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The Magazine of the Illinois CPA Society | November/December 2009

In this issue Ponzi scheme victims find IRS relief 2009’s hardest hit industries Five things to be grateful for Portals boost practice power US businesses feel IFRS pressure Time’s almost up for registered CPAs R&D tax credits are being watched Find fame in the media spotlight New rules for greater tax compliance

Software Players you should know







2 0% o r 1% e-filed returns have a 1% error rate compared to 20% for paper.

You do the math. IRS.go v v/efile

features 32

Software Scene Stealers By Carolyn Tang Check out these lesser-known—but no less worthy—accounting software companies.


Scammer By Derrick Lilly Is there relief for defrauded investors? Yes.


Spend Phobia By Sheryl Nance-Nash Which industries, products and services have suffered most?

columns 10


Feelgood 2010

By Kristine Blenkhorn Rodriguez


Things are beginning to look up...honest.



Watch the Clock

By Derrick Lilly The deadline’s looming for lifetime licensing as a registered CPA.



Are You Worried?

By Selena Chavis

November/December 2009 Vol.59 No. 4

Uncertainty and unease continue to blight IFRS adoption.



You’re Being Watched

By Randy Crabtree, CPA R&D tax credits fall under increasing scrutiny.



Portal Power

By Daniel Dern Emerging accounting portal technologies streamline financial processes and boost productivity.



Media Darling

By Derrick Lilly Be the media’s go-to person for all things finance.



The Overseers

By Harvey Coustan, CPA Is increased regulation the route to better taxpayer and preparer

Visit eINSIGHT today! /insight.htm

regulars 4


First Word A message from the Illinois CPA Society President & CEO.


Seen + Heard News bytes, sound advice and practical business tips.


Classifieds + Advertiser Index


Time + Talent A shout out for the efforts and expertise of Illinois CPA Society members.


From the time when you first pass the CPA Exam,


there’s pride in being a CPA and in having a career filled with endless opportunities to be good at what

Chairperson, Lee A. Gould, CPA/ABV, JD, CFE, CFF Gould & Pakter Associates LLC

you do and to do good with what you know. As people struggle to navigate the new economic

Vice Chairperson, Sara J. Mikuta, CPA The Leaders Bank

realities, the ICPAS recognizes the many ways in

Secretary, Charles F. G. Kuyk III, CPA Crowe Horwath and Company LLP

The financial knowledge and experience they pos-

which CPAs are uniquely qualified to help others.

Treasurer, Robert E. Cameron, CPA Cameron Smith & Company PC

sess are qualities that continue to increase in their

Immediate Past Chairperson, Sheldon P. Holzman, CPA, CFE, CFF Baker Tilly Virchow Krause, LLP

profit organizations.

value to families, individuals in need, and not-for-

Society members are a case in point, always making the best use of their professional assets. When I speak

ICPAS B OARD OF DIR ECTORS Brent A. Baccus, CPA Washington Pittman & McKeever

to members at events like our Town Hall Forums, I’m always pleased and proud to talk about all the hours our volunteers have spent helping others. In the past year, 153 member volunteers have spent 4,658 hours providing tax preparation serv-

Therese M. Bobek, CPA PricewaterhouseCoopers LLP

ices around the state, working with clients of the Center for Economic Progress to help them get

William P. Graf, CPA Deloitte & Touche LLP

they needed to attend college because of members’ assistance with completing FAFSA forms. And

the tax credits they deserve. About 20 high school students were able to obtain the financial aid life was made just a little easier for 80 military families—who already are dealing with so much— Reva B. Steinberg, CPA BDO Seidman Cara C. Hoffman, CPA Blackman Kallick LLP James P. Jones, CPA Edward Don & Company

by having our volunteers prepare their tax returns. With the financial road ahead of us still uncertain, members have been reaching out to the Society for additional ways to give back to others. Building on the ability CPAs have to make a personal connection between the profession and the community, we’ve added new volunteer programs with more choices to suit more interests.

Charlotte A. Montgomery, CPA Illinois State Museum

In partnership with Junior Achievement, Dollars and Sense for Kids allows you to be part of

Elizabeth A. Murphy, PhD DePaul University

dle school students. Or, you can help Habitat for Humanity by working one-on-one with fami-

Annette M. O’Connor, CPA RR Donnelley & Sons Company

hands-on activities to bring money management and career skills to life for elementary and midlies to give them the support they need to handle the responsibilities of a mortgage. There’s no program in a box that can do what we can do—actually be there for someone in need.

Michael J. Pierce, CPA RSM McGladrey Inc.

Check out Time + Talent on page 48 to find out more about how you can be a part of our efforts to connect real CPAs to real communities and real people.

Marian Powers, PhD Northwestern University Daniel F. Rahill, CPA KPMG LLP

CPA volunteers who share their time and abilities truly improve the lives of others. So be proud to be a CPA and proud that your dues dollars not only help you do your job, but also allow us as an organization to offer enormously helpful programs to people who truly need them.

Lawrence H. Shanker, CPA Shanker Valleau Accountants Inc. Edward H. Stassen, CPA Recycled Paper Greetings Inc.



Elaine Weiss, JD, ICPAS President & CEO

Publisher ICPAS President & CEO Elaine Weiss Editor-in-Chief Publications Director Judy Giannetto Creative Services Director  Gene Levitan Creative Services Manager Rosa Garcia Publications Specialist Derrick Lilly National Sales & Advertising  Stephanie Bunsick The YGS Group 3650 West Market Street York, PA 17404 Phone: 1.800.501.9571, ext. 137 Fax: 1.717.390.9891

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Editorial Office 550 W. Jackson Blvd., Suite 900, Chicago, IL 60661 INSIGHT is the official magazine of the Illinois CPA Society, 550 W. Jackson, Suite 900, Chicago, IL 60661, USA. Its purpose is to serve as the primary news and information vehicle for some 23,000 CPA members and professional affiliates. Statements or articles of opinion appearing in INSIGHT are not necessarily the views of the Illinois CPA Society. The materials and information contained within INSIGHT are offered as information only and not as practice, financial, accounting, legal or other professional advice. Readers are strongly encouraged to consult with an appropriate professional advisor before acting on the information contained in this publication. It is INSIGHT’s policy not to knowingly accept advertising that discriminates on the basis of race,religion, sex, age or origin. The Illinois CPA Society reserves the right to reject paid advertising that does not meet INSIGHT’s qualifications or that may detract from its professional and ethical standards. The Illinois CPA Society does not necessarily endorse the non-Society resources, services or products that may appear or be referenced within INSIGHT, and makes no representation or warranties about the products or services they may provide or their accuracy or claims. The Illinois CPA Society does not guarantee delivery dates for INSIGHT. The Society disclaims all warranties, express or implied, and assumes no responsibility whatsoever for damages incurred as a result of delays in delivering INSIGHT. INSIGHT (ISSN-1053-8542) is published six times a year, in February/March, May/June, July, August, September/October, November/December, by the Illinois CPA Society, 550 W. Jackson, Suite 900, Chicago, IL 60661, USA, 312.993.0393 or 800.993.0393, fax: 312.993.0307. Subscription rates for non-members: $30 US, $40 Canada and international addresses, $42 Mexico. Copyright © 2009. No part of the contents may be reproduced by any means without the written consent of INSIGHT. Permission requests may be sent to: Publications Specialist, at the address above. Periodicals postage paid at Chicago, IL and at additional mailing offices. POSTMASTER: Send address changes to: INSIGHT, Illinois CPA Society, 550 W. Jackson, Suite 900, Chicago, IL 60661, USA.


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Magnum Opus Award Honoree, Best


Apex Award, Magazine & Journal Writing

CSR/Green Series or Article


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Magnum Opus Award, Best All-around

Chicago Women in Publishing Excellence Award, Writing/Editing

Association Publication


Apex Award, Feature Writing


Apex Award, Magazines & Journals


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Stimulus Checklist The American Recovery and Reinvestment Act of 2009 offers significant grants, tax incentives and policy initiatives to stimulate investment and innovation in the cleantech sector (in other words, knowledge-based products/services that improve performance). Grant Thornton LLP’s white paper, Navigating the Cleantech Stimulus: An Executive Summary, provides a checklist of key factors to address: n Identify available incentives, including tax credits, loan guarantees, grants, and Federal, state or local agency funding. n Assess eligibility criteria & compliance obligations for the various incentives available to your business. n Understand the application process, and make sure you have access to the skills and experience necessary to navigate it. n Take an industry-wide perspective, analyzing how incentives may affect the business directly or indirectly. n Evaluate the effects of each incentive, and model scenarios for broader effects on revenues and costs. n Reassess your strategic focus and business plan to prepare for new opportunities and challenges, such as capitalizing on grant funding or speeding investment and development plans due to increased demand. n Build your stimulus capabilities to adapt to a sector now heavily influenced by government. n Keep a global outlook, identifying potential incentives and assessing their impact on the cleantech sector. Visit to download a copy of this white paper.

“CPA” Makes the Top 10 According to Money/'s 2009 list of the 50 “Best Jobs in America,” Certified Public Accountant ranks an impressive number 6. The recently released list reveals the median salary for a CPA to be $74, 200, with the top salary noted as $138,000. What’s more, the CPA profession is expected to experience 18-percent growth over the 20062016 period. Among the reasons cited for “Why it’s great” are rising demand spurred on by new corporate accounting rules and government compliance requirements, as well as the fact that taxes—and the need to file them—won’t go away any time soon. Visit for more. 6


$3 billion

Funding received by the state of Illinois under the American Recovery and Reinvestment Act of 2009 (as of July 1, 2009). Source:

US Business Leaders Live to Work If you feel like you've been working a lot lately, you’re not alone. According to an NFI Research [] worldwide survey of senior executives and managers, businesspeople have settled into the 10-plus hour workday and the 41-plus hour workweek. Specifically, survey results show that 77 percent of senior executives and managers work 41-60 hours a week, and 52 percent work 51 hours or more a week. What’s more, 20 percent of business leaders work 11 hours or more a day, followed by 40 percent who work 10 or more hours. All senior executives and managers who work in organizations of 10,000 or more put in at least nine hours a day, and no-one works eight hours or fewer.

The Evolving CFO According to a Robert Half Management Resources [] survey of 1,400 CFOs across the nation, the role of the accountant in business operations continues to expand into new territories. CFOs interviewed say they expect issues outside of traditional accounting functions, such as offering strategic business advice or providing input on IT projects, to occupy 40 percent of a senior-level accountant’s time five years from now. What’s more, 26 percent say these issues will require as much as 50 percent of a senior-level accountant’s time in the coming years. Essentially, future CFOs will be increasingly called upon to step into broader-based leadership roles.

Finding the perfect fit doesn’t have to be a challenge, it’s what we do.

