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The Arizona Society of Certified Public Accountants

Forensic Litigation Financial Forensics Family Law Accounting

Human Capital Growth

Risk Management


Bookkeeping Tax Review Management Consulting Executor/Trustee Other



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Communicate • Collaborate • Contribute The new, 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. The Arizona Society of CPAs recently developed an online network for members only that will allow you to interact and communicate with your peers. This tool puts the most relevant information at your fingertips.

Your Checklist to Get Connected

3Import Your LinkedIn profile with a click of a button. 3

Add a picture to your profile – If you imported your LinkedIn profile, this is already done.


Set your privacy settings so members can easily find and connect with you through the member directory.


Find and connect with members – Did you meet someone interesting at a CPE course? Add them to your contacts on Connect. You can use the member directory to find them.


Join a community that fits your interests – whether it is tax, financial planning, emerging leaders or more.


Ask or answer a question – There is a main discussion forum and discussions in each of the communities – It is a great place to find new ideas and share experiences with other members.


Access the Library – Each community has a library of documents and articles related to the community’s field of interest. You can also add your own documents to the library.

Congratulations to Liz Mason — the winner of an iPad in our update your profile contest.


Read or write a blog – Members can write their own blogs on the site and have it available for members only or open for the public to read.

Join the discussion at:





Volume 29 Number 1

Cornerstones of Financial Forensics


Three areas where every forensic accountant must be proficient. by Joe Epps, CPA

Risk Management for Accountants— Avoiding Professional Liability Actions


Human Capital Management — A Key Driver for Growth


Accountants continue to be seen as deep pockets whenever financial tranactions go sour. Learn how you can avoid trouble. by George J. “Jay” Coleman

Features The Forensic & Litigation Services Steering Committee


Lanyon shares his new experiences on the FLS Steering Committee. by Geoff Lanyon, CPA

Family Law Accounting


Forensics experts must be aware of certain issues in the family law area. by David Cantor, CPA

Employee skills and experience can mean the difference between success or failure for businesses.

Columns & Departments 6

Chair’s Message by Armando Roman, CPA


Focus on Members


In the Black ... Adventures in Accounting

22 Classifieds Arizona Society of Certified Public Accountants 4801 E. Washington St., Suite 225-B Phoenix, Arizona 85034-2021





The Arizona Society of Certified Public Accountants

President & CEO

Cindie Hubiak


Patricia Gannon

Countless petitions, millions in taxes recovered, many happy clients

“We do the work, you get the refund”

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

ASMR Consulting LLC (480) 204-1289


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

• Arizona CPA • 14 years experience • Real estate and business equipment appeals • Contingency fee appeals • Annual reporting at reasonable rates • Multi-state work

Conservative, Prudent, Tax-Efficient Wealth Management Personalized services for high income, high net worth individuals and highly profitable business owners. • Investment portfolio management • Qualified plans / non-qualified plans • Implementation of CPA-advised investment strategies


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.



Chair’s Message

by Armando G. Roman, CPA

Looking Forward to the New Year Happy New Year fellow CPAs! Well wishes to all as we enter a new year of life, a new tax year and gain another year of maturity and wisdom. A new year is a good time to recap and plan for the year ahead. In that regard, 2012 seemed pretty darned iffy; agree? Was the economy going into a double dip, was the European Union breaking apart and taking us with it, was the infamous fiscal cliff inevitable? Alas, does 2013 look more stable to you? Are you feeling positive about your company’s outlook over the next 12 months? My business feels fine although I operate in a microcosm. Better to attend the ASCPA’s Economic Outlook luncheon scheduled for Jan. 24 in Phoenix and Jan. 29 in Tucson to have reknowned economists give us their perspective. The Phoenix speaker is Dr. Lee McPheters, Director of Arizona State University’s J.P. Morgan Chase Economic Outlook Center which specializes in economic forecasts for Arizona and the Western States. The Tucson speaker, Dr. Gerald Swanson, is Chair in Economics at the University of Arizona (my alma mater) and author of America The Broke: How the Reckless Spending in the White House and Congress are Bankrupting our Country and Destroying our Children’s Future. Dr. Swanson wrote his book in 2004, nine years ago. In 1993 he wrote another telling book Bankruptcy 1995: The Coming Collapse of America and How To Stop It. The book spent 39 weeks on the New York Times Best Seller List. Unfortunately, I will miss seeing Dr. McPheters as I will be participating as a new member in the National CPA Financial Literacy Commission meetings of the AICPA during his presentation. Dr. Swanson looks to be worth the trek from Phoenix to Tucson on the 29th. I would love to hear Dr. Swanson’s thoughts on present-day fiscal policy and his version of the state of our economy. Given the popularity of his


