March/April 2020

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RPA in Audits Turning Accountants into Data Scientists Storytelling with Financial Data Tools of the Trade

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NOVEMBER/DECEMBER 2019 | NEW JERSEY CPA

contents M A R C H /A P R I L 2 0 2 0

THE MAGAZINE OF THE NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS

4 How Robotic Process Automation Helps Audits RALPH ALBERT THOMAS, CPA (DC), CGMA Chief Executive Officer & Executive Director rthomas@njcpa.org ELLEN C. McSHERRY Chief Operating Officer emcsherry@njcpa.org DON MEYER Chief Marketing Officer dmeyer@njcpa.org RACHAEL BELL Managing Editor rbell@njcpa.org KATHLEEN HOFFELDER Content Editor khoffelder@njcpa.org

The adoption of robotic process automation (RPA) is already having an impact on how audits are performed. Perhaps more than artificial intelligence, auditors need to be aware of RPA and how it can make audits more efficient.

6 Turning Accountants into Data Scientists

Being comfortable around numbers is surely a competitive advantage. But to remain competitive, accountants need to be able to obtain and analyze reliable and relevant data — in essence, become data scientists.

8 How to Turn Your Financial Data into a Story Worth Reading

All financial statements should be read and understood in combination with one another as each contributes to telling the full financial story of a client. It’s best to not only review the numbers but look for changes and the explanations behind them.

10 Exploring the Tools of the Trade: Power BI, Tableau, Qlik

As accountants become more tech-savvy, they are also discriminating in what kinds of software they use to support the advanced presentation of data. Power BI, Tableau and Qlik are a few of the most popular tools out there. Learn the essential elements of these tools.

DIANE ESPIRITU Senior Graphic Designer despiritu@njcpa.org

2 CLOSE UP

WALT HARTSFIELD Junior Graphic Designer whartsfield@njcpa.org

Eye on Legislature: Pass-Through Entity and SECURE Acts 12 ACCOUNTING, AUDITING & ATTEST

THE NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS 105 EISENHOWER PARKWAY SUITE 300, ROSELAND NJ 07068 973-226-4494 | NJCPA.ORG #NJCPAMAG READ NEW JERSEY CPA ONLINE AT NJCPA.ORG/ NEWJERSEYCPA

TO A DVE R T I SE I N NE W J ER S E Y C PA Visit njcpa.org/advertising or contact Eileen Proven at eproven@njcpa.org or 862-702-5640

Using Blockchain to Decipher Data 14 BECOMING A CPA

Tips for Taking the CPA Exam 15 BUSINESS ADVISORY SERVICES

Using Data Analytics to Shift from Compliance to Advisory Services 17 CORPORATE ACCOUNTING

Navigating the Challenges of CECL Implementation

18 FINANCIAL PLANNING SERVICES

Considerations for a Section 83(b) Election 19 FIRM & PRACTICE MANAGEMENT

Rise of the AI Marketing Machine — Driving Growth in Accounting Firms 20 GOVERNMENT & NONPROFIT

Best Practices for Creating a Statement of Functional Expenses 21 PROFESSIONAL DEVELOPMENT

7 Tips for Moving from Staff to Manager

22 TAX

Advanced Section 1031 Exchange Exit Strategies 23 TECHNOLOGY & INFORMATION MANAGEMENT SPONSORED CONTENT

Data Protection from the Inside Out 24 NJCPA NEWS

y CPAs Teach Students Why Accounting Matters y Nominations Open for Ovation Awards y NJCPA Remembers Former Executive Director Robert Garrity

27 CLASSIFIEDS 28 MEMBER STORY

Tina Moyer, CPA

CLOSE UP

Eye on Legislature: Pass-Through Entity and SECURE Acts

BY KATHLEEN HOFFELDER, NJCPA CONTENT EDITOR

The New Jersey Society of CPAs welcomed the signing of the Pass-Through Business Alternative Income Tax Act (A-4807/S-3246). The Act, which passed the New Jersey Legislature on Dec. 16, 2019, and was signed by Governor Murphy on Jan. 13, allows flow-through businesses in New Jersey, such as sub-S corporations, partnerships or LLCs, to elect to pay income taxes at the entity level instead of at the personal income tax level — helping to alleviate the tax pressure put on small business owners from the Tax Cuts and Jobs Act’s (TCJA) state and local tax (SALT) deduction cap of $10,000.

