THE OFFICIAL MAGAZINE OF THE VIRGINIA SOCIETY OF CPAs
NOVEMBER/DECEMBER 2020
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THE NEW WORLD OF remote auditing
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The changing cannabis landscape Reasonable executive pay Your personal brand
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CONTENTS
Features
Columns
FIND US...
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The New World of Remote Auditing
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Professional Development
WEBSITE vscpa.com
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Taxation
The pandemic hit, but audits haven’t stopped. Auditors had to quickly adapt, proving that assurance services and internal audits can be completed in a virtual world.
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CPA Licensing
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CONNECT connect.vscpa.com TWITTER @VSCPANews
Departments 4
From the CEO
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Line Items
Illicit to Essential: Cannabis in a Post COVID-19 World
8 Advocacy
The Rhyme and Reason of Executive Pay
LINKEDIN tinyurl.com/ LinkedInVSCPA FACEBOOK facebook.com/VSCPA
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Leadership
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Survey Says
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VSCPA Financials
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VSCPA News
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Spotlight
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Classifieds
INSTAGRAM instagram.com/VSCPA
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PODCAST vscpa.com/ LeadingForward
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FROM THE CEO DEI Council
4309 Cox Road Glen Allen, VA 23060 (800) 733-8272 vscpa.com
disclosures vscpa.com/disclosures disclosures@vscpa.com
NOVEMBER/DECEMBER 2020 Volume 33, No. 6 Managing Editor Jill Edmonds disclosures@vscpa.com Editorial Task Force Olaf Barthelmai, CPA Cheri David, CPA Melisa Galasso, CPA Genevieve Hancock, CPA Karen Helderman, CPA Harold Martin Jr., CPA David Peters, CPA Mark Plostock, CPA Zach Shoaf, CPA Barbara Sukramani, CPA Disclosures is published six times a year by the Virginia Society of Certified Public Accountants (VSCPA). The magazine’s mission is to communicate information of value to VSCPA members, including professional issues and VSCPA initiatives. The materials and information in Disclosures are offered as material only and not as practice, financial, accounting, legal or other professional advice. Statements of fact and opinion are made by the authors alone and do not imply an opinion on the part of VSCPA officers, members or editorial staff. Publication of an advertisement in Disclosures does not constitute a VSCPA endorsement of the product or service. Copyright © 2020 Virginia Society of CPAs.
VSCPA Preferred Providers
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Staying connected from afar Back in the May/June issue of
Disclosures, which now seems like a lifetime ago, I acknowledged that we are all trying to work and lead in an uncertain climate. As many of you suddenly had closed offices, that meant quickly pivoting to working from home. And now, several months later, some of you are back in the office following new distancing and cleanliness protocols, while still others are still working remotely (and maybe dealing with children learning at home). At the VSCPA, we had to adapt our engagement, learning, networking and volunteering options to a virtual environment. The good news: It’s working! We quickly decided to make all conferences and seminars virtual through the end of the year, with a 20% discount. Our online platforms are easy to use and navigate. And, while we have had a few hiccups along the way (who hasn’t), we have had overwhelmingly positive feedback for virtual learning options. While we’ve had video and call-in options for committee meetings for several years, running entire meetings on Zoom was a new experience. Just like many of you, we’ve found we are productive and still advancing our mission and vision. While we miss seeing everyone in person, and sadly have yet to get an in-person picture of this year’s Board of Directors, we look forward to welcoming everyone to our newly renovated Learning & Innovation Center sometime next year. The brand-new Diversity, Equity & Inclusion Advisory Council met for the first time remotely on September 22, and the enthusiasm among members was evident. (We even got a smiling Zoom picture of the group.) The Council is ready to rock and roll on its task to advise the Board on
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programs and policies related to diversity, equity, inclusion and social justice. We’re experimenting with new ways to engage you in member programs. While we couldn’t have an in-person ceremony to recognize this year’s award winners and honorees, we did have a virtual happy hour complete with Spotify playlist, video of winners and toast. In our roundtables, we have Zoom breakout rooms where attendees are able to talk to and network with peers. No one knows what 2021 will hold, but chances are you have exercised your adaptive mettle, as have we, and you’ll be ready for anything. n
Stephanie Peters, CAE, has served as VSCPA’s president and CEO since 2007. speters@vscpa.com @StephPeters
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LINE ITEMS
It’s all connected State and local governments significantly depend on federal dollars Infrastructure, health care, social programs, education … The list of areas
in which state and local governments rely on federal funds is vast. But what happens when the federal government relies more and more on deficit spending and accumulating significant amounts of publicly held debt? Key state and local stakeholders must understand and address fiscal dependency, according to a report by VSCPA members Ed Mazur, CPA, and Mary Scott, CPA. The 2019 edition of “Intergovernmental Financial Dependency: An Annual Study of Key Dependency Measures for the 50 States” breaks down the latest fiscal data available from 2017. Findings include: • State governments received, on average, 31.7% of total revenue directly from the federal government. • On average, 22.6% of the GDP for the 50 states came from federal dollars flowing both directly into state coffers and indirectly into state economies in the form of: > Purchases from state businesses. > Disbursements to local governments. > Payments and benefits to state residents. • Federal payments to individuals in the states totaled $2,751.6 billion, including: > Social Security Retirement Insurance benefits ($698 billion) > Medicare benefits ($685.9 billion) > Direct student loans ($455.9 billion) • Federal debt and financial obligations as of Sept. 30, 2018, totaled $85 trillion, equating to 419% of GDP and representing 79% of the $107.9 trillion in national household and nonprofit net worth.
The federal government can no longer be considered unsustainable only “in the long run.” It is clearly experiencing sustainability problems now. And, there are no organized segments of American life that are at more risk from an unsustainable federal government than the governments of the 50 states. Read the full report for more details and state-by-state analysis at business.vsu.edu/IFD/2019AnnualStudy.pdf.
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BUSINESSES ACCELERATE AGILITY IN ‘NEW NORMAL’ As firms and companies across the globe quickly responded to the coronavirus pandemic with remote working, a new survey from Aon highlights the steps companies are taking to become more resilient. The “Accelerating Workforce Agility and Resilience” survey, conducted in August, reveals the following trends: • Workforce agility is important — but tough: While 84% of respondents said agility (quickly moving employees into new roles/areas) is critical, only 39% said their workforces are actually agile or extremely agile. • Diversity and inclusion are key: The ability to attract and retain diverse employees ranks near the top of business’s lists as a factor for improving agility. Only technology and communications tools were ranked higher by respondents. • Focusing on remote working is paramount: The tools and programs for robust working arrangements must be expanded and extended by a majority of companies to remain competitive. More than 70% are actively investing in tools to support remote collaboration. • Companies are bending and flexing in new ways: Companies are facing barriers to getting effective work from employees, such as parenting challenges, so they are taking action to support working parents, modifying time-off policies, and implementing new HR policies to accommodate. We’re hearing these are challenges facing CPAs, too! We have places you can chat with your peers about how your firm is adapting to the new environment. Watch vscpa.com/roundtables for our upcoming virtual opportunities to learn and connect with other members, or send out a question on Connect, the VSCPA online community at connect.vscpa.com. Visit aon.com for more on the survey.
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TICKER 63 The percentage of employees who realize their jobs are completely doable from home, according to Robert Half.
60 The percentage of employees who say their lives have improved without a commute. (The other 40 percent must really miss alone time while commuting!)
$6.68 MILLION Average total compensation for Virginia’s top-paid CEOs in 2019.
$21.37 MILLION 2019 compensation for Virginia’s highest-paid CEO: Christopher Nassetta, president and CEO of Hilton Worldwide Holdings Inc. in McLean.
217,596 The number of reports received as of October 6 by the U.S. Federal Trade Commission about COVID-19 and stimulus-related fraud.
$156.5 MILLION Estimated fraud loss related to those reports, with $301 the median fraud loss.
163 MILLION The number of individuals affected by a data breach in the first half of 2020.
33 PERCENT The percentage decline in the number of individuals affected from a data breach in the first half of 2020 versus the same period in 2019.
VSCPA2025:
INFLUENCING STUDENTS TO BECOME CPAs In 2018,
the VSCPA embarked on a bold plan to move the profession toward a successful, vibrant future, as embodied in our mission to empower our members to thrive. The VSCPA2025 strategic framework lays out four bold strategies centered on our aspiration to be the essential, strategic partner for CPAs, their profession and their communities. So, how are we doing? Here’s a check-in on one of our bold strategies: Influence Students to Become CPAs. As external factors like the pandemic and rising college tuition affect students’ abilities to obtain college degrees, we’re committed to helping pack the CPA pipeline with talented, committed professionals. We collaborate with educators and their colleges/universities to promote accounting careers on campus, and we provide information and resources on the profession to students and new CPAs. Here are a few ways we’ve recently tried to influence students to become CPAs: > VSCPA volunteers visited 40 middle and high schools and reached more than 1,000 students as part of our CPAs in the Classroom program to educate students about the profession. COVID has put a damper on our ability to visit schools, but we are offering a virtual program this year. > Back in January, when in-person events were still a thing, 59 students attended our CPA Ready Workshops at four universities across the state to help them gear up for recruiting season as they prepared to begin their CPA careers. > Twenty-five deserving students received a total of $57,500 in scholarships from the VSCPA Educational Foundation. > To accommodate the current virtual environment, we held our first-ever Virtual Career Showcase for college students on October 29. Students visited virtual booths that represented career paths within the profession. > We know that educators are on the front line, so it’s imperative we consistently reach out with information and help. More than 150 accounting faculty attended our free Virtual Accounting Educator’s Exchange in June, and two free virtual faculty roundtables over the summer allowed educators to discuss best practices and learn new ideas.
