Braddon Group

Recent massive ransomware attacks on organizations around the world demonstrate how disruptive—and in some cases destructive—cyberattacks can be. The “WannaCry” malware incident is just the latest alarm on the ever-urgent call for companies to immediately address and manage their cybersecurity risks. Every organization is susceptible to cyber assaults, making a clearly defined, flexible and robust risk management program essential to a business’s ongoing success.

Addressing an Increasing Market Need

With cyberattacks on the rise, organizations are not only reinforcing their ability to prevent attacks, but also taking steps to demonstrate that they are doing all they can to detect, respond to, mitigate and recover from attacks on a timely basis. Customers, investors, boards of directors and even government officials want to know more about what companies are doing to address cybersecurity.

At the AICPA, we saw the emerging market need several years ago. We recognized that there hasn’t been a consistent, common language for describing and reporting on the cybersecurity risk management programs organizations put in place. This lack of transparency makes it difficult for stakeholders to determine whether an organization’s cybersecurity risk management plan effectively addresses potential threats. We asked our Auditing Standards Board (ASB) and Assurance Services Executive Committee (ASEC) to work together to develop a voluntary, agile, market-driven solution.

Cybersecurity Reporting Framework Creates a Common Language

The AICPA has released a cybersecurity risk management reporting framework developed by a group of ASEC members representing a broad swath of CPA practitioners providing IT security services to clients in a wide range of businesses and industries. The framework consists of a description of the entity’s cybersecurity program prepared by management, a management’s assertion, and a CPA’s opinion. Together with two sets of related criteria, the framework provides a common language for organizations to describe their cybersecurity risk management efforts (in the description) and for CPAs to report on those efforts.

The framework is designed to meet the information needs of a broad range of third-party users. It provides organizations with a common language to use when evaluating and reporting on their cybersecurity efforts, and gives them a level of comfort that they’ve adequately considered best practices when designing, implementing and operating their programs. 

Because the framework is aligned with security frameworks and standards organizations frequently use internally to manage their cybersecurity risks, it offers a way for companies in all industries to evaluate and report on the effectiveness of cybersecurity controls, regardless of the security standards or frameworks they use internally. 

The Accounting Profession’s Critical Role

The accounting profession plays a vital role in the many facets of cybersecurity risk management, and our reporting framework facilitates this work in the following ways:

• Within their organizations, management accountants can help colleagues understand the importance of the role all staff members play in helping the organization achieve its cybersecurity goals. Management accountants more directly involved with the organization’s cybersecurity efforts can promote awareness and use of the framework as a means of communicating those efforts, both internally and externally, and of evaluating the effectiveness of the organization’s controls in achieving its cybersecurity objectives. 
• CPAs can help their clients by providing cybersecurity risk management advisory services, such as an assessment of clients’ cybersecurity readiness to prepare those considering an examination. Of course, the framework is used by CPAs with significant experience assessing IT controls in a cybersecurity examination. As in a financial statement audit, a CPA’s opinion is designed to enhance stakeholders’ confidence in the cybersecurity information prepared by company management.

Learn More

The AICPA today released the final component of the new cybersecurity risk management framework. Reporting on an Entity’s Cybersecurity Risk Management Program and Controls is the attestation guide for CPAs engaged to examine and report on their client’s cybersecurity risk management programs and controls. The guide presents a new offering to help firms protect clients, their stakeholders and the public interest.    

For more information on the AICPA’s cybersecurity risk management reporting framework, visit aicpa.org/cybersecurityriskmanagement. You’ll find the reporting framework’s free description criteria, plus a fact sheet, backgrounder, illustrative report and other valuable free resources. In addition, the site contains links to the framework’s control criteria (2017 Trust Services Criteria for Security, Availability, Processing Integrity, Confidentiality and Privacy).

The AICPA’s cybersecurity risk management reporting framework and related criteria are a critical tool in the arsenal against today’s biggest business threat. Here are just a handful of other existing and upcoming resources to broaden accountants’ understanding of cybersecurity risks and implement the new cybersecurity risk management reporting framework:

• This CGMA Risk Management Tool provides essential information on what companies need to monitor and manage the risk of cybersecurity threats, and respond to potential breaches.
• The Private Companies Practice Section (PCPS) Cybersecurity Toolkit helps firms assess clients’ risk levels and implement the framework.
• This free podcast provides an overview of ransomware attacks and how to mitigate them.
• Various cybersecurity-related sessions at upcoming AICPA conferences address cybersecurity, including AICPA ENGAGE, Not-for-Profit Conference and Governmental Accounting and Auditing Update Conference.

I hope you’ll join me and the rest of the accounting profession in contributing to more effective ways to combat and conquer cyber assaults. Visit aicpa.org/cybersecurity for more information.

Susan S. Coffey, CPA, CGMA, Executive Vice President – Public Practice, Association of International Certified Professional Accountants

Cybersecurity courtesy of Shutterstock.

