AZ CPA February 2019

AZ CPA February 2019

Anchors Aweigh Phoenix CPA Sets Sail With 12 Blind Students

The Future of Finance Embracing Change in the Workplace

The Arizona Society of Certified Public Accountants y www.ascpa.com

5

8

2

AZ CPA FEBRUARY 2019

SIMPLE ONLINE PAYMENTS FOR CPA FIRMS

CPACharge is an easy-to-use practice management tool trusted by more than 50,000 successful professionals, developed exclusively for CPAs to help manage payments and grow revenue in their practice.

DESIGNED FOR CPAs RECURRING BILLING AND SCHEDULED PAYMENTS

PCI COMPLIANCE INCLUDED ($150 VALUE)

SECURE, CUSTOMIZABLE PAYMENT PAGES

SIMPLE REPORTING AND RECONCILIATION

ACH AND ECHECK PROCESSING (OPTIONAL SERVICE)

UNLIMITED SUPPORT

BY PHONE, LIVE CHAT, AND EMAIL

Payment Detail Submit to Smith Johnson, CPA

$1,000 Invoice Number

1005 Card Number

CPACharge is proud to be a preferred provider of the

CVV

**** **** **** 9998

001

Exp.

NOV

Arizona Society of Certified Public Accountants

2021 POWERED

BY

Pay CPA CPACharge is a registered agent of Wells Fargo Bank N.A., Concord, CA and Citizens Bank, N.A., Providence, RI

Special offer for ASCPA members Call for details

cpacharge.com/ascpa 877-620-3495 FEBRUARY 2019 AZ CPA

3

AZ CPA The Arizona Society of Certified Public Accountants President & CEO Editor Advertising

Phoenix Tax Workshop Series 24 Hours of Live CPE for $375 * Added Bonus for purchasing 2019-20 Phoenix Tax Workshop Series!

You will gain access to all 2019-20 recorded sessions for later viewing.

We invite you to join this elite group of tax professionals at their Saturday CPE/CLE sessions (eight times per year). This series is also offered as a webcast.

What does it cost?

The annual fee of $375 (due by the first meeting in May) includes the opportunity to earn 24 hours of CPE/CLE credit per year, which includes eight, three-hour meetings. You may attend individual meetings for $70.

What’s on the agenda?

Topics are drawn from current tax issues, court cases and legislation on both federal and state arenas. You will have the opportunity to take part in question and answer sessions to ensure you leave with a complete understanding of the material. Updated agendas will be sent prior to each meeting and will be available in the online CPE catalog.

Meeting dates and times The following Saturday meetings are held at the ASCPA offices in Phoenix from 9 a.m. to noon. A full breakfast is included with each meeting. You may also participate by webcast from your home or office.

Meeting Dates for 2019-20 May 18, 2019

Nov. 16, 2019

June 22, 2019

Jan. 18, 2020

Sept. 21 2019

Feb. 15, 2020

Oct. 19, 2019

April 25, 2020

Register online at www.ascpa.com/ptw

4

AZ CPA FEBRUARY 2019

Cindie Hubiak Patricia Gannon Heidi Frei

Board of Directors Chair Mike Allen Chair-Elect Jared Van Arsdale Secretary/Treasurer Ginny DeSanto Directors

Rachael Bertrandt

Tom Duensing

Paul Evans

Kristen French

Alan Gold

Aaron Grant

Tim Hansen

Vanessa Makridis

Karen McCloskey

Alice Pope

Sami Raynes-Houseknecht

Nikki Vogt Immediate Past Chair

Molly Montgomery AICPA Council Members

Rob Dubberly

Greg Nelson Chapter Presidents Southern Chapter Cathy Kinzer Northern Chapter James Shankland Southwest Chapter Helen Greenwell North-Central Chapter Gidget Schutte AZ CPA is published by the Arizona Society of Certified Public Accountants (ASCPA) to provide information, news and trends to the accounting profession. It is distributed 10 times a year as a regular service to ASCPA members. 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 articles or advertisements within this publication. Opinions expressed by contributors are not necessarily those of the ASCPA. Arizona Society of CPAs 4801 E. Washington St., Suite 180 Phoenix, AZ 85034-2040 Telephone (602) 252-4144 AZ Toll-Free (888) 237-0700 www.ascpa.com

Volume 35 Number 2

AZ CPA

February 2019

Features

11

Anchors Aweigh!

Phoenix CPA sets sail with 12 blind students and circumnavigates the Spanish Virgin Islands.

by Patty Gannon

Columns & Departments Chair’s Message by Michael T. Allen, CPA

6

Member News

7

A Dash of SALT by James G. Busby, Jr., CPA

9

Quick Quiz

21

13

Go Beyond Disruption

Year-long research project examines the changing finance function and the skills and competencies CPAs need to evolve.

15

Embracing Change in the Workplace

Companies in transition are creating stress in the workplace. What can employees do to help “go with the flow”?

by Kent O. Utter, CPA, MBA, EA

17

Pros and Cons of Selling a Business to a Key Employee

Tips for evaluating an employee purchase.

