AZ CPA November 2012

AZ

CPA NOVEMber 2012

The Arizona Society of Certified Public Accountants

Mergers & Aquisitions • Competitive Advantage • Personal Injury Cases • www.ascpa.com

Our New Member Community!

Tell Your Clients About Scholarship Tax Credits.

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AZ

CPA NOVEMber 2012

Volume 28 Number 9

The V Factor

Personal Injury Cases — Getting the Right Information

14

When determining economic damage amounts in personal injury cases, getting the complete background information is crucial to the calculation.

by Don Bays, CPA/ABV, CVA, CFF

IRS Revokes Covered Opinion Standards in Circular 230 and Adds New Responsibility to Manager of Tax Function

Features Ernst & Young Volunteers Help Businesses in Brazilian Rainforest

18

by E. Lynn Nichols

7

Phoenix-based E & Y auditor Matthew Collins, CPA, shares the highlights of his experience in Brazil

Considering a Merger or Acquisition? — Do the Due Diligence

Connect - New Interactive Online Community

Before merging, or even performing joint work, there are a lot of questions for businesses to consider. Make sure you ask the right ones.

by Ric Rosario, CPA

9

When Connect launches in November, members can manage their online networking and take advantage of new listserve capabilities.

The V-Factor —Creating a Competitive Advantage

11

Learn how to create value with every communication.

by Terri O’Halloran

Arizona Society of Certified Public Accountants 4801 E. Washington St., Suite 225-B Phoenix, Arizona 85034-2021 www.ascpa.com

Columns & Departments 6

Chair’s Message by Armando Roman, CPA

7

Focus on Members

13

In the Black ... Adventures in Accounting

22 Classifieds

www.ascpa.com

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19

AZ

CPA

The Arizona Society of Certified Public Accountants

President & CEO

Cindie Hubiak

Editor

Patricia Gannon

Copy & Advertising Deadline The first of the month one month prior to publication date.

Board of Directors Chair Chair-Elect Secretary/Treasurer Directors

Armando Roman Karen Abraham Anita Baker Rob Dubberly Debra Johnson Jimmy Lovelace CW Payne George Raysik Phil Reckers Craig Robb Andy Spillum Leslie Stackpole Elva Vivas Corrine Wilson Kevin Yeanoplos

Immediate Past Chair Mark Anderson AICPA Council Members Jim Buhr Rick Goldenson Chapter Presidents Southern Chapter Northern Chapter Southwest Chapter North-Central Chapter

Financial Advisory Group, LLC

Flo Zenblu Jennifer Nordstrom Jayne Wright Richard Joliet

AZ CPA is published by the Arizona Society of Certified Public

Accountants (ASCPA) to provide information, news and trends in the profession of accounting. It is distributed 10 times a year as a regular service to members of the Society. The ASCPA, its members, board of directors and administrative staff assume no responsibility for advertisements herein. The ASCPA and the above people also assume no liability for business decisions made by readers in reference to statements and/or claims in advertisements within this publication.

Opinions expressed by correspondents and contributors are not necessarily those of the ASCPA.

Arizona Society of CPAs 4801 E. Washington St., Suite 225-B Phoenix, AZ 85034-2021 Telephone (602) 252-4144 AZ Toll-Free (888) 237-0700 Fax (602) 252-1511

www.ascpa.com

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Armando G. Roman, CPA/PFS MBA Managing Principal Neither AXIOM nor Armando G. Roman provide tax compliance services

Registered Representatives offering securities and advisory services through Independent Financial Group LLC, a registered broker-dealer and investment advisor. Member FINRA/SIPC. Independent Financial Group, LLC and AXIOM Financial Advisory Group, LLC are not affiliated. Office of supervisory jurisdiction: 12636 High Bluff Dr., Ste. 100, San Diego, CA 92130.

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Chair’s Message

by Armando Roman, CPA

From Feast to Famine to Feast— Riding the Accounting Pendulum Students enrolled in accounting majors were declining years ago. As practitioners, it is probably safe to say that we were all worried. Where was the next generation of CPAs? Where would all the new hires come from? Who was going to buy our practices?

At 15, I knew I wanted to be a CPA and knew I wanted to have my own practice. Yes, it seems very odd to me too that any 15 year old would know what he wants to do for a career. Seems even more odd now that I have a 17 year old and a 14 year old in high school.

At 15, I didn’t really know what a CPA was, or what a CPA really did. Accounting seemed to be the core of business.

I wanted to be a businessman. It was that simple. Ignorance is bliss.

As a college major, the accounting curriculum declined a few years ago.

In response, ASCPA developed a high school task force, attempting to influence those having influence on high school students. We thought we could educate high school counselors about careers in accounting, they would tell their high school students, and maybe we could increase student enrollment in college accounting programs. We gathered high school counselors, fed them a nice lunch at a fancy hotel, and had them listen to a variety of our members in different areas of the accounting world. We then parted ways, asking them to spread the good news.

We had an impact to an unknown extent. Measuring results is difficult if not impossible in such an endeavor.

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Later came a series of headline scandals: Enron, WorldCom, Global Crossing — a professional black eye of sorts. Being involved in an AICPA committee, I was apprised continuously of the ongoing image campaign, an attempt to remove the shadow cast by a few high-profile, now infamous CPAs. There is a bright side to everything of course. For our profession, the headline scandals brought attention to the key role we play in business and finance. The conservative pin stripe stereo type became a focal point on prime time television. What is it that CPAs really do? Who are they? How are they regulated? Sometime during this limelight, student enrollment in accounting curriculums began to rise.