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At long last, the winter coats have been washed and relegated to the back of the closet (or they’ll sit on the laundry room floor until next October waiting to be washed—don’t worry, I don’t judge) and you’re thinking about your summer travel plans. Perhaps you’d like to spend a glorious week at the beach, or take a road trip to visit historical sites. Maybe a lake house is your thing, or you’re jetting half way around the world to stay in an overwater bungalow in the Maldives^* before they sink. It doesn’t matter whether your vacation will be via the family SUV or a private jet, there will be some element of drudgery—finalizing itineraries, packing, renting cars, making reservations. And if you’re traveling with young kids, face it: you’re going on a trip, not a vacation. The good news is that there are ways to minimize your vacation stress from the planning stages through the duration of your trip, no matter your destination or the company you keep.

Before You Go

• Determine your budget. This is critical. Nothing will put a damper on a vacation more quickly than realizing you’ve signed up for something you can’t afford. Obviously, a family road trip to an amusement park a few hours away is going to cost significantly less than the aforementioned overwater bungalow in the Maldives^**, but there’s a lot of gray between those two types of vacations. Find one that appeals to you and fits your budget.
• Pick a destination. Perhaps you know exactly where you’d like to go and when. But maybe you want to figure out what there is to see and do before you book.
• If you’re a foodie, you can look up restaurants that have been featured on TV shows to help you pick a delicious destination.
• Book a flight (if applicable).
• Set up price alerts with your preferred airlines or a flight curating site like Kayak or Expedia. This can help you get the best deal on a flight.
• Apps and sites like Hopper and Skyscanner can also help you determine what actually constitutes a good deal on a particular flight.
• Use SeatGuru to pick the perfect seat for your flight. It can give you the lowdown on location on the plane, whether there are outlets, how much legroom you get, and more.
• If travelling domestically, upon booking a reservation, you have 24 hours to cancel it. So if you find a great deal but you aren’t sure, book it anyway and cancel if need be. Or keep looking around to see if you can find an even better price.
• Rent a car. If you’ll be renting a car for your trip, use the CostcoTravel site. It finds the best rates based on location and, if you’re a member, offers additional discounts. While you’re at it, make sure your driver’s license hasn’t expired. Several years ago, my husband and I arrived in Ireland only to discover his license was expired. I spent the entirety of our vacation unexpectedly behind the wheel.
• Download apps.
• Once you’ve booked a flight, download the app for that airline. Many now allow you to track your baggage once you’ve checked in and will send you real-time updates on your flight status. Others allow you to rebook through the app if there’s a problem with your original flight.
• TripIt can help you keep all of your reservations in one place so you aren’t searching all over for your flight, hotel and restaurant reservations.
• Check your toiletry bag. Be sure you aren’t out of key items before you go. Vacation destinations are notorious for charging a premium for items such as sunscreen, antacids, deodorant, razors and toothbrushes and toothpaste.
• Got kids?
• Rent baby gear. Depending upon your destination, you may be able to rent strollers, cribs, beach gear, high chairs, car seats and other cumbersome baby items rather than schlepping them with you.
• Take advantage of onsite babysitting. If you have kids, find out whether your destination has a kids’ camp or offers babysitting services so you can eat dinner after 6 p.m. one night.

Whether you’re loading up the car or hopping on a plane, we hope these tips and tricks help you arrive at your destination calm, happy and ready to have fun!

^*My dream vacation.

**Did I mention this is my dream vacation? Seriously. It’s a thing.

Lauren J. Sternberg, Communications Manager, Association of International Certified Professional Accountants.

Travel courtesy of Shutterstock.

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In the summer of 2014, dumping a bucket of ice water on your head while being filmed was all the rage. My Facebook newsfeed was filled with videos of friends voluntarily drenching themselves for all to see. This activity was sparked by the ALS Association’s Ice Bucket Challenge, a brilliant fundraising effort designed to increase awareness and support research on amyotrophic lateral sclerosis (also known as Lou Gehrig’s Disease). In one month, the ALS Association raised more than $100 million. How could other not-for-profits recreate this success to benefit their organizations? While I don’t have the answers, I would recommend that you consider why donors give as a starting point.

Donor motivations have been researched, but results are not as straightforward as they may sound. What donors say is not always consistent with what donors do. So, what looks good on paper, is not always going to translate into success.

We know that some people give to support the fundraising efforts of a family member, friend or neighbor. Others like to create a philanthropic image for themselves or their company. Still others feel guilty saying no to someone expressing a need. These reasons for giving often are understated and under-reported. So, while this article presents helpful statistics on primary donor motivations, keep in mind that unspoken factors may come into play.