Classifieds 22

by John S. Stoner, CPA (in PA), CVA

19 Arizona Society of Certified Public Accountants 4801 E. Washington St., Suite 180 Phoenix, Arizona 85034-2040 www.ascpa.com

Automation Doesn’t Replace Communication

Are you in need of a communications skills tune up?

by Arianna Campbell

FEBRUARY 2019 AZ CPA

5

ASCPA Chair’s Message

Financial Literacy —Doing Your Part I enjoyed reading the book All I Really Need To Know I Learned In Kindergarten by Robert Fulghum. This book discusses skills that are learned very early on and are foundational to living a fulfilling and successful life.

by Michael T. Allen, CPA As CPAs, we instinctively teach our kids the basic axioms of financial literacy, such as living on less than you make, making savings a key part of your financial plan and not buying what you can’t afford.

6

AZ CPA FEBRUARY 2019

Maybe my background as a CPA brings with it a certain bias, but I believe financial literacy is an often undervalued life skill.

If you peruse the internet, you will gain a sense of the lack of financial literacy in our society, the significant impact this has and the surprising lack of public investment in the development of these skills. A direct correlation appears to exist between a person’s financial literacy and their achievement of basic economic self-sufficiency, employment status and earning capacity.

As you might imagine, this lack of financial literacy is prevalent in underserved populations. The inability to achieve basic financial self-sufficiency further impacts other social issues such as a person’s mental and physical health. Ultimately this comes at a great cost to our society.

Like so many of you, I am grateful to work for an organization that prioritizes this need and commits resources to have an impact. Through our firm’s work with Junior Achievement and our own internally developed programs, we are able to provide classroom training in the basic skills of financial literacy.

Your ASCPA, in partnership with the AICPA, also makes significant resources available in the form of financial literacy tools. Our ASCPA members are well known for their significant volunteerism and community support. Many of our members are actively engaged in providing direct financial literacy training to our youth, as well as adults.

Examples currently exist of educational systems that have incorporated financial literacy into their curriculum, but our society’s core educational approach is still centered on learning conventional subject matter. The transfer of basic life skills is expected to take place in the home, even as that traditional environment increasingly ceases to exist.

As CPAs, we instinctively teach our kids the basic axioms of financial literacy, such as living on less than you make, making savings a key part of your financial plan and not buying what you can’t afford. We teach them that debt is a strategy and a tool, not a lifestyle, and should be used with caution. These foundations provide our kids with the basic skills for living a successful financial life.

Our profession is uniquely positioned to provide training in financial literacy.

We can act as mavens to spread the word of how important these basic life skills are to an individual’s long-term success and happiness.

We often evaluate the impact our individual community efforts are having.

Certainly, each of us needs to spend our time and energy in those areas where we have a passion. To the extent this includes sharing your skills in financial literacy, I encourage you to do so. This is one area where you can have a longterm impact on a person’s quality of life.

Thank you for all you do in representing the CPA profession and continuing to have an impact on the communities we serve. n

Member News The chairman and CEO of Arizona Public Service, Don Brandt, was selected as Phoenix Business Journal’s Businessperson of the Year for 2018.

Grant Thornton LLP partners and principals elected Bradley J. Preber, CPA, as chair of the firm’s Partnership Board. Preber currently serves as Phoenix office managing partner and national managing partner for Business Risk Services.

Fester & Chapman, PLLC announced that “Ben” Hyungiu Hur, CPA, is now a partner in the firm as of January 1, 2019. Hur specializes in performing audits and other services to local and state governments in Arizona.

BeachFleischman PC promoted Lyudmila Eisenman, CPA, and Karen Mattull, SPHR, SHRM-SCP, PAFM, to shareholder.

Research Project Under Way

ASCPA team members (Left to Right) Paul Kern, Cindie Hubiak, Patty CBIZ & Mayer Hoffman McCann Gannon and Heidi Frei met with Tim Trull (Center) and Dave Nobs (not P.C. promoted the following indipictured) from LAVIDGE in January. The ASCPA begins a new project viduals: Eric Anderson, CPA, to audit manager, Denise K. Foshe, CPA, and partnering with LAVIDGE to evaluate CPAs’ needs and perceptions to Danielle D. Fuentes, CPA, to senior provide more value to ASCPA members. Thanks to all our members manager, Roman Medrano to senior associate, and Brook Miller to tax who will be helping us in our research efforts. We ask that you please manager. complete the survey questionnaire when you receive it in your email.

Save the Date!

2019 Annual Meeting & Awards Luncheon - May 8

Davenport

Join us for the 2019 Annual Meeting & Awards Luncheon on May 8 from 11:30 a.m. to 1:30 p.m. Eric Hansen, past chair of the AICPA, will be our keynote speaker. We will honor Debra Davenport, former Arizona Auditor General, with ASCPA Life Membership.

We are excited to see what the research says in order to build a better future for CPAs in Arizona.

LAVIDGE is an established local agency and has experience with similar professional groups including the Arizona Commerce Authority, Arizona Chamber of Commerce, and Arizona Hispanic Chamber.

FEBRUARY 2019 AZ CPA

7

Join the Discussion – ASCPA Connect The interactive online community only for ASCPA members 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.

What are our members talking about? Some recent topics: • 2018 Conformity Estimates and Activities

• 1099 Reporting for Rental Property Owners

• New Tax Law Affects Nonprofits

• IRS Services During Shutdown

• Landlords, 1099s and the Section 199A deduction

• Drake Macros for 2018

• Recent Phishing Scam Targeting Arizona CPAs

• New Shares in an S-Corp • SMLLC To MMLLC

• Comfort Letters • Are Botox Injections Subject to TPT in AZ?