Speaking with an accounting professor recently, I was pleasantly surprised to learn that accounting classes are full — full to the brim. At some California universities, accounting classes are too full, causing accounting majors to delay graduating on time. Students can’t get into the classes they need to complete their degree programs.

The pendulum has swung back, from famine to feast. Maybe our high school task force was more successful than we AZ CPA imagined.

Speaking with an accounting professor recently, I was pleasantly surprised to learn that accounting classes are full — full to the brim.

Focus on Members Liz Mason has joined BeachFleischman PC as a tax manager in the firm’s Phoenix office.

Jennifer J. Phillips, CPA, has opened up a new office: Jennifer J. Phillips, CPA, PLLC, 1200 N. El Dorado Pl. Ste. D-430, Tucson, AZ 85715.

The Phoenix office of Grant Thornton LLP has been named a 2012 Most Admired Company by BestCompaniesAZ. The award is given annually to just 40 businesses in Arizona who excel in the areas of leadership excellence, social responsibility, customer opinion and workplace culture.

Abalos & Associates, PLLC, has announced that Amanda Leeds has earned her CPA certification and has been promoted to tax supervisor.

REDW, LLC, Abalos & Associates, PLLC, and Miller, Allen & Co., P.C, have announced that the three firms are combining. They are consolidating under the REDW name.

The Blau Company, Ltd. announced that staff accountant Mirza Baig took the Oath of Allegiance in September and has been admitted as a U.S. citizen. Baig, a CPA candidate, immigrated from India in 2005. Mirza will apply to become a CPA in January 2013.

Newsworthy CPAs “CPAs make a difference. From helping businesses make good decisions, to providing assurance and compliance to volunteering in the community, CPAs make the world a better place!”

Cindie Hubiak, CPA, CGMA, quoted in the AICPA News Udpate An article written by Dennis Niven, CPA, about the importance of working capital was published in In Business.

Gabrielle Luoma, CPA, was mentioned in Accounting Today on the Web as being one CPA to watch on Twitter (@GABRIELLELUOMA).

Ernst & Young Volunteers Help Businesses in Brazilian Rainforest A team of Ernst & Young professionals from across the Americas (US, Canada, Mexico and Central America, South America and Israel) traded in their day jobs for a week-long expedition experience in Brazil’s Atlantic Forest with the Earthwatch Institute. The Earthwatch-Ernst & Young Ambassadors Expedition program, now in its fourth year, is an opportunity for early-career professionals to travel to the rainforests of Brazil and Costa Rica to work with Earthwatch scientists and to help local organizations with business issues through skill-based projects. One team in Brazil tracked rare wild cats, assisted a local ecotourism cooperative, and experienced life as ecotourists. At the end of the week they returned to their offices with stories as unique as the rainforest. One Phoenix-based Ernst & Young LLP auditor, Matthew Collins, shared highlights of his experience in Brazil.

In May, Collins joined a team of colleagues on a journey to the Atlantic Rainforest. Upon arrival, the team was greeted in the southern Brazilian city of Curitiba by their local Earthwatch site leaders, who also served as translators. Equipped with gear, boots and bug repellant, they boarded a bus and journeyed on a bumpy mountain road through the rainforest, where they arrived at the Guyra Farm, near the coastal town of Guaraquecaba. Settling into the cozy guest cabins, the team noticed how remote yet beautiful the small family farm was. They were completely surrounded by a lush forest as far as the eye could see. Exploring the farm, the

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team received a tutorial on the unique electric showers, relaxed in the hammocks, and was warned not to be surprised if they met critters in unexpected places.

As the sun set, the farm’s chef prepared a delicious authentic Brazilian meal for the team to enjoy while they learned about the week ahead.

For the next week, the Ambassadors would help Earthwatch’s researchers document the biodiversity of the Atlantic Forest to assist the Brazilian government with its conservation efforts. The rainforest research was a completely new experience for Matt. Goodbye loafers, hello 16-inch snake-proof boots – the real adventure was about to begin!

Monday, Monday On the first day at the site, the team trekked through 10 kilometers of mud, rivers and forest with the research scientists. “Good thing I bought the tough boots!,” recalls Matt. “Our mission was to become familiar with the paths where we were going to be walking for our research and to set up cameras throughout the forest. The cameras captured images of the local animals passing by. In order to attract some of the larger animals, such as pumas, we positioned Wildcat Lure #2, the worst smelling odor possible, in front of the cameras. Apparently they love this smell...”

The research team explained how to look for signs of wildlife and preserve their findings. The team photographed the tracks and created molds using a plaster mix. Everyone brought home a souvenir – no last minute stop in the airport gift shop for this team.

The ambassadors were eager to accomplish as much as possible in the field. With their newly acquired skills, they determined the height of a tree with one glance and zigzagged between tree trunks with a tape measure in hand, calling off the measurements. In fact, two of the team members invented a distance tool to help measure forest density.

They attached a premeasured piece of tape to a stick and tossed it to either side of the trail for a quick positioning estimate. The research team mentioned they will use the new technique for future projects.

The Sustainability Adventure Continues In addition to field research, the team leveraged their business skills to assist Cooperguara Cooperative with cash flow and marketing challenges. The Cooperative focuses on ecotourism, and through its members of restaurant owners, boat operators, farmers, and small hotel owners, it supports local community development. Each year the number of tourists served by the Cooperative’s members increased. Recently, the Cooperative recognized that it was facing difficulty in three specific areas: operational sustainability, membership, and developing a budget. The team knew that the limited data from the Cooperative would present a challenge, but they were excited to get started.

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(L to R:) Mike Green, Scott Zastoupil, Matthew Collins —Posing for a picture as they trek through a river in the Atlantic Forest after a long day of taking measurements of the forest landscape.

