CPA MARCH/APRIL 2011
The Arizona Society of Certified Public Accountants
Fraud Cases in the news
Form 1099 and Rental Properties â€˘ Engagement Letters
“I’m worrIed. I thInk I’ve got a serIous problem on my hands.” Based on an actual conversation between a CAMICO Policyholder and a CAMICO Risk Management Specialist
cpa: My tax client is refinancing his home loan and is pressuring me to write a lender letter. He says the bank needs the letter today or he’ll lose his financing. I just don’t feel comfortable giving assurances about my client’s creditworthiness. camIco: You’re right to be concerned. This letter could expose you to a lawsuit if your client defaults on the loan. Don’t worry, though, I can help you draft an appropriate response. We receive calls like yours all the time — the lenders want your assurances rather than doing their own due diligence. I’ll help you “push back.” cpa: What does that entail? I don’t want to lose my client over something like this. camIco: I understand and can help you craft a letter clearly stating your services were limited to preparing tax returns from information your client provided. Your letter will be factual but provide no assurances. If your client agrees, you can offer to send the lender copies of prior tax returns. This way, you can help your client, keep the lender responsible for its loan decision, and avoid violating professional standards that prohibit providing assurances that your client can meet loan commitments. cpa: Great! I can’t believe I spent all morning worrying about this. If I’d called CAMICO earlier, I’d already be onto something more productive. Thanks — you’ve given me back the rest of my day.
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Volume 27 Number 3
Arizona Fraud Cases in the News
Learn from the schemes and scams in 2010 by Robert K. Minniti, CPA
Engagement Letter Essentials
Community Benefits from Tucson CPA’s Dedication and Expertise
Carla Keegan, CPA, will receive this year’s ASCPA Public Service Award.
Kirsten Cook to Receive Foundation for Education and Innovation’s Excellence in Teaching Award 10 The Balancing Act— Working Long Hours Can Take a Toll on Health
Understand the importance of rest, particularly when you are the busiest. by Dr. Jeff Donahue
Arizona Society of Certified Public Accountants 4801 E. Washington St., Suite 225-B Phoenix, Arizona 85034-2021 www.ascpa.com
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Avoid “engagement creep” and collection problems with a well crafted engagement letter. by Ronald C. Parisi, J.D., CPA
Form 1099 Reporting for Rental Propeties
Rental properties are now considered businesses and owners are required to file a Form 1099. by Thala Taperman Rolnick, CPA
Columns & Departments 6
Chair’s Message by Julie Klewer, CPA
Letters From Members
Focus on Members
The Arizona Society of Certified Public Accountants
President & CEO
Copy & Advertising Deadline The first of the month one month prior to publication date. Board of Directors Chair Chair-Elect and Secretary/Treasurer Directors
Julie Klewer Mark Anderson Karen Abraham Anita Baker Megan Faust Rob Gardiner Julie Norton Greg Padilla David Richardson Armando Roman Melissa Spangler Brian Swartz David Walser Neal Young
Immediate Past Chair Jim Buhr AICPA Council Members George Cohen Layne Simmons Chapter Presidents Southern Chapter Northern Chapter Southwest Chapter North-Central Chapter
We All Benefit From a Larger ASCPA The Society serves its members by providing education, advocacy and image enhancement. A larger ASCPA membership means more benefits for all CPAs. We are asking for your help to spread the word about the rewards of being part of the ASCPA. If you know of a CPA who is not a member, please encourage them to join. As a token of our appreciation, you will receive two movie theater tickets for every CPA who you refer who joins. We thank you for all you do for the profession. Please contact JosĂŠ at (602) 324-4741 or email@example.com for more information.
Bigger is Better
Flo Zenblu Kevin West Jayne Wright Monique Stecklein
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
Call 1.800.584.4595 Ext. 05 www.accountingpracticesales.com
Gary Hankins, CPA Member Arizona Society of CPAs
www.ascpa.com MARCH/APRIL 2011 y AZ CPA
by Julie Klewer, CPA
The Final Report The next time you receive your AZ CPA magazine and turn to the chair’s message, you’ll be reading what will no doubt be an engaging and informative article from your new board chair, Mark Anderson. Mark, I’m not going to lie… writing these articles every month has been among the more challenging of the board chair duties for me. At the same time, connecting with our members each month in such a personal way has also been one of the most rewarding aspects of leading this board. Cindie Hubiak and I recently spent some time on the road during one of several chapter visits around the state. During that drive, we talked about this last article, and she predicted writing it would be bitter-sweet. Cindie was right. My article submission deadlines definitely came too quickly each month (Patty, thank you for your patience!), and I’m looking forward to not having the related monthly panic attack. On the other hand, I really have enjoyed writing for the magazine and sharing some personal stories and my insights into the Society with all of you. At the risk of sounding like I’m accepting an Oscar, I do want to thank several people for their contributions in making this year of personal and professional development so rewarding for me. Cindie, you are an amazing leader. Thank you for guiding me through the many issues facing the Society and our board this past year. The Society’s operations thrive under your leadership, and this allows the board to focus our efforts on strategic issues. Traci, Heidi, Adela, Patty, José, Jena, Cynthia and Mary— collectively you function as a highperformance team. Thanks to each of you for your dedication to our members and the profession. I can’t say enough to express my gratitude to my fellow board members this past year. It was my good fortune to be able to work with so many
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talented and accomplished professionals, and I learned a great deal from you. My very heartfelt “thank you” to the executive committee and the Society staff for covering for and supporting me while I helped my sister with her cancer battle this summer. Thanks to you, our members, for continuing to support the Foundation for Education and Innovation, our Political Action Committee, and our continuing professional education and other member programs offered to enhance your technical skills and knowledge. Finally, I want to recognize and thank my partners, Chris and Eric, for supporting my time away from the office to do this important work for the profession. There are many highlights from this past year, but a few stand out for me. I had an opportunity to visit each of our chapters around the state. Visiting with all of you during these chapter meetings was such a treat, and I appreciated the opportunity to share your concerns, issues and ideas with the board. Please take a moment to thank your chapter presidents in Prescott, Flagstaff, Yuma and Tucson for all they do to bring local events to you. Our PAC continued on its trajectory towards becoming one of the largest in the state. The size gives the Society, representing all of you, a strong voice in legislative issues affecting our profession. Each of our eligible board
members contributed to the PAC, and many current and past board members were instrumental in securing contributions from across our membership. During the January board meeting, our lobbyist, Kevin DeMenna, reported that with more than 300 political action committees in Arizona, the ASCPA PAC is easily in the top 10. With sales tax on services among many potential legislative issues on the horizon, your continued support of our PAC is critical. The Society board and Foundation trustees joined efforts in reassessing the Foundation governance structure in light of current best practices in the nonprofit industry. As a result of their work, the board recently passed amended bylaws for the Foundation that we are confident will streamline business processes, provide a more meaningful and focused volunteer experience, and better reflect the overall common goals of the Society and the Foundation in serving our members. It’s been a phenomenal year and a tremendous experience. Thank you. AZ CPA Mark, it’s all yours……..