Join the discussion at http://connect.ascpa.com

Comment posted on the AZ Dept of Revenue Payroll Filings Topic: Thank you, Thala, for bringing this to the attention of the Arizona Department of Revenue.

Thanks to everyone who posted on this board, bringing up this issue. Thala brought these comments to the attention of the Arizona Forum for Improvement of Taxation liaison at ADOR and they launched an internal investigation into the erroneous notices.

When you post these issues, you bring them to the attention of the ASCPA. You also bring them to the attention of ASCPA members who belong to other organizations who work to resolve these problems.

It’s a group effort, and Thala is one of the unsung heroes who helps bring about change.

— Laura Lee Laundre, CPA

8

AZ CPA FEBRUARY 2019

A Dash of SALT

Lower Thresholds Now in Place for Arizona’s Electronic Filing and Payment Requirements In this month’s state and local tax (SALT) column, Busby explains Arizona’s new electronic filing and payment requirements. The requirements were enacted in 2017 under H.B. 2280 and the Arizona Department of Revenue’s amendment to A.A.C. R15-10-302(D).

In 2017, at the Department of Revenue’s request, the Arizona legislature began phasing in electronic filing and payment requirements for almost all Arizona taxpayers.

The department pursued this legislation in order to improve efficiencies and increase fraud prevention capabilities. According to the department, at the time, 80 percent of Arizona individual income tax returns were filed electronically, but only 31 percent of Arizona sales tax returns were filed electronically.

The Bill’s Broad Reach and Phased Approach H.B. 2280 applies to taxpayers required to file tax returns and make payments regarding state and local sales and use taxes; jet fuel excise and use taxes; severance taxes; telecommunications service excise tax; the municipal water delivery system tax; the prepaid wireless telecommunications E911 excise tax; and government property lease excise tax.

The bill also applies to orders for the tax stamps required to lawfully sell tobacco products. But, contrary to the dates and dollar thresholds outlined below, all returns, reports, and payments of any amount related to tobacco stamps must have been submitted electronically since July 1, 2015. Then, beginning on the effective date of the bill, August 9, 2017, all tobacco tax license applications and requests for refunds or rebates of taxes paid on tobacco products had to be submitted electronically.

Taxpayers who conduct business in two or more locations or under two or more business names in the state have been required to file their returns electronically since January 1, 2017, and beginning January 1, 2018, the department expected businesses that paid $20,000 or more in sales taxes in the previous year to pay their sales taxes via electronic funds transfer (EFT).

These taxpayers are required to file and pay electronically if they had an actual tax liability in the previous calendar year, or reasonably anticipate a tax liability in the current year, of at least the amounts set forth below — regardless of the number of locations they have in the state: • $10,000 beginning January 1, 2019; • $5,000 beginning January 1, 2020; and • $500 beginning January 1, 2021.

by James G. Busby, Jr., CPA

James G. Busby, Jr., CPA, is a state and local tax attorney at The Cavanagh Law Firm. Busby previously worked in the SALT departments at Arthur Andersen and Deloitte & Touche. Before entering private practice, Busby was in charge of all transaction privilege (sales) tax audits at the Arizona Department of Revenue.

If you have any questions, please contact the author. He can be reached at (602) 322-4146 or JBusby@CavanaghLaw.com.

FEBRUARY 2019 AZ CPA

9

The Effect on Income Tax Returns The department is still prohibited from requiring individual income tax payers to pay electronically, but the new law will affect corporate income tax, partnership and fiduciary returns.

The department can require corporate income tax payments to be made electronically under the schedule outlined earlier. But because the department has not implemented an electronic filing system for corporate income tax, partnership and fiduciary returns, those returns do not have to be filed electronically until 2021, or when the electronic filing system is implemented, whichever comes later.

Caution to Tax Return Preparers H.B. 2280 requires individual income tax preparers who prepare more than

ten original income tax returns that are timely filed for tax year 2018 or later to electronically file all individual income tax returns for that tax year and all subsequent years unless taxpayers elect to file a paper return. The bill also prohibits individual income tax return preparers from charging the taxpayer a separate fee to file a return using the department’s electronic filing program.

Bingo Licensees and Luxury Taxes on Alcohol In addition, the bill applies to all reports and returns filed by bingo licensees and by wholesalers of cider, malt, spirituous or vinous liquors for resale within the state; and by farm wineries, microbreweries and craft distillers selling liquor at retail or to a retail licensee within the state. However, because

no electronic filing system for these taxpayers is in place yet, these reports and returns do not have to be filed electronically until 2020, or when the department implements the electronic filing system, whichever comes later.

Annual Waivers Available Taxpayers who do not have a computer or internet access, or who satisfy other circumstances that the department director deems worthy, may file an application on or before December 31 of each year to obtain an annual waiver of the electronic payment and filing requirements. In circumstances beyond the taxpayer’s control, including situations in which the taxpayer was instructed by the department or the IRS to file paper returns, waivers are not required.

Sticks and Carrots to Encourage Compliance

Free Webinar for Members

CPE Requirements and Reporting April 30 - Noon to 1 p.m.