FIND US ON FACEBOOK! If you’re not following us on Facebook, you’re missing out! We’ve got lots of news and info, quick Facebook Live Town Hall videos with VSCPA President & CEO Stephanie Peters, CAE, and distinguished guests like Virginia Chamber of Commerce CEO Barry DuVal, and much more!
Facebook.com/VSCPA
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ADVOCACY
Advocating for you now and always A special Assembly session, tax filing issues and more
The pandemic
has made life more difficult for policy makers and elected officials — just like everyone else. The 2020 special session of the Virginia General Assembly will be remembered for squabbles about meal spending, plexiglass enclosures for members, and a long slow march toward a final budget. With your help, we reached out to nearly 150 government leaders to alert them to the looming crisis that is coming for the Commonwealth when we are forced to address conforming with many of the coronavirus relief packages on the federal level. We will surely be calling on you again early in 2021 to help us
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explain the urgency for determining to which provisions Virginia should — or should not — conform. On the federal level, we pushed the IRS to consider returns otherwise due on September 15 to be timely if filed within a reasonable period due to a software provider outage. We heard your concerns about the disruptions caused by software issues, and so did the IRS. They promptly informed us that affected taxpayers would have an additional grace period through September 18. IRS Commissioner Charles P. Rettig and his staff were very receptive to our input and understood that this outage hindered many practitioners from timely filing tax returns on behalf of clients.
ADVOCACY
And finally, we joined other state societies and employers from around the country to encourage congressional support for state tax filing relief for remote workers. With an unprecedented number of workers working remotely, it is necessary now more than ever to adapt to our current economic reality. The uncertainty of the world will surely affect the General Assembly when it goes back into regular session in January. We are working with our legislative counsel and elected officials to determine how we will move forward with our annual CPA Assembly Day. Our plan is to host a series of virtual programs for the week of Jan. 18, 2021 — stay tuned for updates. n
NEW ADVOCACY E-NEWSLETTER Beginning in October, we started a new, monthly email communication called CPA Voice. This provides you with a quick update on our advocacy efforts with legislators, regulators like the Virginia Board of Accountancy, policy efforts and more. Feel free to send feedback anytime to VSCPA Public Affairs Director Tim Barry at tbarry@vscpa.com.
STAND UP AND help US PROTECT THE PROFESSION Your contributions to the VSCPA PAC allow the VSCPA advocacy team to work on your behalf. We can’t do this without your support. Give today and stand up for the profession!
Contribute today! VSCPA.com/PAC
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LEADERSHIP
5 questions to elevate your leadership today We’re all leading during challenging times these days, so why not shift from survival mode to conscious leadership? Most of us are facing unprecedented challenges
these days as we adjust to a new normal. We’re working remotely, homeschooling our children, keeping up with recent legislation, supporting our clients … all while navigating fear during these uncertain times. The combination of all these things may be enough to paralyze you. I understand. Sometimes, I feel stuck, too. It’s part of being human. These challenging times also present a unique opportunity to elevate your leadership capacity. It’s an opportunity to shift from the default setting of survival mode and expand into conscious leadership.
Sarah Elliott, CPA
Instead of immediately reacting to a situation (or avoiding it), tap into the power of the pause. Pause, and ask yourself a question. By bringing more intention to your thoughts, words and actions, you expand your leadership capacity exponentially! What powerful questions could you ask yourself? Here are five ideas to get you started: 1. Where do I need to extend grace to myself or others? Put the human first in all your interactions. We are all struggling right now in different ways. It’s impossible to truly know what another person is going through. And it’s probably difficult to discern what you’re struggling with yourself, as it shifts moment by moment. Seek out opportunities to connect, understand and support. 2. Where can I focus my energy today to contribute to a positive outcome? Take it day by day, moment by moment. It’s easy to get stuck, worrying about things you can’t control. Instead, focus your energy on the things you can positively influence. Ask yourself, “What’s one simple, positive action I can take right now?”
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3. How do I want to show up as a leader? How do you want others to remember you during this time? Others are looking to you — how you show up, what you say, what you do and how you make them feel. They take their cues from you. How you show up matters more than you know. 4. What can I learn from this experience? There is power in struggle. In fact, we can experience our greatest growth during the most challenging times. What nuggets of wisdom can you glean from these challenges to elevate your leadership? 5. What do I need to support myself? A strong leader is a healthy leader. You must maintain your health and well-being to keep a clear head and open heart. Create self-care routines. Tap into your support network. Ask for help when you need it. (Psst…We’re here to support you, too!) What future could you create by tapping into the power of the pause to elevate your leadership? n
Sarah Elliott, PCC, CPA, co-founded Intend2Lead, a leadership development company that coaches accountants to access the #DimensionOfPossible, with VSCPA member Brian Kush, CPA, in 2016. sarah@intend2lead.com intend2lead.com
Intend2Lead is a partner with the VSCPA Center for Innovation, offering leadership coaching, consulting, group learning, the I2L Peak Performance Challenge and more. Find all our partners at vscpa.com/PartnerDiscounts.
SURVEY SAYS
Technology and flexibility top indicators of success during pandemic Many CPAs remain optimistic for 2021, and some businesses are even expanding.
Even in these challenging times, about half of
Virginia CPAs think the Commonwealth’s economy is moving in the right direction. That’s one of the big takeaways from the sixth annual Economic Expectations Survey we conducted this fall in partnership with Virginia Business magazine. Prioritizing technology before the pandemic is helping firms and individuals continue to thrive, and 40% of CPAs plan to make even bigger investments in their technology assets in the coming year. CPAs are not just investing in technology — they’re investing in people. Nearly 60% of respondents are leaning into the changing world and offering additional training on security best practices. A plurality of CPAs sees this crisis impacting their firm or company for more than the next 12 months and are taking steps to ensure their workforce is positioned for the long haul. In another sign of the potential length of this recession, about a quarter of respondents are offering new services to their clients. A fifth of CPAs expect their business to expand in 2021 despite the headwinds of COVID-19. Over a third are optimistic about the year ahead because they were
prepared for the hardships of the pandemic. The profession is changing to fit the need of this moment and CPAs are leading that charge. No one knows how the Virginia General Assembly will handle its business come January, but CPAs are looking for the legislature to take up health care, the tax climate and, of course, tax conformity. The VSCPA advocacy team understands these priorities and is bringing these concerns to policy makers year-round. Thank you to all VSCPA members who took part in this year’s survey! Further analysis of the results can be found in the November issue of Virginia Business magazine, including region-specific interviews with five VSCPA members: Elsie Rose, CPA, business manager, Agincourt Capital Management, LLC, in Beaverdam; Sarah Adams, CPA, CGMA, president & CEO, Adams & Company, in Lebanon; Maruja Pabalan, CPA, CEO, Edmars & Associates, CPA, LLC, in Chesapeake; Joshua Keene, CPA, partner, Johnson Lambert LLP, in Vienna; and Kevin Humphries, CPA, CVA, CFF, partner, PBMares, LLP, in Harrisonburg. n
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PROFESSIONAL DEVELOPMENT
THE 3 C’S OF CREATING A personal brand Move beyond a great résumé or LinkedIn profile with a clear, consistent and credible brand message.
