpayers can access their Colorado income tax accounts, was upgraded on Aug. 29, 2011, to enhance existing features and add functionality. The system enables both business and individual taxpayers to access information involving income tax (C-Corp., S-Corp., fiduciary, and partnerships); sales tax; use tax; special event sales tax; retailer’s use tax; withholding tax; international fuel tax agreement; exempt fuel refunds; and individual income tax (available since April 25, 2011). The following services have been updated or are now available for the first time online: • View previously filed returns (updated for amended returns and CDOR changes) • Amend Tax Returns • Change a Mailing Address • File a Protest • Request Payment Plan • View 1099-Gs • View Account Balances • View Your Payments • View Letters from the Department • File a Return • Close an Account • File Zero Sales, Use and Withholding Tax Returns • Local Sales/Use Tax Rates • Sales Tax License Verification • Sales Tax Rates for Each Business Location within an Account • Submit Electronic W-2s or Type in W-2 Annual Reconciliation Data • Allow a Tax Preparer or Payroll Company to Submit W-2 Data for a Business • Make a Payment (by e-check, credit card, or through electronic funds transfer)
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To provide monitoring of a client’s account through Revenue Online, the joint Colorado Society of CPAs/Colorado Department of Revenue Task Force recommends offering the service through formal communication and documenting the client’s consent in writing.
Implementation Tips – Client Consent for Revenue Online Access Determine whether to communicate this opportunity as part of your annual tax organizer package, routine engagement letter, or separate letter solely for this purpose. Customize the model language to meet your and your clients’ needs. If you are setting up a client’s access on his or her behalf, a unique identifier for the Login ID must be used with each client set-up. This might be the client’s e-mail address or your client ID number. The password must be 5 to 15 characters (letters and numbers). The password can be the same for more than one account, however the Login ID must be unique. If someone else is using that Login ID, you will be directed to come up with another ID. You also will be asked to select a security question. Enter your e-mail address to receive the authorization code. After you submit the access request, check your inbox and your junk e-mail folder. Look for a message with the subject line: Colorado Department of Revenue – Revenue Online Account Access Complete. The first time you login to the account, you will need the authorization code. That is the only time you will need it. All other times you log in, you need just the Login ID and Password. Remember to document the Login ID, password, and security question and answer in your permanent tax files. In addition to your client’s Zip Code on
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record with the Colorado Department of Revenue, you also will need one of the following items: Individual or Business Tax Accounts • SSN or • ITIN or • FEIN or • Colorado Account Number (CAN), eight digits. If this is an account that has been established for some time, note this number used to be seven digits but now has a zero (0) in front of the original number. Have one of the following available to complete the process: Individual Tax Accounts • Most recent Colorado return filed • Recent Letter ID Number from the Colorado Department of Revenue • An estimated tax payment made in the last 12 months • Refund amount from most recent Colorado return • Taxpayer’s Colorado PIN previously assigned through www.myincome tax.state.co.us Business Tax Accounts • Most recent Colorado return filed • Recent Letter ID Number from the Colorado Department of Revenue If none of these is available, you can click on the “Request a Letter ID” link through the website. The letter ID will be sent to your client’s mailing address on file. Once you get the Letter ID e-mail with the Authorization Code from your client, you may enter your Login ID, password, and this Authorization Code to sign up for Revenue Online account access. For further information, practitioners may call the Colorado Tax Practitioner’s Hotline at (303) 232-2419. Clients may call the Colorado Tax Information Line at (303) 238-7378. s
Colorado Department of Revenue Letter ID Confirmation E-mail: Subject: Colorado Department of Revenue - Revenue Online Account Access Complete Thank you for registering for online account access with the Colorado Department of Revenue. Your account access request has been processed. Please do not reply to this message. You may return to the website to access your account. The first time you login, enter your Login ID and Password along with the following Authorization Code: XXXXXX. You will use the authorization code only once, the first time you login. You will not need it again after your first login. Please note that Department of Revenue staff does not have access to your authorization code. We advise you to retain this authorization code until you have logged into your account for the first time. Respectfully, Colorado Department of Revenue Colorado Taxation website: www.TaxColorado.com
Model Language – Colorado Revenue Online Authorization and Access The Colorado Department of Revenue administers Revenue Online, www.Colorado.gov/RevenueOnline, a confidential, secure, Internet-based service that enables you to establish password-protected access to state tax account information, including income tax returns, payment history, account balances, and refund status. As part of our engagement to provide accounting services, you may grant us written authority to gain online access to your state tax account information through Revenue Online. If you decide to grant us such access, we expect to offer improved efficiency in providing services to you. For example, access would allow us to view amounts and timing of income tax payments and refunds, check account balances, file and check the status of protests, amend tax returns, and make tax payments. If you give your consent, it will continue in effect until our relationship ends or you withdraw your consent in writing, which you can do at any time. We will provide other services to you whether or not you give us your consent. You are not required to give us consent to access your Revenue Online account. However, we will not be able to access your Revenue Online account without your consent. Giving us access may be achieved in one of three ways. If you would like for us to monitor your account in Revenue Online, initial the appropriate box here: (1) You set up the account and provide us with your Login ID and Password. (2) You set up the account and authorize us to access the account as a third-party user. (3) You authorize us to set up the account for you and select the User ID and Password to use. For any of these three options, the system requires creation of a Login ID (which could be an e-mail address) and a Password. The account access registration process also requires a valid e-mail address. Once access to the account is set up, the Revenue Online system will send an Authorization Code to the e-mail address. The Authorization Code is required only the first time you (or we) login to Revenue Online with your Login ID and Password. If you set up account access yourself and do not access the account, we need all three of these pieces of information in order to access Revenue Online, so please provide the following: Your Login ID for this purpose: ______________________________________ Your selected Password: ____________________________________________ Authorization Code received from Revenue Online: ______________________ If you do not wish to give us access to your information through Revenue Online, initial here. __________________________________ Taxpayer Signature
_________________________ Taxpayer Name
_______________ Date
__________________________________ Taxpayer Signature
_________________________ Taxpayer Name
_______________ Date
For assistance with Revenue Online, contact: INSERT CPA CONTACT NAME, E-MAIL, PHONE. November/December 2011
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2011 CPAs Who Make a Difference Heroes & Heroines These CPAs were honored for their community service at the Nov. 10, 2011, CPAs Make a Difference celebration. To view the video of their contributions, visit www.cocpa.org.
