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The Impact of Brexit on Your Clients’ Investments

Post author By FFC
Post date June 29, 2016

The Impact of Brexit on Your Clients’ Investments

Uncertainty related to Brexit – the recent vote in the United Kingdom (UK) to move away from the European Union (EU) – sent shock waves throughout Europe and foreign markets. Here in the United States, investors have also expressed concern about the volatility of their portfolios.

Chances are good that some of your clients have already contacted you with questions about how this will impact their personal finances. To help you have this conversation, we sought advice from three well-known professionals: Chris Benson, CPA/PFS, L.K. Benson & Company; Jean-Luc Bourdon, CPA/PFS, BrightPath Wealth Planning, LLC; and Michael E. Goodman, CPA/PFS, Wealthstream Advisors, Inc. Here are their observations:

Sandra Truitt: What do you see as the short-term impact through Dec. 31 of Brexit on a client’s investment portfolio?

Chris Benson: Let’s admit the obvious: we don’t know how this will impact the markets in the short-term; nobody does. Everyone will speculate, but in the end that’s all it is, speculation. The unexpected result of the vote itself should be enough to prove how difficult it is to predict the future. However, this doesn’t mean the UK will be out of the EU tomorrow or even in a few months. This process will take quite a bit of time and there’s the possibility of a second vote or other measure to stop the exit.

Jean-Luc Bourdon: Markets reflect the aggregate reaction of market participants, most of which are all too human. Therefore, any bit of bad news goes through the same knee-jerk, emotional and ultimately reasonable reaction. The drama unleashed by the Brexit vote will play out over several years. Along the way, we’ll likely see cycles of surprising news repeat itself. Just remember how the Greek debt crisis played out.

Michael Goodman: Unlike the rest of the EU, the UK is not tied to the Euro. The UK has its own currency, the British Pound. Had this involved the Euro instead of the Pound, the implications would be significantly more challenging for the continent and for U.S. company earnings. In addition, it is important to note that the while this is a big problem, it is a big problem for a country that makes up less than 4% of the global economy.

Sandra Truitt: Is now the time to pull out of planned investments?

Chris Benson: Our investment philosophy has always been, and will always be, to keep a long-term focus and not overreact to short-term market events. If you’ve ever been on a boat, you know that everyone tells you to focus on the horizon to avoid getting seasick. Watching the choppy waters directly in front of you will only make you more nauseated. Even though your clients may be tempted to focus on that choppy water and short-term volatility in the markets, try to divert their eyes to long-term goals on the distant horizon.

Jean-Luc Bourdon: For the long-term investor, these dips are irrelevant because they aren’t reliably predictable and tend to have no lasting impact. Indeed, events that bring global markets down are generally followed by significant upswings, once rationality sets in and the world finds a way to go on. Meanwhile, many fearful investors who exit the markets miss the recoveries. By contrast, long-term investors who follow a diversified investment strategy that fits their circumstances are often rewarded over time. We should always guard our rational plans from our emotional reactions, and our long-term strategy from our short-term impulses.

Michael Goodman: As evidence continues to show, remaining in a diversified portfolio of stocks and bonds, rebalancing when appropriate, focusing on the long term picture, and resisting the urge to react to short-term news remain the keys to reaching long-term goals. Short-term volatility, media headlines and uncertainty can make people uncomfortable. This is just one of dozens of crises dating back to the beginning of the markets.

Sandra Truitt: Jean-Luc, you were born, and lived many years, in Belgium. I’m sure you have some additional, unique perspectives to share.

Jean-Luc Bourdon: Political crises will come and go, but the fortunes of long-term global investors should continue to be far more dependent on technological innovation than political events.

Sandra Truit: Thanks to all of you for your observations and advice. I’m sure we’ll see more content on Brexit and its effect on investments over the next several years.

Sandra Truitt, CFP® CRC®, Lead Technical Manager, Personal Financial Planning (PFP), American Institute of CPAs.

CPA Financial Planning: Rewarding in Every Way

Post author By FFC
Post date June 28, 2016

CPA Financial Planning: Rewarding in Every Way

A client comment last week propelled me back to my business decision 15 years ago to jump in with both feet to the world of CPA financial planning.

Pausing on her way out the door after a particularly fruitful discussion, she remarked, “We’ve been together a long time.”