To fully understand the project, the team needed to understand the ecotourist experience. Matt explained, “We started off the day on an ecotour that may be offered by the Cooperative for the tourists. However, our tour was planned with the intention of meeting and interviewing several of the Cooperative members in order to gather more information for our final recommendation to the Cooperative.”

Along the way, the team met an organic banana farmer who explained some of his innovative farming methods.

They interviewed other business owners and visited one of the region’s greatest natural assets — the Salto Morato waterfall. After the tour, everyone on the team gained a greater understanding of how the small Cooperative community benefited from each other and the surrounding ecosystem.

Providing Expertise The team simultaneously developed their proposal for the Cooperative while working to measure trees, assess the forest canopy, and observe animals. As a result of their fact finding and business experience, they developed suggestions for the Cooperative that provided an avenue for growth into a sustainable, profitable enterprise. The team presented ideas to decrease costs, increase sales, and improve internal controls.

TGIF? Not Today On their last night in Brazil, the team enjoyed a traditional barbecue, where Matt and his new network of EarthwatchErnst & Young Ambassadors reminisced about the week, their work and the beauty of the rainforest. Matt tells us, “We left Brazil with a more global experience and with a new perspective on the environment, each other and how AZ CPA to embed sustainability in our daily lives.”

connect

Communicate • Collaborate • Contribute The new, interactive online community only for ASCPA members is coming in November!

Want to network with your peers? Need to find out the answer to that tricky tax question? Do you have expertise and information to share? Want to learn more about what YOU are interested in? Then Connect is the right place for you. The Arizona Society of CPAs has been developing an online network for members only that will allow you to interact and communicate with your peers. This new platform will empower volunteer groups, and increase the ease and participation of special interest section members. Connect will take the place of our current special interest listserves - making it easier to ask questions, access data and get the answers you need. This tool will put the most relevant information at your fingertips.

the Society encouraging them to log-on and update their profile and take a look around the site. Those who update their profile within the first month will be entered in a contest to win an iPad or one of three $50 gift certificates.

Members who are currently subscribers to one of our list serves will be automatically signed up for the corresponding discussion groups on Connect. All members will be part of the ASCPA Group and members have the option of going into their profiles to join other interest groups, connect with other members with similar interests and determine how often they will receive information from us. Members can choose to get a weekly digest, a “real time” email or choose not to be contacted at all.

There is a member directory function in connect that is only visable to members — members can choose to make some or all of their information public.

We hope that this member tool will become a valuable addition to your ASCPA membership. So get ready to Communicate, Collaborate and ConAZ CPA tribute with Connect.

Through Connect you can: • Use LinkedIn to easily update your profile and find your existing contacts.

• Access lots of member-only resources and discussion groups.

• Create and participate in discussions to get your questions answered.

• Network with your peers and even make connections that could improve your existing job, or help you find a new one. Or, maybe it can help you find that perfect addition to your team.

• Find other ASCPA members— with our exclusive online directory—a private community where your information is always protected.

When Connect launches, members can • See the great information normally contained in our listserves but in an customize their profiles and be entered easier to read, search and respond to format. in a drawing to win great prizes — • Talk about what is most important to you and find out what is on the minds including an iPad! of other ASCPA members!

When the platform is ready to launch, all members will receive an email from

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You get tWo doLLars in heartBurn from this cLient for everY doLLar in fees?

“Let’s taLk this through” Ron Klein, JD, CFE, VP - Risk Management Counsel for CAMICO, discusses the risks faced by CPAs every day.

ok, ron, is this client relationship really a risk to me?

Well, let’s look at the red flags. The client has careless record-keeping practices, is late in providing information and is often non-responsive, causing you delays. What happens if the business fails or you later discover the client had been deliberately withholding information due to unethical activity.

How might you be blamed? isn’t it better to fix the problem and keep the client?

Sure, if you can. But at what cost to you, your staff and your firm?

But disengagement is such an unpleasant business...

Not nearly as unpleasant as getting sued. Proactively managing your risk through client selection and retention is really about upgrading your client base and thus upgrading your firm. ok, so i’m ready to disengage from this problem client.

What’s the next step?

Calling CAMICO is always your first step. Our risk management specialists will help you tactfully and securely end the relationship. We have many sample disengagement letters and will even help you tailor your own letter to make sure all your bases are covered.

not insured by us? give camico a call, and we can start the conversation about lowering your risk – and easing your heartburn – today.

Scan this QR code with your smart phone to learn about CAMICO’s products and services.

ce Le B rati n g m or e than a Quarte r ce ntu rY of Pr ofe s s i onaL LiaB i LitY i n s u ran ce f or cPas

cam i co r e Pr e s e ntative

scott schmidt Tel: 602.264.5533/800.224.2264 scott.schmidt@stuckeyinsurance.com www.stuckeyinsurance.com

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camico professional liability insurance is recommended by the Arizona Society of CPAs

Tel: 1.800.652.1772 inquiry@camico.com www.camico.com

The V Factor

The V-Factor Creating a Competitive Advantage

by Terri O’Halloran The V-Factor… What is it? Do you have it? What does it take to establish a competitive advantage that differentiates you and your organization? How do your customers typically determine value? And, what can you do to be a “value creator”?

All customer relationships, at least initially, are defined by them – not you. They determine the type of relationship they want to have with you and your organization based on their perception of the value they want and expect.

The good news is that you can take action to influence the nature of customer relationships by exceeding their expectations and creating more value for them. All other things being equal, the deeper the customer relationship, the greater the revenue and profitability produced from the relationship.1 The bad news is that in today’s rapidly commoditized market, it is most likely that customers will initially perceive you and your organization as a “Supplier.” Your objective is to establish deeper relationships than that of a Supplier, whenever and wherever possible.