The signing is a great step forward for small businesses. Creator of the bill, Alan D. Sobel, CPA, CGMA, managing member of SobelCo and president-elect of the NJCPA, noted that “business owners were limited with what they could deduct in state taxes under the alternative minimum tax and were being disproportionately harmed as a result of the TCJA by not being able to deduct their taxes.” If those business owners were taxed at the entity level instead of at their personal income tax level, he said, then those businesses could get deductions under federal tax law.

The Pass-Through Business Alternative Income Tax Act, which was two years in the making, helps to level the playing field for New Jersey businesses, similar to measures put in place in other states, such as Connecticut, Rhode Island, Wisconsin, Louisiana and Oklahoma. The Act went

into effect Jan.1, 2020, and is not retroactive for the 2019 tax year.

“We are grateful to Alan Sobel, the New Jersey Legislature, our members and Governor Murphy for signing the bill as well as the bill’s many sponsors,” said Ralph Albert Thomas, CPA (DC), CGMA, CEO and executive director, NJCPA. SECURE ACT On the federal level, the Setting Every Community Up for Retirement Enhancement, or SECURE, Act also went into effect Jan. 1, 2020. Designed to assist with retirement planning, the SECURE Act includes some major changes to the age and requirements needed for retirement distributions.

Some key changes include the following: y Required minimum distributions (RMDs) start at the later age of 72 instead of 70 ½. y One can contribute to a traditional IRA after age 70 ½, whereas previously this stopped at that age. y The “stretching” of RMDs from inherited accounts, such as 401(k)s or defined contribution plans, has been eliminated over a lifetime; beneficiaries have to draw down the account and pay taxes over 10 years instead. y Anyone looking to cover the costs of adoption or birth out of their IRA can now use up to $5,000 per parent, as long as they have separate accounts. y Parents can withdraw up to $10,000 from 529 plans to repay student loans. y Part-time workers who are considered

long-term are allowed to participate in 401(k) plans.

The SECURE Act also helps those individuals who are still working beyond the age of 70 ½. For instance, someone in this situation would still be able to make IRA contributions.

The Act enables small business owners to receive a tax credit of up to $5,000 for starting a retirement plan. The credit applies to small business owners with up to 100 employees over a three-year period beginning after Dec. 31, 2019.

For those favoring a different kind of retirement plan, the Act paves the way for multiple employer plans (MEPs) to be used, whereby unrelated employers could participate in a retirement plan.

READ MORE PASS-THROUGH BUSINESS ALTERNATIVE INCOME TAX ACT

njcpa.org/passthrough

THE SECURE ACT

njcpa.org/topics/secure-act

New Jersey CPA (ISSN 1534-6692) is published six times per year by the New Jersey Society of Certified Public Accountants, 105 Eisenhower Parkway, Suite 300, Roseland, NJ 07068. Issue No. 80 Copyright © 2020 New Jersey Society of Certified Public Accountants. Annual membership dues include $9 for a one-year subscription to New Jersey CPA magazine. Members may not deduct subscription price from dues.

Periodicals postage paid at Roseland, NJ, and at additional mailing office. POSTMASTER: Send address changes to New Jersey CPA, 105 Eisenhower Parkway, Suite 300, Roseland, NJ 07068-1640.

The materials and information contained within New Jersey CPA are offered as information only and not as practice, financial, accounting, legal or other professional advice. The opinions expressed herein are those of the authors and not necessarily those of the New Jersey Society of CPAs. Publication of an advertisement in New Jersey CPA does not constitute an endorsement of the product or service by the New Jersey Society of CPAs.