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Jean A. Bushong, CPA
Kevin B. Farrell, CPA
Clifton Gunderson LLP Greenwood Village, CO
Consulting Accountants, PC Greenwood Village, CO
Rick L. Crosser, PhD, CPA
Rick S. Simms, CPA
Sharon F. Ross, CPA
Metropolitan State College Denver, CO
Richard S. Simms, CPA Littleton, CO
Soukup, Bush & Associates CPAs PC Fort Collins, CO
David J. Steiner, CPA
Alicia J. Sweeney, CPA
Ehrhardt Keefe Steiner & Hottman PC Denver, CO
Ernst & Young LLP Denver, CO
NewsAccount November/December 2011
An Inheritance of Thrift BY ANDY YOUNG, CPA
The AICPA will celebrate its 125th anniversary in 2012. To honor it, the Institute will highlight CPAs' expertise in financial literacy by publishing its first book for a consumer audience. Tentatively titled Raising Financially Fit Families, the book will be filled with lessons from CPAs all over the country. The following was submitted by CSCPA member Andy Young.
S
avings and thrift consist of a lot of relatively small things that in aggregate made a big difference in the financial aspects of my life. I am trying to pass on the same life skills to my children. My dad was born in 1937, too young to experience and recall the direct impact of the Great Depression, but not too young to see and feel its aftermath in the people and situations around him. He often recalled to us kids his childhood memory of a scrap metal and newspaper recycling drive at his school. It was during WWII. This recycling drive was intended to help the war effort. An important, and entertaining, part of this memory was his recollection of a wall chart in his kindergarten class where the students could keep track of how much of a tank they had “purchased” with their recycling efforts. My dad’s passing away in early 2010 provided me and my siblings an opportunity to consider and better appreciate the “inheritance of thrift” that we had learned by way of his stories and moral tales. Stories like the kindergarten recycling program were a starting point. They instilled in our minds the ideals that saving for a worthwhile goal, and more importantly not wasting anything, were moral qualities. While these lessons applied to many things, they definitely included things financial. My realization of all that I learned from my dad became even more pointed when I considered all that individuals and families have gone through, and continue to go through, in regard to the financial crisis that finally came to a head in late 2008. My dad instilled in us a version of “pay yourself first” by requiring that 50 percent of any money we made through part-time jobs or “windfalls” like birthdays and other special events be deposited into our passbook savings accounts. Each of us had such an account at the savings and loan a block from our house, by the trolley station. It was exciting to walk down to the savings and loan with Mom or Dad with our passbooks in hand. We counted up our money, filled out our deposit slips, and made our deposits. The tellers were familiar with us as they were also neighborhood friends. There was a sense of satisfaction as we saw the teller put our passbooks into a machine that looked like an oversized typewriter. The machine would type out and record the deposit entry right on the passbook, including adding any accrued interest since the last deposit, and also printed out the new ending account balance. My dad and mom also taught us by their example with finances. To be equitable with personal finances in a single-income household, my parents each received the same nominal monthly “allowance” out of Dad’s monthly take-home pay. Each of them spent their allowance on what they wanted, when they wanted, no
questions asked. Since my household is also a single-income household at present, I follow the same practice with my wife, Karen, today. I think it is beneficial to marital harmony where finances are concerned. At present, there are still ways where our household could be better at budgeting and spending money more wisely. However, despite this and some of the life challenges I brought on myself as a younger person, I realize how much worse things could be if I hadn’t received an inheritance of thrift. Thanks, Dad. s Andy Young, CPA, is a corporate compliance manager at WhiteWave Foods in Broomfield, CO. Outside of his immediate work responsibilities, Andy’s professional interests include financial literacy initiatives. He grew up in Drexel Hill, PA.
November/December 2011
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Living with Gratitude
BY NATALIE ROONEY
CSCPA member Alicia Sweeney, CPA, was looking for a way to give back to others and express her gratitude for the advantages a career in accounting has given her. This summer, she made her dream a reality by traveling to Africa and working with a nonprofit organization. She went to give back, but says she received much more in return.
Finding Family An audit senior manager at Ernst & Young LLP in Denver, Sweeney, always knew she wanted to give back as a way of expressing her gratitude for her own life. After growing up in a small Nebraska town, Sweeney came to Colorado to attend the University of Denver (DU), and she has been here ever since. Although Sweeney lost both of her parents when she was young, she says she feels fortunate to have been surrounded by family who cared for her, to have a faith to encourage her, and to have the resources to gain an education. Her life at DU and later
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within her firm and the CSCPA “felt like an extended family,” Sweeney says. “I have realized the value that relationships in education and the accounting profession can provide to those who may not be as fortunate or have natural family ties. I decided I needed to use my knowledge to support the education and connectedness of others.” With that thought in the forefront of her mind, Sweeney began researching opportunities. “People go overseas and build houses and work in orphanages, but I’ve been given these accounting skills for a reason,” she says. “People around the world need them.” She was determined to find an organization that would allow her to use her passion for the CPA profession to help those less fortunate.
Hope Alive! Sweeney’s quest eventually brought her to Hope Alive!, a relief and development project focused on orphans and fragile families in Uganda, Africa.