What is a personal brand and why is it
necessary? A personal brand is the public perception that represents who you are and what you do. A strong personal brand can lead to opportunities for career advancement and other professional accolades. Your personal brand is the first impression most people will get when they Google your name. If that makes you nervous, then you may need to spend some time developing your brand! When establishing yourself as a working professional, a strong brand message is critical. It is not enough to have a killer résumé or LinkedIn profile, although these are important tools in brand building. To build a strong personal brand, your message needs to be clear, consistent and credible. A clear personal brand easily describes who you are and what you do. When I began building my personal brand right out of college, I started with these basics: I am a creative and I mentor
Courtney Arrington, CPA
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my peers. Sure, this sounds incredibly generic right now, and I will expand on how I grew these two attributes into my personal brand. Second, your brand message should be consistent. We live in a digital world where your social media presence is nearly as important as your résumé. If you cringed imagining what a recruiter would think about your Twitter account, then you may be sending mixed messages. Lastly, your personal brand message should be credible. Building a personal brand that is not sincere will not be sustainable, as it can easily be torn down. A clear brand message should speak to what it is you want people to know about you. This message should explain what you do and how you do it. Revisiting my two attributes of creativity and mentorship earlier, I recognized early in my career that I strongly value mentorship. Of the professional relationships that I have built over the years, those with the most lasting
PROFESSIONAL DEVELOPMENT
impact were the ones that I built with my mentors. In building my personal brand, it was also important for me to be able to tap into my creative side. With these two attributes as my focal points, I started my blog, The Accounting Struggle. My vision for the blog was to help new accountants get acclimated by creating content that would be useful to them early in their careers. I was intentional about making sure this branding message was clear and visible across my platforms. Personal branding should be consistent. While the delivery of your brand message may vary depending on the audience, the message itself should not change. As a millennial, I am rather active on social media. The tone of the content that I post on my LinkedIn page is slightly different from the tone that I post on my Instagram page. The messaging, however, is consistent throughout. When building your personal brand, you can share as little or as much of your personal life as you choose. It is important to consider how this sharing will impact your overall brand messaging though. Transparency and relatability are major themes in my personal brand. I recognize that it may be relatable to share with some of my younger audience that I have an affinity for rap music. It would be contrary to my personal brand, however, to post a video of myself singing along to any offensive lyrics of said music. Finally, your personal brand message should be credible. A personal brand that is not credible will not be sustainable. In one of my favorite movies, “Don’t Tell Mom the Babysitter’s Dead,” the main character Sue Ellen decided to brand herself as an established fashion executive with an extensive résumé. This exaggerated branding ultimately landed Sue Ellen a role working for a major fashion company. It became increasingly obvious that Sue Ellen was not qualified and after a series of professional failures, she had to confess to fabricating her brand. Sue Ellen built a brand that was not credible. Personal branding is less about being the expert in your field, and more about being the expert at being you and sharing your message. So where should you start when building your personal brand? Start with what you want to be known for by others. To dig deeper, look at what you are most passionate about. This does not have to be related to what you do for a living. You simply need to identify your purpose and what it is you enjoy creating. Next, take that and consider how you can use it to add value. Let’s say you are an accountant, but you are most passionate about physical fitness. More specifically, you are passionate about teaching others how to prepare for running marathons. Although running marathons has very little to do with performing accounting procedures, you could brand yourself as the “fitness accountant.” Accountants typically
ACCOUNTING, BUT WITH FLAVOR Read more from Courtney on her blog, The Accounting Struggle, at theaccountingstruggle.com. Recent posts: • “5 Reasons To Take the CPA Exam Right Away” • “Best Accounting YouTube Channels for Learning” • “Getting Your CPA License — The Process” • “Busy Day in the Life of a CPA”
work long hours and struggle to maintain steady fitness routines during peak busy seasons. An accountant in the office who understands these specific pain points, who is also equipped with the expertise to address them, would be very valuable. A fitness accountant could share tips on how to complete a 15-minute cubicle workout or how to avoid busy season weight gain. If branded as the fitness accountant, other accountants looking to get into shape would be interested in this brand message. Before long, the fitness accountant could be invited to accounting firms across the nation to help get the other accountants in shape. When I started my blog, The Accounting Struggle, my goal was to simply share what I was learning in the accounting field in real time. I intentionally branded myself as the accountant who would be open and honest about what the journey looked like when I was not succeeding in accounting. It was important for me to establish a brand that was credible, so I often shared my full journey — including wins and losses. Building a personal brand is a process that will evolve with time. Whether you are establishing your personal brand or rebranding, remember that you control the narrative. Decide who you are and what you do, then begin building your brand from there. n
Courtney Arrington, CPA, is an investment accountant for Genworth Financial in Richmond and an accounting influencer. She writes a blog called The Accounting Struggle, where she helps new accountants get acclimated in the field. She serves on the VSCPA Diversity, Equity & Inclusion Advisory Council and Young Professionals Advisory Council. courtney.arrington@genworth.com theaccountingstruggle.com
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TAXATION
7 TIPS FOR NAVIGATING
tax controversy
If your client receives a tax notice or audit, don’t panic. Take control and help them navigate the waters.
Tax controversy can be very unnerving and
daunting for businesses and individuals, as most people only hear the worst of the worst and thus view tax notices and audits in a negative light. As a client’s trusted advisor, it is very important for CPAs to take control of the process and work directly with taxing authorities to help keep stress levels at bay. Here are seven tips to help navigate the troubled waters of tax controversy upon receipt of tax notices: 1. Obtain a signed Power of Attorney. If a client receives an IRS notice, be sure to obtain a signed Form 2848, which allows the CPA to speak with the IRS on behalf of the client. Without this, you will get nowhere. If the client is married and files a joint tax return, be sure to obtain one Form 2848 for each taxpayer and spouse. Every state is, unfortunately, different, so there is no “one-size-fits-all” approach, but some states are not as strict as others and may not require formal authorization for a CPA to act or speak on behalf of a client.
Nicole DeRosa, CPA
2. Call the Tax Practitioner Hotline. Many tax notices can be resolved quickly and efficiently over the phone rather than in writing via snail mail. Yes, sometimes written correspondence is necessary; however, there are also a lot of
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times where a simple phone call does the trick. When contacting a taxing jurisdiction over the phone, try calling early in the morning to minimize wait times. 3. Do not ‘put off’ tax notices. Most notices are auto-generated and will have a response date included. This might sound like a no-brainer, but do not procrastinate. Some jurisdictions move through the tax assessment phase to the collections phase faster than others. If a taxing jurisdiction allows, ask to “place a hold on the account” and notate the account so that it is documented that the issue is being addressed and worked on. This can easily be done over the phone. 4. For all things tax controversy-related, do not over-provide information. If a tax notice (or agent) asks for items A, B and C, do not provide them items A, B, C, D and E. Keep it short, sweet, to the point… and organized. Less is more. 5. For examinations, establish a relationship with the agent and create a positive first impression. Upon receiving a “Notice of Examination,” the CPA should contact the
TAXATION
agent to let them know who they are and that they will be handling the audit. Open up the lines of communication early and set the stage so that the examination can progress as efficiently as possible. Don’t make it difficult for an agent to do their job; they are more likely to work with you if a good relationship is established. 6. For field examinations, the CPA should ask the agent to come to his or her office instead of the taxpayer’s place of business, if possible. If it is necessary that an agent visits a taxpayer’s place of business, make sure the time and date is conducive for the client and that there is a space for the agent to “set up shop.” As a best practice, the taxpayer representative should be present to essentially serve as the go-between throughout the day. 7. Always request penalty abatement. If a taxpayer has a clean filing history and is in good standing, penalty abatement for reasonable cause is likely. The IRS does
have a waiver known as the First-Time Penalty Abatement (FTA), which may be granted to relieve taxpayers from several penalties assuming certain criteria are met (e.g., clean compliance and payment history). Individuals and businesses may request an FTA for any failure-to-file, failure-to-pay or failure-to-deposit penalty. Contact the Tax Practitioner Hotline and speak with a representative to see if the client is eligible to utilize this “get out of jail free” card. n
Nicole DeRosa, CPA, MAcc, is a senior tax manager at Wiss & Company LLP. She is the chair of the New Jersey Society of CPAs Emerging Leaders Council and serves on its Federal Taxation Interest Group and Content Advisory Board. Reprinted with permission of the New Jersey Society of CPAs. njcpa.org.
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CPA LICENSING
Yes, you can serve your community. Just know the rules! CPAs are revered for their financial management skills, so they are often tapped to fill treasurer positions for nonprofit associations and groups.
You have valuable skills and abilities that can
be incredibly beneficial to nonprofit organizations, from large charity groups to church boards of trustees to parent-teacher organizations. If you’re asked to serve, don’t be scared about the effect on your license status. There’s lots of guidance available to help you determine what you can and can’t do. Because the Virginia Board of Accountancy (VBOA) frequently received inquiries from CPAs about providing volunteer services, it updated its guidance and included an infographic so licensees can visually
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determine what services they can provide. Some details are provided below, but the full guidance and infographic can be found at tinyurl.com/VBOAVolunteer-Services.
DEFINE THE TYPE OF SERVICE CPAs should first consider whether the service being provided is an attest, compilation or preparation of financial statement service as those terms are defined by accounting standards. Nonprofits often freely use terms like “audit” or “review,” but those services
CPA LICENSING
are not meant to be like an audit or review as defined under accounting standards. For instance, if a charity requested a CPA to complete a form that is entitled “Audit Checklist,” the CPA may discover upon review of the form that the steps outlined do not resemble anything close to an “audit” as that term is defined by auditing standards. For example, the charity may simply be asking that the CPA reconcile beginning and/or ending cash balances to previously issued monthly reports. That procedure would constitute accounting services but would not constitute an audit. The implementation of Statement on Standards for Accounting and Review Services (SSARS) No. 21 (Section 70) has affected volunteer services provided by CPAs to nonprofit organizations. More specifically, Virginia license holders must realize that the preparation of financial statements for such entities by Virginia CPAs may require a firm license, even when performed as a volunteer. A flowchart available in the VBOA Volunteer Services Guide will walk you through how to determine which service you are specifically providing. If you are providing audit, review, attestation, compilation or financial statement preparation services, you will have to abide by certain standards: • Audit, review, attestation or compilation service: Comply with technical standards, have a firm license and have a peer review. The 8-hour A&A CPE requirement applies. • Financial statement preparation service: Comply with technical standards and have a firm license. No peer review is needed if preparation is the highest form of service provided, but if it is not, a peer review is needed. You cannot provide audit, review or attestation services if not independent. The flowchart and infographic provide more detailed information on independence.
CONSULTING AND OTHER SERVICES But what if the answer is: I’m just sitting on my child’s PTA and drafting a budget? There are myriad ways you can volunteer and not have to worry about technical standards. If you’re providing consulting services, such as accounting consultation, budget prep, etc., you only need to abide by
Consulting Services Standards. Tax return preparation falls under Tax Services Standards. Other tasks like bank reconciliation review, inventory counts and others are allowed, even though they are procedures commonly performed in connection with an attest service.
PROVIDING SERVICES AS A GROUP If you’ve been asked to volunteer, you will need to consider if you’re simply a part of a group performing a service. For example, you may be asked to serve as a member of an “audit committee,” which then examines the financial records and issues a report indicating it “found nothing out of the ordinary.” In this case, regardless of the nature of the work undertaken or its “findings” as reported, you are not “engaged” to perform an audit. In reality, a group was engaged to perform various auditing-type procedures, you were simply part of a group activity. You could, along with other members of the audit committee, sign a statement related to the committee’s activities, but you should exercise care to avoid using the CPA designation in such a statement. In this situation, you would not need a firm license.