Indeed. I’ve been a CPA and tax adviser for her small business for 25 years. I added the full scope of financial planning and investment monitoring for her when I found that clients needed more focus on these services and I was in the best position as a CPA to give them the advice they were seeking.

We’ve monitored her assets and her retirement planning. We’ve made decisions about Social Security. We’ve helped her iron out various issues with estate planning, as many people have after second marriages. Her children were young when we started; now they’re out of college and on their own. Now she’s retiring and has sold her business. And we’ve been with her every step of the way.

It’s been wonderful, for both of us, really. And it’s that way with many of our clients. Shifting our practice to focus more intentionally on financial planning is one of the best decisions I ever made.

My journey to become a CPA financial planner didn’t happen overnight. I was partner with a tax practice in a local CPA firm, and when clients would ask for help with certain aspects of their financial planning, I’d refer to them to someone in our network. Then my father developed dementia and my parents were having trouble finding resources. They weren’t prepared, and they were in crisis. We had to figure out what to do.

Somewhere in the process of helping my parents negotiate their complex maze of financial decision-making, preparing for my own family’s financial future and having clients ask for help, it became clear: my clients needed someone knowledgeable and trustworthy to help them make sound financial decisions in all of these areas. As CPAs, we’re uniquely qualified to do that.

So, my colleagues and I did our research, made our plan, learned what we needed and moved forward wholeheartedly into the CPA financial planning area.

The combination of CPA and financial planning offers my clients the whole package. We advise them as they wrestle with life’s most important financial decisions with the knowledge and expertise of tax and other important accounting considerations underpinning every decision they make.

Financial planning can include tax planning, retirement planning, estate planning, succession planning, wealth management and investment planning. I find you need to know a little bit about each of those areas so you can coordinate the pieces for clients, but you can pick and choose which services you want to offer.

For example, we don’t sell insurance but we have insurance brokers who we will recommend to clients, and we may sit in on meetings with them. We’re not lawyers, so we don’t draft estate documents, but we may attend meetings with clients and their attorneys and help them work through the decisions they must make. It’s different for every client, but we work with each of them to develop a financial plan that meets their goals and then help them manage the myriad decisions and adjustments they must make along the way.

The investment piece was one area that gave me pause. I didn’t understand how to advise on investments because that was not my area of expertise. But clients kept coming to us asking for help, so I went to school to learn about investments, found an approach we were comfortable with that stayed true to our roots as CPAs and began working in that space. Investments is not for everyone, and that’s fine. There is plenty of financial planning work to be done in other areas.

We’re witnessing a tremendous and growing need for competent, capable financial planning from people of all ages. Retirement planning is the predominant concern for many of our clients — will they have enough money to live on? That business will only grow with all of the retiring baby boomers.

But they’re not the only ones. We’re seeing more and more young people in the 25–30-year-old range — people just starting out. They’ve seen their parents struggling and regretting not making better decisions, and they’re trying to head that off.

I find the CPA credential gives my clients comfort that I have their best interests at heart, which I do. They know I’m not going to do wild and crazy things with their plan. If someone calls and asks if they should pay off debt, we’ll look at the numbers but also look at their particular situation and help them make a sound decision.

All told, it’s a much deeper relationship with our financial planning clients. You get to know so much more about them and you can help them so much more, so it’s extremely rewarding.

About 90,000 AICPA members already provide financial planning services, but many don’t call it that.

To those people, and anyone considering expanding into CPA financial planning, I say, embrace the name CPA financial planner and the significant opportunity it offers to expand your practice by providing the full range of financial services your clients need at every life stage. You’re likely offering most of those services already, just not using the term the public uses to describe them.

Need more information and support? Hear from other CPA financial planners, learn important facts about this growing area and find resources to support your practice of advising clients at aicpa.org/CPAfinancialplanner.

CPA financial planner Lori Pajunen Luck provides tax, financial planning and investment monitoring services for CLS Financial Advisors Inc. in Portland, OR. In addition to her credential as a certified public accountant, she holds the Personal Financial Specialist (PFS^TM) credential, available only to CPAs.

Lifelong Learning and Leadership: A CFO Perspective

Post author By FFC
Post date June 27, 2016

Lifelong Learning and Leadership: A CFO Perspective

As CFO of Portland Public Schools in Oregon, Yousef Awwad, CPA, CGMA, manages an operating budget approaching $1.2 billion annually. He is directly responsible for the school district’s finance, budget, purchasing, risk management, publication services and records management functions, comprising a total head count of 70 directors, managers and employees. Before coming to Portland in 2014, Yousef served as finance director for the Arizona Department of Education and as CFO and deputy superintendent for the Tucson Unified School District.