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Capture Biz Knowledge With the exodus of Baby Boomers from the profession, capturing knowledge and expertise in a central, easy-toaccess resource is a top priority. CCH addresses this challenge with KnowledgeConnect, the only knowledge management system designed exclusively for accountants. It provides a virtual database in which experienced professionals can store and share their accumulated knowledge. That knowledge is readily accessible, allowing firms and professionals to effectively brainstorm and collaborate. KnowledgeConnect even links firms in different locations into “knowledge communities,” and supports blogs, wikis, FAQs, and other types of Web 2.0 tools to encourage collaboration and keep content up-to-date. Furthermore, the system identifies top users based on the number of documents published and questions answered. Users can rate the accuracy, quality and usefulness of content so that the best answers are highlighted for firm-wide use. And KnowledgeConnect’s customizable templates ensure that all published knowledge of the same type is laid out in a consistent format. Also, firms can customize the solution’s rules, such as escalating urgent questions if they haven’t been answered in a predefined period and controlling who can join a community based on their roles in the firm. Visit more.



34 percent Percentage of CEOs planning to increase their workforce in anticipation of the economic rebound. Source: PricewaterhouseCoopers

Boost Your IT IQ Hit hard by the economic downturn, accounting and financial organizations are tempted to trim or postpone technology spending. But falling behind could be a price too high to pay down the road. Instead, make the most of what the current economy offers, seizing the opportunity to catch up with or leap ahead of your peers, especially since technology costs are down. Five strategic technologies to look into are: n Cloud computing and Software-as-a-Service (SaaS) n Mobile devices, including Netbooks and Smartphones n Smarter scanning and document management n Virtualization solutions to get the most out of your existing servers n Social media tools, like Twitter, Facebook and LinkedIn. Source:

Give back to the profession that’s been good to you

Your support means a great deal to me and will help me achieve my goal of becoming a CPA. THE CPA ENDOWMENT FUND OF ILLINOIS Provides Scholarships for Accounting Students | Funds Career Awareness Programs Promotes Diversity in the Profession | Develops New Leaders

For more information or to make a tax-deductible gift: Julie Lenner, Director of Development, 312.993.0407, ext. 290 or go to

The CPA Endowment Fund of Illinois, working in cooperation with the Illinois CPA Society, raises philanthropic support to fund programs that nurture and sustain the CPA profession.

Paving the Way for Tomorrow’s CPAs


Feelgood 2010 Things are beginning to look up…honest. By Kristine Blenkhorn Rodriguez


fter a year rife with bankruptcies, unemployment and pessimism, industry experts are a bit more optimistic about the year ahead, believing that although things won’t be positively rosy in 2010, they’ll be far rosier than they were in 2009. Slow but steady progress seems a lot sexier these days than it did prerecession. Here, then, are five things to be grateful for:

1. A Stabilizing Economy “The nation now knows we have to earn our keep,” says Jeff Kosnett, senior editor for Kiplinger’s Personal Finance. “That’s something we forgot for awhile.” Individuals are saving more and reducing debt with a sense of urgency, he says. And mid-year, the Commerce Department happily announced that the US personal savings rate had hit a 15plus year high of 6.9 percent. What’s more, “As a nation, we’ve realized that much of the world has the capability to handle computer work and manufacturing, two of what used to be our core areas. We see business and government working together to come up with areas we can excel in like green business and new models for healthcare,” Kosnett explains. Moreover, “Banks that have survived this crisis appear to be stronger,” he says.

2. Stimulated Spending In terms of the much touted Stimulus Package, “It takes time for the government to spend money,” says Adolfo Laurenti, deputy chief economist and managing director for Mesirow Financial. “Stimulus funds haven’t really funneled through enough to have a proper effect on the economy. But midway through 2009, you started to see effects in things like construction report figures. The public works stimulus funds were beginning to cycle through. As they continue to do so in many economic sectors, you will see a strong gain in 2010.” Keith Ashmus, chair of the National Small Business Association (NSBA), sees 10


the purchasing of goods and services picking up in many areas of business, particularly those affected by stimulus funds. “Inventories have been low and you can only keep them that way for so long. Suppliers will see their businesses pick up as client businesses replenish.” There’s also the IPO factor to consider. The slowdown of IPOs happened in early 2007, explains Austin Fox, senior recruiting manager with Robert Half Finance & Accounting. “We have two to three years of pent-up offerings. These are not just biotech or tech companies sitting on the sidelines waiting it out; not dotcoms with no revenue. These are companies that are making a couple of hundred million dollars that are waiting it out for the right moment, even though they’ve already hit breakeven. They want that extra 50 percent they’ll get a year from now.”

3. An Improving CPA Job Market While “Overall, the US accounting industry will experience a decline of 1.5 percent in the upcoming year,” says Toon van Beeck, a senior industry analyst with IBISWorld, “in 2011 things will pick up, with 5.5 percent overall growth in the accounting industry. The trend continues in 2012 and 2013, with predicted growth of 4.6 percent.” Laurenti believes, “The big, shocking job losses, the massive collapse in employment, are done, which is good news for anyone in the financial industry because they were the hardest hit. We’re not in freefall anymore. We have a floor under our feet.” He sees job creation being somewhat subdued until mid-2010, however. “CPAs are needed whether our economy is experiencing boom or catastrophe,” says Lee Gould, managing member of Gould & Pakter Associates, LLC and ICPAS chair. “In fact, accountants’ advice is sought after at even higher rates when the economy hits an extreme, whether high or low.”

Trends expert and futurist Jim Carroll agrees, stating that CPAs carry critical skills, regardless of job situation. “Even those who are not in full-time positions can usually still find good contract work. Stop looking for a job in 2010. Look for opportunities.”

4. A Prime Time for Specialization “Those CPAs who haven’t picked a niche yet should,” says Carroll. “Specialization is becoming critical to accounting. If you can pick a niche...and not limit yourself geographically, your chances of finding a great position go up exponentially.” Carroll sees huge growth potential in IFRS, green/smart building and agriculture. Fox feels that auditors in particular are benefitting from specialization right now. “The hot topics are healthcare reform, alternative energy and emissions cap-and-trade. If you’re the person who can track solar and wind credits and is up to speed on the regulations governing that area, or tracking emissions, you are almost guaranteed a job because there aren’t many people out there right now who are qualified in these areas,” he explains. Like Carroll, he also sees IFRS as key to job creation, particularly for those who would like to work at a large corporation. And when the recession dam breaks, he says, “CPAs in the consulting industry, investment banking industry and who specialize in areas like SOX, will reap the benefits.” He sees it coming in 2010, even if in the latter part of the year. For Van Beeck, forensic accounting is the “it” specialization, with continued growth predicted in 2010 and 2011. He also sees opportunities for CPAs who can help companies struggling with insolvency, liquidation and corporate restructuring.


Lifetime Achievement

Award Recommendations Now Being Accepted The Illinois CPA Society is seeking recommendations for the 2010 Lifetime Achievement Award, which is presented each year to a individual(s) who has provided distinguished service to the profession in Illinois and/or nationally. Candidates are selected based on a lifetime of service to the profession. Factors to be considered include: > > > >

Contribution to the profession Professional position attained Length of service Illinois professional involvement

Recent Award Honorees: 2009

Cameron T. Clark Duane D. Suits


Belverd E. Needles, Jr.


Edwin Cohen


Richard T. Sullivan


Vincent E. Villinski Richard E. Ziegler


Lawrence M. Gill Jerome A. Harris Cheryl S. Wilson


Daniel W. Cadigan Lester H. McKeever Jr.

5. An Improving Housing Market “The joke has been that we hit the bottom in 2009 and started to dig. The amount of construction and sales has been so low that it doesn’t take much now to increase activity by even 100 percent,” says Laurenti. Overall, however, housing is predicted to stabilize in 2010. While markets such as Florida and California will continue to decline due to delayed retirement and over-building, Kentucky, Tennessee, Georgia and Texas are among those states that will experience a stronger comeback, says Laurenti. He predicts that Chicago will fall in the middle of the scale. Jim Pair, president of the National Association of Mortgage Brokers (NAMB), sees a decent percentage of consumers “getting into housing before we hit higher interest rates and higher home prices. You’ll see caution ease up slightly and more movement. And the affordability index will not get out of control. “Interest rates (right now) are phenomenal given what we’ve just been through,” he adds. “Look at the double-digit rates that we had in the ‘80s and be grateful.”

Letters of recommendation with information supporting the individual’s qualifications (resume, biography, etc.) can be sent to: Eileen Robbs, Lifetime Achievement Award, Illinois CPA Society, 550 W. Jackson Blvd., Suite 900, Chicago, IL 60661 Or by email to:

Deadline for recommendations is December 15, 2009




Watch the Clock The deadline’s looming for lifetime licensing as a registered CPA. By Derrick Lilly


re you a licensed CPA? Or are you a registered CPA? What’s the difference? It can be confusing for practitioners and the public alike, but in a move that may curb that confusion and strengthen CPA credibility, Illinois will transition from the current dual CPA licensing option to a single licensing state in 2010.

Quick Facts Registered CPA application deadline: June 30, 2010 Last day applications will be processed: July 1, 2010 Where to apply: Where to get more information: Visit the “Certification, Licensing and Regulation” page on, or the Illinois Department of Financial & Professional Regulation’s public accounting page at Fine for using the CPA credential without being licensed or registered: $5,000 per offense