Key Factors Driving Donations

The 2016 U.S.^® Trust Study of High Net Worth Philanthropy, conducted in partnership with the Indiana University Lilly Family School of Philanthropy, looked at factors driving charitable giving among wealthy households. This biennial study found that donors’ primary stated motivations for giving were as follows:

• Believing in the mission of the organization (54%)
• Believing that their gift can make a difference (44%)
• Experiencing personal satisfaction, enjoyment or fulfillment (39%)
• Supporting the same causes annually (36%)
• Giving back to the community (27%)
• Adhering to religious beliefs (23%)

Matching contributions are also a motivating factor, but the amount of the match is not as significant. According to a study by Dr. John A. List of the University of Chicago and Dr. Dean Karlan of Yale University, offering a matching contribution increased giving by 20%, but doubling or even tripling the match had virtually no additional impact on increased giving.

It Pays Not to Be Pushy

Drs. James Andreoni and Marta Serra-Garcia published a study in 2013 related to their research on soliciting pledges for contributions. They designed a test to solicit contributions using three different approaches:

1. Request an immediate contribution
2. Request a pledge now and contribution later
3. Request a nonbinding pledge, which, if successful, would be followed by an immediate “thank you” email and a second “thank you” email one week before the pledge fulfillment request

Individuals who made the nonbinding pledges produced the highest level of actual donations in the study—35%. The researchers concluded: “if people feel there is a context of mutual trust and respect, many individuals will stick to their promises.”

Furthermore, according to the 2016 U.S. Trust® study, nearly one out of five wealthy donors (17%) stopped giving to at least one organization last year. When donors stopped giving to a charity they previously supported, the top-cited reason (41%) was receiving too-frequent solicitations from the nonprofit organization.

Taxes: The Understated Impetus

Just 18% of wealthy donors in the same study said they gave primarily because of tax benefits, compared with 34% of those who cited this as a primary motivation in 2014. But, based on previous tax research, people do not always admit how important tax considerations are to their charitable giving. In 2010, among discussions surrounding the fate of charitable contribution deductions, 67% of people said they would somewhat or dramatically decrease their donations if the deduction was eliminated.

In addition, people in higher tax brackets are usually willing to give more. A higher tax rate favors individuals who make large contributions because it gives them larger tax deductions. High-net-worth individuals and their advisers recognize this advantage. The prospect of donating highly appreciated stocks and avoiding taxation on the gain altogether is even more compelling to astute donors and their financial advisers.

Know Your Donors

Many reasons motivate donors to give. Some are spoken, some are not. Financial planner and author Patrick Renn wrote of this in his book, Finding Your Money’s Greater Purpose, saying:

“Each of us, through our contributions as volunteers and benefactors, holds the power to change the course of society for the better. We can leave our mark on this world with the time and resources that we dedicate to others. That is what becomes our legacy.”

Getting to know your donors is the key to understanding what truly motivates them. Once you understand that, your solicitations will be easier to develop and more fruitful.

As those results come in, be sure you have adequate systems in place to track your pledges and donations. Timely and accurate recordkeeping is essential for financial accounting purposes, as well as for donor relations. The AICPA Not-for-Profit Section is here to help. We support our members working in and for the not-for-profit sector by providing timely information, resources and articles to assist with all of their financial accounting and reporting, governance and management, tax compliance and assurance needs. You may be interested in reading this article on drafting gift agreements, and reviewing this sample gift acceptance policy.

Bliss Jones, Director- Not-for-Profit, Jones and Kolb in Atlanta, GA. Bliss is responsible for overseeing its services to a wide variety of organizations. He has more than thirty-five years of experience specializing in the not-for-profit sector and is a frequent speaker on key issues impacting the industry.

Donation jar image courtesy of Shutterstock

     

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There are many things you don’t do unless you have the proper materials, information or training. You just don’t.  

Construction crews don’t build a 100-story skyscraper without a structural design plan. An amateur runner doesn’t jump into the New York City Marathon without having logged a substantial number of miles and completing a qualifying race. And neither you nor I can simply hop into a rocket and head off for a leisurely space walk without extensive training.

The point is, as a CPA candidate, when you finally set foot in a testing center, you should have thoroughly studied and become familiar with the Exam’s content. One of the best ways to do this: Study the AICPA’s CPA Examination Blueprints.

As the Exam’s developer, the AICPA publishes the Exam Blueprints, which is an in-depth, section-by-section guide for candidates preparing to test. If you’re planning to sit for the Exam and said to yourself, What are the Blueprints?, you need to dig in right away because you’ll:

1. Know specific content that may be tested and what you’ll be expected to do.

There’s no other way to say it: You want to know what’s on the Exam. It’s not a secret. The Exam Blueprints say it all. For each section, content eligible for testing is presented in organized charts with sub categories that break it down even further into groups and topics.  