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MARCH/APRIL 2020 | NEW JERSEY CPA

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NEW JERSEY CPA | NOVEMBER/DECEMBER 2019

3

HOW ROBOTIC PROCESS AUTOMATION HELPS AUDITS

By DR. SEAN STEIN SMITH, CPA

LEHMAN COLLEGE

Robotic process automation may not be as familiar to some as words like bitcoin, crypto or blockchain are, but may actually be a better fit for most firms — especially those that are focused on the audit and attestation side of accounting.

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Cutting through the buzz and hype surrounding emerging technology tools and applications can be difficult in the best of times, but the current landscape compounds the confusion and anxiety that choosing a new tool can create.

Especially with blockchain and the broader cryptoasset conversations continuing to dominate much of the headlines, firms and practitioners may struggle to find equally important but more applicable tools to adopt. Robotic process automation (RPA) is a tool all auditors should consider.

WHAT IS ROBOTIC PROCESS AUTOMATION Technical definitions abound, but a working definition of RPA that is useful from an accounting and firm management perspective is that RPA is computer software that allows users to automate certain tasks or even entire tasks previously done by humans. This is different from an artificial intelligence system or platform, which in essence allows the software to learn and develop via a machine learning algorithm. RPA, conversely, is a software program or tool that can be programmed and implemented to follow specific sets of instructions and/or link together existing processes and software to each other effectively. Since RPA is just software it is often mentioned interchangeably with bots; while both are software and may be of use to firms and clients it is important to distinguish which specific tool is best for the required role. For both internal conversations with colleagues as well as

with external clients, pointing out the differentiation between these technologies is essential to having productive and effective conversations related to implementation.

HOW CAN IT MAKE AUDITS MORE EFFECTIVE? It can be said without much controversy that the idea of a traditional annual audit, even supplemented with interim work and other communications throughout the year, seems out of sync with the rest of the business environment. Some have speculated that the audit will become obsolete or unimportant due to technology, but the reality could not be further from the truth. In fact, as organizations produce and attempt to make use of ever-increasing amounts of information, the need for processes and tools to attest to the accuracy of this data deluge will increase over time. Far from being rendered obsolete, audit processes and associated results will become more important as organizations adopt machine learning, software bots and internet of things tools. It is true, however, that in order for this rosy outlook to become reality, technology and automation must become comprehensively integrated into audit engagements including increased integration of tools such as RPA. Let’s look at a few of the ways in which an RPA tool can help practitioners develop a more effective and efficient audit. y Fewer errors, more confidence. A successful implementation at the client of an RPA tool or suite of tools

can lower the occurrence of data-entry errors, assist with variance analyses and give client accounting departments higher levels of confidence in the financial statements. These internal benefits, by extension, can make both the interim work and work performed during the annual audit less mundane and allow both the client and auditor to focus on improving rather than correcting. y More data. Perhaps the clearest benefit of harnessing the power of an RPA tool for audits from the perspective of the audit team is the ability to examine a larger percentage, or possibly even 100 percent, of journal entries and associated data. Instead of hoping that the sample selections are representative of the financial statements, the engagement team can leverage the RPA tool to analyze the totality of financial information. Auditing the entirety of financial information has long been a desire of both auditors and clients, not to mention the perception of what an audit is to the general public. RPA helps move this from possibility to reality. y Higher-value work. On top of helping with the initial analysis, exception rules can be set to narrow down what variances or unusual balances need to be flagged for additional human review. This allows the engagement team to spend less time checking the work that is already

completed and instead allocate that time to potential trouble spots or issues that require interpretation or nuanced judgment calls to correctly assess. With the numerous accounting changes that have been announced during the last several years, and more on the horizon, there are sure to be issues that require a second look.

THE IMPORTANCE OF INTERNAL CONTROLS RPA adoption by its very nature allows data and processes to be completed at an accelerated rate, but if clients have adopted a tool without properly reviewing, documenting and testing internal controls and workflows, this can result in faster processing but lower-quality outputs. Designing, implementing and maintaining the internal control environment is, of course, the responsibility of management, but that does not mean the external auditors have no role to play in this conversation. Both during interim work and work performed during the annual audit, internal controls — current and proposed — are vital to the accuracy of the information being audited. The adoption of RPA will, and already is, having an impact on how audits are performed, and these impacts are relevant for both the internal audit function as well as the external audit team. Realizing that no technology tool will fundamentally solve

business, workflow or fundamental control failings, RPA should be understood, embraced and leveraged by internal and external auditors to improve the quality and efficiency of audit work.