Let’s take a look at the types of relationships that define how much VALUE you and your organization are perceived as delivering to customers: Your V-Factor!

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Determining Your V-Factor There are four types of customer relationships: • SUPPLIER • TRUSTED ADVISER • VALUE-ADD • PARTNER Customers define their relationship with you based on their perception of: 1) The Business/Relationship Impact of the products and services you represent, and 2)The degree of Product/Service Differentiation of the solutions you offer.

The Value Segmentation Model2 above will help you understand how your customers perceive you and the VALUE of the products and services you represent. The vertical axis defines Business/Relationship Impact and the horizontal axis defines Product/Service Differentiation.

How each customer perceives the VALUE you and your organization offers dictates where the relationship falls within this model. You may find that you have different customer relationships in the various quadrants of the Customer Value Segmentation Model.

Business/Relationship Impact is defined as providing products, services or expertise that significantly increases a customer’s sales, profits or employee productivity – or significantly reduces their costs. It is also defined by the deeper, trust-based relationships that add VALUE through understanding customer needs, delivering more VALUE than expected, and can include helping them achieve business and personal goals.

Product/Service Differentiation is defined as the degree of perceived uniqueness by customers (compared to alternative options offered by your competition) of: • Your products and services, • Your ability to communicate the unique value of those products/services, or • The customer needs-focused behaviors in which you engage.

Defining the Four Types of Customer Relationships SUPPLIER – The SUPPLIER relationship is perceived as having low to moderate impact in terms of business value and ROI. It is also characterized by the perception that the products and services offered have low to moderate uniqueness. The customer also doesn’t perceive any unique value being provided by your organization

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and there is no meaningful emotional connection established between your organization and your customer.

VALUE-ADD – The VALUE-ADD relationship is perceived as having low to moderate impact in terms of business value and ROI. However, it is also characterized by the perception that either the products or services offered have above average to high uniqueness, or your organization is perceived as adding value by providing service beyond what the customer expects.

TRUSTED ADVISER – The TRUSTED ADVISER relationship is perceived as having above average to high impact in terms of business value and meaningful ROI. It is characterized by the perception that the products or services offered have low to moderate uniqueness but your organization adds value, typically of a strategic nature, beyond the product/services they sell. There is also a strong level of emotional satisfaction in the relationship.

PARTNER – The PARTNER relationship is perceived as having above average to high impact in terms of business value and meaningful ROI plus the products or services offered have above average to high uniqueness. There is also the highest level of customer intimacy in this relationship as the customer perceives their primary contact at your organization as a TRUSTED ADVISER and PARTNER. This is the rarest of all customer relationships and is viewed by the organization as an extremely important part of their success strategy.

The first step in deepening customer relationships is to understand where your top priority customers place you and your organization within the model. Where do most of your customers view the VALUE your organization provides?

Differentiating Your Organization You are creating VALUE with each communication ... each marketing moment … with your prospects and customers. A customer “buys” you and your organization before they buy your

company’s products or services.

How effective is…

1.

Your introductory VALUE Statement?

2.

The “Call to Action” in your advertising, marketing and/or sponsorship events?

3.

Your ability to quickly engage, relate and inspire others?

4.

The way you create compelling questions to identify what’s important to your prospects/customers?

5.

Your ability to link identified needs to the VALUE you provide?

Being able to maximize every marketing moment is key to differentiating your organization and creating a competitive advantage for the future!

If you’d like to learn more about: • Defining your V-FACTOR, • Enhancing your skills as a VALUE CREATOR, • Creating a competitive advantage for the future, and • Getting the most out of your marketing moments …

Join us at the Arizona Society of CPAs December 6 Marketing Series for a workshop entitled, “The V-Factor: Creating a Competitive Advantage and Getting the Most Out of Your Marketing AZ CPA Moments.”

Endnotes: 1. J. Fleming, C. Coffman, J. Harter “Manage Your Human Sigma”, Harvard Business Review, 2006.

2. ©2012 The Customer Value Segmentation Model is a part of copyrighted processes owned by Integrity Solutions LLC. Terri O’Halloran is vice president of client development at Integrity Solutions, a 40-year-old performance improvement organization that specializes in helping clients create value for their customers while building integrity into every customer interaction. You may contact her at: tohalloran@integritysolutions. com, 602.903.1705, www.integritysolutions.com.

Stand Out From the Crowd Marketing Methods That Will Attract New Clients and Build Stronger Relationships with Current Clients Dec. 6 8 a.m. – Noon

How can you get your website at the top of the list when people search for CPAs? How can you easily use social media to grow your practice? How can you build stronger relationships with current clients and attract new clients that will be a perfect fit for your organization? Get the answers at the ASCPA’s half-day marketing program from local experts in search engine optimization, social media and public relations, and business development.

Register at www.ascpa.com

In the Black ... Adventures in Accounting

Concept: Heidi Frei Illust.: Jack Gannon

The ASCPA thanks its members for their PAC donations and the volunteers who monitor legislation!

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l a on

s r e P y r u Inj es e s ing th a C Gett ght

Ri ation rm o f n

I

When determining economic damage

by Don R. Bays, CPA/ABV, CVA, CFF

amounts in personal injury cases, getting complete background information on the injured party is crucial to the calculation.

Ned owned an electrical contracting business. He ran the business with two technicians and an administrative assistant who served as his office manager. Ned was the rainmaker for his company, often getting referral work from several residential home builders and commercial building contractors in his city. He had spent several years developing his referral sources. Not only was he well-liked by them, but they also valued the quality and pricing of his work.