EXAMPLES Here are a few scenarios in which you could find yourself: • The PTA “audit” committee: A committee or task force will review the PTA’s financials and complete an audit checklist, but committee members do not need to hold a license to complete the checklist. A CPA could be a member of the committee and help complete the “audit,” but not use the CPA designation when signing off on the document. • A nonprofit financial committee: The governing body of a nonprofit may specify procedures to be performed on financial statements by a task force or committee and communicate findings to the members. Communicating the results of the procedures does not constitute providing an assurance, and the service is not the practice of public accounting. The nonprofit is not engaging the CPA to perform assurance services. The VBOA encourages CPAs to serve their communities as volunteers! If you still have questions about providing a volunteer service, contact the VBOA at boa.virginia.gov or (804) 367-8505. n
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AUDIT
THE NEW WORLD OF remote auditing The pandemic hit, but audits haven’t stopped. Auditors had to quickly adapt, proving that assurance services and internal audits can be completed in a virtual world.
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AUDIT
While the destination for auditing has not
deviated, the path on how we get there has changed due to COVID-19. With offices closed everywhere, and especially closed to outside auditors, the ability to perform audits from a remote location has become a necessity.
JJ Edmunds, CPA
Historically, being on site at a client is a staple in the world of auditing, assurance and public accounting. Face-to-face meetings have now been replaced by viewing someone through your computer screen. The traditional suit-and-tie has become the “new” business casual of flip flops, gym shorts and a collared shirt. The same concepts ring true for internal audit. Where once the internal audit or operational audit teams may have had to balance being on site and remote for testing, suddenly our new reality has made entirely remote audits a necessity through video meetings and support acquired remotely.
PUBLIC ACCOUNTING AND ASSURANCE SERVICES Genevieve Hancock, CPA
For external assurance services, one of the biggest keys to success for completing an audit remotely is proper planning. Planning is always something that can be constantly overlooked, as auditors are ready to just get fieldwork started. A planning meeting should be set up with both the audit team and the client to ensure everyone is on the same page about the audit plan. One of the first things to tackle is the similarities and differences between a normal on-site audit and a remote audit. How the schedule will be impacted is now a major consideration since auditors can no longer just walk down to client’s offices; it is important to pre-arrange meeting times to ensure everyone’s availability. By putting in a little more work to the planning process, the result will enable fieldwork to run smoother and more efficiently. After scheduling has been nailed down, it is important to re-examine risk. Brainstorm all the ways COVID-19 could impact or change the audit to determine what controls have changed and which line items may potentially bear higher risk. It is not always a given that controls have deteriorated due to
COVID-19. It is important to re-assess risk in order to be as efficient as possible with your audit procedures. You should also address how testing will be performed and identify any limitations. Gone are the days of watching over someone’s shoulder as they generate a report or pull items from a file cabinet. Work with the client on a case-by-case basis to collaborate and get testing support in the best way possible. Flexibility is key, as testing support may be in a different format than it has historically. Be creative when it comes to testing. Really think about the purpose of the test and what you are aiming to accomplish. So often we fall into the trap of just doing testing because we did it in the prior year. The ability to obtain testing support in electronic formats is also extremely helpful for auditors. That can allow them to move at their own pace and review supporting documentation more in-depth than they might have only viewing paper support collaboratively with a client at an office. However, data security is an increased risk with electronic support. Consider using a secure file transfer site to allow easy transfer from clients to auditors without the risk of data being compromised. Clients could also use a cloud-based software that allows auditors to log in to the network without being on site. As long as auditors have read-only access, an auditor’s independence will not be compromised and the risk of auditors altering data is minimized. One of the biggest hurdles to remote auditing is inventory/physical asset observation. However, this can be done through video recordings or live streaming. It may be more challenging, but it is possible. Not only has the way we communicate changed due to COVID-19, but also the frequency of communication is another area that has been significantly affected. It may be helpful to conduct daily meetings to discuss the plan for the day and what was accomplished the previous day. Since auditors are no longer all together in an audit room, communication can easily deteriorate. Communicate with a purpose in order to stay on track for timing and ensure there are no doubled efforts or wasted time. u
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AUDIT
INTERNAL AUDIT Internal audits should add value to an organization and improve operations, so they, too, must evolve in a remote world to continue providing that value. Many of the key changes in internal audit mirror those for external audit. The idiom ‘an ounce of prevention is worth a pound of cure’ applies to putting extra time and effort into planning and status meetings for timing with the audit team performing the testing of controls or operations and the documentation of those controls. With an internal audit, this may also cross over more often into status and planning meetings with additional key stakeholders internal to the company, whether that includes the finance, FP&A, compliance and accounting departments, and relevant consultants. Ensure that conversations are happening in advance to understand transaction cycles and processes, and especially concentrate on any variances around the company — if something is out of the ordinary at a certain location or transaction stream, ensure that is documented. Having the understanding and the conversations prior to beginning testing can prevent complications or having to retest later. Interim testing and support will depend on the company’s structure and fiscal year-end date. Obtaining testing and support for the first part of the year, when the workload is not particularly heavy, may help lighten the workload for the third and fourth quarters or potential retesting later on. To complete remote internal audits and ensure communication and deliverables stay on track, it is crucial to find or develop user-friendly, eye-catching tools and tracking sheets that are easy to review and navigate. Many emails (especially long and tedious ones) tend to be skimmed and overlooked in this ‘email-overload’ era, and you won’t always have the ability to walk over to an office and strike up a conversation. Status meetings with key stakeholders
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at the site in video chat are now imperative. Ensure you start with specific goals when meeting with those outside the audit team, and close with the takeaways and a summary or updated tracking sheet on the next steps to save a lot of pain later on. Revisiting the risk assessments performed, or at least documenting that the team has reevaluated the risk at a disaggregated level, is also a key component in the changing remote internal audit world. Changes to the business model caused by the abrupt shift in how we work on a global level can impact the risk associated with certain processes. For example, short-term delays or changes to delivery or supply chain management, payroll or benefit changes due to decreased employment capacity, or unexpected changes to long-term costs that are being reassessed (like leases or debt arrangements) may all be out-ofthe-ordinary transactions that require identification and additional testing of affected controls. Certain controls that were normally mitigating risk may have been overlooked in an attempt for business continuity; you must identify and document any shifts that may have occurred, even temporarily. Businesses are dealing with a perfect storm of changes, risks, workforce disruptions, business interruptions, and rapid-change management responses — and these need to be subsequently or simultaneously taken into account by auditors once they occur. Make sure to keep medium- and longterm goals for the audit in mind while adjusting for controls and reassessing risk factors. Caring for your people is always an important factor in a business environment. Make sure to touch base on a human level, not only with business status reports. We are all experiencing the stress that comes from any business model — working remotely with isolation and changes to work and communication processes, or working in the office and experiencing anxiety in the current environment and having to potentially be around other individuals. Touch base, have virtual happy hours, and make sure that one-on-ones are supporting your teams and ensuring everyone has what they need to succeed in this rapidly evolving environment. Accountants, and auditors in general, are well-positioned to have the skills and tools at the ready in order to shift to working remotely.
AUDIT
CONCLUSION Now more than ever, it is important to coordinate all the auditor’s resources. Collaborate with internal/external auditors and other outside parties to see what coordination and reliance can be placed on other’s work. Remember: Remote auditing is an evolving process, and it is important to try to be flexible and creative in order to find the best way forward. The COVID-19 pandemic is likely not going away anytime soon, and now that businesses are seeing that audits can be performed remotely and also decrease the cost of travel, internal and external auditors need to begin to accept remote auditing as potentially the new normal. n
JJ Edmunds, CPA, CIA, CISA, MSA, is an audit and assurance manager with PBMares, LLP, in Richmond, serving primarily financial institution clients. He is currently chair of the VSCPA Young Professionals Advisory Council and was one of the 2019 recipients of the VSCPA Top 5 Under 35 Award. WEdmunds@pbmares.com linkedin.com/in/jj-edmunds Genevieve Hancock, CPA, is the director of technical accounting for Brown & Brown Insurance in Daytona Beach, Fla. Genevieve is passionate about developing leadership skills and mentoring accounting students and young professionals and is a member of the VSCPA Disclosures Editorial Task Force and the Young Professionals Advisory Council. t.genevieve.hancock@gmail.com linkedin.com/in/genevievehancock
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INDUSTRY
ILLICIT TO ESSENTIAL:
cannabis IN A POST COVID-19 WORLD
1
As the legality of cannabis changes, CPAs should be aware of this up-and-coming industry and what makes a successful cannabis market.
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INDUSTRY
By Ryan Cram, CVA, and Ron Seigneur, CPA/ ABV, CVA
The way we do business and conduct our lives
generally will forever change in a post-COVID-19 era. Innovation and adaptation will drive new models and modes of successful operations in many sectors. Ten of the 11 states that currently allow access to legal, regulated recreational cannabis2, and as many as 20 of the 28 states that allow for medical access to cannabis, have deemed it an essential service since March of this year. Moving the image of legal cannabis from illicit to essential has been huge and brought about changes that would not have happened nearly as quickly as they have since coronavirus hit. Arizona and New Jersey have November ballot measures for voters to decide on recreational/adult use of regulated cannabis, and several states, including Nebraska, Mississippi and South Dakota, will be voting on medical access. Ballot measures are front and center for increased access at the municipal and county level in many states, including consumption in designated facilities pursuant to local regulations and zoning.