books, he appears to be an oracle. Not having met Dr. Swanson, I hope he gives us both barrels, holding back nothing, waiting to see the whites in their eyes before he stops pounding clenched fists on the podium, wearing tweed of course. An emotionally charged economist? I’ll keep my fingers crossed. Speaking of emotions, I came across a study recently that speaks to emotionally-based investment decision making. It was very, very interesting. The study was critical of investment advisors for allowing the public to make emotional decisions, stating that if advisors would “advise” and tell clients what to do, force their hand if you will, investors would revel in better portfolio returns. The study conducted by Dalbar, Inc., Research and Communications Division, April 2012, concluded that investors’ emotions, fear of the unknown, fear of uncertainty, emotions hard wired in our brains, drives investors to flee. The survival instinct deeply ingrained in us overrides the rational logical self. Forget empirical evidence, forget historical anything, to flee is to survive. As a CPA, this seems

completely illogical. Can you imagine in a tax return or an audit, allowing the client to tell you how to handle a certain item, despite clear evidence to the contrary? That may seem equivalent to taking tax or financial advice from your barber. I can attest to emotionally driven behavior, as I think of a particular client who must be glued to the television set and radio. If something is going on in the world that might impact the financial markets, he knows about it. When we meet, it takes 30 minutes to lower his blood pressure before we can get anything done. This new year, I look forward to my oldest son becoming a senior in high school and having another successful season on the wrestling mat. I look forward to my other son becoming a high school sophomore and having success in his first wrestling season and lacrosse. And I look forward to having my daughter enter 5th grade. She continues to amaze me with her eagerness to learn and live and outdo her older brothers in everything she AZ CPA does. Enjoy the new year!

Focus on Members Kent O. Utter CPA, MBA, EA, helped write the CPA exam questions for the AICPA in November. This was the 4th time he participated, and the AICPA flew him out to Washington, D.C. for a 19-hour workshop. David Richardson, CPA, has been promoted from CFO to CEO of Take Charge America.

Charvoz and Fortino, PLLC Certified Public Accountants in Tucson has merged its operations with R&A CPAs. Leslie Stackpole, CPA, was promoted to tax partner at McGladrey, Phoenix. Patricia von Kolen, CPA, was hired as a senior tax accountant at REDW LLC. Linnette Klinedinst, CPA, was promoted to manager in the audit practice at Grant Thornton.

Congratulations to Vesna! The ASCPA’s newest staff member has also become one of our newest citizens. Vesna Stimac recently took the oath to become a U.S. citizen. She has lived in Arizona for 12 years and was originally from former Yugoslavia.

ASCPA Society leaders attend the 2012 AICPA/CPA-SEA Leadership Conference: (L to R) Barry Melancon, AICPA President, Karen Abraham, ASCPA Chair Elect, Cindie Hubiak, ASCPA President and CEO, and Bill Balhoff, AICPA Vice Chair.

Ed Dupke is the AICPA’s representative to the G-400 firms. He and Cindie Hubiak met with a few Heinfeld, Meech & Co. partners in Tucson. CPAs from left, Cherie Wright, Jennifer Shields, Ed Dupke, Gary Heinfeld, Cindie Hubiak and Corey Arvizu.



Focus on Members Legends and Leaders The Legends and Leaders program got off to a great start with Denny Mitchem, CPA, and Kate Forbes, CPA, being the first two people featured in the series. Watch for more opportunities to hear from the CPAs who helped form the profession in Arizona.

Kate Forbes (center) and participants after her presentation.

Cindie Hubiak, CPA, CGMA, introduces Denny Mitchem, CPA, to the group.

Our Members Are Winners! Being an active member of the ASCPA definitely has its rewards. Just ask Liz Mason, CPA, who won the drawing for an iPad when she updated her profile on the new Connect site. Or ask the lucky members who recently attended the Technology Conference and were seleted to win some great prizes, including an iPad, a scanner and a CPE course.

Tiffany Padilla won the scanner from K2


Liz Mason won the iPad from the Connect contest and Homer Quist won the iPad from K2 at the Technology Conference.

Mary Smalle won the 8-hour CPE seminar from the ASCPA

ASCPA member Thala Rolnick, CPA, was given a rare tour of the West Wing and other parts of the White House on a recent visit to DC. She is pictured (top) in the press room and in front of the east wing door with her friend Barbara Aldridge whose son is the Navy Liaison to the National Security Council.