Letters from Members I was just reading the latest issue of AZ CPA and had to comment on your delightful article. My husband and I are both CPAs as well. He’s in the healthcare industry and I’m in public practice here in Tucson. We too travel all around the world and have pictures similar to those in the article. The Becker CPA Review people love us because we met studying for the exam! He was the student assistant and my dad (another CPA) was the instructor. I started working for my father, and ultimately took over his practice and expanded it even more. Reading their stories was like reviewing our own lives – it’s nice to know there are others out there just like us. The technical articles you and your staff provide are always top notch, but every now and then, it’s great to have an article like this one to brighten your day. Alex Miller, CPA Alexandra L Miller, CPA, P.C. Tucson, AZ I want to thank the editors of the AZCPA February issue for including the article “Compilation Follies.” I would love to see a series of such articles helping the small-firm members (like me) with peer review and common mistakes. I believe most of us care for our clients and the professionalism of our service that we would welcome this series. Tess Ridgway, CPA Tess L. Ridgway, CPA Scottsdale, AZ
Governor Signs Conformity Bill HB 2008 (internal revenue code conformity) was signed by Governor Brewer this morning. This bill moved quickly through both the House and Senate and includes an emergency clause that allows the bill to become effective immediately. Conforming to Federal code each year is an important matter for all Arizonans and saves the State and Arizona taxpayers time and money. The Society works hard educating legislators on the importance of conformity throughout the year, every year, through our legislative and advocacy efforts. This may be the most rapid progression of conformity we have seen to date and is an exciting result. Please join us in thanking the Governor by sending her a note or an email highlighting how helpful it is to have conformity passed in record time. Many thanks also go to our lobbyist Kevin DeMenna for strategizing with The Society to get conformity passed early in the session. Special recognition also goes to Representative Tobin, Senator Yarbrough, Speaker Adams and President Pearce for making conformity a priority and to ASCPA member Michael Lemme who answered many questions from legislative staff on this bill and to member Ed Zollars for his assistance.
Register... ASCPA Annual Meeting May 11 — 11:30 a.m.-1:30 p.m.
Re: Accounting and Reporting Standards Conference Time out for kudos to you! From the perspective of an attendant, you do a wonderful job of informing and preparing us for these seminars. Thank you! And more kudos at the thought of how “green” this presentation was by eliminating the printouts of the discussions and by allowing the e-readers and laptops! Patricia Bambridge Whitehat Tempe, Arizona
Special Guest Speaker
AICPA President & CEO Barry Melancon at the Arizona Biltmore Resort
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Focus on Members Scott Wrigley, CPA, was named a tax partner at Schmidt Westergard & Co. David Birdsell, CPA, was elected as treasurer to The Turnaround Management Association of Arizona. Bruce D. Beach, CPA, of BeachFleischman PC received the 2010 Man of the Year Award from the Tucson Metropolitan Chamber of Commerce. Donald Brandt, CPA, was re-elected to the board of officers of the Phoenix Symphony.
Former ASU accounting professor and ASCPA life member, Dr. Bill Huizingh, met with several former students. From left, Lori Mann, Cindie Hubiak, Marshall King and Barbara Starley. Dr. Huizingh will soon be honored by the Desert Botanical Gardens at their 25th Annual Dinner on the Desert in April. Donn R. Merrill, CPA, CFP, of Self Wealth Management has been named to the board of directors of Mountain Park Health Center Foundation in Phoenix. Robert K. Minniti, CPA, CFE, CrFA, CVA, CFF, was awarded the Diplomat of the American Board of Forensic Accounting, (DABFA) designation by the American College of Forensic Examiners. This designation is
awarded to individuals who have made a significant contribution to the field of forensic accounting. Mark Frost, CPA, of Frost Stephens & Company in Flagstaff, announced that the firm merged with the Utahbased accounting firm of Hinton Burdick CPAs & Advisors. Joe Losada, CPA, was elected vice chair of the board for Valle del Sol, Inc.
Patrick Loftus, CPA, was elected as chair of the finance committee and treasurer of the board of directors of the Arizona Humane Society.
Newsworthy Members ... Elizabeth Hale, CPA, at eeCPA PLC in Phoenix was recently quoted in an article in The Arizona Republic on the 1099 Reporting Rules. David C. Preston, CPA, CVA, was profiled in Inside Tucson Business magazine.
In Memoriam Stephen J. Bond
2011 Industry Conference May 20, 2011 Black Canyon Conference Center, Phoenix Developed by Executive Education, Inc., one of the nationâ€™s leading educators for financial professionals in the corporate world, this conference brings together nationally recognized speakers providing general and breakout sessions on a variety of topics. Issues to be discussed include IFRS convergence, interacting with your board, fraud prevention, risk management and using technology to improve your writing.