One CPE Credit

Learn details about CPE requirements and reporting from A. Carter Smitherman, CPA, the current chair of the CPE Advisory Committee for the Arizona State Board of Accountancy. Although this topic may seem simple, there are details that even the most seasoned practitioners can trip over, which cause unneeded administrative headaches. This course will provide a refresher on CPE requirements, describe the CPE audit process, discuss the most common mistakes found during an audit and potential consequences of those mistakes.

10

AZ CPA FEBRUARY 2019

All Arizona taxpayers who are required to file or make a payment electronically but fail to do so may be subject to a five percent penalty per occurrence, and all penalties will be at least $25, even if the taxpayer had zero tax liability.

On the other hand, as an incentive to encourage electronic filing by businesses subject to Arizona’s sales and severance taxes – regardless of whether they are required to file electronically yet – the state increased the credit available to those taxpayers for their accounting and reporting expenses.

For taxpayers who file electronically, the credit increased from 1 percent of tax due not to exceed $10,000 in any calendar year to 1.2 percent of tax due not to exceed $12,000 in any calendar year. This change was effective August 9, 2017. n

Anchors Aweigh!

Phoenix CPA Sets Sail with 12 Blind Students Steve Pope, a CPA with Henry+Horne, learned a lot about sailing, the challenges of blindness and ultimately, the meaning of trust when he served as a sighted guide to help 12 students with the Foundation for Blind Children circumnavigate three catamarans in the Spanish Virgin Islands.

“As the kids got familiar with the boats, it was fun to watch their confidence levels change dramatically,”

The group, known as “The Blind Buccaneers,” crewed the boats for six days, setting sail from San Juan, Puerto Rico on November 10. Leading up to the trip, the volunteer chaperones and students learned the fundamentals of sailing including how to identify cardinal directions, tie appropriate knots and adjust the sails. During the trip, the students controlled the boats from start to finish and also rationed and prepared the meals.

“As the kids got familiar with the boats, it was fun to watch their confidence levels change dramatically,” said Pope.

The group swam with sea turtles, fed sharks and fished. They encountered some rough waters and had to change course a couple of times thanks to tropical weather, but it was a life-changing experience for everyone involved.

FEBRUARY 2019 AZ CPA

11

“You really learn the meaning of trust when you put a blind 15-yearold in the water for the first time and tell them to let go of the wall.”

12

AZ CPA FEBRUARY 2019

“Our trip was absolutely incredible, and I’m truly amazed at what our kids have been able to do,” said Pope, who serves as president of the board for the Foundation for Blind Children.

The group consisted of 12 adults and 12 youths ranging in age from 14 to 21 years old. Preparation for the trip included training at Lake Pleasant for about 10 weeks prior and also a race with the Arizona Yacht Club.

“Many of the students did not even know how to swim,” said Pope. “You really learn the meaning of trust when you put a blind 15-year-old in the water for the first time and tell them to let go of the wall.”

Pope said the main challenges of the trip, besides making sure no one went overboard, were that of seasickness and bad weather. “But one of the best parts of the trip was getting to know the kids and hearing their stories.”

“The goal with these big trips is to get the kids outside of their comfort zone,” says Pope. “We do big bucket-list challenges — challenges that would be difficult for even full-sighted individuals.” In past challenges, the group has climbed Kilimanjaro and has even swum Alcatraz.

Pope has been involved with the Foundation for Blind Children for the past four years after a colleague recommended the opportunity to him. The Foundation’s mission is to “teach the world that vision loss is a diagnosis, not a disability.” The Foundation runs two schools and also provides services for adults.

Pope, a senior manager whose work focuses on technology, emerging companies and commercial audit engagements, says he loves his work as a CPA. He is married with three young children. n — Patty Gannon

Go Beyond Disruption: The Future of Finance We have entered the fourth industrial revolution — a period of innovation and acceleration expected to fundamentally alter how we live, work and relate to one another. It will, according to the World Economic Forum, drive transformation “unlike anything humankind has experienced before.”

FEBRUARY 2019 AZ CPA

13

professionals will need to evolve.

The changing role and mandate of finance: The finance function has the mandate to go beyond its core accounting role.

This changing mandate doesn’t discard core accounting; it’s still an essential foundation of the finance function. However, enabled by new technologies, the function is now capable of assessing a broader range of information and becoming a more influential player within an organization.

The Association has issued four reports on these themes, available for download at www.cgma.org/resources/ future-of-finance. These reports provide important insight for members in business and industry and are equally beneficial for those in public practice.

Members can use these reports to gain valuable perspective on the changing role of finance and what this means for them. The reports will also help CPAs drive a conversation with their clients or organizations on how to best prepare for the future.

“The emerging themes from our future of finance research represent horizon-scanning exercises for the finance profession,” said Dr. Noel Tagoe, EVP of Management Accounting, Research and Curricula at the Association. “By sharing the findings, we’re aiming to provide and empower finance professionals with new competencies and growth mindsets to help their organizations create and preserve value and to widen the remit of finance.”

Insights gleaned from the research project will also inform an update to the Chartered Global Management Accountant (CGMA) syllabus and learning pathway. Through the CGMA Finance Leadership Program, finance professionals develop the critical technical, business, leadership and communications skills required to be successful in business today. n •

The digital transformation of finance brings enormous opportunity.

It’s already having significant implications for business, where the speed of disruption driven by technologies like cloud computing, robotic process automation (RPA), artificial intelligence and Blockchain are forcing wholesale reinvention of business models and functions.