In the Black ... Adventures in Accounting

Concept: Heidi Frei Illust.: Jack Gannon

Seminars, conferences, webcasts and self-study can be taken all year long through the ASCPA. JANUARY 2013 y AZ CPA


The Forensic & Litigation Service Steering Committee by Geoff Lanyon, CPA

I first heard about forensic and litigation support work after a number of years in the work force. From time to time, the term “forensic and litigation support� (or some variation thereof) surfaced at my place of employment but rarely in a way that was related to what I did. Eventually, the information I did hear about this field convinced me to really explore it; I thought that the work might be a good match for my skills. Armed with only snippets of info; however, I really knew very little, at least at this stage. Further, I was unsure where to start looking for all the information I hoped to obtain. I began tapping into a variety of resources at my disposal. Being an ASCPA member, I naturally looked into the Forensic & Litigation Services Committee. As it has turned out, joining this Committee has been especially helpful in gaining exposure to the forensics and litigation support field in Arizona. The Committee offers seminars and other educational events that give newcomers a real flavor of topics and issues that arise in practice. Further, newcomers are encouraged to participate in preparing the seminars, an experience that has certainly helped me to understand the topics more thoroughly. Also, the Committee provides the valuable opportunity of meeting local professionals who do forensic and litigation support work. I have been able to chat with some of these professionals about their careers and also to get their thoughts about forensic and litigation support work in general. I have learned a considerable amount from them. The Forensic & Litigation Services Committee has, among other things, helped me determine where this field fits into my career. I would encourage any newcomer curious about forensic and AZ CPA litigation support work to consider joining the Committee. Geoff Lanyon, CPA, is a recent addition to the FLS Steering Committee. He can be reached at

10 AZ CPA y JANUARY 2013

Family Law Accounting (When “Death Do Us Part” Is Just Too Far Away) by David Cantor, CPA

When a couple gets divorced, the biggest issue to resolve usually involves money. Unfortunately, financial issues in a divorce are like an onion. Besides making both parties want to cry, there are often times hidden layers of financial implications that are not obvious at first. This article will touch upon a few of those issues and hopefully make you, as a Forensic Expert, aware of what may lie beneath the surface. The first step to approaching your assignment is to meet or talk with your client’s attorney. This is a crucial step in that it will lay out the known issues in the case as well as providing you with a timeline of future Court dates or other relevant dates. Realistically, you need to work closely with the attorney to ensure that you both are on the same page. Lack of communication or miscommunication can potentially lead to catastrophic errors for your client and very possibly your ability to collect your fees. Communication is the key ...



Identifying the issues is only the beginning of the accounting process. Besides being expected to adequately prepare schedules, exhibits and reports, you also need to be able to identify other more subtle issues that may exist, but nobody brought to your attention or even knew about. This is where you must have the experience and knowledge in this field before accepting a Family Law engagement. There are very few hard and fast rules on accounting in Family Law matters. With that said, there is case law, both Arizona and other states, as well as Arizona Statutes (specifically Title 25) that will offer guidance in your work. But it will still be incumbent upon you to apply these resources to your case in the fairest way to present the court with an accurate picture of the financial issues. Remember, you are an advocate for the court, not your client. That is the attorney’s job. Let’s look at some common issues, with hidden implications: Support/Maintenance – This is probably one of the most common issues that you will see. Usually it is driven by the income of the parties. But when there is a disparity between income and lifestyle, a Marital Standard of Living may need to be prepared. Additionally, income may be impacted by perquisites paid by a spouse’s business. Employee Stock Options – While it may be easy to identify all stock options, grant dates, vesting dates and strike prices, what about allocation between community property and separate property? Just because an option was granted during marriage doesn’t necessarily mean that it is community. What if it was compensation for past services provided prior to marriage, or for future services to be provided after separation? Then an allocation will be necessary. Personal Residence – While it is not our job to appraise the value of a residence, we may be asked to incorporate an appraisal into a community balance sheet that we are preparing. But what

12 AZ CPA y JANUARY 2013

Besides being expected to adequately prepare schedules, exhibits and reports, you also need to be able to identify other more subtle issues that may exist, but nobody brought to your attention or even knew about. if the residence was purchased prior to marriage by one party, but community funds were used to pay down the mortgage? Or, flip it around ... the house was bought during marriage, is titled in both names, but separate funds were used to pay down the mortgage. In both cases, some type of allocation may be necessary to accurately determine the community interest vs. separate property interest in the residence. Business Valuation(s) – This can be one of the most complex, as well as disputed, issues in a case. Preparing a business valuation requires experience and education. However, besides the basic valuation issues you may be confronted with, you may also be asked to deal with Family Law business valuations issues. What if the business was started prior to marriage? What about personal loans to/from the business? Were any perquisites paid by the business (this not only impacts your value but can also be an important factor in determining support and maintenance)? Is the business more a service business or a capital intensive business? These are just a few factors that can turn a business valuation into a major Family Law issue. Commingled Funds – If there is separate property monies mixed with community funds, all may not be lost for the separatizer. Assuming all bank records are available, there is the distinct possibility of carving out a separate property interest in a community account by preparing a Tracing. Believe it or not, the accounting part is the easy step (again,