Before the current economic recession shut down many builders, Ned had a very lucrative business. The recession started to affect Ned’s earnings. He was on the verge of letting one of his technicians go when the accident occurred.

A Most Unfortunate Event One day, while enroute to a construction site Ned was stopped in his truck at a traffic signal. He never made it to his work that day. A fully loaded cement mixer truck struck Ned’s vehicle from behind. The driver of the cement mixer truck was distracted long enough to miss seeing Ned in front of him. He was able to start braking but it wasn’t enough to keep from hitting Ned’s truck.

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Aftermath The next thing Ned remembered was waking up in a hospital emergency room with two doctors and a nurse standing over him and calling out his name. They asked him to speak. No intelligible words would come out of Ned’s mouth. The emergency room personnel asked him if he knew what happened to him – before he got to the hospital. Ned did not remember.

Several weeks passed before Ned was able to walk very far without experiencing severe pain in his back, legs, neck, hands and arms. He also experienced severe headaches and was under the constant care of physicians and physical therapists. Ned also was evaluated by psychologists to determine just how much his ability to think, as he did before the accident, was now affected. Ned not only did not have the same motor skills as he did before the accident, he also did not have the same comprehension ability.

More importantly, he no longer had the physical skills or mental acuity to run his business. Ned had suffered brain damage.

Seeking Counsel Two months passed and it was clear that Ned was not the same person that he once was before he got hurt. He could no longer run a business much less work as an electrician.

The attorney Ned visited had a reputation as being very good at personal injury cases. He told Ned that his firm would take Ned’s case on a contingency basis and would hire an economic damages expert, a CPA, to prepare calculations that would show how much money Ned was going to lose because he would never be able to work again. Ned was 42 years old.

The attorney figured Ned would lose all the money he could have earned as an electrical contracting manager or supervisor for some large company from age 42 until a normal retirement age of 65. In addition, the attorney knew that Ned would have many medical bills for the rest of his life.

Ned would need the CPA to prepare

Information Generally Obtained for Personal Injury Engagements Employment Information • Job position at time of injury • Employer’s name and address • Employer-paid fringe benefits

Medical Information •Medical history of claimant •Medical treatment as a result of the injury •Continuing medical consequences of the injury •Medical expenses incurred to date •Medical expenses expected to be incurred in the future

Fringe Benefit Information •Health insurance benefits before injury •Retirement benefits before injury •Vacation, holiday, and sick leave policy of employer

Postinjury Employment •Actual or expected date of return to employment

calculations to support the attorney’s assessment. The CPA would then have to testify in a courtroom about his opinions regarding the calculations.

Without Ned to run it, his business lasted only three months after the accident. The attorney told Ned that the loss of the value of his business would have to be taken into consideration as well. Ned filed suit against the driver of the cement mixer truck, the driver’s boss, and the insurance company providing coverage for the driver.

The Economic Damages Calculations The CPA expert was now ready to prepare the first draft of his calculation of the amount of lost earnings to be experienced by Ned over his remaining

•Actual or expected job upon return to employment •Actual or expected wages upon return to employment

Personal Information •Amount of work time missed or expected to be missed as a result of injury •Expected retirement age before injury •Expected retirement age after injury •Description of household duties performed before injury •Hours spent per week on household duties before injury •Description of household duties performed after injury •Hours spent per week on household duties after injury •Childcare information, including ages of children and time spent in care and training

work life. The expert prepared a list of preliminary information, some of which he already had, needed for his calculation. The expert’s list included data regarding Ned’s date of birth, the exact date of the injury, his marital status, personal and business income tax returns, employment and wage history, years of education, vocational and medical reports, and an assessment of Ned’s health.

Some Basic Assumptions Used for the Lost Earnings Calculation Ned’s attorney initially did not believe Ned would ever be able to work again – at any job. However, at a later deposition, Ned admitted that he had been doing occasional work as a laborer for his brother, who had a

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carpet sales and installation business in a near-by town. He even said his arms, hands, back and legs felt much better.

He still suffered from occasional headaches, however, he said. But Ned also made it clear he simply did not have the brain power to ever again run an electrical contracting business.

Based on reports from vocational and rehabilitative consultants, the CPA expert decided that Ned would have been able to work as a job supervisor for another large electrical contracting company had he not owned his own business. The expert researched how many remaining years of work life Ned truly had from various library sources to which he had access. The expert then calculated the amount of lost earnings as an electrical contracting job supervisor Ned would have earned in each year until his expected retirement age.

The expert also set Ned’s compensation at a level of a laborer making minimum wage earnings over his

remaining work life. These wages, to be deemed equitable by the court, had to be offset against the wages the expert calculated for Ned to earn as a job supervisor. The expert also had to discount the earnings difference each year to a present value amount using a reasonable risk discount rate.

The expert arrived at the projected lost earnings for Ned, to which he added amounts for the present value of future medical expenses to be incurred

by Ned, plus other miscellaneous additions. The expert also calculated a value for Ned’s lost business.

The Outcome After the subsequent trial, the judge decided that the CPA expert’s lost earnings calculation was fair and awarded the calculated amount to Ned. The judge also determined that Ned would not incur all the future medical expenses calculated by the expert, however, and awarded Ned these expenses for a period of 10 years only – again at their

present value amounts.

Counsel for the insurance company argued that Ned should not get compensated for the value of his lost business because the award would be duplicative – that is, already considered in the lost earnings calculation.

The judge disagreed, stating that Ned could have sold his business right before the accident, took the proceeds, and then went to work for another electrical contracting company. Ned received an amount for the value of his lost business as well.