“Right now you have two choices: you can be a licensed CPA or a registered CPA, but after June 30, 2010, unless you’ve been grandfathered in and are already a registered CPA, you only have one option, and that’s to be licensed,” explains Martin Green, VP of government relations at the Illinois CPA Society’s Springfield, Ill. office. And so, the countdown for becoming a registered CPA has begun. “The General Assembly passed legislation that essentially sunsets the issuance of new registered CPA licenses in order to bring the state in line with the Uniform Accountancy Act so there aren’t various classifications of CPA licensure,” says Green. On June 30, 2010, the Illinois Department of Financial and Professional Regulation (IDFPR) will cease accepting new registered CPA applications, and new registered CPA licenses will not be issued after July 1, 2010. This move is expected to be positive for the profession’s future. “With a single licensing standard everyone knows who you are, what you’ve gone through and what the training and requirements are,” says Carlton R. Marcyan, attorney at law, CPA/CFP, with Schiller DuCanto & Fleck LLP in Lake Forest, Ill. “Overall this eliminates some ambiguity and also ensures those persons carrying the CPA designation that they have maintained their professional expertise and education as required. The public should now have greater assurance that those holding themselves out as CPAs know what they’re doing.” “If you’re putting yourself out to the public as a CPA you have to be either licensed or registered by the IDFPR. Therefore, the public has the assurance that CPAs are properly licensed by the Department for the services they’re providing,” Green confirms. “There are people not qualified at this point to hold themselves out as CPAs, and that could adversely impact the profession if they are giving out advice or performing

services that aren’t adequate,” says Marcyan. “This move is a good thing for the profession.” You may be asking, “What’s the difference between licensed and registered? And what do I need to do?” Here’s a breakdown. Licensed CPAs can provide attest services, including audit and review. Any CPA who is a partner in a firm or a practitioner who provides attest services must be licensed by the IDFPR. Licensed CPAs can perform public accounting and practice before the IRS. They must fulfill the continuing professional education (CPE) 120hour requirement, including four hours of ethics, within the threeyear period of their licensing cycle. Registered CPAs cannot perform attest services, but can hold themselves out to the public as CPAs, including the use of the CPA designation on resumes, business cards and letterhead, etc. Registered CPAs cannot perform public accounting or practice before the IRS, and do not have to fulfill the 120 hours of CPE during their licensing cycle. CPAs who are not licensed must be registered in order to use the CPA designation; otherwise they will face a penalty. Currently, registered CPAs, or those registered prior to July 1, 2010, will be “grandfathered” in and will be able to restore or renew their registered status every three years during their lifetimes. All CPAs who wish to be registered CPAs but have not registered by June 30, 2010 will have to be licensed going forward in order to use the CPA designation. They will be subject to all licensure requirements, including the mandatory CPE. Foreign national and international accountants who wish to become registered CPAs will need to have their paper applications postmarked prior to the June 30, 2010 deadline (online application is not available to individuals who do not have US Social Security numbers). Regarding costs, there is an initial $90 registration fee and then $90 due every three years to renew. Licensed CPAs who are anticipating retirement or transitioning from public accounting work should consider applying as registered CPAs, therefore carrying dual licenses going forward (if they wish to continue using the CPA title). “If you are planning to retire or switch jobs and no longer do public accounting work, now is the time to capture the registered CPA licensure before it sunsets. You can carry a dual license, and that’s an important point. You can be both a registered and a licensed CPA,” Green stresses. “What we’re looking at here is the future; for those people anticipating

change, the clock is ticking. If you want the option, you need to exercise it now,” says Green. Not only that, but it’s the law. Illinois requires all CPAs who are not licensed but hold themselves out to the public as CPAs to become either licensed, registered or both. If a CPA doesn't become licensed or registered and continues to use the CPA designation, then he or she could be fined up to $5,000 for each offense. “Anybody, whether they’re lawyers, investment advisors, insurance people, or CPAs on inactive status—all the folks who have passed the CPA Exam—should immediately get the application in for the registered licensing because otherwise you can’t use the designation,” states Marcyan. “Being a CPA is a mark of achievement and shows you’ve obtained a level of expertise, but if you miss the deadline you’re going to be out of luck.”




Are You Worried? Uncertainty and unease continue to blight IFRS adoption. By Selena Chavis


hile a proposed roadmap for adopting International Financial Reporting Standards (IFRS) in the United States was issued by SEC registrants for comment, the directions and timeline for converting to IFRS are “clear as mud,” say many CPAs and finance executives. Professionals across the field acknowledge the potential benefits of a conversion to IFRS, but are less enthusiastic about the challenges that may accompany the implementation process itself. “Most professionals agree that there is a clear benefit to having one global set of high-quality accounting standards,” says John McGaw, Midwest IFRS leader for KPMG. “Alongside that belief, though, there is clearly a frustration out there because of a lack of a specific mandate and date certainty from the SEC, and many are reticent to make significant investments without clear direction.” A rule was issued in 2007 allowing foreign private issuers to use IFRS in their SEC filings, without having to reconcile the financial results to US GAAP. The SEC continued the IFRS dialogue with a unanimous vote to issue a proposed roadmap for further US progress towards accepting IFRS for US public 14


company use beginning in 2014. The comment period for the proposal ended in April 2009 with opinions running across the board. A March 2009 Deloitte survey of more than 150 finance professionals, CFOs and finance managers found that a significant majority (75 percent) support the movement toward a single set of global accounting standards. However, 64 percent indicated that they have not allocated any budget amounts to IFRS transition. “What we saw was a lot of activity last year after the SEC made the announcement,” notes Ben Resch, IFRS technical leader for the Midwest region at Deloitte. “Now they are a little more complacent. There’s not a lot of news on expectations and timelines. I would guess that the next thing we receive from the SEC will be much more definitive.” Resch states that there are three company types that particularly feel the pressure to move forward with IFRS: The largest, most sophisticated publicly traded enterprises, companies considering infrastructure investments that will need to comply with IFRS in the future, and smaller companies that may have an international parent. Paul Oetter, senior partner with Blackman Kallick, says that for small to midsized private companies, the frustrations surrounding lack of information and clarity are even greater. “They don’t have the SEC telling them what to do; everything is much less clear for them,” he explains, adding that it’s in the best interests of a private company to wait and see what happens. “You can make a strong argument now that there is no clear benefit to adopting IFRS for private companies. Particularly as many companies battle the recession, the last thing they need to deal with is something that will take their focus off what they must do to stay profitable right now.” The issue is complicated by the SEC’s apparent lack of focus for the moment on

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IFRS IFRS, which, according to Oetter, makes the initial target date set out by the roadmap hard to meet. That, he says, means the situation is even more perplexing for smaller entities. “It will happen at some point,” he says. “Then the question will be, ‘What is the viability of the Financial Accounting Standards Board (FASB)?’ At that point, I believe the private world will focus on the issue in much greater detail.” Much of the current debate centers on the timeline in which US registrants would be required to transition to IFRS, and the process by which they would achieve this goal, McGaw explains. During the roadmap’s comment period, many respondents suggested that the SEC consider giving time for further convergence of individual US GAAP and IFRS accounting standards. “Many see this as a more manageable process than a point-in-time conversion,” says McGaw. “On the other side, though, if you try to converge over a seven- to eight-year period, you haven’t achieved commonality until it’s complete. How long will it then take, and equally important, will we be fully converged once they’ve finished?” “The desire to converge is due in part to a resistance to a full-on transition from rules-based US GAAP to principles-based IFRS,” Oetter explains. “I think the frustration in the United States has been and will continue to be that the business community expects there is a rule to account for a particular transaction. Two parties may come to a very different conclusion over an issue with IFRS. That will be one of the biggest issues in implementing the system. People are used to finding a rule; under IFRS, they will find a principle.” Resch agrees, pointing out that accountants and finance professionals will have to apply considerably more judgment in forming

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an accounting decision under IFRS. “It’s hard to move from the US GAAP world to the IFRS world,” he says. “If you are applying judgment, and it turns out to be incorrect, it seems that there may be more liability.” To compare the extent of US GAAP and IFRS guidance, McGaw explains that a full US GAAP printout is estimated at about 25,000 pages, whereas an IFRS printout would be about 2,800 pages. “There’s a large difference in volume,” he says. “Whether that’s a practitioner using IFRS or a university teaching its fundamentals, there is less application guidance and more room for interpretation.” And while IFRS is being used in many countries, some experts point to the litigious climate of the United States as a concern, questioning whether there would be greater liability for accounting professionals. However, “I don’t know that we’ve had enough experience to know whether there is more risk with IFRS compared to US GAAP,” says McGaw. Without a more clearly defined roadmap, many companies and firms are hesitant to make too much of an investment too fast. What’s clear, say many experts, is that there will be costs associated with implementation, and the amount and types of those costs will vary by industry and company size. “Certain companies are more likely to recoup that cost through future cost savings. For large global companies, the ability to move more closely to one accounting language stands to save them a lot of money,” McGaw asserts. The typical small to mid-sized US company likely will not see the immediate benefit, says Resch, but over the long haul, many will breath a sigh of relief in letting go of the complexities of US GAAP. Oetter agrees, pointing out that the International Accounting Standards Board’s recently released International Financial Reporting Standards for Small and Medium-Sized Entities (IFRS for SMEs) might jumpstart the effort within the private sector. “It’s apparently available for use by any privately held company,” he says, reiterating the mounting frustrations many smaller companies are feeling with how costly it is to comply with US GAAP. “The reality is that IFRS for SMEs is a greatly simplified set of accounting standards that might percolate some interest on the part of small to mid-sized companies. Accounting complexity might be significantly reduced with the SME standards.” A recent Deloitte survey of more than 220 private company finance professionals indicates that 51 percent support separate accounting standards for private and public companies. Fifty-five percent of smaller companies (less than $100 million in revenues) were supportive of separate standards. McGaw acknowledges that finding a starting point for adopting IFRS is a daunting task for any company, especially in view of the relative lack of IFRS knowledge currently available in US practices. Many larger accounting firms have initiated comprehensive training programs in response. “One advantage we have is that most of the rest of the world has converted or is converting so there is experience around the globe that can be leveraged,” says McGaw. “Conversions are a lesson in change management, and companies that handle change well are more likely to come out on the top of this endeavor. At its core, professionals should be asking, ‘What does this mean to my organization, and what measured steps can we take today to better prepare ourselves for the likely transition to IFRS?’”

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You’re Being Watched R&D tax credits fall under increasing scrutiny. By Randy Crabtree, CPA


he US government and the vast majority of state governments recognize the fact that technological innovations are critical to the nation’s longterm success and economic growth. As a result, they’ve implemented tax incentives to encourage businesses to invest in the research and development (R&D) area. On October 3, the Emergency Economic Stabilization Act of 2008 extended the Federal R&D tax credit through December 31, 2009 (with the passage of H.R. 1424). By reducing taxes, it’s hoped that this credit will stimulate increased company spending on R&D over time. H.R. 1424 also implemented other changes: First, the Alternative Simplified Credit (ASC) was increased from 12 to 14 percent for taxable years beginning after December 31, 2008. Second, the Alternative Incremental Research Credit (AIRC) is no longer electable after December 31, 2008. And third, a technical correction was made to modify the



calculation of the research credit’s base amount for a tax year in which the credit was not in effect for the entire year. According to H.R. 1424, a qualifying company is in general eligible to deduct an amount equal to 20 percent of qualified research expenses above a base amount from its corporate income taxes. Qualified research expenses include wages, supplies and contract research costs, while qualified activities have to pass a four-part test: Part One: Permitted Purpose The project must be intended to be useful in the development of a new or improved business component, such as a product, process, technique, formula, invention or software. Part Two: Technological in Nature The project must have the purpose of discovering information of a technical nature. Therefore, it must rely on the principles of physical sciences such as engineering, biology or computer science. Part Three: Elimination of Uncertainty The project must be intended to eliminate uncertainty related to the development or improvement of a business component. Uncertainty can include the capability, development method or optimal design of the business component. Part Four: Process of Experimentation The project must evaluate one or more alternative solutions through the development, refinement and testing of different options. Furthermore, technical risk must be present, which means there’s a chance the project won’t succeed. To give you a little history, the R&D tax credit (IRS Code §41) was established by the Economic Recovery Tax Act of 1981, and since that time has expired and been extended 13 times. During its 28-year history, the credit has undergone significant changes and revisions, with important developments coming from new case law, IRS pronouncements and legislative action. The recent Fifth Circuit Court of Appeals