What’s your passion?

The transformative power of education isn’t an abstract concept for me. My dad didn’t go to school because he had to work on the family farm, but he learned how to read and write when he was an adult. Where I grew up in Jordan, electric service wasn’t stable. I can remember sitting around the table with candlelight, and that’s where my dad would teach me and my siblings to read and do simple math before we were old enough to go to school. His goal was to see all nine of his kids go to college. We all did, some of us with a master’s degree or higher. It’s a huge accomplishment for him. I’m currently studying for a doctorate in education at the University of Portland.

How did you get into government finance?

I first studied and worked as an accountant in Jordan and moved to the U.S. when I was 26 years old. I earned my MBA at Webster University and worked several years for a large bank. Eventually, after I got my CPA license, I became an auditor for the Arizona Department of Education, where I audited local school districts. I was promoted to finance director and then worked as CFO and deputy superintendent for the Tucson Unified School District. It was during this period that the CGMA became available and I saw it as a way to validate my experience in management and governmental accounting and also tap into CGMA resources. I was recruited to Portland by an executive search firm.

What is the key to success as a leader?

When you attend school for accounting and auditing, they don’t teach you much about leadership. We’re fortunate now to have the CGMA Program to help accountants develop these skills. The three tips that have worked for me are: 1) Listen—I mean really get to know your people and their concerns and aspirations. 2) Give them tools they need to succeed. And 3) empower them—let them do what needs to be done.

How is the role of the CFO changing?

In the past, the CFO’s job was much more of a back-office, transactional function. Now we’re strategic partners with other parts of the organization. In addition to finance, I’m responsible for risk management—not just financial risk management—but across the entire school system. I’m also responsible for recordkeeping and printing. Some of these don’t have to be under the CFO, but the CFO skillset has proven adaptable to more than just finance. Today’s CFO skillset requires much more than technical skills. Communication is a large part of my job. I not only communicate inside my organization, but also with the public and business partners in the community. The CGMA includes a focus on communication. We need that.

Your work seems to be very domestic. Why the CGMA?

First of all, while the U.S. has an outstanding accounting profession, I think there are things we can learn from other parts of the world and vice versa, particularly in management accounting where strategy and people skills are critical to our success. The CGMA provides a mechanism for doing this. I also have significant exposure to the global financial markets as a fiduciary of a large pension plan and as a bond issuer. The world of finance is global, and I don’t think you can be successful going forward without recognizing that.

What advice would you give young CPAs/CGMAs?

I encourage accounting students and recent graduates who are interested in a career in government or industry to consider studying for the CGMA. But I wouldn’t stop there. They should get as much education as possible. Especially in the education field, we need young people to study for their master’s and PhDs. There’s an opportunity for them to use their skills, expertise and experience to help our country, because in education, you’re building citizens that can thrive and lead the country for generations to come.

The CGMA Program is helping grow and strengthen finance teams across industries and around the globe. We invite you to explore the possibilities that will open up when you begin the CGMA Program.

Colette Krahenbuhl, Senior Manager-CGMA Communications and Public Relations, American Institute of CPAs.

Bugs Umamaheswar, Marketing Manager -CGMA and Management Accounting, American Institute of CPAs.

Keeping the Cash Method Promotes Simplicity and Economic Growth

Post author By FFC
Post date June 24, 2016

Keeping the Cash Method Promotes Simplicity and Economic Growth

We know what we are, but know not what we may be.

-William Shakespeare

Followers of my blogs know that I periodically write about tax reform, but it’s been a while. So, I’ve decided to dust off this quiz – here we go:

What will be the greatest driver of tax reform?

Bipartisan compromise?

Congressional leadership changes?

Current events?

Revenues?

Good tax policy?

I know you’re thinking: “Ed, are you forgetting that it’s a presidential election year and you recently predicted that tax reform won’t happen before 2018? Does it really matter?”

Well, it does. (And there may be more than one correct answer to my quiz.) Our profession must remain vigilant on what is being discussed now to safeguard businesses (including our own) and taxpayers later on down the line.

In its current iteration, tax reform has been top of mind on Capitol Hill for about five years. Hearings, task forces, discussion drafts and bills. Lots of conversations. It’s part of the normal vetting process and quite important. It’s how we separate the wheat from the chaff and arrive at much better legislative solutions; a process that continues today even if we “know not” the result.