2. Discover approximately 600 tasks that may appear on the Exam.

The best part of the Exam Blueprints is, in addition to providing the eligible test content within each section, they also provide approximately 600 tasks a newly licensed CPA should be able to do in relation to that content. While the list of tasks is not all-inclusive, each of the Blueprints’ sections offers greater clarity with regard to the types of tasks you may be presented with when testing.

3. See the skill level for related content.

The Exam is focused on testing higher-order cognitive skills, which are essential to your effectiveness as a future CPA. The Exam Blueprints’ introduction breaks down the approximate percentage of content you’ll see in each section at a particular skill level. Topic-by-topic, the Exam Blueprints also show the skill level at which you’ll be assessed and the task associated with it. From the most basic remembering and understanding to the more complex evaluation-level items, you’ll know what to expect when it comes to the skill level at which items are tested.

4. Learn the content allocation for each section.

One of the big questions for candidates is how much coverage a specific topic will get on the Exam. Within each section, the content allocation is presented by topic area. Along with section overviews of content areas, this helps you understand what type of content will receive greater focus within the section.   

5. Get a full list of reference materials for each Exam section.

At the end of each section’s introduction, you’ll be presented with a bulleted list of references such as federal regulations or guidelines. Familiarization with these references will help you prepare, as they serve as the basis for the tasks included in each section.

As you can see, these are all good reasons why the Exam Blueprints should be your go-to resource for studying. When I took the CPA Exam, candidates didn’t have access to something that brought as much clarity to the Exam’s content as these Blueprints. They should be a welcome addition to your study arsenal.

While I understand each candidate has a different style and strategy for how to prepare, the Blueprints are a must for the entire Exam journey. Just like the runner entering that big 26.2-mile run, you need to prepare. Start with the CPA Examination Blueprints.

Henrietta Eve, CPA, Lead Manager–Product Development, Association of International Certified Professional Accountants

Exam blueprints cartoon by Adam Junkroski, Lead Manager, Tax, PFP, S&C–Public Accounting, Association of International Certified Professional Accountants

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I bought the world’s worst thesaurus yesterday. Not only is it terrible, it’s terrible.

I recently read a CGMA Magazine article which reported that more than 75 percent of CFOs in an Accountemps survey said that an employee’s sense of humor was very or somewhat important for fitting into the company’s corporate culture. I was intrigued by this and inspired to do a little more research on the importance of comedy in the workplace and what I could be doing to add a little levity to my remit. Here’s what I found:

• There’s a reason we call funny people “witty;” a good sense of humor makes you appear more competent and confident
• Research suggests that teams who joke more, communicate better (WSJ)
• It matters what “kind” of funny you are, always be authentic and humble (HBR)
• Use the right medium; humor rarely goes well over email (CGMA Magazine)
• It’s OK to tell an unfunny joke; it’s not OK to tell an inappropriate joke (HBR)

Clearly, humor at work is well studied and well documented to be one of the keys to career success. But there’s a reason we’re not all Will Farrell in our workplaces: It’s easier to fail with humor than to succeed.

So, just how can we add a dose of humor to our jobs? What does successful workplace comedy look like in practice? I reached out to our members and Association staff, and tapped into some examples of public figures who successfully incorporate comedy into their daily work to find out.

My twice-monthly Toastmasters meetings, Joel Olsteen’s televised sermons (watched by more than 7 million Americans weekly), and Bret Johnson’s weekly staff meetings all have one thing in common: They start with a joke.

“Telling a joke is a positive distraction,” said Bret, Director of Channel Management and Development, Association of International Certified Professional Accountants. “It allows those who may be a bit more introverted to feel more comfortable when they hear someone taking a risk at the beginning of the meeting.”

Although humor has always been a part of Bret’s personality, incorporating it into his job took some time. “It’s a skill that I’ve honed,” he said. “I was not as successful with humor when I was younger.” But Bret is careful to explain that even humor that falls flat helps to achieve the goal of bringing a team of people closer: “Using humor is like using a singing voice: Even if it fails, people will respect you for trying.”

David Davis, CPA, CGMA, Controller/CFO of Loftness Specialized Equipment in Hector, MN, provided an example of how a culture of humor helps his office, management and professional staff get along. “One of our product managers was overheard in the restroom talking to a potential customer on his cell phone. The office staff promptly declared him ‘employee of the month’ for his dedication to his job and gathered others around to applaud and cheer him as he came out of the restroom! Don’t get me wrong, we are very professional, work hard and tackle difficult decisions and projects head-on. For us, humor helps establish and maintain a level of friendship and kindness among us that, I believe, allows us to work so well together as one big team.”

So how can we all add a little humor to our day jobs? Well, for one, be mindful. “Take a risk in a way that’s more formulaic. Say, ‘I’m going to tell you a joke’ and even read it off a sheet of paper,” said Bret. “Be purposeful, make a plan and make it clear that you’re attempting to use humor. It can be infectious.”