assuming all records are available). Then what? Every transaction needs to be reviewed and allocated between separate and community. Now this is where it gets complicated; transfers between accounts must maintain their character; or if there were both community and separate funds available, who had the right to buy that stock that went up 10 fold in three days. Oh, and my favorite, after spending weeks preparing a 10-year tracing that included seven bank and brokerage accounts, my client shows up with a document that changes the character of a deposit made in the first year. That one deposit can change every aspect of the tracing from that date forward (make sure when they give you that document they also hand you a check for your fees to adjust the tracing). The bottom line is that each case has its own unique facts and circumstances and this is what will ultimately dictate how you approach your case. Knowing these facts and circumstances, working closely with your attorney and having experience in Family Law accounting will enable you to provide the best service possible to your client, but also maintain your professional integrity and respect of your peers. AZ CPA David Cantor is the founder of Forensic Accounting Consulting, LLC and has more than 15 years of Family Law accounting experience in both Arizona and California. Cantor can be reached at or (480) 620-8486. You can also visit his website at

Cornerstones of Financial Forensics by Joe Epps, CPA

This fall, the ASCPA sponsored a series of three courses which covered the cornerstones of financial forensics. The three cornerstones were: Preparing the Expert Report, Developing and Supporting Your Expert Opinions, and Preparing You and the Attorney for Trial. These topics were selected by the FLS committee because every forensic accountant must be proficient in these three areas. There are many other areas of knowledge which must also be mastered. Of course the ultimate skill is testifying; however, without a properly prepared report, a solid foundation for expert opinions, and preparation of the expert and the attorney for trial, the expert testimony may be excluded or ineffective.



The expert report is the first occasion where the expert presents their opinions and thus becomes the foundation for all subsequent testimony. The report must meet the legal requirements to be accepted by the court. If the report is significantly deficient, the Judge may exclude the expert from testifying at trial. If this should happen due to a deficient report, it would be a disaster for the expert. The requirements for an expert report may vary from jurisdiction to jurisdiction. At the beginning of the engagement, the expert should ask the attorney about specific requirements. When in doubt, the best strategy is to follow the Federal Rules of Evidence. The Federal Rules are the most stringent and therefore, any report that meets those requirements will likely meet any other court requirements. The Federal Rules for an expert report are set forth in Rule 26 (a) (2)(B). Those requirements include: (i) a complete statement of all opinions the witness will express and the basis and reasons for them; (ii) the facts or data considered by the witness in forming them; (iii) any exhibits that will be used to summarize or support them; (iv) the witness’s qualifications, including a list of all publications authored in the previous 10 years; (v) a list of all other cases in which, during the previous four years, the witness testified as an expert at trial or by deposition; and (vi) a statement of the compensation to be paid for the study and testimony in the case.

14 AZ CPA y JANUARY 2013

While all requirements are important, stating all opinions and the basis and reasons for those opinions is perhaps the most critical. This is because if an opinion is not stated in the report along with the basis for that opinion, the expert will likely be prohibited from presenting that opinion at trial. Exclusion of a key opinion can be devastating to the impact of the expert opinions on the case. The second section of the series was a discussion of how the expert might develop and support his or her opinions. The specific issues and available evidence of each case determines the areas in which opinion testimony might be developed. It is necessary, therefore, to look first at the development of expert opinions from a process standpoint. That process looks like this (see above). The diagram above identifies the process of financial forensics from case intake to wrap-up after the case has been resolved through trial or otherwise. The financial forensics expert should be able to describe the process they have followed. Financial forensics is not a haphazard activity; it is a well thought out process. While an expert may use different terminology or steps for their process, they should be able to clearly explain the process they followed. The expert may have many different sources of data available to them. The goal of the expert is to obtain sufficient relevant data to support his or her opinions. Therefore, they evaluate the various types of documentation and information available and focus on objective reliable data in forming their opinions.

The third section of the series focused on preparation for presentation of the expert’s opinions at trial. Success at trial involves close interaction between the world of the accountant expert and the world of the trial lawyer. Through preparation, the expert and the lawyer should share a mutual understanding of the expert’s opinion and agreement as to how it fits into the overall trial presentation. This requires time and hard work. The expert must start with a very thorough review of their report and deposition testimony. They must know the report and their deposition testimony almost to the point of memorization. They must review and grasp the arguments and opinions held by the opposing expert witness and party. This will allow the expert to plan for their direct trial testimony and minimize potential surprises on cross examination. Proper preparation also requires comprehension of the basic rules and realities of the trial process. An expert should discuss the expected trial testimony with the trial lawyer so that both share a common understanding of how the expert’s testimony meshes with the arguments and other evidence expected in the case. The lawyer should assist the expert in anticipating cross examination. The expert must understand and adapt to trial practicalities, such as available time, number of exhibits and preferred style of the Judge and the attorneys. Each trial testimony is unique and built around these concepts. These topics were covered in three presentations. The input from partici-