One proposal considered recently would limit the use of the cash method of accounting. Current law allows the use of the cash method by individuals, pass-through entities, personal service corporations, businesses with less than $5 million in gross receipts, and most farms. The specific proposal would require any business (other than individuals) with over $10 million in gross receipts to switch to the accrual method. While we applaud Congress for its efforts to reform the tax code, the AICPA strongly believes limiting the cash method would have a very serious negative impact on professional service firms and partnerships.

Most such firms and partnerships use the cash method of accounting. Regardless of how big the business is – or hopes to become – it allows them to understand the company’s finances, cash position, and to pay taxes based on money that has actually come in and what has gone out. And when tax time comes, the owners – also on the cash method – know exactly where they stand and can pay the taxes that they owe.

The accrual method of accounting has its value, too. In fact, many CPAs would argue that the accrual method is the best way to understand the overall financial health of a business. Unlike cash method financial statements, accrual method statements reflect a more complete picture of a business’s financial position and operations. Importantly, though, even accrual financial statements include a statement of cash flows so the reader can understand how the business is managing its cash.

When it comes to taxes (where financial condition is moot), however, the cash method has been an accepted method for ages. Years ago, the AICPA developed “guiding principles of good tax policy” as a framework to help analyze changes to existing tax rules. The first of the 10 guiding principles is “Equity and Fairness,” meaning that similarly situated taxpayers should be taxed similarly. Individuals doing business as sole proprietors – regardless of taxable income – may use the cash method. In essence, a partnership is merely an aggregation of individuals, and if a limitation based on the entity’s gross receipts were to be enacted, many partnerships would not qualify to use the cash method, which could drastically affect each individual owner’s taxable income.

As a result, a service provider working as a sole proprietor could have a significantly lower tax liability than a service provider in a partnership merely because of where they work. The AICPA believes that such disparate treatment is unjustifiable and penalizes owners for participating in a partnership.

It is important to remember that requiring the accrual method wouldn’t generate new revenue, but only accelerate the collection of taxes – a timing issue that has associated opportunity costs. And an accrual mandate would create severe financial ramifications related to when taxes are paid. CPAs and other service providers’ revenues may be impacted by:

clients who don’t pay;

long-term contracts with uncertain payments;

fee negotiations that can result in lower than expected revenues; and

insurance payments or structured settlements that can take a long time to resolve.

Finally, the AICPA believes a gross receipts restriction on the use of the cash method would unfairly impact accounting firms and could threaten their ability to expand. State board of accountancy rules effectively prohibit owners from obtaining outside capital to finance their businesses. We believe that the issues enumerated contradict some of the rationales for tax reform, such as growing businesses, creating jobs and making our country more competitive.

I can hear you saying, “But, Ed, you said tax reform is dead this year.” True enough; however, because a forced transition to accrual accounting would result in an immediate infusion of revenue for the U. S. Treasury, it is also an appealing option that could be picked up as a pay-for in any other legislation unrelated to tax reform.

The cash method should not be used as a pay-for in tax reform or in any other legislation. We believe the cash method should be left alone.

Edward Karl, Vice President-Taxation, American Institute of CPAs.

Compass courtesy of Shutterstock.

Advising Same-Sex Married Clients After Medicare’s Rapid Changes

Post author By FFC
Post date June 23, 2016

Advising Same-Sex Married Clients After Medicare’s Rapid Changes

By now, most CPAs should be familiar with tax strategies for same-sex couples, but due to a Supreme Court ruling in 2015, one possibly overlooked area CPA financial planners should address is the Medicare benefits available to couples in a same-sex marriage.

Before 2013, married couples of the opposite sex could qualify for Medicare benefits through their spouse, and before the U.S. Supreme Court’s Obergefell vs. Hodges ruling in 2015, state law still controlled whether a same-sex couple was treated as married. In layman’s terms, this resulted in inequality among same-sex couples, where some had full marriage rights because of the state in which they lived, while others were denied marriage rights because of their state of residence.

Consider this fictional older couple, “Mark and Steve.” Before Obergefell, if Mark and Steve married in a state that recognized same-sex marriages, they might have lost their Medicare by moving to a state that did not recognize the same-sex marriage. Of course, by now, we all know the Supreme Court ruled that the Defense of Marriage Act (DOMA) was unconstitutional (The United States v. Windsor). As a result, married same-sex couples have rights under Medicare that were previously denied, opening up eligibility opportunities.