When determining economic damage amounts in personal injury cases, getting complete background information on the injured party is crucial to the calculation. Input from physicians, psychologists, vocational and rehabilitative professionals will also be important to the calculated damage amount. In addition, the ability of the expert to explain complex lost earnings schedules to a judge or jury in an easy and simple manner is equally

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important in obtaining a fair settlement for the wrongfully injured plaintiff as well as the party having to pony up the AZ CPA awarded damage amounts.

Don R. Bays, CPA/ABV, CVA, CFF, is a director in the Valuation and Litigation Support Services group of Henry & Horne, LLP, Tempe, AZ. He can be reached at (480) 839-4900, or by e-mail at donb@ hhcpa.com.

Endnote: Source for sidebar information: Consulting services Practice Aid 98-2, American Institute of Certified Public Accountants, Calculation of Damages from Personal Injury, Wrongful Death, and Employment Discrimination, Appendix A.

Postcard 7.5x9.5 final.indd 1

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IRS Revokes Covered Opinion Standards in Circular 230 and Adds New Responsibility to Manager of Tax Function

by E. Lynn Nichols In a move some of us knew was coming, but really could not talk about, on September 14, the IRS revoked Section 10.35 of Circular 230 and issued Proposed Regulations that strengthen Section 10.37. There is now no reason (there probably never was, by the way) for CPA firms to have a “Circular 230 disclaimer” in their outgoing correspondence and e-mails. Those disclosures were an attempt to limit liability for tax advice that had nothing to do with Circular 230 in the first place.

The proposed regulations will no longer require practitioners to fully describe the relevant facts and the application of the law to the facts in the written advice itself. They also eliminate the use of Circular 230 disclaimers in documents and transmissions; specifically addressing the use of Circular 230 disclaimers at the conclusion of every email or other writing as a way to remove the advice from the covered opinion rules. Treasury and the IRS expect amendments in the proposed regulations, when adopted, will put a stop to the use of this type of disclaimer.

The proposed regulations adopt one standard for all written tax advice in section 10.37, and do away with the complex covered opinion rules in section 10.35.

Proposed Section 10.37 specifies that a practitioner must base all written advice on reasonable factual and legal assumptions, exercise reasonable reliance, and consider all relevant facts the practitioner knows, or should know. Further, the practitioner is required to use reasonable efforts to learn the facts relevant to any written advice.

I believe oral advice is still covered under Sections 10.33 and 10.34, by the way.

The proposed regulations warn that a practitioner must not, when evaluating a federal tax issue, consider the possibility that the return will not be audited or that an agent would miss the item. However, the tax advisor may take into account

18 AZ CPA y NOVEMBER 2012

the possibility that an issue raised in an audit might be settled for less than the entire possible liability.

Because the proposed regs remove the concept of covered opinions from Circular 230, altogether, practitioners rendering tax opinions on municipal bonds will be subject to the professional standards applicable to all written tax advice.

Other changes to Section 10.37 create new risks for managers responsible for Circular 230 compliance. Persons with principal authority and responsibility for that portion of a firm’s practice governed by Circular 230 ( I can’t think of any part of my practice that is NOT governed by Circular 230 ! ) are to be responsible for establishing procedures that ensure compliance with all provisions of Circular 230 -- not just those directly related to tax advice and tax return preparation.

Of much less interest to most of us, the proposed regulations modify the use of expedited proceedings against practitioners who have not paid their federal tax obligations; only permitting expedited suspension of those who have not complied with filing obligations for the immediately preceding four of five annual returns.

Settling some fears expressed after recent publicity on two delegation orders that assign investigation duties to the IRS Return Preparer Office (RPO), the proposed regulations clarify that the Office of Professional Responsibility (OPR) has exclusive responsibility for matters related to practitioner discipline, including disciplinary proceedings and AZ CPA sanctions.

E. Lynn Nichols, a practicing CPA for 40 years, is a tax consultant and founder of Nichols Patrick CPE, Inc. He is a regular contributor to Bisk Education’s CPE Network, comoderator of the Taxation Discussion Groups for accountantsworld.com, a volunteer member of the Tax Division of the AICPA, and past Chair of the Board of Visitors of the School of Accounting in the College of Business of the University of Oklahoma.

Considering a Merger or Acquisition? Do the Due Diligence

by Ric Rosario, CPA Many of the problems arising from CPA firm mergers and acquisitions can be traced back to insufficient due diligence, critical thinking, foresight and planning.

The first step toward a successful merger or acquisition should be to clarify and agree on the reasons for your firm’s interest in a potential merger. The partners should consider: • what they want from a merger; • what they do not want; • characteristics and practices that would produce a good fit (among partners, staff and clients); • the pros and cons of a merger with a smaller firm, a larger firm, and a firm of equivalent size; and • timetables of who will be responsible for which activities, including how confidential the different activities will remain.

Before merging, or even performing joint work, which can entail a degree of joint liability, develop a familiarity and comfort level with the other firm’s culture, quality controls, type of practice, and client mix. Interview personnel at all levels of the firm as well as key clients, attorneys and others familiar with the firm. Ask the following questions:

Philosophy/Compatibility How compatible are the firms’ cultures?

Is there a disparity between work ethics?

What are the attitudes toward clients? toward employees?

What are the relationships like between the owners?

What are the other firm’s views on practice development?

Is the other firm quality-control oriented?

How aggressive is the other firm?

What types of clients does the other firm have?

Does it practice loss prevention?

Is it financially stable?

What is its reputation?

What are the chances of a “hidden agenda” (e.g., personnel layoffs after the merger is consummated)?

What are the other firm’s future plans?

What role do the partners want to play in your firm? Do they want to be hands-on? Do they want to be administrators, or marketers?