Chrissy Jones, MBA, Manager–Communications and Member Engagement, Association of International Certified Professional Accountants

Laughing with colleagues courtesy of Shutterstock.

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Do leaders of your organization put an emphasis on recruiting and retaining diverse talent? If the answer to that question is yes, then you are off to a good start. However, if your employer does not look to hire both entry-level staff and c-suite leaders of diverse backgrounds (including gender, age, ethnicity etc.), you may want to reconsider your strategy. Employing diverse individuals throughout the ranks of your organization is important. Diverse leaders in the c-suite provide unique perspectives and serve as role models for younger diverse staff. These leaders encourage a highly engaged workforce capable of effectively doing business in diverse and multicultural markets. Additionally, younger, less experienced staff members of diverse backgrounds are also crucial to an organization’s success. These individuals have opportunities to grow with your organization and fill the talent pipeline.   

Last spring, the AICPA answered the call for more workforce diversity education by conducting its first webcast series entitled “Unconscious Bias” which attracted over 3000 attendees. The conversations continued with the “Workplace Diversity” webcast series this past fall and the “Attracting and Recruiting Diverse Talent”, “Retaining and Advancing Diverse Talent”, and “How to Effectively Coach, Mentor, and Sponsor Diverse Talent” workshops this spring. Archives of these webcasts can be found here. Outlined below are seven workforce diversity best practices.

 

1. Share meaningful messages that attract the talent you seek.

Acquiring the best talent is often a competitive process, therefore position your organization to tap into the underutilized diverse talent pool.

2. Be intentional in recruiting diverse talent.

Scout talent from diverse professional organizations, events and conferences. Prioritize building a diverse network so that you can have a broader pool of talent to share opportunities with.

 

3. Research best-in-class strategies.

What companies are successfully attracting and recruiting diverse talent? Compare your strategies for recruiting diverse talent to the practices of best-in-class organizations in your field.

4. Review your employee retention and advancement report card.

Do an honest assessment of where your organization currently stands on the employee retention and advancement scale. Determine the state of your organizational metrics based on various levels in organization, as it relates to race, gender, ability and any other diversity metrics that you can capture. Make sure that your retention and advancement strategy works for everyone.

5. Determine the root causes of your results.

Consider why some employees advance and remain at your organization while others leave? Once you determine the root causes, integrate this data into your training and development.

6. Develop targeted strategies.

Identify specific actions that the organization can take to improve the advancement of underrepresented groups in your organization such as women, underrepresented minorities, veterans, millennials and LGBTQ individuals. Get members of those underrepresented groups involved in the strategy.

7. Promote supportive relationships among staff

Mentoring benefits more than just the individuals directly involved— it also benefits the organization. When staff are engaged and feel valued, they are more likely to remain loyal, and devoted employees which is key to a company’s success.

By implementing these seven best practices, employers will be able to measure their progress towards workforce diversity, and employees will know what it takes to advance their leadership roles, allowing them to feel valued and empowered within the organization. Changing the paradigm around workforce diversity will require a joint effort from leaders and employees if we want to move the needle on the issue.

If you are seeking more learning and networking opportunities on workforce diversity and a plethora of other topics, you don’t want to miss AICPA ENGAGE, taking place in Las Vegas, NV and online June 12-15, 2017. Attendees gain access to six high-powered educational conferences and earn up to 35 CPE credits. Key sessions related to diversity and inclusion initiatives include a panel led by AICPA Chairman Kimberly Ellison-Taylor on driving innovation through inclusion, a session led by Kim Drumgo, Director- Diversity & Inclusion, Association of International Certified Professional Accountants- Public Accounting, on developing a global mindset, and a session on multicultural marketing led by Global Diversity Marketing founder and CEO, Tariq Khan. I would also recommend tuning in for a live webcast and fireside chat on disruption in financial services which I will be leading alongside Tariq Khan. Also, join me at ENGAGE for learning labs on understanding unconscious bias.  

Anthony Newkirk, Senior Manager- Diversity & Inclusion, Association of International Certified Professional Accountants.

 

     

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Conferences are a great way to network, earn CPE and stay up-to-date on new developments in the profession, but for some professionals, the travel time and expense can be obstacles. Virtual conferences offer the same content and CPE credits, but with some features that are unique to the online experience. You may even find that it’s more appealing than attending on-site.

Benefits of virtual conferences

Perhaps the best reason to attend an online learning event is the flexibility to view sessions when and where you want. With a virtual conference, you’ll get to choose from all the same thought-provoking sessions and speakers as on-site attendees. Plus, you’ll likely receive the handouts and presentations in advance of the sessions. This can help you prepare your questions ahead of time if the session includes a Q&A period. You’ll also be able to access sessions that are held concurrently via the archive, so there’s no need to choose between two interesting topics; you can view one via livestream and watch the other later. And if you missed that key point the speaker made, you can go back and listen again.