pants brought as much to the learning opportunity as the planned presentation by the speakers. This article only summarizes a small portion of the content since the depth of information provided cannot be presented here. Therefore, those with an interest in Forensic Accounting and Financial Forensics should take part in future courses and become involved in the ASCPA Forensic and Litigation Services( FLS) SteeringCommittee. Regardless of the level of your experience in this area, your input is valuable. AZ CPA Joe Epps, CPA, is managing partner at EPPS Forensic Consulting PLLC. He can be reached at

Expanding the Role and Influence of CPAs in Organizations

Feb. 26

ASCPA Learning Center

Economic Outlook 2013 Phoenix — Jan 24

Tucson — Jan. 29

11:30 a.m. – 1:30 p.m.

Start 2013 ahead of the curve as you gain insight into today’s economy at the ASCPA’s Economic Outlook luncheon in Phoenix or Tucson. Both events will give an overview of the local, state and national economy, including how the election results will make an impact on 2013 and beyond. Dr. Lee McPheters, Research Professor of Economics in the W. P. Carey School of Business at Arizona State University and Director of the school’s JPMorgan Chase Economic Outlook Center, will return for the Phoenix update and Dr. Gerald Swanson, Professor Emeritus of Economics, Thomas R. Brown Chair in Economics Education at the University of Arizona will speak in Tucson. Register at JANUARY 2013 y AZ CPA


For Members Only — Reach Out to Your Fellow Members As an ASCPA member, you will receive 15% off advertising or have your ad designed at no charge.

Arizona Society of CPAs

2013 Media Kit Our Members and Their Clients Make Great Customers! ASCPA members include top financial decision-makers who are advisers to both large and small businesses. A vast majority of our members recommend products and services to their clients. Reaching out to our members is an investment in your company. There are numerous ways to reach our members.

Get noticed by announcing your promotion, a new hire, your company’s new location or maybe even an award you or your firm received in AZ CPA. (See the sample below of an actual announcement placed in AZ CPA.)

For more information contact: José M. Herrera (602)324-4741 •

Take advantage of the following ways to increase your business: advertising in AZ CPA magazine and the CPE Resource Catalog; event and conference sponsorships; website banner advertising; and electronic communications—such as eNews and CPE eNews.

The CPE Resource Catalog Sponsorships

AZ CPA Magazine

Website/Online Advertising Electronic Communications

For more information, call José Herrera at (602) 324-4741 or the differe

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for Accountants

Avoiding Professional Liability Actions by George J. “Jay” Coleman

The accounting profession first became a lucrative target for plaintiffs’ lawyers after the savings and loan industry collapsed in the mid-1980s, and little has changed since then. Accountants continue to be seen as deep pockets whenever financial transactions go sour, and regulatory scrutiny of the profession has increased. It is no fun to be sued for malpractice. Even a defensible lawsuit in which you ultimately prevail will cost attorneys’ fees below your insurance deductible and will intrude upon you and your colleagues’ time, attention and emotions.



Moreover, what about the damage to you and your firm’s hard-earned reputation? The buzz around town will be that you got sued. The favorable resolution three years later will be yesterday’s news and may be confidential in any event. Your goal, then, is not to get sued in the first place. This series of articles first discusses common ways accountants can get into trouble and what to do if you are sued, and the second and third installments offer tips that you can incorporate into your practice today that will help you avoid malpractice claims and, in the unfortunate event that you are sued, increase your chances of a successful defense. Common Sources of Liability

Attest Work While reviews and compilations have generated litigation, the most significant claims in terms of dollar value arise from audit work. Like it or not, auditors are viewed by the public at least as “watchdogs,” and perhaps as “bloodhounds.” Regardless of what the auditor’s opinion letter says on its face, the public views it as a guarantee concerning management’s integrity and, for better or worse, juries often do so too. The “expectations gap” is alive and well. Maintain your independence from your client, and avoid actions that might suggest you are anything but independent. An auditor’s presumed lack of independence is a plaintiff’s favorite button simply because it is something a jury can appreciate and will react to. While a jury may fall asleep listening to experts talk about GAAS and GAAP, it may become incensed if the “independent” auditor vacationed in Hawaii as his client’s guest. So don’t let your friendship or longstanding relationship with your client cloud your judgment. Problems start to occur precisely when you start to relax — which is why regulators are again pushing for auditor term limits and rotation of engagement partners. Have a healthy skepticism; if you see a

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Tax advice and return preparation result in the greatest number of claims against accountants, though their monetary value is not as significant as audit claims.

problem, don’t ignore it. Ask questions until you are satisfied. If the client is honest he or she will work with you. If the client is dishonest then he or she should find another accountant.