The 2015 Obergefell ruling provided much-needed clarification, requiring that states issue marriage licenses to same-sex couples and recognize same-sex marriages that are legally performed in other jurisdictions. However, one more important thing occurred: with the Obergefell ruling, Medicare spousal rights were expanded to all married couples. For Mark and Steve, their move to a state that did not recognize same-sex marriage would no longer result in a loss of their Medicare rights due to where they lived.

Here’s where you can help. If for some reason, a client in a same-sex marriage previously applied and did not receive Medicare benefits, have them reapply. If they’re ultimately found to be eligible, they can try to get benefits retroactive to their initial filing date.

While Obergefell may have clarified the legal issues, married same-sex couples should never assume anything regarding their Medicare benefit rights. To protect their rights, advise your clients who are in same-sex marriages to seek authoritative sources for information, beginning with resources from Medicare. Another resource for recently updated information can be found in the Social Security Administration’s Program Operations Field Manual.

Remember that your clients are looking to you for financial planning guidance and advice. It’s your role to help them through these complex situations.

For more resources: I authored the recently updated The CPA’s Guide to Financing Retirement Healthcare, published by the AICPA’s Personal Financial Planning Division. The Guide is accessible to PFP/PFS section members and can be downloaded here. For a deeper dive into Medicare filing tips and advising clients on enrollment, PFP/PFS section members can listen to this podcast by Ted Sarenski, CPA/PFS.

James Sullivan, CPA/PFS, President, MedicareAware. Jim works with special financial planning needs of older individuals with chronic illness and their families. He frequently writes for the AICPA and is a regular speaker for the ALS Association, Greater Chicago Chapter. Jim is a member of the Board of Directors of ESSE, a nonprofit organization that provides adult day care services for clients with Alzheimer’s disease and other dementias. Contact him at jim@medicareaware.com.

360 Degrees of Financial Literacy Introduces Spanish-Language Resources

Post author By FFC
Post date June 22, 2016

360 Degrees of Financial Literacy Introduces Spanish-Language Resources

The AICPA constantly searches for ways to enhance the 360 Degrees of Financial Literacy program and provide a wider audience with knowledge that will start them on the path to financial success. For this reason, the AICPA’s 360 Degrees of Financial Literacy program recently launched a new consumer Spanish-language resource center to address the need to educate the growing number of Spanish-language consumers in the United States.

The resource center offers help in several areas, such as fraud, paying for an education, how to raise a saver, tips for online shopping and credit card information. In the next few months, we plan to provide more content for the resource center that touches on popular personal finance issues and questions.

In addition to consumer resources, we also provide members with handouts and presentations that can be used to teach people more about financial literacy. CPAs across the U.S. have tapped into the information and turnkey resources at the Financial Literacy Resource Center to use in their volunteer efforts. Whether it’s organizing workplace brown bags on retirement planning, or speaking to a local high school about how to pay for college, the resource center has you covered.

In order to provide resources for both Spanish-speaking CPAs and their communities, we have introduced a Spanish-language Tweens & Teens Volunteer Toolkit within the Financial Literacy Resource Center, complete with handouts and a PowerPoint presentation template.

For more than 10 years, thousands of people have turned to the AICPA’s 360 Degrees of Financial Literacy program for additional financial guidance. The program, which is a national volunteer effort of the nation’s CPAs, helps Americans understand their personal finances and develop money management skills. It focuses on financial education as a lifelong endeavor – from children learning about the value of money to adults reaching a secure retirement. Within the CPA profession, people have the unique ability to help create successful futures – we thank you for all your help and hope these new tools make it even easier.

If you have questions or would like additional information about how to educate your local community, please contact Samantha Delgado at sdelgado@aicpa.org.

Samantha Delgado – Manager, Communications & Consumer Education

Alternative Investments and UBIT: Weighing the Options

Post author By FFC
Post date June 20, 2016

Alternative Investments and UBIT: Weighing the Options

Part two of a two-part series on tax consequences of alternative investments. Part one can be found here.

Not-for-profits need to weigh their options carefully if they are thinking of adding alternative investments such as partnerships, private equity funds, real estate investment trusts and hedge funds to their portfolios. As part of a well-designed investment strategy, alternative investment vehicles have the potential to provide greater returns than traditional stocks, bonds or money market funds, with the added benefit that they can counter risk exposure in volatile markets.