THE CHANGING CANNABIS LANDSCAPE The legal, regulated side of the cannabis industry is a great example of how COVID-19 will bring radical and lasting change to how business is generally conducted. Online ordering and curbside delivery protocols are part of a tidal wave of change allowing many cannabis retailers to be experiencing year-todate sales well in excess of 2019 sales — with trends for another record-setting year. For example, Colorado just reported its first month of regulated sales in excess of $200 million for July 2020. It’s on its way to becoming a $2 billion industry in 2020 just in that state. This figure represents the legal regulated medical and recreational sales in Colorado and does not consider the state’s illicit market — estimated to be about the same in terms of dollars spent on cannabis products. That illicit market demonstrates the state’s capacity for more growth as more consumers migrate to regulated channels. Some vendors report they cannot keep product on the shelf. Speaking of shelf space, the pandemic has launched a whole new delivery channel, with home delivery now in vogue and an intriguing sales
option in many jurisdictions. Planet 13 in Las Vegas is reported to have 30 vehicles and more than 100 drivers delivering product 24/7 throughout the Clark County jurisdiction. Their pre-pandemic investment in valet parking, turnstiles at the dispensary entry point, stations for up to 50 bud tenders, and curbside delivery, has been a salvation to their business. Oregon based software company Dutchie, which connects dispensaries and consumers with an online delivery platform, has seen sales skyrocket 700% since the pandemic started. It just completed a $35 million series B funding round, which included investment from Starbucks founder Howard Schultz.3 Jurisdictions like Los Angeles are in the process of awarding licenses for as many as 100 new dispensaries that will be non-store, front-deliveryonly operations. These dispensaries will have no retail presence other than delivery of product as ordered online by customers.
ACCESS AND LICENSING Awarding new licenses for dispensaries and cultivation of cannabis has also taken a huge turn, with many jurisdictions implementing new frameworks to assess how best to award these license rights using new expanded criteria that emphasizes social equity components. Illinois, for example, uses a 250 point scoring system that evaluates and awards points for having sufficient capitalization and management competence, but also awards points for locating operations in disadvantaged neighborhoods and even provides points for having certain lower level prior marijuana convictions on the applicant’s record. Access to legal cannabis, be it recreational or medical, is highly dependent on local and municipal rules and regulations. Many of the states that have legislated legal access or had it approved by voters still have significant limitations on access due to a lack of municipal approval. Metropolitan Denver is an excellent example. While the state of Colorado has almost 600 operating licensed recreational dispensaries, with roughly 350 of those in the city and county of Denver, surrounding suburbs have been a study in contrast in terms of municipal approval. Smaller municipalities like Edgewater and Lakeside have embraced cannabis u
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INDUSTRY
dispensaries and have flourished from a municipal budget standpoint due to the significant boost in cannabis-related license fees and excise tax revenues. Others, like Golden, Arvada and Littleton, have continued to advocate a “not in my back yard” position. Lakewood, which has allowed limited medical access, added recreational access to the November 2020 ballot (at press time, it looked likely to pass). The small municipality of Glendale, wedged between goliaths Denver and Aurora, has been a hotbed of cannabis dispensing partly due to municipal rules allowing dispensaries to stay open until midnight; while Denver and Aurora, the two largest cities in the state, must close by 10 p.m. Some stores in Glendale report that more than 50% of their daily sales happen between 10 p.m. and midnight. Lastly, at least from the Colorado landscape, the little town of Trinidad in Los Animas County (the largest landmass county in the state), has more than 25 licensed and operating recreational dispensaries.
CANNABIS IN VIRGINIA Cannabis is illegal in Virginia, but because of the changing regulatory landscape across the country, many Virginia-based CPAs may have clients involved in the cannabis industry in other states. Legislation signed by Gov. Terry McAuliffe in 2015 allows for the use of medical marijuana oil to treat epilepsy. Most recently, simple marijuana possession (less than 1 ounce) was decriminalized as of July 1, 2020, by Gov. Ralph Northam. Cannabis regulation bills were not voted upon during the fall special session of the Virginia General Assembly and were deferred to the 2021 session. The VSCPA continues to watch the issue closely. We will report any movement on the issue, which could greatly affect the accounting profession in Virginia.
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What makes this unusual is that there are only 15,000 people in Los Animas County — 9,000 of whom are in Trinidad. Trinidad is located 11 miles north of the New Mexico state line on I-25, the major interstate running from Albuquerque and Santa Fe to the south, to Pueblo, Colorado Springs, Denver and Cheyenne, Wyo., to the north. It is estimated that more than 90% of the business conducted in the 25 Trinidad dispensaries comes from traffic originating south of the Colorado state line and from jurisdictions that do not offer legal access to recreational cannabis.
WHAT MAKES A SUCCESSFUL CANNABIS MARKET? A recent article by Beau Kilmer4 identified 14 considerations, all beginning with the letter P, that highlight what needs to be evaluated to establish a successful and sustainable cannabis market. The 14 Ps are: production, profit motive, power to regulate, promotion, prevention and treatment, policing and enforcement, penalties, prior criminal records, product types, potency, purity, price, preferences for licenses, and permanency. All of these factors are in play in nearly every jurisdiction that allows legal, regulated access to cannabis. The cost of producing cannabis will plummet with legalization. The eventual lifting of federal prohibition based on the Controlled Substances Act of 19705 (CSA) will mean many producers no longer need to hide in the forest or in the basement of a rented home. In a post-CSA landscape, costs will further decline as state and local governments allow producers to compete and grow on industrial-sized outdoor farms and, more importantly, to engage in interstate commerce. We have seen price declines occur in Colorado. The average price for a pound of high-potency cannabis in the licensed wholesale market declined more than 60% from January 2015 to October 2018, from roughly $2,000 to $750 for the same quality and potency of product. Other mature cannabis markets like Oregon have experienced even more severe drops in wholesale prices over the last several years. It’s important to note that both of these markets have seen a partial rebound in pricing as market forces
INDUSTRY
MORE RESOURCES BOOK: “The Cannabis Industry Accounting and Appraisal Guide” cannavaluation.com PODCAST: “Cannabis and CPAs: The business opportunities and Risks” journalofaccountancy.com/podcast STUDY: “BVR Briefing — Cannabis and Hemp Valuations: A Market Analysis” bvresources.com
shake out weaker operators, oversupply finds its way into the black market, and some pivot to hemp production, but these pricing dynamics provide a glimpse into the implications of national legalization and the shape of things to come if lifting CSA creates a more efficient marketplace. At the same time, the inherent dangers of cannabis are receiving greater scrutiny due to greatly increased THC content (the main active ingredient in cannabis) in today’s most popular strains, together with the potency of concentrates and oils derived from incredible advances in extraction and related technologies. The cannabis landscape is rapidly evolving and adapting to the new norms based on both the increased acceptance within our society and due to changing routines and habits in relation to the COVID-19 pandemic. We see no reason why this industry will not continue to be dynamic and challenging as we roll into 2021. n
1. The cannabis industry is rapidly evolving and extremely dynamic. Much of the information cited here is both time and jurisdictionally specific. The content is intended to provide general knowledge and information for educational purposes. Each situation one may encounter in this unique niche is very fact-specific. This publication is not intended to provide professional opinions or positions on any circumstance. 2. For purposes of this article, cannabis will be used to describe what is technically known as THC-rich marijuana. Unless otherwise noted, references to use of cannabis will assume it is within the legal, regulated frameworks in place within those states that have authorized recreational and/or medical access at the state level. Recreational use is synonymous with adult use. 3. “Cannabis dispensaries’ online sales are way up, and Dutchie, which connects them to their customers, is a major beneficiary.” Tech Crunch. Aug. 18, 2020. 4. Kilmer, Beau. “How will cannabis legalization affect health, safety, and social equity outcomes? It largely depends on the 14 Ps.” The American Journal of Drug and Alcohol Abuse, Volume 45, 2019, Issue 6. 5. The Controlled Substances Act (CSA) Title II of the Comprehensive Drug Abuse Prevention and Control Act of 1970 is the federal drug policy under which the manufacture, importation, possession, use and distribution of certain narcotics, stimulants, depressants, hallucinogens, anabolic steroids and other chemicals is regulated.
Ryan Cram, CVA, is a senior financial analyst and Ron Seigneur, CPA/ ABV, CVA, ASA, is managing partner of Seigneur Gustafson LLP (SG), in Lakewood, Co. SG is nationally recognized for its expertise in the cannabis and hemp sectors with respect to business and intellectual property appraisal, economic damages and lost profits assessments and related consulting and tax planning and compliance. ryan.cram@cpavalue.com and ron.seigneur@cpavalue.com cpavalue.com
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COMPENSATION
THE RHYME AND REASON OF
executive pay
To maintain shareholder value and grow profits, companies must ensure executives are paid reasonable compensation.
Business owners and executive managers
alike are responsible for protecting and growing profitability, but they are often ill-equipped with all necessary strategies to best to ensure profitability while maintaining shareholder value. Developing an objective basis for officer compensation not only protects the taxpayer from regulatory headaches brought on by the IRS, but also motivates employees to perform above and beyond.
WHAT IS “REASONABLE” COMPENSATION?