Dr. Sean Stein Smith, CPA, CFE, CGMA, CMA is a professor at the City University of New York – Lehman College. He is the leader of the NJCPA Emerging Technologies Interest Group and serves on the Advisory Board of the Wall Street Blockchain Alliance, where he co-chairs the Accounting Work Group. Sean can be reached at drseansteinsmith@ gmail.com or on Twitter at @seansteinsmith.

READ MORE AUDITING ARTICLES AND RESOURCES njcpa.org/topics/auditing

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5

TURNING ACCOUNTANTS INTO DATA SCIENTISTS

By JOSEPH HOWE, Ed.D., CPA

In today’s landscape of overflowing data availability, being comfortable around numbers is surely a competitive advantage.

But to remain competitive, accountants need to be able to obtain and analyze reliable and relevant data — in essence, become data scientists.

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MARCH/APRIL 2020 | NEW JERSEY CPA

Data scientists collect, organize, validate, mine and analyze data. Most CPAs are already using these skills, such as when an auditor performs a search for unrecorded liabilities or creates a materiality sample or when an accountant analyzes accounts receivable or cash flows.

Data science fundamentally combines computer programming and math skills.

Either of those alone are enough to strike fear into most, and combined they turn off an even bigger audience. Don’t stop reading here; accountants are especially primed to learn data science. Further, after learning the basics, there are a number of software packages that will do the heavy lifting.

WHAT TO LEARN Those who aren’t very familiar with Microsoft Excel should start there. Excel has many built-in tools that can help sort and analyze data. Take the time to learn more complicated functions such as VLOOKUP and pivot tables before FIGURE 1

moving on to other areas. Even those who use Excel on a daily basis may not be aware of its full potential. Figure 1 shows a sample of the power of a pivot table in Excel. This example includes a worksheet containing raw data of billable hours for clients in a hypothetical CPA firm. The data has been put into a pivot table to quickly total the number of hours by client. Depending on the filters used, the data could also have been totaled by employee or month. Now imagine being able to do this with two or three thousand rows of data in a matter of minutes. The output gives you a simple, accurate visual to use. Before moving on to more advanced data science, accountants should be comfortable with the following in Excel: y Queries y Pivot tables and charts y VLOOKUP/HLOOKUP y Statistical formulas: t-Test, Chi Square Test, Variance

HOW TO LEARN IT The most effective way to learn how to be a data scientist is by doing it. Working through an exercise while watching a video or reading a book increases the likelihood of retaining the knowledge. Try applying the task to relevant data to make learning more meaningful. If you hit a stumbling block, Google the error message or question; there is a whole community of people out there learning it one step at a time. Lastly, integrate new-found data science skills into daily practice.

Joseph Howe, Ed.D., CPA, is the chief financial officer of a government entity in New Jersey. He can be reached at jhowecpa@gmail.com.

In addition to Excel, there are other software resources that can help make meaning of reams of data. While learning to use them, accountants will also learn the computer programming language that pairs with them. Some of the most popular languages include R and Python. Both of these languages are supported with free software resources by nonprofit foundations. There is much debate over whether R is better than Python or vice versa. In general R has more advanced statistical capabilities, but Python is faster at processing. Since they are free to use, it is easy for accountants to do an overview of both and see which one they feel more comfortable with. For those with more enhanced data processing and visualization needs, some popular programs are SAS and Tableau.

These programs are commercially available and can cost anywhere from a few hundred dollars a year to a few thousand.

Quite simply, all of these programs are either databases or pull from databases of information. Despite their sophistication, these programs still require human interaction. The user must know what he or she wants to research and what they hope to glean from the data. To help determine what information is needed and how to analyze it, data scientists use their

knowledge of statistics. While basic knowledge of statistics such as mean, median and mode will get you up and running, to expand data analysis capabilities, an accountant will need to know how to interpret results of statistical analysis.