Register today at www.ascpa.com 8 AZ CPA y MARCH/APRIL 2011
Community Benefits from Tucson CPA’s Dedication and Expertise Carla Keegan, CPA, to Receive ASCPA Public Service Award
Public Service Profile: Carla Keegan, CPA President and director, Keegan, Linscott & Kenon, P.C. Community Service Organiations: Angel Charity for Children, Community Food Bank, Junior League of Tucson, Inc., Carondelet Advisory Council, EMERGE! (formerly Brewster Center for Victims of Family Violence, Junior Achievement, DM-50,YWCA Women’s Leadership Training Program, Downtown Advisory Council (Tucson), Downtown Business Association, Alpha Omicron Pi Sorority.
Each year, the Arizona Society of CPAs presents one dedicated CPA with the ASCPA Public Service Award at the Annual Meeting. This year, Tucson CPA Carla Keegan, president and director of taxation, at Keegan, Linscott & Kenon, P.C.will be honored. Keegan was selected for her continued committment to the community, playing a major role in helping more than 11 nonprofit organizations all while working as a director of a 48-person accounting firm. We asked Keegan to give us an insight into her community service commitment. AZ CPA: What do you like best about volunteering/community service? Keegan: I love the feeling I get from giving back to the community. I am so blessed that it is a privilege to be able to share time and resources with worthy organizations. As an accountant, I have been able to bring financial expertise to a number of nonprofits and have been able to watch them grow and offer more to the community as they become more fiscally savvy. AZ CPA: You have volunteered at quite a variety of different community service projects, what has been your favorite organization? Keegan: Whichever one I am working on at the time! Most recently, I had the honor of serving as vice chair of Angel Charity for Children, Inc. an all volunteer organization that has raised over $22 million for almost 60 different children’s charities in Tucson over the last 28 years. It was my pleasure to get to work closely with the four organizations we funded last year. What I love about Angel Charity is that we are a hands-on organization with no paid staff, so we do it all; including taking out the garbage (not the best part of the job). AZ CPA: Has there been any one experience that stands out? Keegan: In 2008, one of the projects Angel Charity raised money for was the Community Food Bank’s Weekend Snak Pak program. In addition to raising money, and to celebrate the birthday of our then general chair, a group of us went over to the Food Bank and spent the day packaging the food the kids would be receiving in their Snak Pak the next day. It was fun and made me appreciate the thoughtfulness that goes into calculating the balance between cost and proper nutrition so that thousands of kids who get free lunches at school during the week also get food on the weekend. This is all thanks to
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Excellence in Teaching Award
the Community Food Bank, its many donors and all its volunteers. AZ CPA: Do you have any advice for CPAs who want to get involved, but may not know how?
Kirstin A. Cook, Ph.D. Assistant Professor University of Arizona Education: PhD, Texas A & M University, 2007 MAcc, Baylor University, 2002 BBA, Baylor University, 2002
Current Courses Acct 420, Introduction to Federal Taxation, Fall 2010 Acct 520, Introduction to Federal Taxation, Fall 2010
Cook to Receive Arizona CPA Foundation for Education and Innovation’s Excellence in Teaching Award at ASCPA’s Annual Meeting A first-rate instructor ... someone who works tirelessly,...a strong work ethic... excellent speaker ... congenial colleague... these are only a few comments colleagues and students use to describe Kirsten Cook, this year’s Excellence in Teaching Award recipient. Each fall semester, Cook teaches Introduction to Federal Taxation. “I designed ACCT 420/520 to help students acquire a broad perspective on taxation,” says Cook. “The course integrates tax compliance, tax planning, accounting, economics, and finance. While we examine current tax rules, we also develop a framework to think about taxes that is not specific to the current Federal system. If students master the material in the course, they may apply this framework to personal and business decisions, assess potential compliance and planning ramifications of current and prospective tax rules, understand tax computations for individuals, devise alternative strategies that minimize taxes and maximize after-tax wealth, and develop a sufficient foundation for CPA exam preparation. My teaching philosophy for the course recognizes that, while most of my students will not pursue careers in tax accounting, all of my students will encounter income taxation in their personal lives. I share anecdotes from my professional experience with my students to bring the textbook material to life. Rather than force my students to memorize tax rules, I attempt to explain the logic underlying those rules. My advice to students is that an ounce of preparing for each class is worth a pound of cramming for the exam, and my favorite part of teaching is introducing students to tax accounting and, for some, watching a career in tax accounting emerge.” Join us at this year’s Annual Meeting and Awards Luncheon on May 11 at the Arizona Biltmore.
Keegan: CPAs have expertise. When I was an entry-level staff person at a national CPA firm, it was strongly suggested that we get involved in the community, so I asked the other people at the firm if they knew of organizations looking for volunteers and jumped right in as a Junior Achievement volunteer. I still stay in touch with some of the kids I worked with early on—it is funny to see them all grown up, successful business men and women with children of their own. Think about what you are passionate about and do something in that area. All you need to do is pick up the newspaper to see what is going on in your community. Spend a day building a house or serving at a soup kitchen before you commit to something. Pick a school and volunteer. Offer to help in the accounting office—no one will ever turn you down. AZ CPA: Do you have any time management tips that help you juggle your work, family and volunteer commitments? Keegan: I can honestly say it was a lot easier when I was younger—sleep didn’t seem so important. Having supportive friends, family and coworkers is a must. It helps having an incredible husband, dogs that love me unconditionally, amazing, caring compassionate business partners and fantastic coworkers, without whom I would never have been able to spend about a thousand hours working with Angel Charity last year. Making sure everything is on your PDA and syncing your personal and professional obligations with your volunteer work is a must. I don’t know how I ever managed without mobile phones that let you check your e-mails in between appointments! AZ CPA
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The Balancing Act
Working Long Hours Can Take A Toll on Health
by Dr. Jeff Donahue
Balance—it’s not just the current status of your bank account, but a key principal to living life to its fullest. For centuries, man has recognized the duality of life as a cornerstone of existence; heaven and earth, good and evil, black and white, day and night, yin and yang, male and female, etc. There are many examples of the interplay between opposites, because without one, we can’t have the other. As a wellness physician, I understand that the driving force for good health is a balance of the three dimensions of life. There is the physical dimension, which is a balance of muscles and joints; this produces movement and allows our bodies to navigate in the world. This movement also stimulates blood flow, and supports the function of organs. Then there is the biochemical dimension where the balance of the many fluids, hormones, minerals, vitamins and foods are essential to resupply our bodies with the fuel it needs to run. Finally there is the emotional dimension; the balance of emotion and energy allows us to express, feel and create.