Tax Work Tax advice and return preparation result in the greatest number of claims against accountants, though their monetary value is not as significant as audit claims. This isn’t surprising. Not only is tax work a mainstay of most accountant’s practices, but your work product in that area — the tax return — is subject to a hindsight examination by the government. Tax malpractice results most frequently from simple lapses. Tax claims range from missed deadlines and elections to poor advice to, most of the time, return errors. Malpractice occurs more from simple inattentiveness and poor client communications than from errors due to the complexities of the tax code. Many problems can be prevented by simple quality control procedures, such as an adequate tickler system. Be careful when giving spur of the moment tax advice. If your client calls during the rush of tax season with a “quick question,” take a moment to evaluate if the question is easy enough, and the client sophisticated enough that you will be able to answer the question competently without taking the time to research the issue. If you do proceed with giving “quick advice,” dictate a file memo summarizing the advice. If your client is unsophisti-

cated and/or the question is complex — or if large dollars are involved — confirm the advice with a short letter summarizing the information you were given, the advice you gave, reminding that it was a general discussion, and inviting the client to discuss the matter in more detail with you when time permits. Also be careful when preparing lastminute extensions based upon what a client has told you but not confirmed in writing. It’s easy during tax season to forget unusual items that should be included when calculating the extension payment. Document your discussions with your client and confirm in writing that the extension is based upon and only as good as the information provided by the client. The best practice is to make sure you have all the facts before you give sensitive tax advice. Tell the client you need more time and/or more facts before you can be in a position to give advice. Do not let the client rush you. Think twice about keeping your clients’ books, lest they say it’s your own fault you didn’t have the information needed to prepare the now-tardy tax return. Make sure your engagement letter states that it is the client’s responsibility to timely provide you with the information necessary to prepare the return. Without such documentation, a jury may have to decide whose job that was based upon your word against your client’s. Finally, be careful representing your clients before the IRS or other tax-

ing authorities. Not only is there no attorney-client privilege but your “mea culpa” attempts to exonerate your client may come back to haunt you when the client sues you. You will also be extending the time your client has to decide whether or not to sue. While the statute of limitations for tax malpractice in Arizona begins to run when a notice of deficiency is issued, the statute can be tolled if you continue to represent the client in dealing with the IRS. If you have some exposure, it’s probably best that you cease representing the client.

Consulting And Other Work Offering consulting or Management Advisory Services, such as litigation support and trustee services, can create exposure. If the consultant (or even your tax preparer) is not a CPA, tell your client that a non-CPA is doing their work. Otherwise the client may think your staffperson is a CPA, which can form the basis for a “bait and switch” fraud claim. Remember that information learned in a consulting engagement (e.g., that the client is losing a large account) may be relevant to your firm’s audit or tax engagement and vice versa, and the knowledge of the consultant can be imputed to the auditor — so communicate with each other. And beware of conflicts of interest: consulting can compromise auditor independence. While beyond the scope of this article, other traditional accounting work like business valuation and preparing projections can lead to exposure. Use appropriate disclaimers when submitting your work to the client. Doing work for employee benefit plans and implementing a computer system for your client can also spawn litigation.

Exposure To Third Parties In Arizona, accountants can be liable not just to their clients, but also to those to whom the accountant intends to supply information or those to whom the accountant knows the client intends to supply information. Non-client lenders, investors, acquirers, Insurance Commissioners, bankruptcy trustees and

receivers have all sued accountants. Don’t make it easier for these potential plaintiffs. Disclaim responsibility to non-clients in your engagement letter. If a bank calls to say it’s going to lend based on your work, don’t say that’s fine. Investors finance a company for any number of reasons; it is only in hindsight, after the deal goes sour, that they say all they relied on was your audit opinion. Don’t let them escape the responsibility of doing their own due diligence. What to Do if You Are Sued Being served with a lawsuit or getting a letter from the State Board or AICPA can ruin your day. But you can’t ignore the situation. What you do next could make matters worse and affect your ability to mount a strong defense. First, don’t try to “fix” the problem yourself. Don’t try to talk your unhappy client out of suing you. He may have already gone to a lawyer. You won’t change his mind and anything you say to him can and will be used against you in litigation. Don’t prepare a mea culpa memo to your partner justifying your work, and think twice even about getting a second opinion from your colleague. That memo and conversation will be discoverable by the opposition in litigation. Do not destroy any documents. The last thing you need is to defend a spoliation case on top of a malpractice case. Document destruction ranks with