Nowhere is that more pronounced than in the finance function, which has to evolve at pace with the transformational change. For finance professionals, this means they will need to become adaptive learners constantly acquiring new skills. They will need to learn, unlearn and relearn in order to meet the demands of our new digital world. Lifelong learning and continued professional development will be critical for their future success.

That’s why the Association of International Certified Professional Accountants (the Association), the unified voice of the American Institute of CPAs (AICPA) and the Chartered Institute of Management Accountants (CIMA), undertook a year-long research project to better understand the changing finance function and the skills and competencies professionals need to evolve.

“The digital transformation of finance brings enormous opportunity,” said Ash Noah, CPA, CGMA, VP of CGMA External Relations at the Association.

“With technology automating many routine processes and reporting, finance can focus on data analysis and producing the insights that drive

14

AZ CPA FEBRUARY 2019

business solutions. This is elevating the role of finance as a trusted partner to the business.”

The Association’s future of finance research project shares insights from interviews and roundtables with more than 800 business leaders and academics across 34 countries, as well as a global survey of nearly 5,000 finance professionals. From the research, four major themes emerged: • Changing competencies and mindsets: In the finance function of the future, the technical capabilities of robotics and algorithms combine with the creativity and empathy of human accountants. While competencies are still very important for the finance professional, it’s a growth mindset that makes the greatest difference in the working environment.

• The changing shape of the finance function: As expectations and skills evolve, the shape of the finance function migrates from a traditional hierarchical triangle to a structure where expert teams collaborate as equals to achieve shared corporate objectives.

• Changing technology and finance: Advancements in technology will allow organizations, and in particular the finance function, to do more than they’ve ever done before. However, in order to capitalize on these technologies, the competencies of finance

To learn more about the Association’s Future of Finance research project, visit cgma.org/resources/future-of-finance.

Embracing Change in the Workplace

by Kent O. Utter CPA, MBA, EA Do you feel uncomfortable or even terrified when things change at your workplace? Change is both inevitable and necessary if a company is to survive and stay competitive. More than 70% of family owned businesses fail to survive the move from the founder of the company to the next generation.

The transition goal is for all employees to accept any changes.

FEBRUARY 2019 AZ CPA

15

Humans are creatures of habit.

Certainty brings with it clarity and predictability. Disruption of that certainty can cause stress and undermine employee performance. Resisting and reacting by employees are characterized by doubt and discomfort.

Moving to a new office building, changing offices or just renovating the office impacts employees. A change in management also affects employees, even if the change is positive. Cost-cutting is more controllable than increasing sales.

This cost-cutting may involve reducing the workforce either by eliminating an entire department, outsourcing or letting less senior employees go company-wide. Lawsuits involving the company may affect employee morale. Company reorganization can affect the job responsibilities of certain employees. Companies that are bought and sold on a regular basis result in new product lines being added and duplication of certain departments, such as human resources, accounting and data processing.

The following tips will help you deal with changes in the workplace: Acknowledge the change Recognizing and accepting change are the first steps to managing it.

Face your fears Knowing you have a plan can help you defuse any emotional anxiety.

Seek support Reach out to close colleagues and talk to them about what you are feeling.

Remind yourself of what is important to you.

Replace any fearful thoughts with something positive Be flexible and embracing of change Approach the change with an open attitude of learning. If you are flexible, people will want to work with you.

Gather information on how to make the change work.

Be part of the change See change as an opportunity. Employ the freedom to decide what to do next.

Communication Find out what the change involves.

Focus on your health to make clear and rational decisions Have a sense of meaning Take stock of how valuable you are to the company.

Continue to do your work with a positive attitude. Live well at the new destination when all the changes have been successfully implemented.

“All that you touch, you change.

All that you change, changes you.”

—Octavia E. Butler n Kent O. Utter, CPA, is a member of the ASCPA and an ASCPA Champion. He can be reached at: whalercpa@aol.com

Every child in Arizona deserves high-quality education.

By donating to IBE, you provide scholarship funds with a dollar-for-dollar tax credit.

Less than 5% of Arizona taxpayers utilize

this credit. Every student deserves the best, so make your taxes matter to the children of Arizona.

ibescholarships.org Notice (A.R.S 43-1603): A school tuition organization cannot award, restrict, or reserve scholarships based soley on a donor’s recommendation.

A taxpayer may not claim a tax credit if the taxpayer agrees to swap donations with another taxpayer to benefit either taxpayer’s own dependent.

16

AZ CPA FEBRUARY 2019

Pros and Cons of Selling a Business to a Key Employee

by John S. Stoner, CPA (in PA), CVA Entrepreneurs work hard to make their businesses succeed, and they often have a large percentage of their personal wealth embedded in those businesses. When they begin to contemplate retirement, it is important to maximize the net proceeds from the sale of their business to provide sufficient resources to support their retirement.

In considering potential exit strategies, one option is to sell the business to one or more key employees. If key employees are instrumental in driving performance, some owners feel those employees have earned the opportunity to become the owner. Others feel that selling to a key employee is an easy transaction that avoids business brokers and the long and expensive process of a third-party sale.

FEBRUARY 2019 AZ CPA

17

An outstanding employee may not have the personality, motivation, leadership capacity or risk tolerance to wear an owner’s hat.