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Although it may seem that spending more time to play or rest is counterproductive, when you are balanced, the hours you do spend at work are much more productive.
How much we recognize and apply the principle of balance is a significant measure of our success in life. I practice what is called Lifestyle Medicine, which looks at the balance or imbalance of these three dimensions. This is always the cause of a client’s health concern, and always the key to helping someone function at their maximum potential. This is not a theory; any system out of balance is stressed, and runs less efficiently. Think of an unbalanced tire on your car. Not only does the subtle wobbling of the tire create premature wear, but the vibration can affect the performance of the whole vehicle. When we reduce the stress on our bodies, as well as increase our ability to handle more, we create a lifestyle that allows us the greatest expression of health and wellness, as well as productivity and creativity. Unfortunately, we all know that the practice of balance is quite a bit different than the theory. It requires reflection on our lifestyles and an applied discipline to practice those things that balance our lives. With many of us, this is particularly difficult in regard to the balance of work and life, or for some of you, it might be better termed the balance of work and time when you’re not at work. Life seems like everything revolves around work and your job. Admittedly, there are a lot of financial stresses in the world today, but believing that working more and harder can create stress in other areas of your life and decrease your effectiveness in the very areas where you believe you need to concentrate. Our bodies need time away from our jobs to rest. These are the primary times to refuel and rejuvenate. The master controlling system of the body, the
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nervous system, which allows for communication between each and every cell of the body, balances our bodies with the autonomic system. This system, which is equally divided between the sympathetic nervous system and the parasympathetic nervous system balances between energy and blood going to the muscles of the body for activities, and creativity (the sympathetic branch) and then energy and blood flow going to the organs and glands, to refuel, regenerate and heal any damages within our bodies (the parasympathetic branch). Most of us tend to be focused on our activities, such as work, play, creativity, etc, and we don’t spend enough time focusing on the rest times. Perhaps you have heard, or even used the expression, “I’ll get plenty of rest after I’m dead.” Well, with an attitude like that, I can almost guarantee you that you will get to your rest period a lot sooner if you don’t take the time to let your body regenerate. My practice is full of people who have many varied symptoms from a lack of time away from work. At first, it may seem like an emphasis on work rather than rest produces more, but that is short-lived, especially for those that depend on creativity for their job. As an imbalance is fostered, much like our car analogy, the lack of balance goes beyond the one area and has repercussions in other areas. When you are tired, you make mistakes. It takes you longer to do your work than it normally would. Your creativity and inspiration may be lacking. Your body starts to function less efficiently. You spend more time in sympathetic mode and not enough time in your parasympathetic mode, which can lead to digestive issues, hormonal imbalances,
and aches and pains in your body. Even worse, when you do take time to rest, your rest isn’t as restful, and you wake up feeling like you never went to bed at all. Stress levels build, as do your symptoms, and your work ultimately suffers, as does the rest of your life. This really comes down to a quality versus quantity issue. Although it may seem that spending more time to play or rest is counterproductive, when you are balanced, the hours you do spend at work are much more productive. My acupuncture teacher told us in our first class that in order to build a great practice you need to take a lot of time off. He would work three days a week (Tuesday through Thursday), take a week off every other month, and generally plan one or two major trips a year where he would be gone for two to four weeks. He still practices that way, and he has always had a great and busy practice. To be honest, I’m a slow learner, and it took me years to finally understand this lesson. As a society, especially within the United States, we are conditioned to believe that the harder you work on something, the more will come from it, and to you. This is not to say that you can’t or shouldn’t work hard on something, or that there isn’t a time or place for putting in extra work. The key is to restore the balance by taking your rests and recreation time, such as taking a long weekend after a busy week, or not starting so early after following a late night at the office. We term it “rewarding” ourselves, but we are merely balancing the scales. The Europeans are much better at this than we are. They typically take a lot of time off during different parts of the year for their play and rest time, and studies show that their workers are happier, more productive, and less stressed. The only way to prove this is by experience. Watch what happens when you start making time to have a life outside of work, with plenty of rest time; not only will your work improve, but so will your life and health, as well AZ CPA as your attitude. Dr. Jeff Donahue is both a chiropractor and a licensed acupuncturist. He can be reached at www.drjeffdonahue.com.