However, these investments can trigger tax liability under the unrelated business income tax (UBIT, pronounced “you-bit”) rules, and the resultant taxes (and accrued interest and penalties, if discovered subsequently) can take a bite out of an organization’s budget.

So what can be done to take the bite out of UBIT?

There are basically three options:

Just Say No

Some funds will permit tax-exempt investors to elect not to participate in investments that generate UBIT. Organizations may steer clear of alternative investments altogether to avoid tax compliance headaches. This may not be an ideal solution, as it generally leads to lower returns on the organization’s investments.

Bob and Weave

Another strategy is to create special purpose entities to avoid or minimize UBIT exposure. Organizations taking this approach will incur costs and will need to engage the help of a CPA specializing in exempt organization taxes or an attorney. This tactic is usually accomplished through what are referred to as blocker corporations and feeder funds. These intermediate entities can be interposed between tax-exempt investors and the fund (referred to as feeders), or they may be interposed between the fund and a portfolio company LLC (referred to as blockers). Tax-exempt investors are able to avoid reporting UBIT on their own tax returns as, unlike partnerships, corporations do not pass through profits and losses to their shareholders.

Keep Calm and Carry On

Many organizations manage their tax compliance issues and ongoing tax liabilities as part of a well-thought-out and vetted investment strategy. There is nothing inherently wrong with generating UBIT. Federal tax law permits a not-for-profit to engage in a limited amount of income-producing activity that is unrelated to its exempt purpose. Although there is no bright line test, as long as the unrelated income is not excessive, the organization’s tax-exempt status is not normally at risk.

Not-for-profits are encouraged to consult with an experienced tax specialist regarding the potential tax consequences. In my practice, I don’t discourage clients from including alternative investments in their portfolios. With careful planning and foresight, the use of alternative investments can provide much needed capital and allow the organization to focus on what’s really important: advancing its mission.

You may be interested in signing up for a related webcast on Emerging Tax Topics for Not-for-Profits, taking place July 20. Additional information is available from the AICPA’s Not-for-Profit Section, which offers exclusive, members-only news, resources and learning opportunities for not-for-profit professionals and their business advisers. Members can download dozens of resources, including a white paper on Unrelated Business Income Taxes, a Form 990-T preparation check list, and a guide for Auditing Alternative Investments.

Israel Tannenbaum, CPA, Senior Manager, WeiserMazars LLP. Israel has over a decade of experience serving not-for-profit clients in a range of subsectors. He specializes in delivering insightful, comprehensive consulting and compliance tax services to clients in the not-for-profit sector as well as Fortune 100 companies and pension trusts. He is one of the many speakers presenting at this year’s AICPA National Not-for-Profit Industry Conference, coming up June 27-29.

Keep calm image courtesy of Shutterstock

CPA Exam Q3/Q4 2016 Score Release Timetables

Post author By FFC
Post date June 17, 2016

CPA Exam Q3/Q4 2016 Score Release Timetables

The Q3/Q4 2016 score release timetable is now available. Score release timelines are updated biannually on AICPA Insights and on the CPA Exam website. For more information about score release and the scoring process, please visit the Psychometrics and Scoring page.

The National Association of State Boards of Accountancy releases the scores to candidates and state boards of accountancy based upon the target score release dates listed in the tables below.

**The examination data files the AICPA receives after September 11 will be included in the final target score release date.

**The examination data files the AICPA receives after December 11 will be included in the final target score release date.

Keep in mind:

All dates and times are based on Eastern Standard Time zone.

For the vast majority of candidates, the AICPA receives the examination data files from Prometric within 24 hours after a candidate completes the Exam.

The scores for the examination data files received after the AICPA cutoff dates will be in the subsequent scheduled target score release.

Some candidates who take the BEC section might receive their scores approximately one week following the target release date due to additional analysis that might be required for the written communication tasks.

We encourage candidates to visit the Psychometrics and Scoring page on the Exams website at www.aicpa.org/cpa-exam for information about score release and the scoring process, including the CPA Exam Score Release Timeline FAQs .

The Internet of Things is Already Here. Are You Ready For It?

Post author By FFC
Post date June 16, 2016

The Internet of Things is Already Here. Are You Ready For It?