NewsAccount November/December 2011
Hope Alive! works closely with local churches to break the cycle of poverty, Sweeney explains. Education is an important key. Through sponsors, Hope Alive! provides school fees, supplies, exam fees, uniforms, and shoes so that children can attend school and provides mentorship for student growth. “I loved the mission of the organization,” she says. “I know how much my education gave me hope. I have had so many mentors in my life that influenced me and brought me to where I am. This was a perfect fit.” Sweeney took an unpaid leave of absence, from the firm to spending eight and a half weeks in Uganda. Her role while there was to help the administrators of Hope Alive! with their accounting system, and she had the opportunity to do much more. Acting as a consultant, Sweeney became a sounding board for the organization’s executive director who welcomed advice on everything from policies and procedures to hiring to future plans and personal leadership. One project took Sweeney and a team of five other business professionals from the U.S. to a small town with surrounding villages whose local economy has been devestated by recent war. For 10 days the team evaluated the feasibility of starting an income-generating poultry farm that would supplement donation income and also expand job opportunities for families in the community. The group wrote a business plan and designed a financial model for the organization’s use, based on changing prices of key commodities and market conditions. Ultimately, the team’s research indicated it was not an ideal time to enter the poultry business. The analysis and advice provided by Sweeney and the team kept the organization from making unwise investments that would have taken away significantly from its current program resources. “Our team was able to coach the executive director in the conditions that will make it more beneficial to launch the business and lay out key first steps for when the time is right,” Sweeney says.
Saturday Club
While most of Sweeney’s days were spent getting to know the administrative staff, learning the business culture in Uganda, and helping establish good business practices for Hope Alive! as a nonprofit organization, Saturdays were a different story. On those days, area children came to Saturday Club where they received two healthy meals—a rarity for most of the children who may only get one meal a day—and spent the day doing crafts that encouraged logical and creative thinking, learning to make good choices, playing together, and encouraging one another. English is Uganda’s national language so Sweeney was able to communicate with the children who ranged in age from 5 to 17. Sweeney found herself touched by the joy the children received from the simple things such as singing together. “I’d just sit back and tear up because they sing from the depth of their hearts with such great joy,” she reflects. “When you look at the struggles they have and challenges beyond what you can imagine, you can’t help but feel selfish— look at what I have that I’m not grateful for.” Despite being there for so short a time, the children welcomed her. “So many people have come in and out of their lives,” she says, “but each person who comes is still welcome because the children have enough love to give in return. We may have “material
wealth,” but they have “emotional wealth” and are so willing to share their abundance. We tend to not be that gracious. It was humbling. I definitely learned more than I taught them.”
Coming Home Sweeney’s return to the U.S. was “really hard.” Her last Saturday Club with the children was emotional. “I can’t describe the impact they had on me,” she says. And as difficult as it was to say goodbye to the children, it was even harder to part ways with the staff and friends she made in the organization’s leadership. Part of the business culture in Uganda is spending time getting to know one another and offering encouragement. Sweeney felt the tug of those bonds as her time in Africa drew to a close. “So many people there are living with such great purpose, passion, and caring,” she said. Now back at work, Sweeney says she’s still trying to figure out how she’s changed and how she’ll use her experiences in the future. One of her most important takeaways is in how business gets done. “In Uganda, you learn to wait,” she says. “You enjoy the process. You talk to people along the way. In the U.S., we tend to get so distracted because there’s always something screaming at us to get done. In Uganda, it was about
relationships.” Sweeney says she came away with the feeling that there is more value in relationships that are built while she’s doing the work than the work itself. “I want that incorporated into my life.” As she looks forward, Sweeney says her time in Uganda has made her even more grateful. “I want to live my life with more gratitude. Live with what’s available. I don’t have the type of barriers to success that those kids have, so there really are no excuses for not taking advantage of every opportunity.” Will she go back? “I hope so,” Sweeney says. For now, she’s not sure in what capacity she’ll return to Africa, but she has thought about holding a leadership training program for the organization’s staff and students. She is also considering ways to help the students raise funds to attend college and receive a degree in accounting. Whatever she decides, it’s clear that she cherished the opportunity to share her good fortune with others. Sweeney insists she brought home far more than she left behind. “People don’t understand what a gift it was to me to be able to go and experience something like that and see how accounting can have an impact in so many ways,” she says. “When things in accounting get stressful and really busy, often people will say, ‘We aren’t saving lives,’ and the truth is, we may not be saving lives, but we can actively play a role in improving the quality of other’ lives.” s
November/December 2011
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Where Is Public Company The Issues The Public Company Accounting Oversight Board (PCAOB or Board) Standing Advisory Group and the Investor Advisory Group recently suggested that the Board undertake a standard-setting initiative to consider improvements to the auditor's standard reporting model. A primary driver of this effort appears to be various investor groups. As a result, Board staff conducted outreach to investors, public companies, auditors, audit committee members, regulators, and standard-setters from late 2010 through early 2011. The staff reported its findings to the Board on March 22, 2011. The Board concluded from this outreach that changing the auditor's report should proceed. During the initial outreach process, some consistent themes emerged: • Investors believe that the auditor has significant insight into the registrant and that the auditor's report should provide additional information based on that insight to make public company financial filings more relevant and useful to investment decisions. • Auditors are valuable to investors because they are independent parties and have a perspective independent from that of management or the audit committee. • Auditors have extensive knowledge of the company and industry obtained through the audit process and through the auditors' experiences with other companies in similar industries. • Some investors believe that if they had a better understanding about the audit and how the audit was conducted relative to a particular company, they would have a better perspective regarding the risks of material misstatement in a company's financial statements. • Many investors indicated that the current standard auditor's report is too "boilerplate," does not convey the significant judgments made by the auditor in forming the audit opinion, and limits the auditor's ability to convey to the investor the subtleties that underlie the opinion in his or her report on the company's financial statements. • Some investors indicated that the standard auditor's report does not provide the
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auditor with the necessary leverage to effect appropriate change in the registrant's financial statements and other disclosures.