Business owners facing this critical decision should factor the following reality checks into their considerations: • Is the employee likely to become an effective business owner? An outstanding employee may not have the personality, motivation, leadership capacity or risk tolerance to wear an owner’s hat.

• The employee may not have the resources to purchase the business in a cash transaction or sufficient borrowing capacity to obtain a bank loan. The financing challenge is even greater for businesses with intangible value, which makes for bad collateral.

• The selling owner should not provide a significant amount of seller financing to support the transaction.

The business owner already endured in vestment while building the business. Why add on collection risk in retirement? If the new owner fails, the note receivable could become worthless.

• It is difficult to complete a 100 percent ownership transfer to an employee via up-front cash transaction.

If the primary objective of the retiring seller is to get paid as quickly as possible, an external buyer may be more realistic.

• To maximize the selling price, an external buyer is likely a better path forward. A potential buyer that is already in the same industry, or one looking to vertically integrate operations and take

18

AZ CPA FEBRUARY 2019

advantage of synergies, can afford to pay more than an employee willing to step into the owner’s shoes. For this reason, a preliminary assessment is often performed to demonstrate how much money the owner may be leaving on the table with an employee sale.

For owners that have taken these factors into consideration and still wish to proceed with a sale to an employee, the following concepts may be helpful in designing a transaction that works for both buyer and seller.

• Transfer the stock ownership of the business incrementally over a period of years. Instead of attempting to sell the entire business in an immediate transaction, sell small percentages of the company’s stock to the employee over a number of years. This allows the employee to be introduced to the role of owner without being overwhelmed.

It also makes the purchase more affordable.

• Introduce a performance-based incentive compensation program for the key employee. Establish key metrics (both financial and operational) and be willing to reward performance. The program can award bonuses in the form of company stock or cash that could then be used to purchase stock from either the company or a majority owner.

• Transition out of day-to-day operations and into an absentee owner role. A process of transitioning duties provides the employee with the

opportunity, authority, and responsibility to develop key business relationships and gain experience in making critical decisions. If an owner has already moved to become less active in the business or already obtained absentee owner status, congratulations are in order. This effectively demonstrates that the business can still be successful in the hands of another owner. The sudden step-away of an active owner, by contrast, is a major risk factor.

• Reap the benefits of the business’s ongoing profitability during ownership transition. Monetizing ownership value can be accomplished in ways other than just the selling price of the stock.

To the extent a business is generating surplus net cash flow, receiving W-2 bonus compensation, shareholder distributions, or partial stock redemptions through the company will help shift value from the company to the owner.

This information in this article can help with the transition to a key employee or multiple employees and ultimately result in a final stock buyout of the remaining ownership interest at a future date. It is a practical and manageable succession plan design for owners intent on an employee solution. n John S. Stoner, CPA (in PA), CVA, is a partner in the business consulting services group of RK. He can be reached at jstoner@ rklcpa.com.

Internal Communication

Automation Doesn’t Replace Communication

by Arianna Campbell Communication is integral for any accounting firm or business, no matter the size. Without clear communication – both internally and externally – chaos is bound to occur. That’s why it’s essential to remember that while we might use automation to facilitate communication, automation will never replace communication.

Many firms have made the leap to an automated workflow tool that allows reviewers to enter review notes for preparers and track those review notes as they are addressed or resolved.

While this feature can help facilitate communication between the preparer and reviewer, unfortunately, some reviewers use these notes as a means of not having to actually talk to staff members. When they’re used as a means to “train” new staff, an extensive list of review notes is more a source of frustration for struggling preparers than a learning opportunity. Review notes, whether handwritten or digital, do not take the place of training and coaching. Reviewers still need to supplement review notes with verbal discussion.

The fact that the preparer and reviewer are not in the same office is not an excuse. Technology allows teams to work remotely, but that doesn’t remove the need for “face-to-face” communication. Video conferencing is an excellent

FEBRUARY 2019 AZ CPA

19

alternative to in-person review meetings. These conversations are how new staff members grow and develop.

They are how relationships are built.

Automated review notes can help your firm transform to a paperless model and streamline procedures, but they aren’t an excuse to side-step talking to the people you are supervising.

External Communication In the last few years, several tools have digitized and automated the process of collecting client documents, obtaining signatures, delivering tax returns and more. Data collection and processing may be automated but applying expertise, using judgment and building client relationships is not.

It’s as essential as ever to have strong written communication skills to translate your insights into compelling documents and strong oral communication skills that allow you to convey pertinent financial information to executive teams and stakeholders.

We’re living in a time of unprecedented access to information, yet all of this information is just noise if it’s not communicated effectively.

Automation can free up a lot of time spent on the front and back end of your client engagements, but technology isn’t just about helping us do the same work faster. It should give us the time and opportunity to connect with clients in a way that brings them more value. That value doesn’t come from automated reminders asking your clients to upload their tax documents or sign an engagement letter. It comes from having a deeper understanding of what is keeping your clients up at night and providing sophisticated advice and analysis that helps them solve those problems.

Technology might improve the mechanics of communication, but it cannot replace the human element.

For some, this reality may require cultivating a broader range of relationship skills. We can’t look at it as we “have to” talk to a client but as an opportunity to make connections and build relationships.

20

AZ CPA FEBRUARY 2019

Do your communication skills need a tune-up? Here are a few areas to work on: Storytelling. Whether talking to a co-worker or a client, you want to present information in an interesting way.