auditor independence problems as a plaintiff’s preferred “spice” to inflame a jury. Don’t “supplement” or “update” your workpapers with what you now remember was done. Workpapers are supposed to be contemporaneous documents; that’s why they’re a powerful defense tool. If you kept them properly, they will refresh your memory and help convince the jury that you did solid work. Otherwise you’ll have to convince them with only your own hindsight testimony. Notify your insurance carrier as soon as you think there may be a claim and do it in the precise manner stated in the policy. If you wait too long coverage might be denied. If you simply call your local agent, and don’t follow the formal notification procedures, coverage might be denied. Will your premiums go up? Maybe, but you’ll likely have to disclose the claim when you apply for next year’s insurance. The sooner you get a lawyer, the sooner the attorney-client privilege will attach to protect your communications and your work-product. Otherwise, what you say and do will be discoverable. Your attorney can help you prepare a proper disengagement letter if you haven’t already disengaged and then guide you through the litigation or AZ CPA regulatory process. George J. “Jay” Coleman, is a partner at Snell & Wilmer L.L.P. He can be reached at

Arizona’s best resource since 2000 for

Cost Segregation Studies (480) 963-2872



Human Capital Management: A Key Driver for Growth Intensifying competition, continuing marketplace volatility and widespread globalization have done more than redefine the strategies, rules and measures of sustainable success for organizations today. They have also fueled the emergence of a critical driver of growth that until now has been too often overlooked—human capital management. Employee skills, experience, development and job satisfaction can mean the difference between success and failure. Acknowledging this, the American Institute of Certified Public Accountants and the Chartered Institute of Management Accountants commissioned the Economist Intelligence Unit to perform a global survey titled “Talent Pipeline Draining Growth: Connecting Human Capital to the Growth Agenda.” The survey of more than 300 CEOs, CFOs and human resource directors from a wide range of organization sizes and industry sectors was performed in July 2012. Its purpose is to understand talent management’s importance in business strategy and determine whether organizations have the resources in place to manage talent effectively.

20 AZ CPA y JANUARY 2013

Senior Executives Focus on Performance Targets and Strategy Leadership

Among the survey’s eye-opening findings is the damage inadequate human capital management is having on the bottom line. Forty-three percent of senior executives surveyed attribute their organization’s failure to hit key financial targets to ineffectively harnessing and managing their employees’ skills and experience. In addition, 40 percent believe that mismanaging talent has reduced their ability to innovate and 39 percent believe it is a barrier to achieving forecasted growth. Such measurable shortfalls take a tremendous toll on organizations, especially at a time when optimum performance, progress and competitive standing are needed most. “Ideas are the currency of the knowledge economy, so human capital must be managed as rigorously as financial capital,” said Arleen Thomas CPA, CGMA, Senior Vice President for Management Accounting at the AICPA. “It is clear from our research that many companies are falling short of their potential because they lack thorough, relevant information about their people to support effective strategy, hiring and training decisions. Chartered Global Management Accountants can bridge this gap, combining broad perspective and analytical rigor to ensure the right focus and metrics that align talent management with business strategy.” As the value of a successful talent management strategy begins to take greater hold among business leaders, there is less clarity on who holds responsibility for measuring the effectiveness of a firm’s talent management strategy. Eighty-three percent of human resource directors believe it is their responsibility; however, CEOs and CFOs disagree. Instead, 65 percent of CEOs responded that the CFO and finance team should be responsible for measuring the overall cost and value of recruiting, retaining and developing talent in their organizations. “There is a worrying boardroom divide that threatens to destabilize

sustainable growth by allowing the best talent to slip away,” said Charles Tilley, FCMA, CGMA and CEO of CIMA. “It is vital that organizations embed a robust human capital strategy within the wider business plan and develop appropriate metrics and KPIs that are subject to the same level of scrutiny as financial data.”

Four Steps Lead the Way to Successful Talent Management To help senior executives reap the full benefits of an effective human capital management strategy, and overcome any roadblocks that may arise, the AICPA and CIMA identified in their survey report the following four steps business leaders can take, which can be supported with guidance from CGMAs, to reconnect talent management with growth and progress:

Step 1: Create human capital metrics and KPIs that are core features of the organization’s overall business strategy, and ensure that they also help implement the business strategy. Step 2: Make certain that human capital information is credible and accurate, and made relevant and actionable so that it can support business decisions. Step 3: Establish clear guidelines that

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Step 4: Ensure that your organizational structure fosters close partnerships between executive and operational levels, especially collaboration between finance and human resources. AZ CPA

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Classifieds Business Opportunities/ Practices for Sale

Employment Opportunities

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

AUDIT POSITIONS—Keegan, Linscott & Kenon, P. C. We are currently seeking Audit Managers and Seniors in the Phoenix and Tucson areas. Our professionals work in a very autonomous manner on challenging projects with staff and clients.Enjoy a flexible work schedule, business development bonuses, paid CPE, competitive compensation and a generous benefits package. KLK is a full service, nationally affiliated public accounting firm located in sunny Tucson, Arizona. We are part of the McGladrey Alliance which represents the fifth largest public accounting firm in the U.S. Make a move and achieve your dreams, visit to apply in strict confidence today!