Another big benefit is the ability to network with attendees via the conference platform. You won’t have to search an exhibit hall or wander through a networking reception hoping to run into that person you’re looking to connect with. Instead, you can reach out via the event platform to any attendee at the conference, so you won’t miss making those important connections. And if you’re an introvert, networking virtually may be more within your comfort zone.

Tips to help extroverts get the most out of virtual conference

As an extrovert, I get energy from being around other people. Talking about new ideas helps me remember key points and synthesize new information. If you’re like me, don’t rule out attending an online learning event instead think about how you might create a group experience in your office. Maybe you want to book a conference room and invite colleagues who are also attending to watch sessions with you. Or schedule group discussions at the end of the day when on-site attendees are at a reception. Another idea is to teach what you have learned to your co-workers after the event. This is an excellent way to help retain your knowledge and show leadership in your organization.

How to prepare for an online conference

You’ll want to make sure you create your schedule ahead of time and make conference attendance a priority. It’s easy to get caught up in what’s going on in your office or at home, but don’t put off attending sessions, if possible. Block your calendar and find a quiet place where you can focus so that you can get the most out of your investment.

Don’t forget to plan to participate in the extra activities as well. Many online conferences have several ways to engage via the conference platform or social media, such as morning coffee chats, online polling and one-on-one time with speakers. You can also talk with other conference attendees on Twitter and share key takeaways on LinkedIn. If the event has Facebook Live interviews with speakers, be sure to post comments. By trying at least one of these activities per day, you’ll gain deeper insights, grow your network and enhance your learning experience.

Consider adding online conferences to your professional development program to help you stay on track to get your CPE requirements and develop your skills and competencies. You’ll enjoy the flexibility, the affordability and all the content.

Attend the profession’s premier conference event,  , virtually. Register to attend online and earn up to 35 hours of CPE. You’ll gain access to as many as six conferences with one registration fee.

Jennifer Gardner, Communications Manager–Social Strategy, Association of International Certified Professional Accountants. 

Virtual conference image courtesy of Getty Images.

     

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What would happen if you had to make decisions about your company using only a portion of the financial information that is available to you? Without a holistic understanding of your company’s financial situation and value drivers, it would be tough to assess the organization’s performance, risks, challenges, and opportunities and drive long-term growth. Planning without all the information could potentially put the company at a competitive disadvantage and expose the company to greater risk.

However, that’s what happens in many organizations when they fail to fully consider the operational and financial implications of environmental, social, and governance (ESG) risks. Examples of how these risks can play out in the market include:

• A beverage company’s production drops or they lose their license to operate due to drought conditions in water stressed regions in which the company operates.
• A technology company faces employee turnover and sinking revenues because it fails to encourage or accept the innovative ideas of its highly skilled labor force.
• An apparel company experiences a stock price drop after reports allege its suppliers are committing human rights violations.

Incorporating sustainability considerations into a company’s overall strategy and risk management practices can help to proactively address these risks and unlock potential value within an organization through cost savings, efficiency improvements and product innovation, among others. Below are three ways that CFOs and other finance professionals can get started.  

1. Establish Effective Governance

Since sustainability and corporate performance are inextricably linked, integrated approaches to managing sustainability risks are critical. For example, with oversight by the board of directors, the CFO would address risks that affect financial performance while the chief strategy officer would address the organization’s response to material sustainability concerns. The head of operations would tackle health, safety, environmental, and process risks; human resources professionals would examine risks related to diversity, resource management, and training; and the head of procurement would identify risks related to areas such as child labor and conflict minerals in the supply chain. An integrated approach to evaluating and managing sustainability risks and resource allocation drive integrated thinking and a more holistic understanding of corporate risk and performance.

2. Focus on Material Matters

Material sustainability risks can have a range of short- and long-term effects on financial performance, but those risks vary by industry and organization. Not all sustainability considerations will be priorities for every organization, so identifying key ESG risks is an essential step in effective risk management. You can’t manage what you don’t measure. Total fuel consumed and the percentage that is renewable might be material for an air freight company but not for a telecommunications organization, for example. But by focusing on fuel and renewable use, the air freight company can reduce costs in the short run, while potentially avoiding the impact of regulation and also enhancing its brand over time. 

3. Tell Your Story

73% of portfolio managers and research analysts surveyed by CFA Institute reported that they take ESG matters into account when making investment decisions. Given the heightened awareness of sustainability matters among investors, customers, non-governmental organizations and policy makers, many companies are already responding to requests for information on their ESG efforts. There are many sustainability standards and frameworks available to companies once they have evaluated their material ESG impacts, through consideration of the needs of their critical stakeholders, and mapped them to business value drivers. Companies can use the appropriate standards or frameworks to report their efforts and take control of their sustainability disclosure before other market participants provide evaluation of company sustainability performance based on incomplete or missing disclosure.