Nothing helps a person build a picture in their mind better than hearing about a real-life scenario. Tell a story through your analysis of financial information.

Eye contact. Make eye contact with the person you are talking to. Eye contact indicates you are focused and paying attention.

Credibility. When someone asks a question, it’s okay to say you don’t know the answer. Never make something up to avoid looking unprepared and always admit when you are wrong. Credibility is of utmost importance in the accounting profession.

Practice active listening. Make sure you hear the other person’s point of view during a discussion. Give your full attention rather than thinking about what you’ll say next.

Communicate solutions. Clients look to their accountants for answers to help achieve their goals. Make sure you know what they are and communicate your solutions in a way they’ll understand.

Slow down. It’s easy to breeze through what you want to say without making sure the other person understands. Take a breath and slow down. It may seem

counterintuitive, but it will save time in follow-up questions or missteps in the long run.

Confidence. Be confident when you talk to clients and staff members.

Confidence does not mean arrogance.

Confidence comes from doing your homework and being prepared.

Give feedback. Being able to give and receive feedback is an important communication skill.

With much of the number crunching and counting being performed by bots, AI and machine learning, the marketplace is already demanding that CPAs know how to leverage knowledge to provide insight and connect with people. If you want to remain relevant while automation disrupts the profession, you need to develop and refine a skillset that cannot be automated.

Machines are excellent at performing routine tasks, but catering to the needs of an individual is a uniquely human ability. n Arianna Campbell is a director for Boomer Consulting, Inc. She helps accounting firms challenge the status quo by leading process improvement initiatives that result in increased profitability and client satisfaction. She can be reached at arianna.campbell@boomer.com.

AZ CPA Quick Quiz You’ve Read It, Now Get Credit Take this quiz on AZ CPA content online or submit this hard copy.

Receive a score of 70 percent or more and earn one hour of CPE credit in specialized knowledge. It’s that easy!

Fees: Members: $25 Nonmembers: $40 Online Access Go to www.ascpa.com/quickquiz to access links to all active quizzes. Once a quiz is purchased, a link and password will be emailed to you. Your results will be sent immediately after completion, and certificates are emailed within two business days.

Hard Copy Please select one answer for each question. Fill out registration/payment information below and mail or fax to the Society office. Quiz results and certificates will be emailed to the address provided on the registration form. *This quiz will be available until February 2020. Please note that users have three attempts to pass the quiz with at least a 70 percent score.

February 2019 Issue of AZ CPA* 1. In his Chair column, Mike Allen says CPAs are inherently good at teaching: m Mathematics m Poker m Financial Literacy 2. In 2017, how many Arizona sales tax returns were filed electronically? m 31 percent m 40 percent m 80 percent 3. All reports and returns filed by bingo licensees and wholesalers of alcohol do not have to file electronically until: m 2019 m 2020 m 2022 4. What organization did ASCPA member Steve Pope work with to take youth sailing? m Junior Achievement m Foundation for Blind Children m Make a Wish

5. How many reports were issued by the Association of International Certified Professional Accountants following their year-long research project? m One m Four m Nine 6. What percent of family owned businesses fail to survive the move from the founder of the company to

the next generation? m 18 percent m 66 percent m 70 percent

7. When selling a company to an employee, transferring the stock ownership of the business incrementally over a period of years may be a good option. m True m False 8. When selling a company to an employee, what was mentioned as a major risk factor? m Companies with more than 100 employees m The employee’s knowledge of accounting procedures m A sudden step-away of an active owner 9. What communications tool can be effective when presenting information? m Storytelling m Meyers-Briggs Test m Telephone Tag

10. You should be careful that this tool does not replace communication for training new staff members. m Automated review notes m Online chat m Email Groups

Quick Quiz Registration Name: ____________________________________________________ Email:_____________________________________________________ Telephone: _________________________________________________

Payment

m Member: $25 m Nonmember: $40 Checks: Please make payable to: The Arizona Society of CPAs Credit Card:

m Visa m MasterCard m American Express

Credit Card #: _______________________________________________ Expiration Date: _____________________________________________ Name on Card. _____________________________________________ Mail to: ASCPA, 4801 E. Washington St. Suite 180, Phoenix, AZ 85034-2040; fax to (602) 252-1511 scan and send to ASCPACPE@ascpa.com.

FEBRUARY 2019 AZ CPA

21

Classifieds Employment DIRECTOR OF TAXATION — Wellestablished Phoenix CPA firm seeks a director for their growing tax group.

Great work-life balance, compensation/ bonus package and fast track partnership potential. Please send your resume and related data to brody@erscareers.com or call (714) 744-4000.

Discover the Power of One ASCPA 100% Club – The Power of One You may qualify to be part of the ASCPA 100% Club – Power of One, at no additional cost. The ASCPA 100% Club gives you access to exclusive benefits tailored to maximize your business such as: • One complimentary hour of ASCPA On-Demand CPE or Quick Quiz per year (up to $35 value and access 24/7) • One complimentary annual ASCPA Professional Issues Update ($25 value and 1 hour of CPE) • One complimentary annual tax software roundtable (inperson, $30 value) • List your business on the ASCPA Find a CPA webpage and stand out with the 100% Club logo • PR Toolkit to maximize business opportunities for your business ($30 value) • 20% off the cost of the first display ad in the AZ CPA magazine ($70-$210 value) • Annual ad design at no cost when you advertise in the AZ CPA magazine ($150 value) • 100% Club logo to feature on your website, signifying your commitment to the CPA profession

Eligibility You must be a self-employed CPA to qualify for the listed benefits. In order to enroll you must qualify as a Full Member, per the ASCPA Bylaws, must be an ASCPA member for five years or more, and must contact the ASCPA annually to confirm that you Sponsored remain self-employed.