How many hours do they want to work? Do they want to take on a heavy workload, or scale back? Is there a lot of overtime (billed or unbilled) on jobs?

What is the profile/reputation of the other firm’s clients? Do they pay the firm on time?

What are the firm’s policies regarding client acceptance, investing with clients, trusteeships, etc.?

What are the chances that some of the clients will leave?

History What is the other firm’s claims and litigation history?

Are there pending liability issues?

(Speak with the other firm’s attorneys and ask if they are willing to put the status of pending liability issues in writing.)

What are the results of the most recent peer review?

Does the other firm have frequent mergers/splits? If so, why so often?

Is the other firm’s CPE current? What type of CPE do the CPAs take? Is the type relevant to their practice, or did they take low-quality CPE to meet requirements?

Has the other firm had a license or certificate suspended or revoked?

NOVEMBER 2012 y AZ CPA

19

Has it ever faced disciplinary action by a state or federal regulator (e.g., board of accountancy, NASD, SEC, PCAOB), a state CPA society, the AICPA, or other organization?

What information can your state board of accountancy give you about the firm?

What kind of prior insurance, if any, does the firm carry?

Consider obtaining background investigation reports on the key partners (and be sure to tell them you are doing so).

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Is the firm’s work compatible with yours? Does its work complement yours? Will you be working with or against each other?

Does the firm specialize in a certain area of practice? (If you are unfamiliar with the area, speak with others who are familiar with it. You may even want to take CPE and attend discussion groups to familiarize yourself with the area.)

Is their practice area more hazardous than yours?

Are the rewards worth the risks associated with the deal if it falls apart?

(Do a risk/benefit analysis.)

Would it help if the parties got a second, independent opinion?

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What rules of your state board of accountancy pertain to your new area of practice?

Do you have joint and several liability exposure for all work undertaken, as CPAs do in some states?

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Consider the ramifications of your options carefully. An endorsement for Extended Reporting Coverage (ERC), also known as “tail” coverage, covers past work performed up until the date of a merger or dissolution.

Also find out from your insurance carrier or agent: Whether ERC is available to you.

What period of time the ERC covers.

The cost of ERC. The coverage limit under the current policy and ERC. Who has consent to settle claims for prior work.

Whether there are differences in prior acts dates.

What insured limits and deductible the new firm will carry.

How the deductible will be divided.

Who pays the premiums and/or deductible.

Another common question that arises from changes in firm ownership is whether the firm covers a new partner’s past work, assuming your current insurer approves coverage for the new partner. There are, however, benefits and drawbacks. For example: Although you are assuming all the liabilities, you haven’t benefited from any revenue from this work.

A claim on past work can impair your current policy limits.

Coverage is usually written to cover firms and not individuals or owners.

Covering a new partner’s past work means covering a prior entity, and some of the owners may not be with your firm or even known to you.

The carrier may not agree to cover prior work.

Firms should always consult with their insurance carriers or agents regarding coverage options and the many other risk management issues to be considered in planning for a successful AZ CPA merger or acquisition.

Ric Rosario, CPA, is president and CEO of CAMICO (www.camico.com), the nation’s largest CPA-focused program of specialty liability insurance for the accounting profession.

ASCPA Economic Outlook Programs Return to Phoenix and Tucson

The ASCPA welcomes renowned economist Dr. Lee McPheters to Phoenix, Jan. 24. Dr. McPheters will give an overview of the local, state and national economy, including what happened in 2012 and more importantly, what he sees for 2013 and beyond; especially in light of the results of the Presidential election in November.

On Jan. 29 in Tucson, we welcome well-known economist, professor and Pulitzer Prize nominated author, Dr. Gerald Swanson. Dr. Swanson will cover current economic issues, causes, risks and potential solutions. He will also cover the Euro crisis, its history, the dimensions of the crisis and the high costs associated with potential solutions. Visit www.ascpa.com for registration and information for both luncheon events. Special thanks to our event sponsor, Alliance Bank of Arizona.

Register at www.ascpa.com

Problem with the Board?

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Classifieds Business Opportunities/ Practices for Sale WE BUY CLIENTS— Our CPA firm would like to offer a smooth transition in the purchase of your clients.

We will purchase anywhere from one client, up to an entire practice in the Phoenix/Scottsdale metro area. If you are thinking of retiring or downsizing your practice and need to transition your clients to a professional CPA firm, please give us a call. Our staff has been practicing in the valley for over 30 years with an emphasis in business taxes and accounting. Our office is located near Thunderbird and Scottsdale Rd. Please contact us today for more information and ask for Craig (480)990-2727 orcraig@awcpas.com.

CPA—SHERYL K. SACRY, CPA, PC MERGER OPPORTUNITY. We are a small, casual CPA firm in Tempe seeking four-year transition of ownership with CPA experienced in tax and QuickBooks. Sharing of office, equipment, staff, and per-diem work is available during transition. Please email sherylsacry@thetaxlady.biz.

Employment Opportunities Energy Settlements Supervisor Tucson Electric Power Company —UNS Energy Corporation, parent of 3 utilities in Arizona, including Tucson Electric Power, is the largest corporation headquartered in Tucson. UNS Energy offers a generous compensation and benefits package. Tucson Electric Power Company currently seeks an Energy Settlements Supervisor. Responsible for accurate and timely completion of all Energy Settlements functions for multiple companies including wholesale energy accounts payable & receivable functions, retail contract billing, and other billing. Qualifications: • Bachelor in Accounting; CPA preferred.• 8 years utility experience• 3 years supervisory experience. For a detailed job description and to apply, visit: www.tep.com EOE.