ruling in the case of US v. McFerrin, for example, established new guidance and precedence for examining R&D tax credit claims, and likely will be heavily relied upon by taxpayers in the future. In the original district court decision, the court first took issue with the fact that the evaluation of qualified activities and the calculation of the credit were not conducted by engineers or anyone with meaningful scientific experience. Second, the company was unable to produce any records of the hours worked on any given project or the hours worked or supplies used that involved research. Third, and most significantly, the district court held that research only qualified if it expanded or refined the existing principles in a technical field and had a high threshold of innovation (known as the “discovery test”). Finally, the court also held that qualified research only applied if a “process of experimentation” occurred that involved the forming and testing of a hypothesis, rather than “trial-and-error” testing. In the appellate court ruling handed down on June 9, 2009, it was found that the district court had used incorrect applications of the discovery test and process of experimentation by applying the wrong legal standards and failing to consider all the taxpayer’s relevant evidence. Most importantly, the appellate court stated that the “Cohan Rule” allows a taxpayer to use estimates of qualified research expenses when qualified research activities can be proven but exact expense amounts have not been documented. Furthermore, the appeals court found that oral testimony (through interviews) and employees’ institutional knowledge are acceptable in determining estimates. Based on this the appellate court vacated the district court’s original ruling and sent it back for further proceedings consistent with the appellate court’s findings.

Naturally, when working with clients, you’ll need to align client facts with those outlined in the McFerrin decisions. Namely, use engineers or technical experts to evaluate and document the qualified nature of projects; and make sure there’s sufficient documentation to support the existence and facts of each qualified project, and the employees involved in those projects. It’s important to note that the volume of R&D credit claims filed in recent years has increased significantly. Consequently, on April 4, 2007, the credit was designated as an LMSB Tier 1 Audit Issue— an issue that, if present in an audited tax return, must be reviewed. Not surprisingly, tax practitioners should expect to see an increased level of scrutiny relating to R&D tax credit claims. In May 2008 the IRS published a revised version of the Research Credit Claims Audit Techniques Guide (RCCATG): Credit for Increasing Research Activities § 41, which is not an official pronouncement of law or of the IRS’ position. However, it does provide indispensable insight into how the IRS views the R&D credit and the main issues the IRS focuses on in its examinations. Plainly, the R&D tax credit can be extremely valuable in reducing the tax liability of a business involved in activities that qualify. Due to the heightened scrutiny the credit is receiving, however, tax practitioners need to proactively prepare supporting documentation using technical staff with solid science backgrounds to ensure they meet the IRS’ requirements. Randy Crabtree, CPA, is a partner with Tri-Merit, LLC. He has over 20 years of public accounting experience and has focused solely on the R&D Tax Credit for the past three years. He can be contacted at

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Portal Power Emerging accounting portal technologies streamline financial processes and boost productivity. By Daniel Dern


oftware has improved accounting efficiencies for companies and CPAs alike by leaps and bounds. However, despite reducing errors, speeding up calculations and recalculations, generating reports, and more, software alone can solve only part of the security and productivity dilemmas organizations and practitioners face. For starters, they still have to establish a foolproof process for exchanging sensitive data and accessing each other’s systems. "One thing we've learned over time is that accountants used to have trouble getting the data from their clients; for example, they would have to drive to the site, bring a CD or memory stick, etc.," explains Samir Khosla, group product manager for Intuit's Accounting Professionals Division. "If files are too big for a stick or to email that's harder, and there are security risks associated with sending financial info via email. Some clients don't know how to encrypt files or send encrypted files by email." Thankfully, though, portals have offered a fast-growing solution to these problems.



"Generally speaking, a client portal allows the client and his or her accountant to exchange and access documents and information online," explains Rick Telberg, president and chief executive of Bay Street Group LLC, advisors in marketing, management and strategy. A portal may be provided as an add-on feature to current accounting software or as a browser-accessed web application. Typical features include secure file and document exchange and work-flow management, such as approving invoices and checks, and viewing reports and business analyses. Thomson Reuters, for one, has been offering portals to its customers for eight years now, with around 250,000 NetClientCS portals currently in use, explains Samantha Mansfield, senior technical sales representative with Thomson Reuters Tax & Accounting. Other leading accounting and business software firms, including Intuit, Intacct and NetSuite, also have added portals—or comparable collaborative features—to their products. "QuickBooks [] has several features that enable us to work with our clients' QuickBooks files more easily," says Richard Kane, CPA, business services manager at Schaumburg, Ill.-based Kutchins, Robbins & Diamond Ltd. "We use Intuit for about 60 to 75 percent of our clients. Their remote access feature lets us access the clients' books so we can do work on them without having to go to the client site. It's very good for out-of-town clients or for quick work. For a local client, using remote access avoids an hour or more of travel." What’s more, "Remote access works across multiple platforms, including among XP and Vista, and both people can see it," says Kane. "It's great for training. It includes teaching tools like annotation, which means you can draw lines and arrows like on a blackboard. And I don't need QuickBooks on my system to access a client's remote



TECHNOLOGY access feature; I can do it from a web browser, so I don't have to be at my computer." Additionally, "There's a feature for the transfer of QuickBooks back-up files, which can be more than 10 to 15 megabytes in size—larger than most email systems can handle," Kane explains. “And you can tell QuickBooks to make an ‘accountant copy’ of a QuickBooks file and transfer it directly to your accountant." QuickBooks "transfers a copy of the file to a server we maintain, and the intended recipient's system retrieves it from there," explains Shane Hamby, product manager for QuickBooks at Intuit. "That means it doesn't create a lot of traffic in the accountant's mailbox. The users can set up a password and share it ahead of time. This solves the problem of people working together, of clients not being technologically sophisticated enough to secure and attach big files, and of data security. The receiver just needs the password." According to Pat Bhatt, senior product manager of Intuit’s Accounting Professionals Division, as of July 2009, 315,100 files have been exchanged via accountant's copy (since its fall 2007 debut within Intuit QuickBooks Premier Accountant Edition). In the upcoming 2010 QuickBooks release, Intuit also will be introducing a document management service, giving accountants access to client documents. "Collaboration isn't just about using the QuickBooks files, which are representations of your finances and accounting," says Hamby. "Accountants often have questions about a transaction and need access to the source document, such as PDFs of bills or checks." Intacct Corporation [], which announced a partnership with the AICPA earlier this year, provides cloud-based financial applications, defined as applications accessed via the web rather than being installed on user systems. "Portals are one chapter of the broader collaborative story on how accounting firms can better collaborate with their clients, and are also part of the paperless story," says Daniel Druker, senior VP of marketing at Intacct. "The way Intacct is designed, CPA firms can deliver customized portals to their clients and brand it so it looks like they're accessing their CPA's system." NetSuite [] provides businesses and CPAs with yet another option. Its web-based business management software suite

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includes financial, accounting, ERP, CRM and eCommerce capabilities. And in terms of collaborative activity among NetSuite customers, "We are a role-based system, so you can grant access for working on or auditing your books. This means you aren't shipping files around and you can assign different permissions for each user or role to restrict access," says Darren Linscott, NetSuite’s director of product management. And if a company wants its CPAs to work on separate copies of the data at hand, "You can grant permission to only view and export data as needed, so they can make change recommendations," says Linscott. "We also offer ’sandbox’ accounts that you can view and make modifications to without affecting the live site." Portals and collaborative tools are also features of Thomson Reuters’ [] Professional Software and Service group's GoFileRoom product, as well as in its corporate group, OneSourceWorkFlowManager. "GoFileRoom's ClientFlow module provides a portal directly to the client and to documentation stored there," says Michael Knighton, VP of corporate workflow tools at Thomson Reuters’ Tax & Accounting division. "WorkFlowManager provides the same document and information-sharing features—it's data collection software, allowing users to collect information and migrate it to other applications." Thomson Reuters' NetClient CS product provides secure collaborative tools that are housed in Thomson Reuters' data center, allowing accountants and their clients to work together, says Mansfield. "It's a utility that an accountant can establish for his or her client and enable different functions depending on what the accountant offers to that client." All in all, portals help to ensure CPAs and their customers are meeting regulatory compliance in the areas of data security. That level of security is not easily achieved when using email and file transfer processes, or non-network data transfers. "Problems like the Twitter hack of Google Docs is a lesson to accounting firms that they need to demonstrate to clients and others that they are ensuring security and privacy," notes Telberg. Portals also help CPAs and companies avoid security breaches that could have serious financial consequences. "Forty-seven plus states have stringent privacy laws in place," Telberg explains. "Accountants look at these and consider what could go wrong if an email or document goes astray, and they look to these secure portals and file transfer solutions." Added to the security benefits are the productivity pluses. In fact, portals provide an “enormous” productivity jump, says Seth Pomeroy, CPA/MIS, partner-in-charge of CFO Outsource and Accounting Technology with The NDH Group Ltd., a Chicagobased CPA and business consulting services company. And according to Kane, "Firms report a 50-percent gain in proactive consultation billing hours when everything is online. The firms can see what's going on, like whether the client's information is upto-date or, say, whether the client is running low on cash and will need more in order to pay employees in two weeks. Firms with this information can call their customers and say, 'Let's talk about this.'" "Accounting firms can't move fast enough in going digital, and client portals are one key feature," Telberg stresses. "We're seeing more interest in portal and other collaborative features in accounting tools. When clients are shopping around, they are looking for technologically snazzy accounting firms, so if you don't have a portal, you'll probably lose out."

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If you have an insurance claim, the last thing you want to worry about is whether or not you have the proper coverage.

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Media Darling Be the media’s go-to person for all things finance. By Derrick Lilly


f you haven’t heard of ”media expert” as an area of specialization, it’s probably because there isn’t a degree or certification for it. But media experts—professionals possessing the composure, expertise and personality to address the public through media outlets—are playing an increasingly important role in promoting a positive, upto-date image of CPAs and increasing public awareness of the profession’s significance. “A media expert is someone who has expertise in a particular issue or field and also has the ability to translate that expertise into simple words for the public,” explains Linda Forman, CPA/P.C., a long-time media expert for the Illinois CPA Society (ICPAS). “The only people who really understand what a CPA is are other people in similar professions. Being a media expert helps people understand how to use a CPA, and it helps people understand our expertise.”