You must be in good standing with the ASCPA in order by to access the benefits and receive CPE registration discounts.

Your organization may qualify for the ASCPA 100% Club. There are four 100% membership categories designed to suit the specific needs of your organization.

100% Club — Firms with 10 or more CPAs 100% Club — Firms with nine or less CPAs 100% Club — Industry Insiders (non-public accounting organizations) 100% Club — The Power of One (Single Owner-Operator Organization)

Contact cquinonez@ascpa.com to opt-in and gain access your 100% Club benefits today!

22

AZ CPA FEBRUARY 2019

SENIOR ACCOUNTANT — Partridge & Associates CPAs — N. Scottsdale CPA Firm Specializing in business and personal taxes seeks Accounting Supervisor. QuickBooks proficiency is required. Knowledge of trial balance through compiled financial reports.

Great Benefits. Growth Opportunity, Competitive Salary, DOE. anna@ partridgecpas.com.

FAST TRACK TO PARTNERSHIP —Hatcher Financial, PC. Experiencing a barrier to partnership? Interested in joining a holistic accounting and wealth planning firm? We are seeking entrepreneurial senior/manager to join our well-established tax and financial consulting firm. Succession plan is your opportunity for ownership. Send resume to Doug@HatcherFinancial.com

Office Space for Lease OFFICE SPACE FOR LEASE — BEAUTIFUL GARDEN-STYLE OFFICE complex in a great office environment located in north Phoenix.

Easy access to both the SR 51 and SR 101 just north of NWC of Tatum and Shea Boulevard. Executive office $800; interior office $650. Ample parking, beautiful conference rooms, seminar room, and copier, telephone and internet ready. Contact Clara or Mary at (602) 953-5000.

For information about classifieds go to www.ascpa.com

The Arizona Society of CPAs

Governmental Accounting Conference February 8, 2019 In-Person & Webcast Recommended CPE: 8 hours Hyatt Regency Phoenix — Complimentary Parking Save time and register online at www.ascpa.com/gac19 Conference Agenda 8:00-8:05 Welcome and Opening Remarks Committee Chair Brian J. Hemmerle, Henry+Horne

8:05-8:55 Auditor General Update Lindsey Perry, Office of the Auditor General, State of Arizona

9:20-11:00 Anatomy of a Fraud David L. Cotton, Cotton & Company, LLP

Registration Fees: Members: $275 Nonmembers: $375 Name _________________________________ Company _______________________________ Address ________________________________ City __________________________________ State ___________ Zip_____________ Phone ________________________________ Email _________________________________ r Address given is my home address.

11:20-12:10 GASB Update David R. Bean, Governmental Accounting Standards Board

12:10-1:20 Arizona’s Future Growth

I will attend:

r In-Person

Check all that apply:

r ASCPA Member r CPA r Not a CPA r Non-CPA Staff r Nonmember r Conference Committee Member

Form of Payment:

r Check r Visa r M/C r AMEX

Grady Gammage, Jr., Gammage & Burnham, PLC

1:35-2:50 Concurrent Sessions A. In-Depth GASB Report David R. Bean

B. Thinking the Unthinkable: Real World Lessons From Actual Disaster Recovery Scenarios Michael Cocanower, ItSynergy

C. Who Reads This Stuff Anyway? Why Preparing a Comprehensive Annual Financial Report is Important and How it Can Help Your Government Vicki L. Rios and Thomas F. Duensing, City of Glendale

3:15-4:30 Concurrent Sessions D. What you Absolutely, Positively Need to Know About What it Costs David L. Cotton

E. Yellow Book Update Vanessa Burke, The Pun Group, LLP and John Georger, Jr., American Institute of CPAs

F. Integrating Multi-Generational Work Styles Aaron Peterson, City of Tempe

r Webcast

Fax Credit Card Payments to: (602) 252-1511 Name on Card ___________________________ Card # ________________________________ Exp. Date _________ Amount $ _____________ Signature_______________________________ Mail check to: Arizona Society of CPAs 4801 E Washington St., Ste. 180 Phoenix, AZ 85034-2040 (602) 252-4144 Location:

Hyatt Regency Phoenix 122 N 2nd Street Phoenix, AZ 85004

You’ll be able to select your breakout sessions a week before the FEBRUARY AZ CPA conference by completing a quick and2019 easy online survey.23

PRSRT STD U.S. Postage PAID Phoenix, Arizona Permit No. 952

Arizona Society of CPAs 4801 E. Washington St., Suite 180 Phoenix, AZ 85034-2040

ADDRESS SERVICE REQUESTED

BUSINESS BREAKUPS ARE HARD CALLING FOR EXPERTISE ISN’T STEVEN N. BERGER (602) 222-4976

3636 NORTH CENTRAL SUITE 700

24

AZ CPA FEBRUARY 2019

•

PHOENIX, AZ 85012

•

EBLAWYERS.COM

•

602.271.9090