WHERE TO LEARN IT There are thousands of free and paid resources online from reputable websites such as Coursera and edX that create and cull courses from top universities and research centers around the world. Websites such as these are recommended over just watching random YouTube videos because they structure learning knowledge, skills and abilities around competencies and skill level. The entities that support R and Python also provide a plethora of resources for beginners.

It might seem counterintuitive to start learning about computers from books rather than online, but many do just that. For example, the “For Dummies” line of books includes editions on R programming, data science and big data. Being able to look at the book while following along on the computer can be an effective approach.

When searching for texts, it is important to check the publication dates for the most recent versions.

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7

HOW TO TURN YOUR FINANCIAL DATA INTO A STORY WORTH READING

By CHERYL MUCHA, CPA, AND STEVEN BLANKROT, CPA

CFO YOUR WAY

Financial statements taken individually only tell part of a company’s story.

Together, however, they can tell a clear story about an organization’s financial health and profitability.

Accurate financial statements reveal a lot of information, all of it actionable when looking at the overall picture, for example: y There may be too much working capital on hand that could be invested instead.

Alternatively, the company might be investing too much and not keeping enough in reserve. y The company is investing too quickly to accelerate growth and not recouping that investment efficiently enough which affects profitability. y The cost of goods is too high, leading to profit margins that are too slim. y Material prices are increasing faster than the company is raising prices.

Let’s look at the various financial statements CPAs and CFOs should be examining for business clients or the companies for which they work.

BALANCE SHEET The balance sheet provides a financial snapshot of the company’s position in terms of assets, debt and equity at a specific moment of time — the month, quarter or year. It is recommended to always compare the balance sheet at two separate

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points in time to reveal company trends and ratios. y Review fluctuations in account balances and attach explanations.

Look at accounts with material differences such as inventory, capital expenditures and accounts receivable. y Compare actual results to projected balances. This is an excellent guide to define necessary course corrections.

Look for the story behind things such as inventory levels and turnover; and accounts receivable increases due to aging or increased sales. y Compare the company to others in the same industry. How does it stack up against the competition in the local or regional market, or in the sector?

Go to industry groups that publish data to find businesses of comparable size, market and ownership type, and complete a ratio analysis to see how the company compares and to discover areas of opportunity.

INCOME STATEMENT The income statement tracks data monthly, quarterly or annually. It’s best to compare income statements over different

inventory, overstaffing, outdated processes or duplication of tasks that are out of alignment with the company’s standard operating procedures manual

periods of time to gain further insights into the company’s profitability. Trends and ratios to look at include the following: y Profit or loss over the time period.

Look at year to date as well as last year versus this year to date. Compare actual results to your budget as well. y Margins. Is the business doing as well as expected? Is there room to cut back if margins have been suffering? Are market conditions affecting business? If margins are lower due to vendor pricing, could the company get better pricing from its suppliers? y Expenses. Have expenses increased?

If so, do you know why? Look at major expenses: payroll, utilities, employee benefits and insurance. As with the balance sheet, compare the company’s performance to others in the same industry.

Look at trends outside of the business that may affect income, including economic, political and global factors.

STATEMENT OF CASH FLOWS It’s important to know how cash moves through the business. The statement of cash flows analyzes increases and decreases in assets such as cash, inventory, receivables and liabilities such as payables to vendors, bank loans and credit cards. Review the changes and explain the cause.

In theory, a well-operating company should see its cash increasing, with timely collection of receivables, bills paid on time and a reserve in the bank. If that’s not the case and cash is decreasing, look for factors to explain this.

On the positive side these may include the following: y Capital investments such as new equipment, infrastructure upgrades, physical expansion or a new location y Additional staffing y Seasonal inventory push y Shareholder distributions

Use all the income statement information to create informed financial projections and make operational decisions that are needed to align income and expenses with business goals. The numbers here might be indicating that it’s time to find a new vendor or negotiate better pricing, increase the company’s prices for goods and services, or drop an unprofitable line of business.