Required and Expanded Use of Emphasis of a Matter (EOM) Paragraphs
The PCAOB Release
The release proposes an alternative to AD&A, which is to enhance the auditor's report by requiring and expanding the use of emphasis paragraphs in all audit reports. This alternative would expand the emphasis paragraph(s) to highlight all significant matters in the financial statements and to identify where these matters are disclosed in the filing. Emphasis paragraphs would be required in areas of critical importance to the financial statements and MD&A. Areas of critical influence could include significant management judgments and estimates, areas with significant measurement uncertainty, and other areas that the auditor determines are important to investors for a better understanding of the financial presentation.
Subsequent to the initial outreach process, the Board issued PCAOB Release No. 2011-003, Concept Release On Possible Revisions to PCAOB Standards Related to Reports on Audited Financial Statements on June 21, 2011. The release outlined the Board’s proposal to modify the auditor’s report in the form of four alternative models, the first three of which significantly expand the auditor’s reporting role on a registrant’s filings. All of the following alternatives would retain the current pass/fail opinion of the standard auditor's report: • Auditor's discussion and analysis (AD&A) • Required and expanded use of emphasis paragraphs
Auditor Assurance on Other Information Outside the • Clarification of language in the standard Financial Statements • Auditor assurance on other information outside the financial statements auditor's report
Auditor's Discussion and Analysis (AD&A) The release proposes the inclusion of an AD&A in which the auditor would be required to discuss in a narrative format views regarding a variety of significant matters. The proposed AD&A requires the auditor to provide perspective on information about the audit, such as audit risk identified in the audit, audit procedures and results, auditor independence, and all significant financial information in the filing. The significant financial information requiring auditor comment would include management’s judgments, accounting policies and estimates, uncertainties, difficult or contentious issues, including “close calls,” and material matters that investors should be aware of. Some commentators say they wish to receive more detail about “behind the scenes” subtleties, of which they believe auditors are always aware.
NewsAccount November/December 2011
The release proposes a third alternative model to enhance the auditor's reporting. This alternative requires auditors to provide assurance on information outside the financial statements. The assurance could cover MD&A and other information such as nonGAAP information and earnings releases. The release suggests that providing assurance on information outside of the financial statements would improve the quality, completeness, and reliability of such information and provide investors and other users of financial statements with a higher level of confidence in information about the company that is provided by management.
Clarification of the Standard Auditor's Report The fourth alternative adds clarifying language to the auditor’s basic audit opinion. The release presents suggestions on how to clarify the auditor's report in the following areas:
Auditing Headed? • Definition of reasonable assurance • Auditor's responsibility for fraud • Auditor's responsibility for financial statement disclosures • Management's responsibility for the preparation of the financial statements • Auditor's responsibility for information outside the financial statements • Further information on auditor independence
The Debate On Sept. 15, 2011, the Board sponsored a formal roundtable for interested parties including auditors, public companies, investors, and investor advocates. It revealed many different perspectives on the Board’s initiative and served to frame the debate. Certain trends were revealed or reinforced. The roundtable resulted in over three hundred pages of transcript. The thirty-plus participants’ opinions appeared divided equally between investor advocates on one hand and registrants, auditors, and registrant attorneys on the other. Some of the participant trends were: • Investors want to know what they suspect the auditors know about a registrant that is not now disclosed in filings. In part, this suspicion has been fed by recent litigation regarding prominent audit failures. They believe that having this information will assist them in making more informed investment decisions. At the very least, is appears that investors wish to know the auditor’s perspective on management’s accounting choices, accounting estimates, judgments about uncertainties and disclosures in MD&A. The AD&A and EOM models would accomplish this. However, the AD&A goes further and could require auditors to disclose their judgments on audit risks, key audit procedures performed to overcome these risks, testing conclusions, and discussions with audit committees. Lastly, the increased attestation alternative is claimed to provide assurance to investors on the accuracy, transparency, and completeness
SEC Corner BY JAMES M. BOAK, CPA
of MD&A, non-GAAP information, and earnings releases. The possibility of significant additional costs to registrants resulting from these additional auditor reports seems to be largely discounted by the investor advocates. • Registrants and auditors believe the AD&A and expanded attestation alternatives are impractical and would require significant increased time and costs by registrant and auditor alike. In addition, these two alternatives likely would cause filing delays, often based on the additional procedures and multiple level reviews by management, the audit committee, counsel, and auditors. Clearly, these unintended consequences reflect, in part, concerns about increased litigation risks. Another concern of auditors is that the AD&A would blur the roles of management and auditors, especially regarding who should take responsibility for the financial statements, footnotes, and even MD&A. Furthermore, it was claimed to be illogical that auditors should be burdened with explaining management’s accounting rationale and expected future plans and expectations. • A particularly controversial discussioon regarded prevention of “boiler plate” disclosures. The release noted that key to its proposals was the specific tailoring of auditor disclosures about each company, industry, and country. In other words, no two companies are the same. The implication is that both auditor’s and management’s current reports and disclosures have become mechanical boiler plate discussions, and the same could happen to any new auditor reports. • Another issue concerned the auditor’s disclosure about management’s accounting “close calls.” Objectors claimed that defining a close call is both subjective and potentially pejorative to the registrant, i.e. the determination of a close call is solely in the eye of the beholder. In addition, close calls often involve complex issues that would likely require significant consultation. If the issue is material and significant, many believe that it should be disclosed in the MD&A by management, not by the auditor. Investors
think the auditor’s discussion about close calls will tell them more about the inner financial workings of the registrant. • Also extensively discussed was the presumed auditor leverage on audit committees and management to improve their disclosures in filings. The leverage would be driven by disclosure of the auditor’s perspective on management’s accounting judgments. To the contrary, many argued that such “leverage” might have the unintended consequence of actually decreasing management cooperation with auditors and blocking the amount of information communicated to auditors by the company and to the public. The fourth alternative of current audit opinion language clarification seemed to be largely accepted by most roundtable participants.