22 AZ CPA y NOVEMBER 2012

Staff Accountant/Tax Preparer — Kleinhans, Lashbrook, Butler & Davis, P.L.L.C. - Tucson tax accounting firm seeking CPA with minimum five years experience. Applicants must have experience in preparation of partnership, corporate and fiduciary tax returns, and enjoy working directly with clients. Applications will be accepted for full-time, flex-time or reduced summer/fall work-load positions. The firm has a four-day work week (Monday-Thursday) from July 16 through December 31. Our firm is family friendly and provides a continual learning environment. We provide a competitive compensation package commensurate with experience. Interested parties submit resumes to janet@ klbdtucson.com or mail to 4534 E. Camp Lowell Dr., Tucson, AZ 85712.

Senior Accountants —Tull, Forsberg & Olson, PLC. THE GRASS IS GREENER ON OUR SIDE!! – We are a long-established, mid-sized local CPA firm, which balances family and quality of life with a rewarding interaction among clients and coworkers. The Firm offers a flexible environment, benefits package, competitive salaries and excellent opportunities. We are looking for a dedicated professional / CPA with 2 + years experience in accounting and tax who enjoys working in a team environment and brings a creative and problem solving attitude to the table. Please email resumes to kforsberg@tfocpa.com.

Sr. Accountant, External Reporting—Amkor Technology is seeking a Senior Accountant, External Reporting to join our Chandler corporate office to support external filings and conduct technical research.

• Participate in 10-K/10-Q, including preparing footnote disclosure and XBRL processing • Interface with internal and external auditors and provide explanations as needed• Support cross departmental requests, including legal and accounting support for special transactions. A Bachelor’s Degree in accounting and a CPA license is required.

A minimum of 3 years and/or senior level experience from a Big 4 or mid-

size public accounting firm is required.

Demonstrated US GAAP technical knowledge and advanced proficiency with Microsoft Excel is required. http:// careers@amkor.com.

Partner Wanted — Heider, Tanner & Dirks, Inc.— Denver CPA firm with 3 shareholders would like a partner interested in ownership. Our firm provides a wide variety of services including tax planning, compliance, audits, compilations, reviews, business consulting, estate planning. Industry specialization includes new car dealerships. Prior work with dealerships would be helpful. The ideal candidate would have 10-20 years of recent CPA experience, a solid background in taxation, accounting, strong leadership skills, a good understanding of practice building, client retention skills. The ability to research and interpret tax laws a must. Please e-mail your resume or letter of interest to jtanner@htdcpas.com.

Controller—West Yavapai Guidance Clinic—A large Behavioral Health Clinic in Prescott, AZ has an opening for a Controller. CPA Certification and a minimum of 4 years experience in Public and/or Not For Profit Auditing or Accounting is required. E-mail Resume to d.oliver@wygc.org.

Office Space BUILDINGS FOR LEASE—1742 sq. ft. building in Gilbert. 5 complete offices, reception area, bathroom, kitchen, and a huge area to place files or could be made with another office.

Will be ready to move in 1st week of October. Cross rode is Gilbert Rd and Warner Rd. There’s much more information on this building. Please call Sal at (480) 772-8080. 1289 sq ft in Ahwatukee area. Chandler Blvd. and 24th St. There’s two offices, lobby, reception, kitchen, balcony, file area, and a big open area in between the two offices. It’s located on the second floor. There’s more information. Please call Sal at (480) 772-8080.

SCOTTSDALE OFFICE SPACE/ CONSOLIDATION - OFFICE SPACE AVAILABLE FOR LEASE OR/WITH FIRM ACQUISITION DESIRED A growing Scottsdale Airpark CPA firm is looking for a firm that is in need of up to five offices. Ideal situation for a practitioner planning to slow down and establish an exit plan or consolidate firm with our existing Scottsdale firm. class A office space, Impressive conference room, conveniently located off 101 and Raintree, plenty of parking space, handicap accessible and large break room area. For inquiries contact AKCPA@hotmail.com.

OFFICE SHARING IN TEMPE/ CHANDLER —Looking to office share in Tempe/Chandler. I have an extra office for rent in my current suite, fully furnished & equipped, no move-in cost.

Or I am willing to move to share a new space. Email caryn@chstax.com.

Miscellaneous Tax Preparer — Our 11-member Tucson firm has a position for an experienced tax preparer. This position is a permanent seasonal position, with a minimum of 20 hours/week, beginning February 1 and ending April 15.

Some flexibility as to work schedule is available. Activities include preparation of individual income tax returns.

Experience with Lacerte tax software is helpful but not required. Salary and benefits are competitive and depend on experience. Please submit resume to janet@klbdtucson.com or mail to our address at 4534 E. Camp Lowell Dr., Tucson, AZ 85712. Our telephone number is (520) 327-8530.

To place a classified ad, go to www.ascpa.com and go to marketplace; for employment opportunities go to the Career Center.

2013 Arizona Tax Guide Arizona Tax Guides have been produced by Phoenix Tax Workshop for more than 20 years. Order the only comprehensive guide on Arizona taxes from the leaders in tax education.

The Arizona Tax Guide includes the following guides: The Arizona Income Tax Guide is a comprehensive and easy reference guide that highlights the differences between Arizona and Federal income tax law and provides references to the Arizona Revised Statutes for a more in-depth analysis.

It contains individual, corporate, partnership and trust tax differences, including tax tables, and is arranged in a manner that facilitates research on any topic.

The Arizona Sales and Use Tax Guide is a resource for anyone preparing or filing Arizona and city sales and use tax returns. The guide details the various sales and use tax rates that apply to each type of sale or product as well as the many exceptions, administrative provisions and Model Cities Tax Code provisions.

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