How the Pros Do It Be available: “You have to understand that reporters are under deadlines,” says Forman. “You have to be ready for the media on their schedule...not yours.” Don’t over-prepare: “If I spend a lot of time studying I want to get into the details too much. When I rely more on my general knowledge I give more of a big picture answer. That’s what people really want, and it’s a little more personable,” says Harlow. Keep it simple: “You have to understand the media isn’t looking for thesis statements,” explains Forman. “Have your thoughts available and outline the most important parts.” Light up the stage: “Try to be enthusiastic and extremely energetic,” advises Harlow. “Over deliver, have good ideas and do what you can to make the media person come out looking great.” Don’t try to sell services: “The purpose behind being a media expert is to educate the public,” Forman explains. “If you’re doing it just to get business it will show.” Be respectful: “If you’re in the media you’re going to get calls that aren’t appropriate. If you don’t treat those people like respectable, nice human beings it gets back to the media. Media reps have to know that they’re not going to get bad feedback,” says Forman.

Outstanding Leadership in Advancing D









Nominations for the

2010 Outstanding Leadership in Advancing Diversity Award are now being accepted. The Illinois CPA Society is currently seeking nominations to honor the work of exceptional CPAs. The Outstanding Leadership in Advancing Diversity Award is designed to recognize individuals who have made a marked contribution to diversity within the accounting profession. The Emerging Leader Award, a recently added category of the Outstanding Leadership in Advancing Diversity Award, will recognize young professionals who possess the qualities of the Outstanding Leadership in Advancing Diversity Award but have 5-7 years full-time work experience. Nominees can be employed in any area of accounting or finance; including public accounting, industry, not-for-profit, education, government or consulting. Criteria considered for the ideal candidate include: A CPA credential, but do not need to be a current member of the Illinois CPA Society Diversity efforts with measurable results Breadth of diversity and related activities Level of impact on the accounting profession Unique and creative contributions to the profession in advancing diversity Channel through which candidate has advanced diversity outside of, or in addition to their day-to-day job functions For more information or to nominate a candidate, please call Kelly Slay at 800.993.0407, ext. 275 or visit

The deadline for nominations is Monday, November 30, 2009.

CAREER “It’s important that people understand that we’re here to help and that we are trusted advisors. We have to put that out there,” adds Mary Lou Pier, CPA, of Chicago-based Pier & Associates Ltd. Pier is an ICPAS member and media go-to person. From complex business tax issues to personal finance Q&As, CPA media experts are sought out by reporters and media contacts to address a wide range of financial matters, including, of late, personal credit, stock market fluctuations, recession issues, fraud, corporate bankruptcies, government regulations and the Stimulus Plan. Of course, finding the opportunities to put your expertise out there may take some work, and it can take multiple appearances to build a reputation with media outlets. “If you’re going to try doing this sort of thing, don’t do it only once and quit. When somebody presents you with an opportunity take advantage of it,” advises Geoffrey J. Harlow CPA/MST/MBA, principal at Kessler Orlean Silver and Company, P.C. in Deerfield, Ill. Harlow, an ICPAS member, has appeared on Fox Television’s Good Day Chicago and the Your Money Show with Bill Moller on WGN Radio. Exposure will be a key factor in finding media opportunities. “First of all, the media needs to know you’re there. If you want to be in the media, look for the opportunities,” says Forman. “Trade publications are always dying for articles. Try coming up with a specific issue and write to a media outlet to tell them you want people to be aware of it. Giving feedback to the media is just one way of getting yourself into the media.” Pursuing local presentation or speaking engagements at conferences or other professional events also may provide platforms for networking with media pros and gaining more media exposure. Check with national and state CPA societies (including ICPAS) to see if they have connections with the media, whether print, radio or television. “What we need to do in our industry and our profession is say, ‘Look, we have important things that we think the public should know about.’ CPAs need to be proactive,” says Forman. Before you offer your expertise, though, be objective about your potential as a spokesperson for the profession; in other words, ask yourself, “Do I have media ‘presence?’” “There are a lot of people in our profession that are absolutely brilliant when it comes to accounting and tax issues. They do incredible work for their clients,

but if you put them in front of a room, or heaven forbid if you put them on the radio or television, they would either put people to sleep or you would see eyes glassing over in the audience,” says Harlow. “You have to realize a great conversation for a client or a staff person you’re trying to train may not always be a great conversation when you’re on the air.” Being a media expert doesn’t necessarily require any training, but some experience of public speaking and dealing with media staff wouldn’t hurt. After all, part of the satisfaction of being a media expert is disproving some of the prevailing stereotypes surrounding CPAs. “As a media expert, one of the things you try to get across is that CPAs have some kind of personality and that we aren’t all greeneyeshade people,” says Pier. Harlow agrees, adding, “If you’re just your normal conservative self you end up coming across like Ben Stein in Ferris Bueller’s Day Off. You really have to ratchet it up and use a lot more enthusiasm in your language, because if you don’t, quite honestly all you’re doing is enforcing the stereotypes.” “One of the toughest things for me was to learn to talk in less specific language and learn to explain things in such a way that I wouldn’t have to spend minutes explaining every permutation of the law,” says Harlow. “(Media training) administered through the Illinois CPA Society was outstanding. It went a long way towards getting me started on the right path. “From a professional standpoint,” he adds, “if it’s something you’re interested in, think you might be good at, or think it sounds like fun, then I think being a media expert can definitely make you stand out and separate you from your peers. And in terms of practice, it really enhances your aura in the eyes of your clients and others, and obviously that can pay benefits down the road from a career standpoint.” To learn more about becoming a media expert for the Illinois CPA Society, contact Communications and Media Manager Judi Kulm at To be added to INSIGHT’s Writer Resource Directory, a list of ICPAS members interested in being interviewed for INSIGHT articles, email Editor-in-Chief Judy Giannetto at Include your name, title, company, email address, phone number and, most importantly, areas of expertise.

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Congratulations to the 2009

Women toWatch

Award Recipients

The Illinois CPA Society’s Women’s Executive Committee and the American

Genevieve Burns, CPA Partner in Charge of the Not-for-Profit Practice, Blackman Kallick, LLP

Institute of CPAs Work/Life and Women’s

Experienced Leader

Initiatives Executive Committee are pleased to honor these women who have made significant contributions to the accounting profession, their organizations,

Kath Carter, CPA Midwest Sub-Area Leader, Transaction Advisory Services, Ernst & Young LLP

and to the development of women as leaders.

Experienced Leader

These deserving women will be presented with their awards at the Illinois CPA Society

Geralyn Hurd, CPA

“Women’s Leadership Breakfast” on

Partner, Tax Exempt Practice Leader, Crowe Horwath LLP

November 13, 2009 at the Standard Club in

Experienced Leader

Chicago. To register to attend this breakfast, please call the Society at 800.993.0393.

Kathy Ford, CPA Tax Partner, Ernst & Young LLP Emerging Leader

Sherrie Krowczyk-Mendoza, CPA Managing Director Risk Management, RSM McGladrey Inc. Emerging Leader The mission of the Women's Executive Committee is to enhance the recruitment, volunteerism, retention and leadership of women CPAs in the Illinois CPA Society and the profession through various programs and networking events. This program is one in an ongoing series designed to help women CPAs learn more about important professional issues, expand business networks and foster career advancement.

Heather Paquette, CPA Partner, Advisory, KPMG LLP Emerging Leader


The Overseers Is increased regulation the route to better taxpayer and preparer compliance? By Harvey Coustan, CPA


y the end of 2009, the IRS promises to propose a comprehensive set of recommendations relating to how tax return preparers can help to increase taxpayer compliance and how to ensure that tax return preparers meet uniform and high ethical standards of conduct. This is the long way of describing IRS efforts to regulate the tax return preparation industry. Urged on by various other federal government agencies such as the Treasury Inspector General for Tax Administration (TIGTA) and the Taxpayer Advocatesâ&#x20AC;&#x2122; Office (TAO), the IRS will recommend new rules,



including the use of a single return preparer identification number; return preparer registration, education and competency measurement; and enhanced enforcement of tax return preparer penalties. Last July, the IRS scheduled a number of meetings in Washington DC and other locations to get input from various stakeholders, including tax return preparers, associated industry and consumer groups, and taxpayers. In Notice 2009-60 (July 24, 2009), the IRS requested public comments on the two broad issues just described, and specific comments on: n The types of individuals, entities and professionals who currently work as tax return preparers, how professional organizations or the government currently monitor or regulate their tax return preparation services, and how this monitoring and regulation could be improved. n How differences in regulation and oversight affect the way in which various tax return preparer groups interact with the IRS and taxpayers. n The minimum level of education and training necessary to provide tax return preparation services. If there is a minimum level, who should be responsible for ensuring that this level is met? n What service and outreach should be provided to tax return preparers and taxpayers, and who should provide (and carry the costs for) these services? n Should tax return preparers be subject to a code of ethics and, if so, what specific behavior should that code promote or prohibit? How would that code mesh with existing ethical standards? n What, if any, responsibility should the firms or businesses that employ tax return preparers have for the conduct of these employees? n What, if any, responsibility should tax return preparer professional organiza-

Illinois CPA Society | 2010


Nominations for the 2010 Outstanding Educator Awards are now being accepted. The Illinois CPA Society is currently seeking to recognize three outstanding educators. Two educator awards may be from 4-year schools--one from a school that offers a graduate accounting program and one from a school that does not. One educator award may be from a 2-year school. Nominations are welcomed from any interested person (colleague, student, administrator, etc.). Nominees must be an Illinois educator at a community college, college, or university with a minimum of five years teaching experience. Educators who are noted for their teaching abilities, but are now predominantly involved in administration or research are eligible for the award. Nominees do not need to hold a doctoral degree or be a member of the Illinois CPA Society, but must be a CPA. The primary criteria to be considered in making the selection are the following factors: Excellence in teaching Student motivation and mentoring Educational Innovation Contributions to the academic community, and/or contributions to the accounting profession

For more information or to nominate a candidate, please visit or call Kelly Slay at 800.993.0407, ext. 275 The deadline for nominations is Monday, November 30, 2009.