Negative trends that should raise red flags and require action include the following: y Steadily declining cash balance y Too much debt that cannot be supported at current income levels. Is the company borrowing to support operations rather than to achieve growth? y Increasing and aging account receivables y Operational inefficiencies — stale

WHO IS READING THE FINANCIAL STATEMENTS? Aside from business owners and executives, other parties are interested in seeing a good story in the financial statements, including the following: y Lenders. Applying for a business loan? These financial statements comprise the bulk of a company’s loan application, so make sure they tell a positive story about the business. If they give the wrong impression, the company is unlikely to get a favorable loan package or get any loan at all. y Investors. Whether an equity or profit participation partner, an investor will scrutinize the documents, looking for a history of growth and a plan for profitability, to ensure strong ROI. y Business partners. A good numbers story will help potential partners, especially in a merger or sale situation, become comfortable about transacting with the company. How the business is positioned matters greatly. y High-level employees. In some cases, it may be helpful to get them on board with where the company is heading so their goals and understanding are in alignment with ownership.

All financial statements should be read and understood in combination with one another. Each contributes to telling the full financial story. Make sure the statements tell a good one — or provide information to make the necessary adjustments to write the company’s next chapter.

Cheryl Mucha, CPA , is the owner of CFO Your Way LLC, a firm that creates pathways to profitability for growing local businesses with outsourced accounting services. Steven Blankrot, CPA , is a manager at CFO Your Way. Cheryl can be reached at cheryl@ cfoyourway.com and Steven can be reached at steve@cfoyourway.com.

NEW JERSEY CPA | MARCH/APRIL 2020

9

EXPLORING THE TOOLS OF THE TRADE: POWER BI, TABLEAU, QLIK

By MARC D. MINTZ, CPA, CITP, CGMA

MARC MINTZ & ASSOCIATES, LLC

As the CPA’s role advances from purveyor of historical records to data scientist, mastering the software tools that support the advanced analysis and presentation of data will become crucial.

In 2019, Gartner, a leading research and advisory firm, engaged in a study to review the top business intelligence and analytics software vendors. Microsoft, Tableau and Qlik each emerged as visionary leaders with a high-level ability to execute in this field. Before reviewing these vendors’ individual offerings, it is important to identify the major characteristics that come into play when selecting a program to assist with data analytics: y Price y Platform availability y Data visualization features y Advanced analytics features y Ability to integrate with disparate data sets y Online analytical processing (OLAP) capabilities y Reporting flexibility and dissemination options MICROSOFT POWER BI Microsoft Power BI (powerbi.microsoft. com) is a collection of software services, apps and connectors that work together to turn unrelated sources of data into coherent, visually immersive and interactive insights. Whether the data is a simple Excel spreadsheet or a collection of cloud-based and on-premises hybrid data warehouses, Power BI lets users connect to data sources, visualize what’s important and share that information with interested stakeholders. Power BI integrates well with other Microsoft

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| NEW JERSEY CPA

applications and is scalable. It can create quick insights from a local Excel spreadsheet, SQL database or ERP system. It is also robust and can extend to enterprise-grade systems where it can perform extensive modeling and real-time analytics using a collection of cloud-based and on-premises hybrid data warehouses.

Another benefit is that Power BI can deploy quickly and integrate with existing IT systems.

Power BI consists of a Windows desktop application called Power BI Desktop, an online SaaS (Software as a Service) service called Power BI Pro/Premium and mobile Power BI apps available on phones and tablets. These three elements are designed to let people create, share and consume business insights in the way that serves them, or their role, most effectively. A common flow of work in Power BI begins in Power BI Desktop, where a report is created. That report is published to the Power BI service and then shared so users of Power BI mobile apps can consume the information.

Microsoft currently offers online selfpaced courses through the Microsoft Partner University (partner.microsoft. com). There are additional resources on Microsoft’s Power BI site that include guided learning, documentation, support, community boards, webinars and blogs. There is also a Microsoft Power BI YouTube channel (youtube.com/ user/mspowerbi) with hundreds of

videos, and there are additional courses on Microsoft Virtual Academy.