Opportunity to Learn More

Using insights gained from monitoring and tracking their sustainability metrics, companies can examine and manage sustainability performance and reporting. If sustainability concerns are on your organization’s agenda, I would encourage you to join Barry Melancon, President and CEO of the Association of International Certified Professional Accountants (AICPA) and me at the Sustainability Investment Leadership Conference, which will take place online and in-person in New York on May 17. It’s a great way to learn practical tools for driving value creation by understanding a firm’s strategic inputs and managing risk. I look forward to seeing you there.

 

Kristen Sullivan, Partner, Deloitte & Touche LLP

Kristen Sullivan leads Deloitte’s Sustainability Reporting and Assurance Services in the US and globally, working with clients to help them address their sustainability disclosure needs. She also serves as Deloitte’s Americas Region Sustainability Services Leader. Kristen chairs the AICPA Assurance Services Executive Committee Sustainability Assurance & Advisory Task Force.

Professionals looking at sustainability information image courtesy of Shutterstock.

     

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Why do cats purr? Why are pizza boxes square when the pizza is round? Sometimes it’s hard to find a single answer – let alone the right answer – to your questions. Do you know where to turn to when you have a question about the income tax basis or cash basis of accounting? Practitioners frequently ask questions about how to account for transactions using these special purpose frameworks. What they quickly find is a lack of authoritative guidance. Searching and googling can give you umpteen answers. But you need the right one.

The Center for Plain English Accounting, AICPA’s national accounting and auditing (A&A) resource center, often answers questions about the tax and cash bases of accounting. For example, the following two questions were recently posed by members:

1. How should changing from U.S. GAAP to the tax basis or vice versa be accounted for and reported in the financial statements?

Authoritative literature does not address accounting for a change in accounting basis.

When only current year financial statements are presented, it is common practice to present the effect of the change in the accounting basis by showing beginning retained earnings as previously reported with an adjustment to convert to the new basis. Although not as common in practice, precedent also exists for either showing opening retained earnings on the new basis or showing the effects of the change as a cumulative-effect adjustment in the income statement.

However, if comparative financial statements are presented, the prior year(s) should be restated and presented under the basis to which the company has changed. Restatement is necessary to ensure comparability with all periods presented.

In both cases, the change in accounting basis should be disclosed in the notes to the financial statements.

2. Is taxable income on the tax returns required to match net income in tax basis financial statements?

No. A typical objective of a set of financial statements is to show a measure of the results of operations for the entity. If an entity has nontaxable revenues and nondeductible expenses, those items would need to be included in tax basis financial statements to provide a complete picture of operations. From a more practical standpoint, excluding those items would result in unbalanced financial statements. For example, if an entity were to receive cash from tax exempt interest, there would be a debit to cash and there would need to be a corresponding credit to complete the entry.

Additionally, depending on the type of organization filing the return, taxable income may or may not appear on the tax return. Showing taxable income in a set of tax basis financial statements is not required, nor is providing a reconciliation between net income and taxable income or disclosing the amounts of nontaxable income and nondeductible expenses included in net income.

Practice Note: While disclosing the amounts isn’t required, the accounting policy note should include a statement reflecting that nontaxable income and nondeductible expense are included in the determination of the equivalent operating results or “net income.”

The Center for Plain English Accounting included those questions and answers, among a number of others, in a report just issued to its members, entitled Common Questions About Special Purpose Frameworks. Non-Center for Plain English Accounting members can access this report free of charge for a limited time. If you are involved with special purpose frameworks such as tax basis and cash basis financial statements, you’ll appreciate the insights this report offers.

The Center for Plain English Accounting is an add-on membership for CPA firms that are members of the AICPA’s Private Companies Practice Section (PCPS). A firm can choose between full membership or small-firm membership (five or fewer professionals), depending upon the level of benefits and membership fee best suited for the firm. Members of the Center for Plain English Accounting receive answers to written technical questions like those above and on many other accounting and auditing topics. They also receive three reports every month covering a variety of A&A topics delivered via email. Reports include advisories about new pronouncements, explanations of difficult concepts and specific guidance on implementation issues that practitioners will likely encounter with clients. In addition, members of the Center for Plain English Accounting are provided access to multiple two-hour NASBA-certified CPE webinars every year.

Practitioners need answers to their difficult A&A questions. The Center for Plain English Accounting is here to help. Ensure your firm has access to top-notch A&A advice by joining the Center for Plain English Accounting.

Bob Durak, Director- Center for Plain English Accounting, Association of International Certified Professional Accountants- Public Accounting.

Credit and debit scale image courtesy of Shutterstock

     

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Have you ever been at a party where the owner of a company was bragging about how he used a 401k to start his business? Or heard a story about how a couple’s individual retirement account (IRA) is invested in real estate and that’s going to allow them to live in the lap of luxury when they retire?