TAX tions have for the education, training and conduct of their members? n If tax return preparation services are regulated, what, if any, special regulatory provisions should be made for individuals who are already tax return preparers, licensed attorneys, CPAs or software providers? n What, if any, additional legislative, regulatory, or administrative rules should the IRS recommend for the tax return preparer community? In a July 14, 2009 report (2009-40-098), Inadequate Data on Paid Preparers Impedes Effective Oversight, TIGTA made a number of recommendations, including a memorandum for the commissioner of the IRS Small Business/Self Employed Division (SBSE) (the “Memorandum”) that described various deficiencies and suggested improvements. For one, the Memorandum found that management information on paid preparers is incomplete and inconsistent. Although the IRS maintains significant data, it is not feasible to use that data to track, monitor or control preparers’ activities and compliance. This is largely because preparers use multiple identifying numbers when dealing with the IRS, and data on preparers consists of more than 20 different nonintegrated systems. A test of a statistical sample of 139 preparers revealed that: n 67 percent used multiple identifying numbers. n The names of the 139 preparers in various systems were inconsistent 45 percent of the time. n There were inconsistencies in 24 percent of the preparers’ street addresses listed in the various systems, while phone numbers varied 40 percent of the time. n Nine preparers sampled used invalid identifying numbers on the tax returns they prepared. n Five percent of the 139 preparers were not compliant with their own tax obligations; three preparers had delinquent returns and five owed taxes. This is not a good foundation for carrying out the mission stated in the IRS 2009-13 Strategic Plan, namely to “ensure that preparers adhere to professional standards and follow the law.” Earlier TIGTA reports (2004 and 2008) recommended that preparers use unique identifying numbers to standardize the process

of identifying preparers and enforcing tax laws and regulations. The Memorandum recommended that the SBSE commissioner revise the target completion date for its study to ensure the IRS “has a means to control and track preparer activities by the 2011 Filing Season.” What’s more, the Memorandum recommended that the commissioner develop a method to enforce Internal Revenue Code §6695(c), which imposes a penalty on preparers who fail to provide an identifying number on the tax returns they prepare. In addition, it is recommended that the commissioner develop a comprehensive data management system that allows the IRS, “at a minimum, to determine the population of preparers by eliminating discrepancies and duplications between systems…[and] allow the IRS to control, track and monitor preparers’ activities.” The Memorandum also recommended legislation that would require paid preparers to comply with their own Federal tax filing requirements in order to be permitted to prepare tax returns for a fee. As you might expect, various professional organizations, including the American Institute of Certified Public Accountants and the American Bar Association Tax Section, have checked in with comments to the IRS. Of course, both believe that any regulation should not impose requirements on top of the ones they themselves already impose on their members. Any system for identifying, registering and regulating preparers needs to answer a number of needs. Should there be CPE requirements and examinations? Should members of regulated organizations (AICPA, ABA Tax Section, Enrolled Agents) be subject to additional regulation in order to prepare returns for a fee? Should the Office of Professional Responsibility be charged with enforcing regulation of this new category of paid preparers? We are indeed living in a time of increased oversight for many professionals. The route taken to oversee and regulate tax return preparers is only logical, and hopefully will lead to better taxpayer and preparer compliance. Harvey Coustan is an Ernst & Young retired partner. He is presently consulting on substantive technical and professional standards issues and has been an expert witness in a number of cases.

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Strategic Risk Management: Aligning Strategy and Performance Measures with ERM Mark Frigo, PhD, CPA, CMA - Director, The Center for Strategy, Execution and Valuation, Kellstadt Graduate School of Business, DePaul University The Center for Corporate Financial Leadership is a service of the

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By Carolyn Tang




n an effort to boost the bottom line in a challenging economy, many firms are looking for ways to increase their efficiency while working with a reduced headcount. In response, there’s been an upsurge in software solutions designed to deliver the right data, to the right people, at the right time. Their ultimate goal: to free up the accounting department to focus on more strategic initiatives, while automating day-to-day administrative reporting. Numara Software, Drake Software, Avalara, Ultimate Software and SilverEdge Systems Software, Inc. are among those software players leading the trend.


Information Technology Asset management Founded in 1991, Numara Software is a global provider of IT service management and IT asset management solutions that address critical information technology and support functions, such as IT help desk, customer service desk, IT asset management, software patch and deployment management, network monitoring and vulnerability, compliance and power management. The company’s Numara Track-It! is touted as one of the most widely adopted help desk software and asset management solutions on the market. Used at more than 55,000 customer sites around the globe, the software increases productivity by automating critical IT functions. “Numara Track-It! allows companies to do more with fewer resources with a comprehensive, scalable help desk and asset management solution that evolves with their business,” explains Debbie Ingram, Numara’s senior manager for market strategy. For example, one of the solution’s features enables the IT team to automatically identify all active devices—PCs, network printers, routers, servers and switches. The software then determines IP and Mac address information, and uses the data to track inventory updates. Users are also able to track inventory in other ways, including tagging and using a traditional barcode system. The software is smart enough to eliminate duplicate asset records and tag the asset to the user. “No matter how you add assets, information will be automatically merged with existing records when common attributes are discovered,” Ingram explains. Asset management is an integral component of the entire organization. No matter what the function, human resources, marketing and finance play a role. So whenever a shift happens in one of these key areas, it trickles down to IT. “Managing business processes throughout the organization becomes more challenging as users, equipment and locations are added and removed,” says Ingram. “Changing economic conditions make it more important than ever to closely track hardware and software resources and manage their related costs.” She says that the key to managing costs and increasing IT effectiveness is ensuring each function has quick and ready access to the accurate data it needs. For example, company help desks have experienced an increase in request volume because of the expanding number of communication methods now available, including phone, fax, email and the web. Complicating this trend is a shrinking support team, which is often plagued with increased demands, variable skill levels and high turnover. “Regardless of business conditions, organizations must ensure that employees are in the best position to be productive,” Ingram 34


explains. “Instant access to integrated asset data allows agents and technicians to get a complete view of an issue along with related resources, and resolve it quickly. This results in better use of agents’ time and creates a higher level of customer satisfaction.” Visit for more on the Numara Track-It! software solution.

DRAkE SofTwARE Tax Preparation

North Carolina-based Drake Software has specialized in tax preparation since the 1970s. However, in 1977, the company decided to discontinue preparing tax returns the old-fashioned way and instead focus its energies on tax preparation software. Today, more than 30,000 tax professionals nationwide use Drake Software, and each year Drake processes more than 9 million Federal- and state-accepted returns. The company has won multiple awards, including a 2009 Reader’s Choice Award from CPA Technology Advisor in three categories: Federal/State Income Tax Compliance, Website Builder for Accounting Firms, and Document Management and Storage. What’s more, in 2008, a National Association of Tax Professionals survey indicated that Drake Software is the industry leader in customer support satisfaction, thanks to the quick response turnaround of the company’s support team. “Year round, our customers wait less than nine seconds to speak with a customer support representative, which saves them valuable time, especially during peak season,” says John Sapp, VP of marketing and sales for Drake. The company also ensures their customers have access to extensive, on-demand training. “Training is provided via live training, extensive webinars, updates schools and over 50 audiovisual tutorials,” Sapp explains. Continuous improvement is a key goal. “Drake is consistently improving its software by providing the most current technology available. This includes the most up-to-date tax law changes, as well as time-saving features integrated into the software,” says Sapp. Drake’s archive feature, for example, enables CPAs to save several versions of a tax return, allowing them to quickly give recommendations, while also maintaining the integrity of client files. What’s more, Drake keeps tax preparers in the know about new IRS regulations. IRS Regulation 7216, for instance, provides guidance on the use and disclosure of client tax information, and strengthens the taxpayer’s ability to control his/her tax information and make informed decisions regarding the preparer’s use of that information. Tax preparers who fail to comply with this regulation face a $1,000 fine and one year in jail for each violation. By accessing the Drake Software site, preparers are able to view a wide range of sample letters and consent forms to ensure compliance. Visit for more information.


Sales and use Tax Compliance Avalara is a Software-as-a-Service (SaaS) transaction tax solution provider for accounting firms, software resellers, businesses of all sizes and individual end-users. Its web-based solution is used by nearly 10,000 businesses globally. “Accounting firms partner with Avalara to provide clients with end-to-end sales and use tax compliance solutions. In some cases,



it’s been a matter of good practice management for the accounting firm, particularly when the firm is seeking to broaden its service offerings while not having to hire new accounting staff,” says Althea Azeff, JD, marketing and investor communications director for Avalara. Avalara tracks changes in various tax rates and jurisdiction boundaries, and incorporates them into its web-based solution, therefore ensuring that all end-users are consistently in compliance. These updates are transparent to Avalara service subscribers since the software integrates seamlessly with financial applications, and returns accurate calculations in sub-second intervals. “To give you an idea of the sort of numbers we’re talking about, there are more than 14,000 sales tax jurisdictions throughout North America alone. We constantly monitor for rate, boundary and nexus changes, as well as new taxability rules and other factors that customers need to have managed, especially when they sell into multiple jurisdictions. By the end of June 2009, we had tracked some 1,404 sales tax rate changes,” Azeff explains. She adds that, in times of recession, rampant unemployment and failing enterprises, firms look for solutions that will save them time, freeing them to focus on the business of staying afloat. “No one enjoys tax compliance,” Azeff admits. “It’s tedious, burdensome, time-consuming, and can take staff hours away from accounts receivables and other functions that directly contribute to the company’s bottom line. By outsourcing the functions associated with transaction tax compliance, companies save time, money and other valuable resources.” Calculating sales tax is a challenging necessity; its very nature makes it transactional rather than geographic. Companies need to calculate the appropriate rate regardless of whether the transaction takes place in a brick-and-mortar store, over the phone, or online. “You simply can’t calculate fast enough unless the process is automated, and you have to do it in the most accurate way possible. Our web-based solution did an amazing thing for businesses of all sizes, particularly the small and mediums, by providing instantaneous sales tax calculations that previously had been available only on ERPs,” she says. Avalara also takes pride in leveraging new technologies to add greater depth to its offerings. For example, the company reaches out to its customer base using Twitter, blogs, forums, Facebook, and even an iPhone app that allows Avalara users to instantly retrieve address validations and sales tax rates for any US or Canadian location. “We’re a technology company, right? Of course we use and enjoy new technologies,” says Azeff. Visit for more on these offerings.