Conclusion The tone of the release suggests that the PCAOB is genuinely determined to expand the role of auditors by involving them in greater disclosures to investors about the registrant’s accounting matters. However, disclosure requirements are the domain of the FASB and the SEC, which suggests much work by regulatory agencies will be required. In addition, the practicality of the PCAOB’s proposals must address the potential consequences of delays in filings, increased costs to registrants, impact on auditor fieldwork, and problematic interaction among auditors, management, and audit committees. The roundtable debate revealed many conflicting positions and can only complicate the Board’s efforts. For more information, including the release, roundtable podcast, and transcript, plus input from parties such as the AICPA Center for Audit Quality, visit www. pcaobus.org. s James M. Boak, CPA, audit partner with Eide Bailly LLP, Denver, is an active member of the CSCPA Public Company Forum and Editorial Board. Contact him at jboak@eidebailly.com.
November/December 2011
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The State of The Industry:
National Western Stock Show Throughout 2011, NewsAccount is talking with CPAs from various industries that are important in the U.S. and Colorado economies. We’re asking: What’s happening today? What factors will affect your industry over the the next 12 months? In this issue, we focus on the National Western Stock Show. BY NATALIE ROONEY
Jeff Childs
Vice President Finance National Western Stock Show Denver
About the Organization This is the 106th year for the National Western Stock Show, a 501(c)(3) charitable organization that provides college and graduate level scholarships in agriculture and medicine for practice in rural areas. It is our mission to serve producers and consumers throughout the world by being the premier stock show, rodeo, horse show, and center for year‐round events. The 16‐day show also serves as an entertainment arena, host-
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ing one of the world’s richest regular season professional rodeos, largest horse show, and Colorado’s largest trade show. We started in 1906 as a livestock show and have grown to include horse shows, rodeos, kids’ activities, a trade show, and more. We are an integral part of the Colorado economy. We strive to provide family-oriented, affordable fun. The National Western Stock Show is held in January, but we are a year-round facility with approximately 100 other events held at the complex during the rest of the year. This year’s show will be held Jan. 7 – 12, 2012. Tickets are already on sale at www.nationalwestern.com.
NewsAccount November/December 2011
What role does National Western play in the Colorado economy? The January Stock Show is the largest trade show in Colorado. We have approximately 350 vendors who attend, and we provide 900 booth spaces for those vendors. Our livestock and horse exhibitors come from all over the world. Our economic impact is about $85 million just during the January Stock Show. Over the course of the year, the economic impact is over $100 million. We also fundraise for 74 scholarships provided to students to study agriculture and rural medicine.
We provide the local economy with approximately 45 full-time, year-round jobs. From mid-December through the Stock Show, we provide over 850 seasonal jobs.
What challenges face the National Western Stock Show? As a nonprofit entity, the economy has been tough because we rely on the support of attendees of the Stock Show. But we do pride ourselves on being an affordable family event—a place where you can bring your family and make a whole day of it. Our current space is one challenge. The Stock Show brings over 600,000 people to the area each year. While we have obtained parking lots over the years, they are scattered in different locations which makes it challenging to get people closer to the event. The middle Saturday of the Stock Show is always our biggest day of the year. As many as 70,000 people will come through our facilities. We want to be sure we can get people in the doors and provide a positive experience. Aging facilities and buildings create maintenance and repair challenges. We pride ourselves on being leaders in animal care and safety, so we also face issues regarding the animals on our property. Managing the organization’s financials provides the biggest challenges. We have a lot of different activities here. I always think of this business as having 15 different operations under one umbrella. Nothing we do is routine. We work to get the information into the computer and then how to best report on it. Our databases and website are becoming more robust. We now have the ability to take orders, sell, and process registrations online.
What is your role within the National Western Stock Show? As vice president of finance, my main role is accounting and finance, but I am also involved in payroll and responsible for all information technology issues for the organization including hardware, software, databases, copiers, phones, cell phones—basically any kind of technical equipment. We typically have 45 people who need assistance with these things full-time. During the Stock Show, with 850 additional employees, the need for computers increases incrementally. It makes life interesting. This past year we were able to establish a computer rotation plan and move away from renting the required equipment each year. It’s definitely an ongoing challenge to keep up with required technology. In the nonprofit world, not a lot of money is allocated to it.
Is this a good time for your business model? It is an exciting time for us. We’re 105 years old, and we’re looking forward to our next 105 years. Our current President/CEO, Paul Andrews, came on board in November 2010 and brought new ideas and a new perspective on how we do things. The long-term opportunities look really good for us to continue to grow and provide customers with the educational and entertainment experience they’re looking for. s November/December 2011
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IRS Examines Accounting Software Issues The IRS has released a memorandum to its examiners instructing them on what types of information they are now allowed to obtain from small business taxpayers’ accounting software data. The memorandum provides guidance on when to request accounting software backup files from a small business taxpayer during an examination and the restrictions placed on examiners when reviewing the software data and safeguarding the records. “Generally, backup files contain transactional data for tax years prior to and beyond the year(s) under examination because many software products do not provide an option to create a backup for a specified time period,” according to IRS Small Business/Self-Employed Division Examination Director Shenita L. Hicks. “Examiners should only review data relevant to the year(s) under examination. An exception may be reviewing transactions for the month prior to and the month af-
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ter the tax year or the tax periods before and after the ones under examination, if the transactions in those timeframes are relevant to the data sought. Examiners also may review any transactional data created or changed during the tax year under examination.” In addition, the IRS has posted new information on a frequently asked questions page on its website about the use of electronic accounting software records. The IRS noted that it has the ability to accept and read data files from the accounting software programs used by most business taxpayers. Go to www.irs.gov/businesses/small/ article/0,,id=238525,00.html for details. Last spring the AICPA told the IRS it understands that receiving data in electronic format helps speed up the examination process, but that “reasonable safeguards should be available to protect small business taxpayers from turning over more data in an electronic format than is necessary for the
NewsAccount November/December 2011
IRS to perform an examination.” The AICPA has encouraged software developers to provide options allowing users to provide only the data that is relevant to the IRS examination. s
The CSCPA Office will be closed, Nov. 24 & 25, Dec. 26, and Jan. 2 in observance of the holidays. Please visit ww.cocpa.org for 24/7 online assistance.