Arizona Fraud Cases in the news
Schemes and Scams in 2010 by Robert K. Minniti, CPA, CFE, Cr.FA, CVA, CFF, DABFA, MBA Based on news reports, 2010 was a banner year for fraud in the United States. Each year, it is important to examine things that occur in our profession.This article will review some of the fraud cases from 2010 in the State of Arizona. One of the biggest fraud stories of the year was mortgage fraud including action taken by the Office of the Attorney General against major banks for their participation in mortgage fraud. On December 17, 2010 The Arizona Republic reported that the Arizona Attorney General filed a lawsuit against Bank of America in which the AGâ€™s Office accused Bank of America of deceiving homeowners who were trying to obtain mortgage loan modifications. A one-year investigation determined that Bank of America was giving false information to consumers about modifying their mortgages while proceeding with foreclosure proceedings to obtain the collateral for the loan. Also, The Arizona Republic reported that Arizona ranked fourth in the nation in mortgage fraud and that there had been 51 indictments for mortgage fraud and 13 convictions within just three months in Arizona. This included an indictment of a former loan officer who was accused of using straw buyers to take out loans on more than 100 homes in
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a fraud that exceeded $50 million in losses. The very next day, the paper reported yet another mortgage fraud bust in which 36 people were arrested and accused of being responsible for more than $100 million in fraudulent home loans. The year would not be complete without an interesting accusation of fraud in the political arena, especially with 2010 being an election year. The Arizona Democratic Party filed a claim of voter fraud against the Arizona Republican Party. Apparently several Republican Party candidates used loopholes in the election laws and recruited individuals to run for office on the Green Party ticket in order to pull votes away from their Democratic Party challengers in several tight state races. Even the police got into the act in 2010. In November, one former and three current Phoenix Police officers were indicted for pocketing thousands of dollars in an off-duty security scam. Additionally, 25 other Phoenix Police officers were under investigation for participating in this scheme where the officers charged for off-duty security work they either did not perform or that they performed while on duty. One of the officers was accused of pocketing more than $9,000 in this scam. Other notable frauds in 2010 included five Mexican nationals who were indicted for their part in a $470,000 fraudulent gift card scheme; two individuals who were accused of defrauding Little League umpires of more than $25,000; a Chandler bookkeeper who embezzled $23,000 from her current employer after being terminated for embezzling $79,000 from her previous employer; and a Scottsdale doctor who stole more than $480,000 from Medicare. Another big fraud scare that made the news during the year was the use of credit card scanning equipment that was placed inside gas pumps and used to record consumers’ credit card numbers and zip codes for future fraudulent purchases.
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Despite the wins, it was clear throughout the year that the fraudsters were stealing more money
than the government was recovering. Even the accounting profession was not immune to fraud last year. In December, the U.S. Attorney’s Office charged three Arizona tax preparers of claiming more than $9.5 million in fraudulent IRS refunds. Allen Goomansen, a Mesa CPA, was sentenced to 18 months in federal prison for his part in a scheme to help individuals avoid paying taxes by preparing fraudulent tax returns. Another Mesa accountant, Gregory Peters, was sentenced to 32 months in prison for his part in a $589,366 sales tax fraud scheme. Additionally, a Mesa couple was indicted for filing false tax returns and defrauding the IRS out of more than $7 million in tax revenue. The fraudsters didn’t all get off. The Arizona Attorney General’s office had several wins against them in 2010. One of the wins was a settlement in the fraud case against Direct TV. The satellite TV company agreed to pay $185,000 to Arizona’s consumer fraud fund. The charges filed against Direct TV were for deceptive and unfair sales practices. Another win was an $80,000 settlement with Allstar Moving & Storage; a Chandler-based moving company that routinely added hundreds of dollars to invoices. Basically once the moving company had an individual’s possessions, they would demand the additional monies or refuse to deliver the items to the new location. Ad-
ditionally, Allstar misrepresented that the company was bonded and carried adequate insurance. Also, the Attorney General’s Office’s won a settlment with Pulte Homes for $1.8 million for fraudulent lending practices. Despite the wins, it was clear throughout the year that the fraudsters were stealing more money than the government was recovering. In one case I am aware of, a CPA firm had a trusted employee embezzle funds from the family practice. As CPAs, it is important that we assist our clients in gaining knowledge about fraud and the internal controls that can help to prevent or detect fraud in an organization. Having clients add a Certified Forensic Accountant or Certified Fraud Examiner to their list of trusted advisors may become a necessity, rather than a luxury, in the future. The Arizona Society of CPAs is doing its part to help in the battle against fraud. In addition to the CPE classes on fraud offered by the Society throughout the year, in 2010, the Society established the Forensic & Litigation Steering Committee. The members of this committee include experts in the forensic accounting field and CPAs who are interested in learning more about forensic accounting. The Forensic & Litigation Steering Committee meetings are open to all members of AZ CPA the ASCPA. Robert Minniti, CPA, is the president of Minniti CPA, LLC, a forensic accounting firm, and serves as a professor at several universities where he conducts classes in accounting, fraud and forensic accounting. He also facilitates CPE classes for the AICPA, ACFEI and ASCPA. He is a Certified Fraud Examiner, Certified Forensic Accountant, Certified Valuation Analyst, and is Certified in Financial Forensics. He currently serves on the Executive Advisory Board of the American Board of Forensic Accounting. Questions on this article or on forensic accounting in general can be directed to firstname.lastname@example.org
Engagement Letter Essentials by Ronald C. Parisi, J.D., CPA The engagement letter plays a significant role in avoiding and limiting claims and successfully defending CPAs in professional liability disputes. Long-term claims experience shows that the following elements are essential to making the engagement letter so effective as a risk management tool for CPAs. An engagement letter should clearly specify: • the services to be rendered and typical services not to be rendered; • scope of service and limitations of the engagement; and, • allocation of responsibilities between the CPA and the client. Many high-dollar claims result from the failure to clarify the CPA’s role and services to be performed. An engagement letter should leave no room for misunderstanding or “creative” interpretations. The general public (i.e., potential jurors) perceive CPAs as experts in documentation, and a failure to live up to that perception may be viewed as negligence. When there is no accurate written description of the engagement, claimants can more easily assert that the CPA was responsible for: 1) providing services that the CPA did not consider part of the engagement, and 2) guaranteeing the results of a transaction the claimants initiated while the CPA’s services were engaged. Engagement letters should be signed by the client. Failure to do so may be interpreted as the client not agreeing to the terms of the engagement. Going forward with the work without a signature could also suggest that the CPA completed the engagement under terms different from those contained in the unsigned engagement letter. Remember, the client you negotiate with today may not be tomorrow’s client. Relationships and dispositions change when disputes arise, and significant events may change ownership or control of the client, including the appointment of a bankruptcy trustee or the death of a family business proprietor.