Integrated Human Resources Solution Ultimate Software is the award-winning company behind UltiPro, a product that provides end-to-end strategic human resources, payroll and talent management through Software-as-a-Service. Current clients include Major League Baseball, Nintendo of America, Ruth’s Chris Steak House and Sony Music Entertainment. In the most basic terms, UltiPro helps companies manage their workforces, taking care of everything from recruitment to retirement. It is unique in the sense that it provides a single, unified solu36


tion for handling every aspect of the employee lifecycle, so companies don’t have to search for payroll or HR point solutions. However, it also has a depth of functionality that provides businesses with strategic human resources tools and built-in business intelligence and workforce analytics. For example, users of UltiPro can access their payroll and HR data on demand, and can create workforce reports in seconds. Also, the entire workforce has online access to individual payroll and personal information, and can manage that data without having to involve human resources personnel. “Many companies today are struggling with the inefficiencies, data inaccuracies, errors and time wasted that result when they have the same employee data stored in multiple systems that aren’t integrated,” explains Jody Kaminsky, Ultimate Software’s VP of marketing. Having separate, non-integrated systems may result in unreliable data, such as different start dates for the same employee and different payroll deductions. “Hours of time can be spent manually comparing and reconciling data between systems,” says Kaminsky. “Having these processes integrated delivers tremendous value because there is one central, master source for reliable employee data. It also delivers time and cost savings by eliminating duplicate data entry or data reconciliation, reducing errors and the need to reprint paychecks, and consolidated employee data for reporting and trend analysis.” One of the greatest benefits for the accounting function is that UltiPro significantly reduces the typical number of costly payroll errors. The solution eliminates the need for duplicate data entry between time entry and payroll, and allows payroll staff to check data before the payroll is run. Additionally, UltiPro can feed relevant payroll and HR information into accounting systems, such as the general ledger. This is a significant feature, particularly when you consider that HR and payroll costs are more often than not a company’s largest operating expense. What’s more, UltiPro’s salary planning and budgeting feature enables accounting and finance departments to forecast operating expenses and better project salary increase costs. “Customers can set salary increase guidelines, and managers can determine the best way to allocate pay increases to their employees within an approved budget,” Kaminsky explains. The University of Louisville Hospital is one of UltiPro’s current users. Jamie Long, the hospital’s benefits manager, says the solution has significantly helped the organization streamline tactical work. “For instance, with UltiPro’s benefits enrollment feature, we have eliminated two weeks of data entry. This gives us time to devote to more strategic projects, such as recruiting and retaining the best people,” he explains. Visit for more on the UltiPro solution.

SilverEdge Systems Software

Resource management Solution for Project-focused firms SilverEdge Systems Software, Inc. is an award-winning company that provides corporate resource management software solutions to help clients better manage their projects, employees, clients and marketing functions—and enhance cash flow and profits. Deltek Vision is SilverEdge’s leading software solution. With the goal of enabling users to gain a single overview of their project life-

cycle and supporting systems, Deltek Vision consolidates employee, project, customer, marketing and financial information into an integrated, real-time tool, which then allows for greater efficiency and better, faster decision-making. The database also brings together all of an organization’s functions, including project management, IT, accounting and business development, thereby promoting collaboration and knowledge-sharing between groups. “Deltek Vision impacts a company’s bottom line by driving business growth, optimizing project quality and cash flow, and improving resource efficiency,” explains SilverEdge Systems Software President Maria Vedral. One way the solution increases efficiency is by automating processes. For example, the accounting and billing function, which was designed specifically for project-focused firms, eliminates work-arounds and dependence on multiple systems. “Deltek Vision automates all your accounting processes with stringent internal controls, providing a complete financial management and project accounting system, multicurrency, multi-company, intercompany billings and transfer, and other advanced accounting features, including workflows and dashboards,” Vedral explains. What’s more, the real-time element of the solution means that users can access project, financial and business information anywhere, anytime. Specifically, the web-based architecture provides access to user-specific or rolebased dashboards, targeted and configurable reports with drilldown, and a single database for all critical business processes. The solution also helps to eliminate leaks in billable time and expenses, and captures data to such a level of detail that it supports project and budget management, as well as contractual requirements. “Project invoices are accurate the first time, which shortens the billing cycle and time to payment,” says Vedral. “With targeted AR aging reports and alerts, the team can stay on top of the collections process.” Like the other software scene players mentioned here, SilverEdge takes advantage of burgeoning technologies. “We utilize tools like GoToWebinar to offer free Internet training seminars to our clients. By providing online one-on-one training, we eliminate travel costs and improve the training and support experience by being able to see our clients’ screens and take control of them if it makes sense,” Vedral explains. Visit for more information on SilverEdge’s software offerings.






Pon.zi Scheme: n. an investment swindle in which some early investors are paid off with money put up by later ones in order to encourage more and bigger risks. Etymology: Charles Ponzi, American (Ital.-born) swindler (early 1920s). Source: Merriam-Webster

Is there relief for defrauded investors? Yes. By Derrick Lilly


ernie Madoff proved that anyone and everyone can be cheated out of their money. While his multibillion dollar Ponzi scheme may be the most publicized, it’s not the only investment fraud out there. And they’re not all confined to Wall Street and corporate backrooms. “What’s happening now is resurgence; there are always going to be predators out there taking advantage of people,” says Joseph H. Rieber, CPA. “You are going to see an uptick in people losing money as a result of dishonest maneuvers.”



How to spot a scam Look out for these red flags: n You’re encouraged to borrow money or cash from retirement funds to invest n You’re pressured to invest immediately n Quick profits are promised n You’re told the disclosure documents required by federal law are just a formality n You’re told to write false information on your account form n Materials have typos, misspellings or aren’t printed on letterhead n Your money isn’t sent promptly n You’re offered inside information n The sales pitch uses words like "guarantee," "high return," "limited offer," "this investment is IRA approved" or "as safe as a CD" n Claims are made that "off-shore investments are tax-free and confidential" Source:

Touching closer to home, in July 2009 the Securities and Exchange Commission (SEC) froze the assets of Lancelot Management LLC, a Highland Park, Ill.-based hedge fund run by Gregory Bell, after the company allegedly fed $2.62 billion into Minnesota businessman Thomas Petters’ Ponzi scheme. in the most basic terms, a Ponzi scheme is an investment operation that pays investors from their own money or money paid by subsequent investors, rather than from profits earned. “In an economy like this people are looking for alternatives because the stock market hasn’t been performing well and interest rates are at all-time lows. Unfortunately, that can open the door for fraudulent investments that promise returns above market rates,” explains John Gannon, senior VP of investor education at the Financial Industry Regulatory Authority (FINRA), which estimates that 7,000 investment fraud claims were filed in 2009. “The typical victim of investment fraud isn’t the little old widow sitting at home alone; it’s actually someone who is a fairly sophisticated investor, college educated, financially literate and fairly wealthy,” says Gannon. Even pension funds, institutional investors, corporations, partnerships and hedge funds have been duped by fraudulent investments. “Fortunately, the government seems to be more responsive these days to those types of misfortunes,” says Rieber. With two new IRS revenue guidance items in place—Revenue Ruling 2009-9 and Revenue Procedure 2009-20—some fraud victims may find relief. “You may not get 100 percent of your money back, but the government is giving you a chance to get something,” he says.

Internal Relief Service When turning to the IRS, “The most important thing is to establish exactly what the facts are,” says Michael O. Calahan, CPA, a tax partner with Blackman Kallick in Chicago. “Are you a direct investor? Are you an indirect investor? What did you invest in? What documentation do you have to establish basis?” Thankfully, establishing a basis for a claim is now easier thanks to Revenue Ruling 2009-9, which clarifies the income tax law 40


governing the treatment of losses in investment schemes and what qualifies a victim for relief. “The law before was very confusing and often misinterpreted; it didn’t really help a whole lot of victims, but the government has made a good-faith effort by putting this ruling forward and clarifying what qualifies as a theft loss based on fraudulent dealings,” says Rieber. For taxpayers qualifying under the ruling, the IRS has drawn up generous guidelines for addressing losses. “What the IRS said in this revenue ruling that’s very beneficial and very helpful for defrauded taxpayers is that the loss is deductible under §165(c)(2), which means it is not limited to personal loss limits or the limits of itemized deductions detailed under §165(c)(3), §165(h) or §67 and §68,” Calahan explains. “What this essentially means is Revenue Ruling 2009-9 gives you ordinary loss treatment if you can prove you had a casualty loss from theft,” adds Rieber. To maximize tax benefits under this ruling a taxpayer can offset his or her ordinary income up to the amount of the fraud loss in the year of discovery, and carryback losses by amending returns from previous years. This helps to recoup previous taxes paid on fictitious income, while minimizing future tax obligations. And thanks to an amendment of §172(b)(1)(h) resulting from the American Recovery and Reinvestment Act of 2009, taxpayers and eligible small businesses can elect a three-, four-, or five-year net operating loss carryback. Furthermore, Revenue Procedure 2009-20 establishes an optional safe harbor for qualified taxpayers that suffered losses in qualified criminally fraudulent investment arrangements. Using Appendix A—a simplified worksheet specifically developed for the safe harbor treatment—taxpayers will be able to uniformly calculate their theft losses and the deductible amount. Less any insurance or Securities Investor Protection Corporation (SIPC) monies, victims following Revenue Procedure 2009-20 will be able to deduct 95 percent of their losses if they do not pursue any thirdparty recovery, or 75 percent for those intending to take legal action in the year of discovery.

“For a large number of people, this is probably the way to go, but you have to look at each specific tax situation,” says Calahan. “The revenue procedure offers some very nice relief for taxpayers who were simply investing money, but the IRS didn’t say you must follow this revenue procedure, and they didn’t say this is the only method for recovery.” “There is always capital-loss treatment, but you are limited to offsetting any capital gains plus $3,000 per year, which you can carry forward indefinitely as an individual or trust. But once again, there needs to be finality that you aren’t going to recover anything before putting it down on your return and claiming the loss,” says Rieber. “Capital-loss treatment can provide some relief, but it may take a while, and you may never recover everything you invested.”

Where to Turn A problem for regulatory authorities is the failure of victims to report fraudulent or suspicious investments. “The FINRA Investor Education Foundation surveyed victims of known investment fraud, and one of the things we discovered was that over threequarters of those who had been defrauded never reported the fact that they had been defrauded. There is a huge underreporting of investment fraud in the United States,” Gannon states. That said, reporting incidences of fraud is vital to the ongoing battle against corruption. Depending on the circumstances, victims need to involve respective regulatory authorities, which may include the IRS, SEC, FINRA, SIPC and your state’s securities regulator, in order to find relief and bring violators to justice. Licensed CPAs, tax preparers and even tax attorneys can help victims determine the best course of action for reclaiming losses. If it comes down to reclaiming losses through the IRS provisions, Calahan strongly suggests, “getting professional guidance because there are a number of ways to trip up. Taxpayers with a large loss are going to require a lot of professional help, but in some instances it all comes down to the cost benefit: How much money was lost and based on that amount how much are we actually talking about recovering.”

Protective Measures Of course, even with IRS provisions, regulatory aid and professional help to turn to, the best relief is to protect yourself from being victimized in the first place. “There are two important steps investors should take to avoid investment fraud, which is to ask questions and then check the information out,” Gannon explains. “Specifically, ask if the individual you are doing business with is licensed to sell investments with FINRA, the SEC or your state’s securities regulator. The second question is, ‘Is the product itself registered?’ If you find out that both the product and the individual are registered, you’re going to protect yourself from the worst cases of fraud such as Ponzi schemes, pyramid schemes and things that are just nonexistent.” As Rieber advises, “You don’t want to sign up for any investment willy-nilly.” Checking into a broker’s or advisor’s background is easy through FINRA’s BrokerCheck® [] and the SEC’s “Protect Your Money: Check Out Brokers and Investment Advisers” web page []. Extra-cautious investors can turn to FINRA for additional safeguards. “We’ve developed a risk meter [], which measures what types of risky behavior investors may engage in, which may open them up to investment fraud. Another tool we have is a scam meter [], which helps to analyze whether the potential investment being considered might be a scam,” says Gannon. “There are a lot of basic precautions you can take to protect yourself, but to best protect yourself from fraudulent investments you should connect with a regulated, registered financial advisor you can trust,” Rieber stresses. “You need to take some time, do a little homework and do the legwork to get as much information as you can before parting with your hard-earned money.”