November/December 2011
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Professional Liability Insurance Ratings The following carriers write professional liability insurance for Colorado CPAs. CAMICO* is the Colorado Society of CPAs sponsored program, available only to CSCPA members. Information on other carriers is provided as well. You must perform your own due diligence with respect to the coverages offered. You may call the listed insurers diectly, call the local agent, or contact the insurance professional who handles your business insurance coverages to inquire about these carriers. The A.M. Best Ratings shown are as of September 2011.
CAMICO Mutual Insurance Company
B++
The Hartford
A+
Navigators Insurance Company Philadelphia Insurance Companies
A+
Travelers
A+
Lloyd’s of London A
2711 N. Haskell Ave., 8th Floor, Dallas, TX 75204 Cathy Whitley (214) 989-2363 cathy.whitley@aon.com www.cpai.com
550 W. Van Buren, Chicago, IL 60607 Linda Deiss (800) 776-7475 or Fax (312) 803-2170 ldeiss@avreco.com www.avreco.com
Navigators Insurance Company NR-5
Bill Thompson, CPA, RPLU (800)272-0290, (386)418-4003, Fax (386)418-4004 bthompson@cpamutual.com
John Torvi (800) 336-5422 or Fax (800) 344-5422 johnt@landy.com
www.cpamutual.com
www.landy.com A-IX
Through Insight Insurance Services, Inc. 2000 S. Batavia Ave., Suite 300, Geneva, Il 60134
www.insightinsurance.com
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NewsAccount November/December 2011
A
Through Herbert H. Landy Insurance Agency, Inc. 75 2nd Ave., Suite 410, Needham, MA 02494
Kim Stone-Vilim (800) 447-4626 or Fax (630) 208-7550 kstone-vilim@insightinsurance.com
A-XV
Through AVRECO
11801 Research Drive, Alachua, FL 32615-6818
Colony Specialty Insurance Company
A
4705 Marina Dr., Ste. 12, Carlsbad, CA 92008 Brent T. Eppley (888)786-8318, (760)720-0110, Fax (760)720-0330 brent@liabilityplace.com www.liabilityplace.com
Through AON Insurance Services
CPA Mutual Insurance Company of America Risk Retention Group
A++
Through The Liability Place, Inc. Insurance Agency
1800 Gateway Drive, Suite 300 San Mateo, CA 94404 (800) 652-1772 Rachel Painter, Colorado Representative (800) 652-1772 ext. 6773 inquiry@camico.com www.camico.com for quote and company profile
AICPA Program – CNA Insurance
General Star National
Philadelphia Insurance Companies Regional Office: 10822 W. Toller Drive, Suite 120 Littleton, CO 80127-5084 Debbie Elliott (303) 200-5356 or Fax (866) 422-7548 delliott@phlyins.com www.phly.com
A++
November/December 2011
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Safe Withdrawal Rates and the Starting Point Paradox BY MICHAEL E. KITCES The existing body of knowledge on safe withdrawal rates, as first established by Bill Bengen and further developed by others, provides a “safe” initial withdrawal rate that can be adjusted subsequently for inflation and still be sustainable through an entire retirement period. For instance, if the safe withdrawal rate were 4.5% and the portfolio were worth $500,000, this means the retiree could spend $22,500 in the first year. This dollar amount would subsequently be adjusted for inflation (e.g., $23,175 in year 2, $23,870 in year 3, etc., assuming a 3% inflation rate). Notably, the dollar amount of withdrawals is assumed to increase each year with inflation, regardless of changes in the account balance due to withdrawals and market returns, so the actual withdrawal percentage will vary to some extent in subsequent years. This safe withdrawal rate approach provides tremendous value for those who wish to determine a starting point for the standard of living that a certain asset base can sustain. Although many investors don’t live a precisely stable real-dollars standard of living and merely adjust their nominal annual withdrawals by the rate of inflation, the approach nonetheless provides an excellent starting point for evaluating spending sustainability. However, because the approach typically stipulates that the safe initial withdrawal rate is applied once at the beginning of the time period (i.e., at the point of retirement), the actual amount that a client may spend (both in year one and subsequently for the remainder of retirement) can suddenly become far more volatile than anticipated, simply because the portfolio balance may fluctuate with market returns. Similarly, the approach can be troublesome where it creates paradoxical situations that result in clients with comparable investment portfolios receiving different safe spending recommendations. For example, imagine two clients, the Retirenows and the Notquiteyets, who both have a $1,000,000 portfolio available for retirement. The Retirenows come into their planner’s office and wish to retire this year. Applying the safe withdrawal rate methodology, the planner suggests an initial withdrawal rate of 4.5% (or $45,000 of actual spending in year 1 on a $1,000,000 portfolio) as being
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“safe” (and may be combined with their pensions, Social Security, or other fixed income sources). The Retirenows move forward with their retirement on that basis, with the expectation they will be able to increase their $45,000/year spending for inflation each year, and be safe for the next 30 years as long as future returns are no worse than any market cycle in history. The Notquiteyets, on the other hand, decide they wish to work for one more year, and plan to retire next year instead. Over the ensuing year, a bear market emerges, and at the end of the year both portfolios have experienced a 15% market decline. The Notquiteyets, now ready to retire, visit the planner’s office to receive a recommendation on a safe and sustainable retirement spending amount. The planner, consistently applying a 4.5% initial withdrawal rate, informs the Notquiteyets that they can safely spend $38,250 (which is 4.5% of their now$850,000 portfolio). Coincidentally, later that day, the planner also does a one-year review meeting with the Retirenows. Based on their retirement last year and