TABLEAU Tableau (tableau.com) is an analytics platform comprised of Tableau Desktop and either Tableau Server (deployed on-premises or in the public cloud) or Tableau Online (SaaS hosted by Tableau). Tableau Desktop lets users connect to any data, explore, analyze visually and build interactive dashboards.

Tableau Server and Tableau Online are for sharing, collaborating, managing and governing data and content across an entire organization in a unified and trusted environment. Tableau Mobile is also available for access from handheld devices.

Tableau’s desktop application has a userfriendly interface when working with data sources and creating visualizations.

Tableau Desktop automatically identifies data fields as dimensions or measures and recommends the best graphs based on the number of dimensions or measures selected. Tableau Desktop also recognizes the type of data contained in the field based on internal databases, for example, recognizing a field that contains the names of U.S. states as geographic locations.

Finally, Tableau Desktop has many built in calculations, for example, calculations that aggregate based on days, months, years.

So, how valuable is the need for data analytics software? In August 2019, Salesforce acquired Tableau in an all-stock deal valued at $15.7 billion.

QLIK SENSE Qlik View is the original (classic) version of Qlik Technologies software and is still sold and supported. However, Qlik View is primarily a dashboard service. An updated and more current architecture has been developed and is named Qlik Sense, which is a data visualization and analysis tool that also offers customized dashboards. Qlik’s platform (qlik.com) consists of Qlik Sense as well as Qlik Core (a development environment) and Qlik NPrinting for printing and page layout development. Some of Qlik Sense’s more useful features include:

y Smart search — The search bar function allows you to type in keywords and phrases to quickly locate data sets, graphs/charts and reports. y Self-service creation — Drag-anddrop capabilities offer easy dashboard and report creation without the need for scripting, complex queries or joins. y Centralized management — Qlik Sense acts as one central location for users to develop and share apps, data stories and insights quickly and efficiently. y Data integration — Unify disparate data sources on a single platform. y Interactive visualizations — Qlik Sense offers users simple visualization creation that instantly responds to changes in dimensions and data context. y Data storytelling — Easily share multiple viewpoints at once while assigning context to data. Storytelling features can also access the original analysis so users can quickly drill down into data to answer questions and change viewpoints. y Responsive design — W hether on desktop, tablet or smartphone, Qlik Sense automatically adjusts to give you the best view of its apps.

If you decide the science of data analytics is of interest to you, any of these three

leading industry packages is a good place to start.

Marc D. Mintz, CPA, CITP, CGMA, is the managing member of Marc Mintz & Associates, LLC, a technology consulting firm that assists businesses with strategic planning and the selection and implementation of information technology systems. He is a former NJCPA Trustee and a past president of the Passaic County Chapter. Marc can be reached at marc@marcmintz.com READ MORE

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ACCOUNTING, AUDITING & ATTEST

Using Blockchain to Decipher Data

BY MARK ECKERLE, CPA, WITHUM

Over the past decade, blockchain — the technology underlying the popular digital currency Bitcoin — has become a buzzword in the emerging technology industry. Entrepreneurs have worked to find ways to either implement this technology into their existing businesses or to build new businesses around it.

Many use cases exemplify that blockchain can help build efficiencies in today’s ever-changing world, but, at the end of the day, it will always come back to a single concept: data. Data is all around us and is being constantly gathered. Data is often referred to as the “new oil” in today’s economy. Each and every day, companies are working to find effective and efficient methods to gather and interpret data in order to enhance their businesses.

BLOCKCHAIN MEETS DATA A blockchain is essentially a ledger that verifies data integrity. A blockchain does not exist without data as it is made up of data inputs, or blocks of data, which are then linked together forming a chain, hence the term “blockchain.”

This chain of blocks, as represented by the example of the Bitcoin blockchain, forms a decentralized, immutable ledger or database. Any bad actor wanting to change the data would need to possess an enormous amount of computing power in order to essentially rewrite every link in the chain, which already has a decentralized consensus mechanism implemented across its network. A consensus mechanism is used in computer systems across a distributed network where all actors or users on the network agree on the current state or changes made to the network.