Which industries, products and services have suffered most? By Sheryl Nance Nash

“It’s ugly out there,” says Paul Strebel, a CPA and Cornell University lecturer. And true enough, few companies are escaping the recession without at least a few bumps and bruises. Their clients and customers, after all, are keeping a very tight grip on their purse strings. A recent poll from Associated Press/GFK found that the share of people using their credit cards has dropped from 25 percent in 2008 to 19 percent in 2009. The national savings rate jumped to nearly 7 percent in May, the highest since December 1993. “There’s been no real safety net for anyone, big or small. Everybody is fighting this battle,” says Stan Friedman, president of RetroTax, which specializes in tax credit identification and administration.



Sageworks recently released a list of 10 private company types most likely to file for bankruptcy in the coming months. The list is based on the average debt-to-equity ratio in the industry over the last year. Heading the list are automobile dealers and other motor vehicle dealers, followed by nursing care facilities, hotels and traveler accommodations, sporting goods and hobby stores, land development and subdivision companies, investigation and security services, residential building companies, motor vehicle parts manufacturers and printing companies. According to industry and market research firm IBISWorld, a “suffering” or distressed company is defined as one that has seen significant declines in both revenue and industry value added. Value added accounts for profitability and wages (which is a direct reflection of employment numbers). These, says IBISWorld, have been the hardest hit industries during the 2007-2009 recession period:

Investment Banking and Securities Dealing This industry has observed an average annual decline in revenue of 17.5 percent (falling from $151.5 billion in 2007 to an expected $103 billion at the end of 2009), while industry value added has declined by an average annualized 27.6 percent (dropping from $112.9 billion in 2007 to $59.2 billion in 2009), reports Toon van Beeck, a senior analyst with IBISWorld. The period from 2007 to 2008 was particularly bad, with the industry coming close to complete collapse. In 2009, however, many companies were able to claw their way back.

Private Equity, Hedge Funds and Investment Vehicles This industry has observed an average annual decline in revenue of 44.6 percent (falling from $115.7 billion in 2007 to an expected $35.5 billion at the end of 2009). Value added has declined by an average annualized 65 percent (dropping from $102 billion in 2007 to $12.5 billion in 2009).

Loan Brokers Loan brokers have averaged an annual decline in revenue of 47.4 percent (falling from $16.58 billion in 2007 to an expected $4.59 billion at the end of 2009), while industry value added has declined by an average annualized 43.9 percent (dropping from $9.62 billion in 2007 to $3.03 billion in 2009).

Money Market and Other Banking This industry has averaged an annual decline in revenue of 39.6 percent (falling from $2.13 billion in 2007 to an expected $777.6 million at the end of the 2009), while industry value added has declined by an average annualized 41.9 percent (dropping from $1.13 billion in 2007 to $381 million in 2009).

Single Family and Multi-Family Home Construction Over the last two years, this industry has observed an average annual decline in revenue of 24.3 percent and 22.5 percent per year, respectively. Industry value added has declined by an average annualized 27.9 percent and 26.8 percent per year, respectively. Sadly, these industries have not suffered alone. IBISWorld reports that approximately 70 industries have observed average annual revenue declines of greater than 10 percent per year in the past two years, and 117 industries have observed industry value added declines of greater than 10 percent per year. Among them are semiconductor machinery manufacturing, recreational vehicle dealers, 44


land developers, new car dealers, petroleum refining, fence and swimming pool construction, and boat building. What’s the outlook for companies? “Finance and construction have been utterly decimated,” says Strebel. “Firms that rely primarily on trading will recover somewhat, but those with large loan positions will continue to suffer. We expect loan delinquencies to continue rising, and we expect that many banks and finance companies will have difficulty rolling over their own debts. This problem isn’t going away. Much the same is true of real estate and construction. We see prices continuing to fall and demand for new building to be low.” Unfortunately, says Bob Stegmann, managing partner of Chicago executive services firm Tatum, “The last 18 months have seen a significant denial on the part of business owners who refused to believe what was on the news every night and they waited too long to seek help. Companies limit their options when they lock up like a deer in headlights. “Companies had a vision, a strategy, but they weren’t quite prepared for the economic storm,” he continues. “They have leveraged balance sheets, which is okay when credit is flowing, but now they are trying to scale back their businesses to be able to come up with a new economic plan that uses a scalpel instead of a hatchet.” For every loser, however, there’s a winner. “Those who went into the recession cash strong and well-managed, and who could work through the credit freeze, found they could capitalize on things that others couldn’t,” says Friedman. Stores that benefit when consumers cut back, like Wal-Mart and McDonalds, have done well, says Strebel. Healthcare remains relatively strong since, recession or not, people still need health services. And because companies want to improve efficiencies and automation capabilities—especially when they’re dealing with fewer employees—software has also held strong, says Stegmann. While IBISWorld estimates that only 5 percent of all US industries will be positively impacted by the recession, the research firm lists these 10 industries as likely to experience the greatest average annualized growth, as of 2009: 1. Voice Over Internet Protocol (VoIP), 31.5 percent growth 2. Biotechnology, 10.9 percent growth 3. Community Food Services, 10.3 percent growth 4. Scheduled Bus Services, 9.5 percent growth 5. Community Housing Services, 9.3 percent growth 6. Video Games, 9 percent growth. 7. Court Reporting Services, 8.3 percent growth 8. Public Transportation, 6 percent growth 9. Bridge & Tunnel Construction, 5.6 percent growth 10. eCommerce and Online Auctions, 5.4 percent growth The industries IBISWorld cites as winners are doing well for a variety of reasons, but paramount is the tendency of today’s customer to curb the spending habit. Trimming unnecessary expenses means that people are making product and service substitutions, such as using public transportation instead of cars and looking to big box retailers rather than department stores. The days of opting for luxury items are on hold. What’s more, some industries are flourishing as a result of the public putting off costly repairs and maintenance services to preserve household cash flow. Car towing is a perfect example. It’s not all stormy skies, however. Believe it or not, there is still money to be made and entrepreneurial wings to spread in this cli-

How to Survive the Recession

mate. IBISWorld identifies nine startup opportunities, in particular: Landscaping services; tutoring, test preparation, driving schools and other education; fashion design services; community food services; vocational rehabilitation services; eCommerce and online auctions; automobile towing; video game retail; and elderly and disabled services. Landscaping is expected to thrive because of the low barriers to entry, as well as low initial capital requirements. “Many people can commence operations with equipment they already own, and there is no need for a formal office or additional space,” says van Beeck. Then too, homeowners are time-strapped and the aging population needs a helping hand. The aging population also comes into play when we look at elderly and disabled services. Growth and demand are steadily rising as Baby Boomers retire from working life. Government grants may be drawn upon to establish new entities, reducing significant startup costs. “Rising federal government funding, the rise of agerelated issues, and emphasis on caring for people with disabilities (such as the New Freedom Initiative), make this industry highly prospective. Entry barriers are low and tax concessions and rebates are available for nonprofit organizations. Currently, 73 percent of industry players operate without having to pay taxes—a significant incentive,” says van Beeck. But for most companies, the question is not how they can start a new entity, but rather how they can survive the recession and thrive when the economy recovers. Change brings more change. When the “new norm” arrives, will your company be around to enjoy the fruits of its labor?

1. Assess liquidity “Try to squeeze as much cash as possible from the balance sheet. Avoid defaulting on credit. Operate as efficiently as you can,” says Stegmann. 2. Reinvigorate the finance function “Some companies are driven by sales or engineering functions, or entering new markets which can be risky if you’re placing your bets and waiting for new markets to materialize. Finance must be at the table when these strategies are taking place. Financial discipline has to be a part of the decisionmaking,” Stegmann explains. 3. Show discipline “I typically recommend companies strive to balance their long-term focus with short-term discipline through a variety of strategic and tactical actions in areas like staffing, production, product offering, etc. Maintaining that long-term focus is important to prepare for future growth, but the lack of visibility the economy offers today means that companies simply cannot afford to be reckless with cash flow at the present,” says Chris Montague, office managing partner at Plante & Moran in Chicago. “In the near term, managing cash flow is essential to remain operationally sound.” 4. Evaluate value to customers Companies should re-evaluate how they align with customers, and be tactical about customer service. “Identify the challenges facing customers and determine what specific value you can provide to help these customers manage their issues,” says Montague. 5. Identify core competencies Identify what qualities differentiate your company from others in the industry. “If you can’t pinpoint your competencies and differentiation, you need to establish some or align with another company that can,” says Montague. “It’s a great market for companies that are in a position to grow their scale, reach and capabilities through partnerships or mergers and acquisitions. The downturn has made this a buyer’s market for companies that can afford to be buyers.” 6. Don’t cut the payroll too deeply There can be significant consequences. “It could leave surviving employees overworked, making it more likely that they will jump ship at the first sign of job market recovery. Companies could be forced to scramble to recruit and train a large number of workers when the recovery begins,” says John Challenger of outplacement firm Challenger, Gray & Christmas in Chicago. 7. Recruit the best and brightest While hiring might seem to be going against the grain, Challenger points out that the labor pool is currently flush with talent. Grab the opportunity to recruit some of the highly skilled job seekers that are in the market right now, he says, adding that, “You may be able to bring them in below the premium they might demand in a tighter labor market.” 8. Dig deep for ways to make money “We show companies that if they are in a Federal empowerment zone or send their people to work in a Federal empowerment zone, this can generate a tax credit of as much as $3,000 a year per employee,” says Friedman. “You don’t have to be physically located in the empowerment zone. Say your business is in the suburbs but the work or job site is in the zone, that qualifies,” he explains. There are also demographic credits. If a new hire fits into any of 12 particular categories, including two new ones introduced as part of the American Reinvestment and Recovery Act of 2009—certain Disconnected Youth employees and Unemployed Veterans—you could earn a tax credit of $2,400 per qualified hire, says Friedman. “The total credit can become significant very quickly if you have several employees who meet certain criteria.”



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INSIGHT Magazine - November December 2009  

INSIGHT Magazine presents both global and local issues of particular relevance to its diverse readers, stimulating discussion and encouragin...