They’re talking about self-directed retirement vehicles. And much like real vehicles, when they are driven improperly, the result can be disaster.

What Are Self-Directed Retirement Vehicles?

Self-directed IRAs and self-directed 401ks are increasingly popular. While the usual custodians of IRA and 401(k) accounts will only allow certain investments (e.g., stocks, bonds, etc.), a self-directed IRA or 401(k) allows the owner to invest in such things as real estate, precious metals, businesses, etc. and make all the investment decisions. Profits from the investment build up tax-free until the owner reaches retirement and begins to take distributions, usually when the owner’s tax rate is much lower. Sounds good, right? What could go wrong?

Well, actually, a lot can go wrong. As a matter of fact, if you have clients in one of these situations, they could lose substantial amounts, if not all, of their retirement income. How can this happen and what can you do to help?

A Real-Life Example

The main culprit in a self-directed retirement plan gone wrong is the dreaded PT – prohibited transaction. Let’s look at a recent real-life example of how an accountant lost a sizable portion of his retirement account by using a self-directed 401(k).

John (not his real name) owned 100 percent of his accounting firm. The firm had a 401(k) profit-sharing plan, known as Kaplan 401(k). John, as the sole trustee and administrator of the 401(k), was responsible for investing, managing and controlling the plan’s assets. Kaplan 401(k) lent money to a restaurant, a golf club and a corporation. John owned minority interests in all three. Unfortunately, the loans were considered prohibited transactions. By failing to file tax returns reporting these prohibited transactions, John ended up paying more than $200,000 in excise taxes and penalties.

What Is a Prohibited Transaction?

Code Section 4975 imposes a tax on a disqualified person who participates in a prohibited transaction. A disqualified person includes a plan fiduciary, a person providing services to a plan and an employer whose employees are covered by a plan. The following are considered prohibited transactions:

• sale or exchange, or leasing of any property between a plan and a disqualified person;
• lending money or other extension of credit between a plan and a disqualified person
• furnishing of goods, services, or facilities between a plan and a disqualified person
• transfer to, or use by or for the benefit of, a disqualified person of the income or assets of a plan;
• an act by a disqualified person who is a fiduciary whereby he deals with the income or assets of a plan in his own interest or for his own account; or
• receipt of any consideration for his own personal account by any disqualified person who is a fiduciary from any party dealing with the plan in connection with a transaction involving the income or assets of the plan.

Thus, for example, where a self-directed retirement plan pays investment management fees to an entity managing investments in the plan, as well as investments outside the plan in which the owner of the self-directed IRA has an interest, this would be a prohibited transaction. Or, if the entity managing the investments also has an interest in the same investments, this would be a prohibited transaction.

Consequences of Participating in a Prohibited Transaction

A disqualified person who takes part in a prohibited transaction must correct the transaction and pay an excise tax based on the amount involved in the transaction. The initial tax on a prohibited transaction is 15 percent of the amount involved for each year (or part of a year) in the taxable period. If the transaction is not corrected within the taxable period, and most often it is not, an additional tax is imposed… at ONE HUNDRED PERCENT. Yes, you read that right. So, if the amount of the prohibited transaction is $100,000, the tax could be as high as $115,000.

Both taxes are payable by any disqualified person who participated in the transaction (other than a fiduciary acting only as such). If more than one person takes part in the transaction, each person can be jointly and severally liable for the entire tax.

Not all prohibited transactions can be fixed. In that case, not only will the prohibited transaction penalties apply, the retirement fund will lose its tax-exempt status and the entire fund is considered distributed and subject to income tax. To put a cherry on top of all of this, if the taxpayers haven’t yet reached age 59 ½, they will also be subject to a 10 percent early distribution penalty.

Fixing a Prohibited Transaction

If you have a client who participated in a prohibited transaction, the 100 percent tax can be avoided by correcting the transaction as soon as possible. If the prohibited transaction is not corrected during the taxable period, the disqualified person usually has an additional 90 days after the day the IRS mails a notice of deficiency for the 100 percent tax to correct the transaction. When this happens, the best course of action is hiring a professional who is trained in the Employee Retirement Income Security Act to help undo the transaction.

Obviously, it’s best if a prohibited transaction doesn’t occur at all. As their go-to trusted adviser, make sure you are educating clients who have self-directed IRAs or 401(k)s. Take your knowledge in retirement planning deeper by accessing the CPA’s Guide to Retirement Planning, created by the AICPA Personal Financial Planning Division. 

Robert S. Keebler, CPA/PFS, MST, AEP, Partner, Keebler & Associates, LLP. Bob’s nationally-recognized firm assists families in wealth transfer, estates and retirement distribution planning. Bob has received many awards, among which include the Distinguished Estate Planners award from the National Association of Estate Planning counsels and has been named by CPA Magazine as one of the top 100 most influential practitioners in the United States.

Trap courtesy of Shutterstock.

     

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