By 2020, my house will have a smart refrigerator that will alert me when I am out of eggs or cheese. It will ‘talk’ to my phone and ping me a list of items that I still need to buy as I’m leaving work and headed to the grocery store. On a macro level, cities will collect data on pedestrian flows and use big data to optimize energy use and traffic patterns. These are just a few of the 50 billion smart devices that we’ll have by 2020.

AICPA staff recently gathered over coffee and discussed ideas and insights on the Internet of Things (IoT), a term you may start to hear being used more frequently. It refers to everyday wireless objects that communicate with each other over the internet and send useful information to consumers and businesses.

Truth is, many of these smart devices are already everywhere– and they are not just for the tech-savvy. You may already benefit from this technology without realizing it, like when you receive your online shopping purchases ahead of schedule. Retailers and distributors are employing smarter freight management systems that improve the efficiency of the shipping process.

While my AICPA colleagues quickly agreed that our future wearable health monitors– with their ability to tell our electronics to power off until we power up the treadmill– would become the ultimate personal fitness assistant, they also recognized the implications of the IoT on organizational business models, information security and privacy and the role of the CPA. With newer, smarter mobile devices and the cloud, a CPA’s daily duties will become even more seamlessly integrated with technology, impacting every aspect of their job. Some key opportunities for practitioners are outlined below:

Increasing importance of risk management and cybersecurity

With more real-time data flowing in, and more decentralized devices connecting to the internet and transmitting data, the risks of hacks and data breaches are even greater. A study by Hewlett Packard found that 70% of the most commonly used IoT devices contain vulnerabilities. A global survey by EY found that 56% of C-suite leaders and executives say that it is “unlikely or highly unlikely that their organization would be able to detect a sophisticated attack.”

As firms embed the IoT into their operating systems, CPAs are needed more than ever to demonstrate their risk management expertise. CPAs can play an integral role by making sure that their own company’s cybersecurity policies and procedures are up-to-date. CPAs can provide value-added assurance and advisory services to help clients protect information and systems from breaches, and to detect, respond to, mitigate and recover from security events. Learn more about the role CPAs can play in helping organizations and clients address cybersecurity risks by visiting the AICPA’s Cybersecurity Resource Center webpage.

Improvements through automated audit and Peer Review

Human error can be minimized in the audit and Peer Review process with the help of radio-frequency identification tags, which replace the need for physical inventory counts. Additionally, automated systems can detect, predict and prevent potential errors.

The AICPA is in the process of developing a new technology-based quality monitoring tool that will push data automatically from various systems to internal dashboards. By capturing a real-time snapshot of the firm’s quality control measures, firms will be able to quickly remediate problems before even engaging an external monitor. The AICPA will continue its work to provide technology solutions, tools and services to help members perform audits more efficiently. For information on the AICPA’s efforts, visit the Enhancing Audit Quality, Peer Review and Assurance and Advisory Services webpages.

Changing role of the CPA

Disruption means change. The new data flowing in as a result of the IoT presents opportunities for CPAs. Firms can embrace technological advancements such as cloud computing by storing their information in the cloud. CPAs can also advise their clients on ways to use cloud technology to increase their efficiency. To prepare for what is to come, CPAs need to educate themselves on the potential impacts of IoT on processes and systems, client interactions, business models and entire firms.

There’s no doubt the IoT will be one of the most disruptive technology trends, yet we firmly believe that with disruption comes opportunity. New product and service opportunities will provide the biggest benefit to practitioners. To put it into perspective, McKinsey estimates that the economic impact of IoT technologies could range from $4 trillion to $11 trillion a year in 2025. 63% of C-level executives believe that companies slow to integrate the IoT will fall behind the competition.

All organizations need to continue to invest in new technologies, innovation capabilities, talent, policies and security measures to ensure that they are sufficiently prepared to capture the opportunities and address the challenges brought about by the IoT.

So where do we begin? We don’t have all the answers, but we on the AICPA Innovation Team believe that starting the conversation about IoT internally is the first step to preparing for an IoT future. What we are seeing is a change in mindset as staff integrate considerations for the IoT, the cloud, big data and related technologies into their conversations. We encourage you to discuss the IoT at work, especially if your organization is not already taking action.

What has your experience been with the IoT? How have you or your firm been preparing for the IoT? We’d love to hear your ideas.

Janet Ng, Senior Analyst- Innovation, American Institute of CPAs.