Engagement Creep Clear engagement letters defend against the phenomenon known as “engagement creep.” This involves initially well-defined tasks, or starts with a simple question that does not appear to rise to the level of a new engagement but, over time, creeps outward
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to encompass significant additional, undefined activities. If there is a change in the engagement, the existing engagement letter should be updated. What may not be as clear is that, even when the terms of the actual engagement have not changed, an engagement letter may need to be updated when surrounding circumstances change, including the introduction of new service providers. For example, CPAs who refer clients to a financial planner or investment adviser might see themselves as “just the CPA” and the planner/adviser as the professional managing the client’s investments. However, a jury may see the CPA as the trusted financial adviser who was responsible for overseeing the client’s entire financial picture, including the activity of the other professionals. A new engagement letter would clarify for the client and the planner/ adviser what the CPA would and would not do (i.e., the limitations of the CPA’s responsibilities) and who would be responsible for which tasks and duties. Where a CPA has carefully defined an engagement with one or more engagement letters, the client will have much more difficulty trying to hold the CPA responsible for matters not encompassed by those letters.
Avoiding Collection Problems Communicate your billing and collection policies in your engagement letter—the best way to avoid having a collection problem. A stop-work/ disengagement clause in the letter may enable a CPA to stop work in the event the client fails to pay in a timely manner. The enforcement of this clause will help prevent your firm from completing too much work without receiving payment from the client. Bill on a timely basis, and do not allow fees to build up to the point where you can no longer walk away from them. When unpaid fees become too large, they may compromise a CPA’s independence and increase the likelihood of malpractice claims. If the firm decides to disengage from the client, make it official by delivering
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a disengagement letter. State in the letter that the relationship is terminated as of a specific effective date, list pending due dates (including obvious ones), describe the status of work in progress and the disposition of client records, and state the outstanding fees plus payment terms.
Alternative Dispute Resolution
Include a mediation clause for all disputes and a binding arbitration clause for fee disputes only in your engagement letter. Simple fee disputes are better resolved through mediation and arbitration than through litigation. Mediation is a good first step for almost all disputes, the exception being when the cost of a mediator exceeds the amount of fees in dispute. Binding arbitration—for fee disputes only—is an effective second step, again depending on the amount of fees in dispute. While binding arbitration is effective for simple fee disputes, most other engagement disputes tend to produce complex, high-risk, high-dollar claims that are better managed through mediation and litigation than through arbitration. An effective legal defense can be restricted and impaired by arbitration, sometimes triggered by a general arbitration clause in the engagement letter. It’s also a good practice to consult with your risk adviser or attorney before suing to collect fees. This enables an expert to assist you in weighing the risks and consequences of suing for fees. Lawsuits and counter-suits almost always result in the CPA spending far more in attorney fees and in lost billable time than is warranted for the fees owed to the CPA. Again, the best way to avoid such problems is to clearly communicate policies, roles, responsibilities, services, and the limitations of the engagement AZ CPA in your engagement letter. Ron Parisi is executive vice president, risk management, for CAMICO (www. camico.com), responsible for executive oversight of the company’s underwriting and claims functions.
Form 1099 Reporting for Rental Properties by Thala Taperman Rolnick, CPA The Small Business Jobs Act of 2010 expanded the definition of a “business” for Form 1099 reporting. Beginning in 2011, a single rental property is considered “a business” and owners will need to file these forms for certain payments. If payments are made to lawyers, sole proprietors or partnerships, for services, equaling $600 or more, then the rental owner will need to send that party a Form 1099 next January. This expanded definition does not change the passive activity loss rules. In our profession, we have learned that for almost every rule there is an exception and this rule has four exceptions.
Payments made by credit or debit card. This exception is in the 2011 instructions, not in Regulations or in an IRS Notice. If all payments are made in this manner, no Form 1099 will need to be filed. But what if some payments are made by check and others are made by credit card? Add up only the payments made by check and cash. If they total at least $600, a Form 1099 must be filed, but only for those payments.
Payments made by an individual who receives rental income of not more than the minimal amount, as determined under IRS Regulations. Hopefully we will learn what this means soon. If I were a betting woman, I would expect this provision to apply to vacation home rentals and homes rented under 14 days.
Payments made by any individual, including one who is an active member of the uniformed services or an employee of the intelligence community if substantially all rental income is derived from renting the individual’s principal residence on a temporary basis. Again, we will need guidance. I would guess that if I am transferred and can’t sell my home for six months, I would fall under this exception. But what if it is rented for more
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than a year? Is it still temporary? Will military be allowed a longer period of time than someone not in government service?
One- and Two-Hour Seminars Quick Programs at a Minimal Cost to You
Below is a list of our upcoming one- and two-hour programs recommended by your fellow CPAs. These programs are meant to provide valuable information and insight, as well as give you an opportunity to network with other business professionals while earning CPE. It’s fast and easy, so register today at http://bit.ly/1-2seminars How to Stretch Your Procurement Spend During Difficult Economic Times April 28 ASCPA Offices, Phoenix 11:30 a.m.—1:30 p.m. Presenters: Jim Buhr and Lupe Nesbitt
Tips & Techniques to Improve Your Business Writing April 28 ASCPA Office, Phoenix 1 hour CPE 8-9 a.m. Free for Members Speaker: Heidi Frei, MBA, ABC
Register today at http://bit.ly/1-2seminars
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Behind the Scenes with… the Arizona Diamondbacks – May 19
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Join us as we go behind the scenes with the Arizona Diamondbacks at Chase Field before the May 19 Arizona Diamondbacks vs. Atlanta Braves game. We’ll hear from Tom Harris, CPA, who will share his unique insight as the chief financial officer behind one of the Valley’s favorite sports teams.
Payments made by any other individual for whom the requirements would cause hardship, as determined under IRS Regulations. Your guess it as good as mine.
How Can We Help Our Clients? Have you been allocating your Form 1040 tax preparation fees to your clients’ rental properties? Don’t allocate more than a total of $599 between all the properties. Remember it is the total paid for the year, not per property. Encourage you clients to go online to www.IRS.gov and apply for a federal EIN to use on the Forms 1099. Do they really want their gardener having their social security number? Hand them a pile of Forms W-9. Tell them not to make payments to the potential Form 1099 recipients without a completed form. Explain to them that there is a 20 percent withholding requirement if they are not provided with this information. Remind them that the penalty for not filing a Form 1099 has increased to $250 per form. For those of you, who listened to the President’s State of the Union Address, you may have noticed that he mentioned repealing the new information reporting requirements. He was not referring to this provision. He was referring to the Health Care Provision that is supposed to take effect in 2012. That is the expanded reporting for payments made to corporations and AZ CPA for goods. Thala T. Rolnick, CPA, is managing partner of Thala T. Rolnick, CPA, PLLC. If you have any questions on this topic, she can be reached at Thala@thalacpa.com. Please list “form 1099” in the subject line.