Anthony Otaigbe, CPA
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The theory behind a well-organized company’s remuneration plan consists of two major components. According to the theory, all levels of management should be motivated by performance-based pay and the targets set for each manager should be easily
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understood. The company’s emphasis on winning should explain the reliance on performance pay within the compensation system. The plan itself should be structured similarly to the compensation plans of most other companies that offer a combination of salary, short-term incentives and long-term incentives. Base salaries should be set near the median of competitors within the same industry. Short-term incentive performance targets are set at the average performance level of the relative performance groups. Executives that meet performance targets should typically receive a bonus of 40% of base salary, while executives doubling performance targets could receive as much as 140% of base salary. The short-term bonus performance targets are based on revenue growth, net income growth, and reduction in net working capital.
COMPENSATION
HOW DOES THE IRS DETERMINE IF EXECUTIVE COMPENSATION IS REASONABLE? Independent Investor Test The Independent Investor Test, also referred to as ROE (Return on Equity), tests the different rates of ROE at different salary levels and chooses the salary level at which the hypothetical independent investor would be satisfied with his or her rate of return. Because the average ROE varies by sector, the application of this method should be done using the appropriate benchmarks from relevant industries. This test is easy and relatively affordable to implement.
CEO effectiveness Another strategy the IRS uses to determine reasonableness is an evaluation of the competencies of the shareholder-employee or sole-shareholder. As an extension of the underlying philosophy used in the Independent Investor Test, the IRS will test whether an independent investor would be willing to compensate the shareholder-employee as he or she is compensated. “The nature and quality of the services should be considered, as well as the effect of those services on the return the investor is seeing on his investment,” wrote the Ninth Circuit Court in Elliotts Inc. v. Commissioner (716 F.2d 1241 (1983)). As such, this particular test’s rationale rests upon the idea that the investor would object to compensation that is not commensurate with the shareholder-employee’s requisite abilities, experience, qualifications or apparent skill level.
Conflicts of interest The third category focuses on those factors that suggest a conflict of interest exists. The main problem with this category is determining whether a relationship exists between the company and its employee that might permit the company to disguise nondeductible corporate distributions of income as employee compensation deductible under section 162(a)(1).
Internal consistency Lastly, the IRS will almost certainly search for signs of inconsistency in a company’s treatment of payments to employees. For example, bonuses that have not been awarded under a qualified incentive-based compensation plan will attract scrutiny.
ACTIVITY-BASED MANAGEMENT (ABM) APPROACH Human resource development, supply chain management, and internal business functions must be developed to facilitate the achievement of the organization’s strategic objectives.
Consequently, the strategic allocation of human resources is pivotal in governing economic performance. Unfortunately, oversight over this area requires highly specialized personnel to combine industry experience with technical knowledge. However, ABM offers a solution by managing resources and activities to improve the value of products and services. Effective ABM is governed by the seamless communication of goals and project deliverables between the accounting, engineering, manufacturing and operations departments. Downstream, management and quality control will dictate the level of customer satisfaction and overall reductions due to defects and information asymmetry. As a result, an organization focused on ABM and reporting aims to set clear, obtainable performance quality targets and enable sustainability reporting by clarifying costs concerning corporate social responsibility and environmental concerns. Achieving the level of information symmetry provided by ABM does have its challenges. The traditional activity-based costing (ABC) model is difficult for many organizations to implement because of exorbitant costs incurred to interview and survey relevant staff and the use of subjective and costly-to-validate time allocations. It can also be difficult to maintain and update the model as processes and resource spending change, new activities are added, and increases occur in the diversity and complexity of individual orders, channels and customers. Under a carefully planned ABC schema, each activity will be allocated to a cost object at either the unit, product, batch or facility level. This granularity of information helps give management extra insight as to which process may be causing bottlenecks in the value chain. Moreover, the detailed cost information enables management to partition data to deliver sustainability reports to stakeholders. While the performance of any and every activity is a crucial element in all managerial thinking, adopting an ABC model requires a painstaking amount of planning and resources. Further, due to the high cost of continually updating the ABC model, many ABC systems are not updated on a routine basis, leading to out-ofdate activity cost driver rates and inaccurate estimates of process, product and customer costs. ABM is guided by two main drivers: the activities performed in an organization and the cost and performance in terms of both time and quality. While ABM prescribes that “performance measures should be defined for each significant activity,” documented incentives should also be put into place to stimulate employee performance. For example, instead of simply requiring the human resources department to self-report the time spent on each activity throughout the day, management should go a step beyond and create incentives. A high-performance organization u
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COMPENSATION
FIGURE 1. TIERED PROFIT SHARE BASED ON INCENTIVE POINTS Activity
Measurement
Incentive
Résumé screening
Decrease in interviews
+5 points
Perform background checks
Decrease in employee turnover
+3 points
Update company policies
Decrease in employee violations
+2 points
Update payroll information
Decrease in employee complaints
+5 points 15 points
Profit share
Total Points Scored
2% profit share
5 points
3% profit share
10 points
4% profit share
15 points
must be adaptable and flexible to foster an innovative and creative cultural environment. Thus, this model would be driven by total points achieved toward a tiered profit share scheme represented in Figure 1.
now defined as the three highest compensated employees who act in an executive role. This means that officer titles such as “CEO” and “CFO” are no longer used as part of the criteria to determine a covered employee.
This model supports the value chain by defining a set of approaches designed to optimize each aspect of operations to make sure that services are delivered to the right locations to minimize systemwide costs while satisfying customer requirements.
The CARES Act provides direct payments to U.S.-based businesses, nonprofits, states and municipalities eligible for funding by either the U.S. Department of Treasury or the Federal Reserve pursuant to a $500 billion Exchange Stabilization Fund. To meet the eligibility requirements for this funding, the recipient must agree to restrictions on compensation and severance for its senior executives. These restrictions apply during the period beginning on the date a loan agreement or loan guarantee is executed and ending on the date one year after the date on which the loan or loan guarantee is no longer outstanding. These restrictions include:
TAX CONSIDERATIONS FOR C CORPORATIONS Before the Tax Cuts and Jobs Act (TCJA) and the CARES Act According to IRC § 162(m), for performance-based compensation paid to a covered employee (three highest-paid officers) greater than $1 million to be deductible, it must not also be receivable by death, disability or change of control or ownership. Any compensation paid in the applicable taxable year above $1 million must be based on objective performance criteria to be deductible on corporate tax returns as “qualified” performance-based compensation.
After the TCJA and CARES Act C corporations can no longer deduct compensation greater than $1 million paid to any “covered employee.” Further changes by the TCJA have expanded the definition of a covered employee,
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• No officer or employee of the business whose compensation exceeded $425,000 in calendar year 2019 may: > Receive compensation which exceeds, during any consecutive 12-month period, the total compensation received by the officer or employee during calendar year 2019. > Receive severance pay or other benefits upon termination of employment with the eligible business that exceeds twice the maximum total compensation received by the officer or employee from the eligible business during calendar year 2019.
COMPENSATION
• No officer or employee of the business whose compensation exceeded $3 million in calendar year 2019 may: > Receive compensation which exceeds, during any consecutive 12-month period, total compensation in excess of the sum of $3 million and 50% of the excess over $3 million of the total compensation received by the officer or employee during calendar year 2019. • For this purpose, the term “total compensation” includes salary, bonuses, awards of stock and other financial benefits provided by an eligible business to an officer or employee of that business. The CARES Act also provides for in excess of $30 billion in financial support payments to airlines, cargo air carriers and contractors. Similar to the approach taken for support payments to other businesses, as a condition to receiving this funding, the recipient must agree to restrictions on compensation and severance for its senior executives. The restrictions apply during the two-year period beginning on March 24, 2020, and ending March 24, 2022. These restrictions include: • No officer or employee of the business, or contractor, whose compensation exceeded $425,000 in calendar year 2019 may: > Receive compensation which exceeds, during any consecutive 12-month period during that two-year period, the total compensation received by the officer or employee during calendar year 2019. > Receive severance pay or other benefits upon termination of employment with the eligible business which exceeds twice the maximum total compensation received by the officer or employee from the eligible business during calendar year 2019. • No officer or employee of the business whose compensation exceeded $3 million in calendar year 2019 may: > Receive compensation which exceeds, during any consecutive 12-month period, total compensation in excess of the sum of $3 million and 50% of the excess over $3 million of the total compensation received by the officer or employee during calendar year 2019. • For this purpose, the term “total compensation” includes salary, bonuses, awards of stock and other financial benefits provided by an eligible business to an officer or employee of that business.