Tucson CPA Firm looking to acquire Southern Arizona CPA Firms—Tucson CPA Firm looking to acquire Southern Arizona CPA Firms. Contact: Jeff Quick at jeff.quick@ or (520) 751-2729.

TAX ACCOUNTANT —Epstein & Reynolds, PLC—Growing CPA firm in Scottsdale seeks a Tax Accountant with 2-5+ years of recent CPA firm experience to join our team for preparation of business and individual income tax

returns. We offer a paperless work environment, opportunity for growth and advancement, and competitive salary and benefits. Experience with ProSystems fx and Quickbooks a plus. Interested candidates may submit a resume to ACCOUNTANT II—Freeport-McMoRan Copper & Gold Inc. - FreeportMcMoRan Copper & Gold Inc., a leading international mining company with headquarters in Phoenix, Arizona, is seeking a professional qualified to perform accounting and reporting duties involved in the accounting close process. Responsibilities include recording journal entries, performing financial analysis and account reconciliations. Requires 3 years accounting experience and a related BA degree; CPA preferred. Experience with SAP and/or Hyperion financial systems would be a plus.Please apply at: jobdetail.ftl?job=294401&lang=en&sns_ id=mailto#.UKF_PmedD6s.mailto Freeport-McMoRan Copper & Gold is an equal opportunity, affirmative action employer SENIOR ACCOUNTING ANALYST—Freeport-McMoRan Copper & Gold Inc., a leading international mining company with headquarters in Phoenix, Arizona, is seeking a professional qualified to manage monthly GL closings, including preparation of journal entries, account analysis and reconciliation. Requires 3-5 years of experience in Accounting or Financial Analysis, plus a related BA degree; Master’s degree and CPA or CMA preferred. Experience as an Accountant for a public accounting firm would be ideal, as well as working knowledge of SAP and Hyperion financial systems. Fluency in French or Spanish desired. Please apply at: id=mailto#.UKF_Pqx8UCc.mailto

22 AZ CPA y JANUARY 2013

Upcoming ASCPA Conferences

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

Accounting & Reporting Standards Conference

SENIOR TAX ACCOUNTANT PART-TIME FOR TAX SEASON —CRAIG SATZ, CPA, P.C. - CPA with minimum experience of five years in a CPA firm preparing taxes. Work two to three days per week from February 1st - April 15th. Need to know Lacerte and Quickbooks. Located in Mesa. Hours are flexible. Days are flexible. Please send resume to craig@ PART-TIME TAX PREPARER / ADMIN ASSISTANT—Established Tempe CPA Tax Practice hiring for year round part-time Tax Preparer (Lacerte experience preferred) with other front office and back office responsibilities. Salary is competitive and depends on experience and performance. Email resume to: Tax Preparer— Scottsdale Airpark CPA Firm—N. Scottsdale CPA firm seeking PT experienced seasonal tax preparer. CPA or EA with experience with Lacerte preferred. Will prepare 1040, 1120s, & 1065 tax returns and some minor bookkeeping. Email resume and wage request to

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

Jan. 18

Black Canyon Conference Center

Governmental Accounting Conference Feb. 1 Arizona Biltmore Resort

For more information or to register, go online to www.

Watch an ASCPA Webcast with Co-Workers and Save 33% Get your team together to watch a webcast and save on registration fees. Contact Jena Ford at jford@



Arizona Society of Certified Public Accountants 4801 E. Washington St., Suite 225-B Phoenix, AZ 85034

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

Health Care Reform—You have questions, we have answers! Did you know that employers are limited in their contributions to their employees’ Flexible Spending Accounts (also known as “Cafeteria Plans”) to $2500 per year beginning with Calendar year 2013? With the average employee health insurance premium topping $300 per month, this limitation may impede your business clients’ ability to cover as much of their employees’ health insurance as they would like. However, there are some strategic steps they can take to maintain maximum tax benefits and keep their employee benefits plan competitive, while saving them money at the same time. Give us a call so we can tell you all about the best ideas to present to your clients before someone else does! Don’t forget, there is a discount available to all members of the ASCPA and their employees, as well as their dependents, from Blue Cross Blue Shield of AZ. This discount is available for all under age 65 Individual plans that required an application for coverage. Call us to see if you’re getting your discount!

The Argus Group 602 863-0080, ext. 105 or ext. 106

24 AZ CPA y JANUARY 2013

AZ CPA Feb. 2013  

The official magazine of the Arizona Society of CPAs