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Problem with the Board? Contact: Former Accountancy Board Member
D. Jay Ryan Attorney at Law City North 5415 E. High St., #200 Phoenix, AZ 85054 (623) 937-3737 or (602)840-8075 (fax) Free Telephone Consult Mr. Ryan is a former Assistant Attorney General who represented the Board from 1970-72. The Board’s first lay member/ President (1974-79); Law Committee (1983-1998) ASCPA Honorary Member OTHER LICENSING AGENCY EXPERIENCE
Highlights of Board of Directors’ January Meeting Among other actions at its January 19, 2011 meeting, the ASCPA Board of Directors reviewed the following:
Consent Agenda The consent agenda, which included the minutes, financial statements and the Education Foundation’s new bylaws, was approved.
Strategic Plan Update The Society will continue to monitor the Governor’s proposed budget, which includes a recommendation to sweep monies from the Arizona State Board of Accountancy (ASBA) and the review of statutes and rules currently underway by the Law Review Committee of the ASBA. As part of the innovative moment, the board heard about the Behind the Scenes & CPAs on Tour events held at several local businesses. Cindie Hubiak shared that more than 300 copies of the Arizona Tax Guide, authored by Pat Derdenger, Ira Feldman and Ed Zollars, have been sold.
Nominating Committee Update Mark Anderson thanked the members of the committee for their efforts and shared the nominations for the ASCPA board, the Foundation board and AICPA Council members. If no further nominations are received on or before April, 1 2011, the nominees will be considered elected by acclamation.
2011-12 Measurement Approval The board approved the measurements for the 2011-2012 fiscal year.
Foundation Update Julie Klewer thanked the members of the Foundation task force for the work they did to improve the efficiency and effectiveness of the Foundation’s governance structure, which culminated in new bylaws for the Foundation.
Too Busy to Escape the Office for CPE? Take CPE when it is convenient for you with ASCPA self-study partners: • AICPA CPExpress Select • PASS Online • SmartPros • Surgent McCoy CPE LLC Find more information at www. ascpa.com and go to Self-Study Partners under the Continuing Education tab.
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Kevin DeMenna indicated that the one-page summary the Society created on income tax conformity, which explained the need to pass conformity legislation early in the legislative session, was well received by legislators and their staff. He updated the board on matters impacting the profession, including a flat tax proposal and the continuing need to educate others about why the Society does not support raising revenue through a taxation of professional services.
Visioning Exercise Cindie Hubiak facilitated a discussion on how to measure the realization of our vision: “The ASCPA is essential to all CPAs in Arizona.”
A Day in the Life Board members appreciated hearing from fellow board members Brian Swartz, Julie Norton and David Walser on the challenges and joys they experience in their day jobs. If you have questions or would like additional information, please contact Cindie Hubiak at (602) 324-2888; AZ toll free at (888) 237-0700, ext. 203; or email@example.com.
SPRING TRAINING Knock out your CPE with the following line-up ASCPA Spring 2011 Cluster This AICPA Cluster is set up in an easy-to-arrange 4-hour format—you choose the courses that fit you best. These programs are held at the Black Canyon Conference Center.
Monday, March 21 8:00 – 11:30 a.m. Controller’s Update: Latest Trends for Today’s Financial Manager (CL4SKSB) – 4 hrs. MG or Forensic Accounting: Uncovering Schemes and Scams (CL4FAFR) – 4 hrs. A&A 12:30 – 4:00 p.m. Doing More With Less: Lean Accounting and Management (CL4LAMA) – 4 hrs. MG or Purchasing, Inventory and Cash Disbursements: Common Frauds and Internal Controls (CL4PCD) – 4 hrs. A&A
Tuesday, March 22 8:00 – 11:30 a.m. Analyzing Costs, Productivity and Efficiency: Three Ways to Boost Your Bottom Line (CL4PYPL) – 4 hrs. MG or Introduction to IFRS: Grasping the Big Picture (CL4IUSA) – 4 hrs. A&A 12:30 – 4:00 p.m. Cash Flow Statements: Preparation and Presentation Options (CL4FCFS2) – 4 hrs. A&A or Decision-Making Tips, Tools and Techniques for Today’s Financial Environment (CL4TTMD) – 4 hrs. MG
Find more information on these programs and register today at
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Classifieds Business Opportunities OWN YOUR OWN TAX PRACTICE —New to Arizona. Looking for professionals interested in owning their own Tax Preparation and Financial Services practice? Easy and affordable to get started, with training and great support. You choose your location, we provide the system to attract premier clientele. Confidential. Reply to Box 100, Arizona Society of CPAs, 4801 E. Washington St., Suite 225-B, Phoenix, AZ 85034. BUYING OR SELLING A PRACTICE? Let me make it happen for you. • Integrity • Confidentiality • 44 years selling Arizona businesses. Call Allan Jeffryes, the Jeffryes Company at (602) 279-4988. WANT TO SELL OR BUY AN ACCOUNTING PRACTICE? Make it easy on yourself. Call Gary Hankins, CPA (800) 584-4595, ext. 05. hankins@ apsleader.com. www.accountingpracticesales.com. OUR CPA FIRM IS SEEKING TO BUY CLIENTS in the Scottsdale and Phoenix Metropolitan area. Our staff has been practicing in public accounting for more than 30 years and specializes in the small to medium size business needs. We emphasize on business accounting and tax. We are located in North Scottsdale with a satellite office in Northwest Phoenix. If you are downsizing or retiring and want an easy transition, please call us today. Ask for Kara at (480) 990-2727.