NewsAccount November/December 2011
the safe withdrawal rate research, the planner informs the Retirenows that they can safely continue last year’s spending, and increase it for the past year’s inflation (we’ll assume 3%). Thus, for the upcoming year, the Retirenows are informed that they can safely spend $46,350. Suddenly, a strange paradox emerges. At the beginning of year 1, the Retirenows and the Notquiteyets both had $1,000,000. Heading into year 2, both couples were ready to retire or had already retired. Both couples experienced the exact same investment returns (a 15% portfolio decline). Yet by applying the same methodology, the Notquiteyets were informed that they can safely spend only $38,250 for the year, while the Retirenows can safely spend $46,350! The Retirenows are able to safely spend almost 21% more than the Notquiteyets, despite the similar circumstances. And in fact, the disparity is even more shocking: Because the Retirenows also spent money in the first year, the reality is that not only is their safe spending in year 2 a
2011 Retirement Planning Conference Join Michael E. Kitces and other highly rated speakers for a full day of hot financial planning topics. Online registration at www.cocpa.org
Nov. 9, 2011
Hyatt Regency - DTC, Denver $335 CSCPA Members $479 Nonmembers
whopping 21% higher than the Notquiteyets, but also their portfolio value is actually lower. After all, the Retirenows didn’t experience the market decline only; they also took a year 1 spending withdrawal! How can we account for a safe spending approach that produces such disparities, given identical circumstances, where the only thing that changes is the timing of the withdrawal starting point? Is this a sign of an underlying flaw in the entire safe withdrawal rate methodology, or is there another way to account for the differences produced here? On Nov. 9, we explore this paradox, its further implications, and potential solutions, at the Colorado Society of CPAs’ 2011 Retirement Planning Conference. I look forward to seeing you there. s Michael E. Kitces is the director of research for Pinnacle Advisory Group, Columbia, Md. He is the publisher of the e-newsletter, The Kitces Report, and the blog, Nerd’s Eye View, through his website, www.Kitces. com. Follow Kitces on Twitter at @MichaelKitces.
Rocky Mountain Tax Refresher Dec. 13, 2011
Hyatt Regency-DTC
Members $335 Nonmembers $479
If you’re a tax practitioner, come to this year’s Rocky Mountain Tax Refresher, and you’ll hear from Barbara Brohl, Colorado Department of Revenue executive director, about the challenges of implementing the Department’s new tax system, its new functionality and processes, and the Department’s focus on outreach and communication with Colorado taxpayers and tax preparers. Her update on all things CDOR is a presentation you won’t want to miss. Register online at www.cocpa.org.
November/December 2011
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Educational Foundation News
Announcing the Formation of the Legacy Club
This is your opportunity to leave a lasting legacy no matter what your age or financial situation is today. The Educational Foundation of CSCPA invites you to join the Foundation’s Legacy Club. To become a member, you may make a contribution or multi-year pledge of $50,000 or more to the Educational Foundation or designate the Foundation as the beneficiary of a planned gift of $50,000 or more through your will or assignment of an IRA, annuity, or life insurance policy. It’s simple, and if you choose the planned gift, it does not affect your cash flow! This is a wonderful way to honor a loved one, help students,
In Memoriam We regret the loss of the following CSCPA members. We extend our sympathy to their families and friends.
Fred W. Marting
Member since 1956 Colorado Springs, CO
David M. Morano Member since 1998 Avon, CO
Theodore J. “Ted” Olson Member since 1953 Denver, CO
Arnold H. Tietze Member since 1954 Denver, CO
Leslie E. Whittemore Member since 1948 Littleton, CO
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give back to the profession, and support Colorado schools. You’ll be recognized for your support of accounting scholarships for Colorado accounting students in a variety of ways, invited to special Legacy Club events during the year, and appreciated for the special commitment you’re making. Plus, you’ll know your legacy of support for the accounting profession into the future is secure. Think about it. A planned gift or current contribution is all it takes. For more information and to join the Legacy Club, contact Susan Vachereau at the CSCPA office, svachereau@cocpa.org, (303) 741-8612, or (800) 523-9082, ext. 112.
Thank You Legacy Club Charter Members Family and Friends of Hugh C. Braly Family and Friends of Otto and Betty Butterly Anton Collins Mitchell LLP Ehrhardt Keefe Steiner & Hottman PC Eide Bailly LLP Ernst & Young LLP GHP Horwath PC Hein & Associates LLP KPMG LLP Mary E. Medley Carol D. Meyer Lester D. Pedicord, CPA PricewaterhouseCoopers LLP Gordon Scheer Mark J. Smith, CPA A. Marvin Strait, CPA
Movers & Shakers Eide Bailly LLP announced the following promotions and additions: senior managers Clay Waller, Danny Bresnahan, and Sara Kurtz; senior tax manager Andy Kaiser; and tax managers Megan McConnell and Marry Miller. The Boulder office relocated to 3434 47th St., Ste. 210, Boulder, CO, 80301. Comiskey & Company, P.C. announced the hiring of Michelle Hutchison as senior associate in the Denver office. Justin J. Prochnow, shareholder in the Denver office of Greenberg Traurig LLP, was named to the Junior Achievement Rocky Mountain Board of Directors. Gov. John Hickenlooper appointed Pamela M. Feely, CPA, Lakewood, CO, to the Fire and Police Pension Association of Colorado Board of Directors through September 2015. Steve Rodman, CPA, MST, president of Rodman & Rodman, P.C., was named to the Northeast Energy and Commerce Association’s (NECA) Renewables and Distributed Generation Committee.