AVOID CHALLENGES TO REASONABLE COMPENSATION Prudent accountants should advise their clients to carefully document each executive’s qualifications, duties and key accomplishments. This is important because it creates an audit trail. If the IRS selects the company for audit, the auditor will be able to trace a basis for the rationale behind executive compensation. The more accurate this information is, the less ammunition the auditor will have to challenge executive compensation. Secondly, it falls on accounting professionals to advise clients to include more than just the most apparent factors found on a résumé or CV when describing an individual’s qualifications such as professional goodwill, which includes reputation and relationships. For example, we recently merged with an accounting firm. Part of the agreement of the merger is that upon exit of one of the partners, a fixed distribution payment will be paid on a bi-weekly basis that is commensurate with the fair value of the outgoing partner’s goodwill with his or her client accounts. In conclusion, although the executive remuneration plan at a company should be reasonable and effective, there are a few important issues the company might face in the future. First, with the growing trend in shareholder involvement in decision-making, companies will need to ensure shareholders approve of all changes to the compensation plan. S corporations should model their compensation plans after the performance-based compensation provisions used by C corporations. Secondly, corporations should apply the Independent Investor Test before setting officer salaries. Maintaining a competitive executive compensation policy is imperative. In the years to come, the company should continue to evaluate its executive remuneration plan, increasing levels of pay as necessary to attract top executive talent while continuously improving ways to increase intrinsic motivation. The corporation should document resulting determinations in meeting minutes. If the company decides to raise compensation or change the plan in any way, shareholder approval should be sought to avoid challenges to corporate governance and avoid negative reputational risks. n
Anthony Otaigbe, CPA, is managing partner of Otaigbe & Olumese, CPAs, in Manassas. Otaigbe & Olumese, CPAs, specializes in SOC, nonprofit, internal and forensic audit. Anthony also teaches accounting and business courses as an adjunct professor. anthony@oandocpas.com facebook.com/oandocpas @oandocpas @oando_cpas
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VSCPA
Statements of Financial Position & Statements of Activities The following Statements of Financial Position and Statements of Activities reflect the VSCPA’s and VSCPA PAC’s financials for the 2019–2020 fiscal year. The full audited financial statements are available online in the “About the VSCPA” section of vscpa.com. More information on the VSCPA’s 2019–2020 programs and initiatives is available in the “State of the VSCPA” report, also at vscpa.com/StateoftheVSCPA.
APRIL 30,
2020
2019
ASSETS Assets Cash and cash equivalents
$
1,592,392 109,441 1,582,997 291,733 2,108,698 5,685,261
$
2,477,760 72,339 1,672,553 290,193 1,229,351 5,742,196
$
20,311 243,197 194,662 494,485 244,401 1,197,056
$
34,840 206,531 189,889 783,075 190,700 1,405,035
Trade accounts receivable Investments Prepaid expenses Property and equipment – net Total assets
LIABILITIES AND NET ASSETS Liabilities Accounts payable Accrued expenses Accrued retirement Deferred revenue Deferred compensation Total liabilities
Net Assets Without donor restrictions: Invested in property and equipment Board designated for facility and technology Board designated for operating expenses Undesignated With donor restrictions (VSCPA PAC) Total net assets
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2,108,698 697,805 949,452 688,703 4,444,658 43,547 4,488,205 $ 5,685,261
1,229,351 952,175 1,268,284 832,544 4,282,354 54,807 4,337,161 $ 5,742,196
VSCPA YEARS ENDED APRIL 30,
2020
2019
946,460 578,414 1,104,058 317,441 17,805 2,964,178 343,425 36,930 2,520,285 56,053 18,462 58,584 5,997,917
$ 1,138,402 448,897 1,123,791 298,447 6,709 3,016,246 262,139 44,503 2,567,052 58,310 44,126 74,536 6,066,912
129,472 34,817 16,817 (58,908) 2,500 6,122,615
150,185 73,550 27,017 (4,208) 2,500 6,315,956
2,397,206 323,461 315,667 919,034 360,792 249,992 76,270 287,125 58,584
2,376,837 357,361 344,472 1,032,191 380,256 269,440 132,889 246,914 74,536
972,180 5,960,311 162,304
980,096 6,194,992 120,964
47,324 (58,584) (11,260) 151,044 4,337,161 $ 4,488,205
54,448 (74,536) (20,088) 100,876 4,236,285 $ 4,337,161
Change in Net Assets Without Donor Restrictions Revenue Program Revenue:
Continuing education Seminars Conferences Ethics Online
$
Other CPE Total continuing education Peer review Innovation Membership Communications Students & Educators Net assets r eleased from restriction, VSCPA PAC Total program revenue Other: Affinity income Investment income, net Rental income Gain (loss) on disposal of property and equipment Miscellaneous Total support and revenues without donor restrictions
Expenses
Program Services: Learning Governance Peer review Membership Innovation Students & Educators Public Relations Government Affairs VSCPA PAC Supporting Services: Administrative and general Total expenses Change in net assets without donor restrictions
Change in net assets with donor restrictions
Contributions to the VSCPA PAC Net assets released from restriction, VSCPA PAC Change in net assets with donor restrictions Change in net assets Net assets — Beginning of year Net assets — End of year
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VSCPA
Virginia counts on CPAs — During CPA Week and always Thank you for helping the VSCPA celebrate Virginia
CPA Week this year, from Sept 13–19, 2020. Virginia Gov. Ralph Northam officially proclaimed the week across the Commonwealth; even during these crazy times, he took steps to show how important the profession is! You showed why Virginia counts on you with the #CountOnCPAs social media campaign. Firms, sole proprietors, partner organizations like the Virginia Board of Accountancy, and so many individuals from across the profession shared in the CPA love. Here are just a few examples: • BrownEdwards created its own social campaign hashtag to support CPA Week: #CountOnBECPAs. • Mitchell, Wiggins & Company shared our social graphics and retweeted VSCPA posts — included a fun fact about Kenny G. • The leadership team at CST Group promoted CPA Week content on their LinkedIn pages. • Individual CPAs posted office pictures, and some even showed us their dogs! (CPA clearly can stand for “Cute Paws Always.”) • Hantzmon Wiebel supported local causes by donating to the Dr. Lorna Breen Heroes’ Fund and Emergency Food Network and encouraging others to donate. They sent out a press release and received local media coverage as well. All week long, CPA members recorded quick videos for our social feeds to share why they’re CPAs and what they love about their jobs. Thank you to the following members for participating: Courtney Arrington, CPA, Genworth Financial; VSCPA Chair Henry Davis III, CPA, VCU; LaToya Jordan, CPA, Auditor of Public Accounts; Iris Laws, CPA, Dixon Hughes Goodman; Kelli Meadows, CPA, Meadows Urquhart Acree & Cook, LLP; Amanda Phelps, CPA, Robert Half; and Brandon Pope, CPA, Vaco Richmond. Want to get in on the action? Use the #CountOnCPAs and #CPAsGiveBack hashtags anytime! And if you or your company wants to take a more active role in next year’s CPA Week, reach out to VSCPA Public Affairs Director Tim Barry at tbarry@vscpa.com.
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Know outstanding CPAs? Nominate them today! Outstanding. Innovative. Effective. If these words describe someone you know, make sure they are recognized for their achievements! The VSCPA Distinguished CPA Awards are open now through December 18. Here are the four award categories: • Outstanding Member: A VSCPA member who has provided outstanding service to the profession through participation in VSCPA activities, civic engagement, and charitable activities that promote a positive image of the profession. • Impact: A VSCPA member who has made a recent contribution to the advancement of the profession with innovation and disruption in the areas of technology, talent, learning, advocacy or student activities. • Ruth Coles Harris Advancing Diversity & Inclusion: Sponsored by Keiter, recognizes a VSCPA member who champions diversity and inclusion in the field of accounting. • Top 5 Under 35: Recognizes young VSCPA members who have shown excellence in one or more of the following: professional achievement, VSCPA chapter accomplishment, community contribution or dedication to the CPA profession. Don’t miss this opportunity to gain recognition for your organization! Submit your nomination by December 18 at vscpa.com/Awards.
Brag, please!
Send your member news to disclosures@vscpa.com.
Invest in Future CPAs by Donating to the Educational Foundation
“I hope to become a faculty member at a research university after I graduate. As a faculty member, I hope to conduct research that contributes to the accounting profession, prepare students to function in a diverse workforce, and provide services to the profession and university by becoming a mentor. This scholarship will assist me in achieving my education and career goals. Thank you!” — Carissa Malone, Virginia Tech, 2020–2021 VSCPA Past Presidents/ Chair Scholarship
Donate today! VSCPA.com/ef-donation
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VSCPA
Congratulations to the following members! NEW HIRES Richard Hozik, CPA, is the new CFO of Constellis in Herndon. Anna Pitts, CFE, has joined the Petersburg office of Mitchell Wiggins as a senior accountant. Victoria Savoy, CPA, was appointed by the Virginia State Corporation Commission to direct the Virginia Health Benefit Exchange. Cheryl Spivey, CPA, is the new CFO for Gloucester County.
PROMOTIONS Darden Bell, CPA, and Scott Zickefoose, CPA, CM&AA, have been promoted to partner at Keiter in Glen Allen. At Cherry Bekaert in Richmond, Brook Bishop, CPA, and Ryan Evans, CPA, have been promoted to senior accountant, and Timothy Pohlig, CPA, to manager. Kristine Shumack, CPA, has been promoted to CFO of the United Service Organizations (USO). Pictured clockwise: Kara Shelton, CPA, Darden Bell, CPA, Kelly Benigno, CPA, Scott Zickefoose, CPA, CM&AA
Kelly Benigno, CPA, is the new CFO for The Garcia Companies, also known as The ESG Companies, in Virginia Beach. The following members have been promoted to partner at YHB: Andy Boyles, CPA, in Richmond; Kirstine Connors, CPA/ABV, in Falls Church; Dorrie Franzello-Kurtz, CPA, in Culpeper; and Derek McCarty, CPA, in Winchester. Deb Young, CPA, has been promoted to senior associate at The Roseline Financial Group, LLC, in Richmond.
THE VSCPA MOURNS THE LOSS OF David Collins, CPA, a sole proprietor from Alexandria. He was a partner at Goodman & Company and Dalal & Company, CPAs, before starting his own firm earlier this year. He was named a Super CPA for several years by Virginia Business magazine and served on the Board of Directors of the Greater Springfield Chamber of Commerce. Julian Gutterman, CPA, a Life member from Virginia Beach. He spent 44 years at Goodman & Company in Norfolk, mostly as a partner. He served several VSCPA committees in the 1970s and was also a Tidewater Chapter officer.