Advertising For display or classified ad information, contact firstname.lastname@example.org
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CPA SEEKS TO PURCHASE Scottsdale Tax Practice Successful, experienced CPA interested in purchasing existing accounting/tax practice in the Scottsdale area. Reply to Box 200, Arizona Society of CPAs, 4801 E. Washington St., Suite 225-B, Phoenix, AZ 85034.
Employment Opportunities AUDITORS—TIRED OF 60-70 HOUR WEEKS? LUMBARD & ASSOCIATES, P.L.L.C. ESTABLISHED, GROWING NORTH CENTRAL PHOENIX CPA FIRM specializing in serving Not-for-profit, Governmental and small businesses has opportunities for audit managers and seniors. Must be licensed or about to be licensed CPA. Minimum five years public auditing experience. MBA and CGFM a plus. Must have strong communication skills and proficiency in US GAAP, GAAS, GAGAS and Single Audit. Bilingual in Spanish and English a plus. Future partnership opportunity for qualified persons. Insurance and 401 (K) Plan. Minimal overtime and maximum 25% travel. Compensation D.O.E. E.O.E. E-mail resume to Jessica@llumbard.com. 5+ YEARS EXPERIENCED TAX CPA TO JOIN MULTI-DISCIPLINE PRACTICE (tax, legal and financial services) for wealthy families and businesses. Integrity competence, attention to detail with strong tax planning experience. E-mail resume and salary requirements: email@example.com. CPA, AUDIT MANAGER—part-time, assist with compilations and reviews in Phoenix. Email: auditmanager2@ yahoo.com. TEMPE FIRM SEEKING PARTTIME TAX PREPARER & ACCOUNTANT—Tax preparation and compilation experience sought. Knowledge of Proseries a plus. Please send resumes to Julie@clandcompany.com.
Miscellaneous ENTREPRENEURIAL CPA NETWORK (eCPAn)—Wednesday, April 27th, Speaker: Beth Cohn, of Jaburg & Wilk, Topic: Estate/ Gift Tax Planning and Asset Protection. Regular luncheon meetings are 11:30-1:30; all meetings located at DoubleTree Suites, 320 N. 44th St. For information call (602) 468-0281 or e-mail us at firstname.lastname@example.org.
Office Space GILBERT OASIS AT ISLANDS OFFICE FOR RENT. CPA or other professional. Month-to-month OK. Two offices 14x14 and 12x12. $700 to $900 Month (480) 539-2600. CUT $$$$$$—Move into the “ACCOUNTING ANNEX”— Tenant sought. Office space to rent. Suitable for a dynamic CPA or CPA firm. Share phenomenal resources. On light rail and next to a station. Two conference rooms, included. 150 ft. to 9,000 ft. Unique property next to the heart of downtown, walk to baseball and basketball stadium. Short-term lease is welcome. Call Lance at (602) 741-7876 cell. ESTABLISHED CPA FIRM has one or two offices available on Central Ave just north of Camelback. 2nd office could be a small conference room. Furnished or unfurnished. Reasonable rate with no lease. Share expense for reference library, copy machine, etc. Ground floor for easy access. Reserved covered parking. Call (602) 680-7270.
Services PROPERTY TAXES TOO HIGH? I’ve been doing property tax appeals for over 12 years, both real estate and personal (business) property. We produce refunds for 80% of new clients and the average refund is 20% of the tax paid plus interest. Arizona CPA. Contingency fee only. I’m on Linked In, Facebook, Twitter & My City. Website: www. asmrconsulting.com. Call John at ASMR Consulting LLC, (480) 204-1289.
2011 Arizona Tax Guides Arizona Tax Guides have been produced by Phoenix Tax Workshop for more than 20 years. Order the only comprehensive guides on Arizona taxes from the leaders in tax education.
❒ Members of ASCPA, Phoenix Tax Workshop, State Bar of Arizona or Enrolled Agents: $89
The Arizona Tax Guide includes: Sales and Use Tax Guide, the Arizona Property Tax Guide, and the Arizona Income Tax Guide in a printed book or a pdf document.
❒ Nonmembers: $109
The 2011 Arizona Sales and Use Tax Guide is a resource for anyone preparing or filing Arizona and city sales and use tax returns. The guide details the various sales use tax rates that apply to each type of sale or product as well as the many exceptions, administrative provisions and Model Cities Tax Code provisions.
❒ Members of ASCPA,
The 2011 Arizona Property Tax Guide outlines the nature of the tax, reporting requirements, analysis of forms, audit and appeal procedures and small business exemptions. This guide includes the Guide to Unclaimed Property Reporting.
❒ Nonmembers: $99
The 2011 Arizona Income Tax Guide is a comprehensive and easy reference guide that highlights the differences between Arizona and Federal income tax law and provides references to the Arizona Revised Statutes for a more in-depth analysis. It contains individual, corporate, partnership and trust tax differences, including tax tables, and is arranged in a manner that facilitates research on any topic. The information in this guide is a necessity for the 2011 tax season.
Name ___________________________________________ Company ________________________________________ Address ________________________________________ City ___________________State _____ Zip ___________ Phone __________________ Fax ____________________ Email ____________________________________________
Phoenix Tax Workshop, State Bar of Arizona or Enrolled Agents: $79
*Call for special pricing on orders of five or more.
Method of Payment: ❒ Check ❒ VISA ❒ MasterCard ❒ American Express Name on Card ___________________________________ Card Number ____________________________________ Exp. Date ____________ Amount $ ________________ Signature of Cardholder__________________________
Please return this form and payment to: Arizona Society of CPAs 4801 E. Washington St., Ste. 225-B Phoenix, AZ 85034 Fax credit card orders to: (602) 252-1511
Standard shipping and handling prices are included. *The ASCPA will be processing checks submitted in payment as an Electronic Funds Transfer (EFT) transaction. Funds may be withdrawn from your account as soon as the same day we receive your payment.
MARCH/APRIL 2011 y AZ CPA
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