NewsAccount November/December 2011
M.J. Smith and Associates relocated to 5613 DTC Parkway, Suite 650, Greenwood Village, CO, 80111. The phone number remains (303) 768-0007. P. Graham Dyer, a manager in Grant Thornton LLP’s Financial Services practice, accepted a two-year fellowship with the Office of the Comptroller of the Currency (OCC) in its Dallas-based southern district office. The Denver Business Journal named Tracy M. Huggins, CPA, one of its 2011 Outstanding Women in Business for her work in real estate and construction. Huggins is executive director of the Denver Urban Renewal Authority, which is known primarily for its commercial redevelopment projects. Hein & Assoc. LLP and Ehrhardt Keefe Steiner & Hottman PC were named to Inside Public Accounting’s (IPA’s) “Best of the Best Firms” list for 2011, a recognition honoring 25 firms for their management and superior operational performance based on more than 50 criteria.
Classified Advertising Job Opportunities StarkSchenkein, LLP is looking for a highly motivated and qualified partner level auditor. StarkSchenkein is a business advisory and CPA firm with a significant audit and SEC practice. We are seeking a partnerlevel auditor or a senior manager with SEC experience to join our firm. Candidate with client base to merge into current practice is a plus. We offer an attractive compensation package with benefits that is competitive and commensurate with experience. Responsibilities include: directions and oversight of engagements, technical advisor to firm and clients, supervising and training of audit managers and staff, first partner and concurring reviews, engaging new clients, providing exceptional client communication and service. Professional requirements: CPA with 10+ years experience, experience managing and leading audits, strong audit and SEC technical knowledge/experience, ability to manage and motivate direct reports and other team members, leadership style that sustains a cohesive team, passion for bringing in new clients, skilled at client and staff communications, ability to think big picture and attend to the details. Please send resumes to: vbramble@starkcpas.com. Manager, Hospital Accounting. Exempla Healthcare is a leading Denver hospital and healthcare provider system that includes Exempla St. Joseph Hospital, Exempla Lutheran Medical Center, Exempla
Good Samaritan Medical Center, and Exempla Physician Network. It is composed of clinics and physician offices, a not-forprofit, community-based organization and is Colorado’s sixth largest employer. The position provides direct operational oversight and supervision to the accounting for operations of designated hospitals, as well as other general accounting processes. The position reviews and prepares journal entries and other financial records of original entry and reconciliations to ensure general ledger and financial reporting integrity. The position also prepares and reviews monthly, quarterly, and annual financial reporting deliverables. Bachelor’s degree in accounting and five years of progressive related experience, including supervisory experience required. Advanced business administration degree (MBA), or certified public accountant (CPA) required. Healthcare provider and/or non-profit industry experience preferred. Experience with system conversions and the Lawson general ledger system preferred. Go to www.exemplajobs.org and apply for position 10194.
Practices for Sale, Purchase, or Merger Douglas County CPA practice grossing $ 400,000 per year. 30% write-up & 70% taxation with no financial statement reviews or audits. Owner retiring and willing to work as needed during tax season.
To discuss purchase or the sale of your practice, contact Thomas J. Lang, CPA/Associate Broker at tlang@touchstonebiz.com. www.touchstonebiz.com. Fred Mehring, Select Business Group, Inc., specializes in the sale, merger, and acquisition of accounting and tax practices. Over 25 years of experience. Confidentiality stressed! Call Fred Mehring at (303) 7713100, fax (303) 477-6010 or fmehring@ selectbg.com. DTC full service practice is looking to expand business via acquisition of practice with revenues up to $500,000. Looking to retire/transition, please contact us, as we have been successful before. We specialize in working with small business reviews, compilations, tax, write up, payroll and general business matters. No brokers. Send responses to kflynt@cocpa.org with Box# 00932 in the subject line. Thomas J. Lang, CPA, is affiliated with Touchstone Business Advisors, a business brokerage. Mr. Lang personally transferred ownership of his practice and had previously acquired three practices. We provide personalized service & confidentiality while achieving full value for your practice or a client’s business. To discuss further, please email tlang@touchstonebiz.com or www. touchstonebiz.com.
NewsAccount and Web Classified Advertising Rates $55 for the first 40 words. $2 per word thereafter. $10 discount for placing both a NewsAccount and web classified ad. E-mail Krista Flynt at kflynt@cocpa.org for a price quote and to place a classified ad.
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Colorado Society of Certified Public Accountants 7979 E. Tufts Ave. Ste. 1000 Denver, CO 80237-2847
Periodicals Postage
Debt Related Tax Issues:
Foreclosures, Short Sales, and Cancellation of Debt
Nov. 8, 2011 CSCPA Education Center 7979 E. Tufts Ave., Ste. 1000 Denver, CO 80237 Fees: Members $355 Non-members $507 Registration www.cocpa.org (303) 773-2877 or (800) 523-9082 Course Code 2071661 Recommended for 8 hours of CPE credit
Clients with properties lost to foreclosure, sold in short sales, and who have had debts restructured have complicated tax issues that impact both tax planning and reporting. IRC Sec. 108 says that income from forgiveness of indebtedness is taxable, but it offers a number of exceptions to that rule. This course will help you sort through those exceptions and help your clients as fully as possible. What you’ll learn: • How to apply exceptions to avoid cancellation of debt income • The exclusions from COD income, including required tax attribute reductions • Special rules that apply to debt forgiveness in partnerships and S corporations Field of Study: Tax Level: Intermediate