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RAISE YOUR HAND AND VOLUNTEER! Put your career in overdrive:
Sign up today for a volunteering or leadership position with the VSCPA. Just opt into the volunteer pool to receive notifications about opportunities that meet your interests. Or you can check out open spots available, like chapter officer positions or media ambassador. Visit vscpa.com/Volunteer for more info!
VSCPA
APPOINTMENTS & AWARDS Larry Gaffey, CPA, partner at Gaffey, Deane & Talley, PLLC, in Reston, has joined the board of directors of Futuris Company. Kara Shelton, CPA, senior manager at CST Group, CPAs, PC, in Reston, was named to the board of directors of Fruitful Planet, a nonprofit that works with local farmers and schools to bring fresh fruits and vegetables to underserved communities.
From CST Group, CPAs, PC, Kendall Coleman, CPA, CGMA, partner, Hollis Davis, CPA, partner, and Joseph Romagnoli, CPA, CGMA, managing partner. John Coleman, CPA, president & CEO, Commonwealth Business Services, Inc., in Fredericksburg. Neal Donahue, CPA, partner at Crowe Donahue, PLLC, in Ashburn. Steve Gordon, CPA, president & CEO, Gordon CPA Group, Reston. Shannon Hagerich, CPA, partner at DuvallWheeler, LLP, in Manassas.
The following members were named to Northern Virginia magazine’s 2020 Top Financial Professionals list: Bob Baldassari, CPA, principal at Matthews, Carter & Boyce, PC, in Fairfax. Gordon Bernhardt, president & CEO at Bernhardt Wealth Management, Inc., in McLean.
Blaine Hegner, CPA, partner at Dixon Hughes Goodman LLP in Tysons. Robert Hottle, CPA/PFS, partner at Baker Tilly in Tysons. At Johnson Robinson, PLC, in Vienna, partners Jeff Johnson, CPA, and Julie Johnson, CPA.
Staff news
Mark Joseph, CPA, president & CEO of Sentinel Wealth Management, Inc., in Reston. At KWC CPAs in Alexandria: Howard Kramer, CPA, principal, and Michael Wicks, CPA, shareholder. At Updegrove, McDaniel, McMullen & Chiccehitto, PLC: Mary Leigh McDaniel, CPA, managing partner in Warrenton, and Donna McMullen, CPA, partner in Leesburg. Krystal McCants, CPA, partner at YHB in Falls Church. Dawn McGruder, CPA, president at The McGruder Group in Fairfax. Cathy Moberly, CPA, partner at BSB, LLC, in Fairfax. Jon Nichols, CPA, partner at Huey & Associates, PC, in Herndon. Roger Overton, CPA, principal at Homes, Lowry, Horn & Johnson, Ltd., in Fairfax.
FIRM NEWS ANNIVERSARIES November 13: Linda NewsomMcCurdy, CAE, senior director, learning, 13 years (left) December 1: Stephanie Peters, CAE, president & CEO, 23 years (right)
DISCLOSURES
Craver, Green & Company has merged with McPhillips, Roberts & Deans, PLC, in Norfolk. PBMares, LLP, headquartered in Newport News, has launched a middlemarket investment bank, PBMares Capital Markets, to provide M&A, capital formation and financial restructuring services to businesses generating up to $150 million in revenue.
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VSCPA
THE VSCPA’S NEWEST VIRGINIA CPA LICENSEES Beverly Allgood, CPA, Norfolk Stephen Beattie, CPA, Alexandria Kyle Biggers, CPA, Richmond Alexandra Borgos, CPA, Manassas Stephen Brager, CPA, Alexandria Katelin Brand, CPA, Winchester Megan Bridgewater, CPA, Henrico Christopher Brown, CPA, Weyers Cave Joseph Caven, CPA, Sterling Jieyao Chen, CPA, Herndon Yong Jie Chua, CPA, Sterling Ryan Coker, CPA, Williamsburg John Collinson, CPA, Charlottesville Shawn Dunford, CPA, Winchester Justin Elmore, CPA, Henrico Courtney Everitt, CPA, Norfolk
Rachael Ferguson, CPA, Bristol, Tenn. Laura Gillis, CPA, Reston Yuan Gao, CPA Taylor Harmon, CPA, Richmond Megan King, CPA, Culpeper Howard Kohos, CPA, Fairfax Jason Kornreich, CPA, McLean Laura Labuschaigne, CPA, Richmond Sarah Lambert, CPA, Henrico Kristin Lindsay, CPA, Richmond Aaron Madzima, CPA, Boise, Idaho Tyler Matthews, CPA, Reston Hope Mundell, CPA, Suffolk Syed Naqvi, CPA, Chantilly Nicholas Nonnemacker, CPA, Richmond Tiffini Parker, CPA, Alexandria
Mikaela Gekas Robinson, CPA, Richmond Robyn Robles, CPA, Virginia Beach Alicia Salyer, CPA, Stafford Philip Smith, CPA, Fredericksburg Jennifer Tilley, CPA, Tysons Thanh Tran, CPA, Centreville Nathan Turley, CPA, Ridgeley, W.Va. Katelyn Turner, CPA, Mechanicsville Megan Underwood, CPA, Glen Allen Ehren Wade, CPA, JD, Reston Margaret Walker, CPA, Washington, D.C. Ian Walsh, CPA, Charlottesville Makenzie Yeater, CPA, Winchester List from June 1, 2020, through Sept. 30, 2020.
Virtual Women’s Leadership Forum
Dec. 16 | Live Online | Up to 18 CPE
Are you ready to be inspired by an unprecedented lineup of savvy female leaders who will equip you with the tools to be your best self? Join us for this year’s virtual conference and achieve new levels of success! “This conference was fantastic! I loved everything about it. It was relevant, inspiring, empowering and totally awesome!” vscpa.com/WomensForum
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SPOTLIGHT
VSCPA member Kathy Flaherty, CPA Kathy Flaherty,
CPA, is a principal at Matthews, Carter & Boyce, PC, in Fairfax, where she leads the nonprofit practice. She has worked in public accounting her entire career, primarily in audit. I am passionate about… Travel and lifetime learning. It is so important to stay current in our professional realm but also to broaden our scope by staying up to date on current events, and learning about other people and cultures. I have learned much through traveling and spending time with others, experiencing other cultures and food. I learned to speak Greek and that was a challenge but fun! My advice to fellow CPAs is… To constantly engage with your peers, clients and colleagues. Our profession is based upon the relationships that we build with our peers, clients and others. While we need to have a sound technical base, the most rewarding part of our profession is the interactions with others, helping our clients solve issues, and enjoying the work that we do. Working with many at not-for-profit organizations, I get to see first-hand the passion that they have for their missions and the good that their organizations achieve. I never leave home without… My cell phone. When I first took the CPA Exam… I had no idea that the profession would be so dynamic, challenging and give me the opportunity to meet so many different people and participate with them in their endeavors. My advice to new CPAs… The CPA profession provides ample opportunities for you to shape your career and pursue areas that interest you. Take advantage of the breadth of the profession and pursue the area that will keep you excited each day. I became a CPA because… I liked the variety that the CPA profession provides. I didn’t think it would be a dull job and it has not been. During the pandemic… I have become more technically proficient! n
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CLASSIFIEDS
by
TRANSFORMING YOUR PRACTICE? Do it with intention based on tried and true methods. Join Poe Group Advisors’ online community workshop. Learn more at www.accountingpracticeacademy.com.
A NORTHERN VIRGINIA CPA FIRM is looking to acquire a CPA practice based in Fairfax/Loudoun County. The ideal practice would be grossing less than 600k and having a good mix of business and individual clients. CPA who is looking to retire immediately, reply in confidence to Box #109 at classifieds@ vscpa.com. Please put “Blind Box 109” in the email subject line.
Advertise:
ACCOUNTING PRACTICE SALES IS THE largest marketer of CPA firms in the US. The reason? Proven success! Contact us for a confidential, no-obligation discussion or to receive a FREE valuation. Call 888-8471040 or email Wade@APS.net. Featured Practices Available for Sale: Northern VA Tax and Accounting Practice grossing $370,000 and Southwest VA CPA Practice grossing $285,000! Buyers — for more information on available listings, please email Holmes@ APS.net or visit www.APS.net.
Contact us at classifieds@vscpa.com or visit vscpa.com/
Classifieds for rate information. Members receive a discount.
Join the VSCPA 100% Member Program
HELPING ACCOUNTANTS WRITE THEIR NEXT CHAPTER. Let us help you find your next opportunity. Bank financing is available! Visit our website www.poegroupadvisors.com for resources and current listings. Email cpoe@poegroupadvisors.com or call today 888-246-0974.
Show your company’s commitment to your employee’s success and the accounting profession by joining the VSCPA 100% Member Program. The 100% Member Program includes benefits for your organization like: • Concierge-style service. • A single renewal invoice. • Recognition in VSCPA publications. Learn more and sign up today at vscpa.com/100% or contact Julia Henderson at jhenderson@vscpa.com.
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NOVEMBER/DECEMBER 2020
HELPING ACCOUNTANTS WRITE THEIR NEXT CHAPTER. Selling your practice? Get Powerful, yet Practical insights to help you plan a successful exit. Checkout our video by visiting www.poegroupadvisors.com/sellvideo.
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Wade@APS.net DISCLOSURES
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NOVEMBER/DECEMBER 2020
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Virginia Society of CPAs 4309 Cox Road Glen Allen, VA 23060
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