Internet of Things image courtesy of Shutterstock

The Public Interest: Client Confidentiality Versus Disclosure of an Illegal Act

Post author By FFC
Post date June 15, 2016

The Public Interest: Client Confidentiality Versus Disclosure of an Illegal Act

The late Muhammad Ali once said, “Silence is golden when you can’t think of a good answer.” What about when a CPA learns that a client is not complying with laws and regulations? Should the CPA maintain client confidentiality (a paramount pillar of the profession), or disclose information to appropriate authorities in order to protect investors, creditors, employees and even the general public?

In terms of non-compliance, is silence “golden”? Or, is the “good answer” to protect the public by disclosing information that is concealed by the boundaries of the AICPA Code of Professional Conduct (Code)?

Over the next several months, the AICPA Professional Ethics Executive Committee (PEEC) will consider updates to the Code to assist AICPA members in determining the best course of action in such scenarios.

Specifically, the PEEC will consider converging the Code with an April 2016 pronouncement by the International Ethics Standards Board for Professional Accountants (IESBA), which is an independent standard setting body of the International Federation of Accountants (IFAC). The pronouncement provides guidance to professional accountants who encounter non-compliance by a client, employer, those charged with governance, or by management or employees of the client or employer.

The pronouncement, entitled “Responding to Non-Compliance with Laws and Regulations” (NOCLAR), provides a framework for response for four categories of professional accountants:

those in public practice performing an audit or review of financial statements,

those in public practice performing professional services other than an audit or review,

senior professional accountants in business,

and professional accountants in business that are not in senior management.

Accountants in public practice who are performing audits and reviews and senior professional accountants in business have a greater responsibility to take action in response to a NOCLAR as compared to the responsibilities of accountants performing other professional services and non-senior accountants in business. This is due to the nature of the auditors’ remit and the higher public expectations of these professionals, and to the decision-making ability, influence and expectations of senior accountants in business.

IESBA’s pronouncement states that when responding to a NOCLAR, the objectives of the accountant are:

To comply with the fundamental principles of integrity and professional behavior;

By alerting management or, where appropriate, those charged with governance of the client, to seek to:
1. Enable them to rectify, remediate or mitigate the consequences of the NOCLAR; or
2. Deter the commission of the NOCLAR where it has not yet occurred; and

To take such further action as appropriate in the public interest.

In the scenario of an accountant in public practice performing an audit, if the client or those charged with governance do not respond to a NOCLAR with appropriate measures, one of the “further actions” that is stated within the pronouncement is for the auditor to disclose “the matter to an appropriate authority even when there is no legal or regulatory requirement to do so.”

The pronouncement further states that when the auditor determines disclosure to be the appropriate course of action after considering specific factors, such disclosure will not be considered a breach of the duty of confidentiality under Section 140 of the IFAC Code of Ethics, Confidentiality.

IESBA’s pronouncement and the PEEC’s subsequent discussions bring to the forefront the debate of serving the public interest versus maintaining confidentiality. As the PEEC considers converging the AICPA Code of Professional Conduct with the pronouncement – as the PEEC does with all of IESBA’s pronouncements – AICPA members and the public are invited to participate in discussions. Any potential revisions made to the Code resulting from the NOCLAR pronouncement will be subject to full due process, including exposure to membership and other interested parties, along with requests for comment.

Individuals can follow the deliberations of the PEEC by attending open quarterly meetings (in-person or via conference call) or reading the latest meeting minutes. Members who wish to become well-versed in the NOCLAR project can find more information here. Also, the most up-to-date version of the Code is available online, and more information on ethics and the Code is available through the AICPA’s Comprehensive Professional Ethics Course.

Jason Evans, CPA, CGMA, Senior Technical Manager – AICPA Professional Ethics Division. Jason Evans oversees ethics enforcement and interpretation of the AICPA Code of Professional Conduct, and provides guidance to membership, state CPA societies, and other interested parties on ethics and independence issues. He also serves as a liaison to the Independence/Behavioral Standards Subcommittee, participates on task forces of the Professional Ethics Executive Committee (PEEC), is a technical advisor to the US representative on the International Federation of Accountants’ International Ethics Standards Board for Accountants, and has served on task forces of the IESBA.

<a href=”https://feeds.feedblitz.com/~/t/0/0/aicpainsights/~Panom / Shutterstock.com“>Muhammad Ali courtesy of Panom/Shutterstock.