BENEFITS OF BLOCKCHAIN TO DECIPHER DATA Blockchain technology can be useful to help decipher and interpret data in many ways:

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Real-time Data Analysis

A blockchain can be updated at any point in time once information or data is uploaded to it. For example, the Bitcoin blockchain executes transactions instantaneously, however, blocks of data are broadcast to the network only every 10 minutes, solidifying that batch of transactions into the blockchain’s ongoing chain.

Using a blockchain for data analysis provides up-to-the-minute data in real-time so that the data set is current. Since data is critical in today’s world, using relevant inputs is essential to be able to utilize outputs and to make decisions. The whole concept of data science and data analytics is to improve decision-making and improve efficiencies.

Eliminating Dirty Data

Dirty data is made up of duplicative or

incorrect data. This has been identified as one of the biggest challenges to data science in recent years, and blockchain eliminates this problem. Through a decentralized consensus model using cryptography, blockchain validates data by making a digital record that is timestamped and immutable. The Bitcoin blockchain works using an “append-only” function where users can only add new records to the network but cannot change previous ones. Eliminating unnecessary or incorrect data helps produce better results, allows for quicker validation tests on the data as a whole and provides an effective audit trail for all users.

Complete Data Sets

As a result of the elimination of dirty data and the premise that a blockchain maintains data since inception, a user, therefore, has a complete data set to rely

ACCOUNTING, AUDITING & ATTEST

on. Without blockchain, in order to validate the completeness of extracted data today, extra steps need to be completed which increases costs and decreases efficiency.

Smart Contracts

Smart contracts have increased in popularity. A smart contract is a computer protocol that can digitally execute, verify and enforce the negotiation or execution of a contract. It allows the performance of credible transactions without the need to include third parties, resulting in faster and cheaper transactions. Smart contracts offer the ability for users and companies to enter into an agreement and maintain a historical record, eliminating the need for a middle man that might otherwise be required to complete a transaction.

Users can then use data embedded in

smart contracts as part of their data analysis.

Data is an integral part of today’s world and continues to grow each and every day. Finding a cost-efficient and productive way to sort through this data while making sure that the data we are receiving is accurate remains crucial to our decision-making process.

Integrating blockchain technology with data science can lead to more effective business practices for deciphering data and expansion of data analytics.

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13

BECOMING A CPA

Tips for Taking the CPA Exam

BY KAREN BEERBOWER, CPA, AND PHILIP SOOKRAM, CPA, SAINT PETER’S UNIVERSITY

Congratulations, you’ve decided to take the CPA Exam. This is the first step in a rewarding journey to become a CPA. While taking the Exam requires preparation, there are many helpful resources available to guide you through the process.

BEFORE THE EXAM Before embarking on taking the Exam, some important requirements must be met. In New Jersey, candidates must meet ALL of the following requirements: y Be at least 18 years of age y Complete a baccalaureate degree from a regionally accredited institution y Complete at least 120 semester hours of general college-level credit y Complete at least 24 semester hours in accounting courses y Complete at least 24 semester hours in general business courses A good test to see if you meet the requirements is to take the National Association of State Boards of Accountancy’s (NASBA) Pathway to CPA Exam Quiz (nasba.org/ exams/cpaexam).

GETTING STARTED So, you qualify. That’s great. The next step is to register and pay for the Exam.

Visit NASBA’s CPA Central website and create a user account (cpacentral.nasba. org). Then, submit an application to register and pay for the Exam.

A NASBA Advisory Evaluation will identify any academic deficiencies in your education before you submit a firsttime application for the Exam.

Once your application is approved, you’ll receive a Notice to Schedule form (NTS) which allows you to schedule your exam. Your NTS will provide a six-month period in which you can take the Exam. Note that the first time you register for the Exam, it may take six to eight weeks to receive your first NTS. Each time you register and pay thereafter, you will receive your NTS within two business days.

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Scheduling a date for the Exam is relatively painless. Once you receive your NTS, you can schedule your exam through the Prometric website (prometric.com/ test-takers/search/cpa). Scheduling your Exam allows you to create a study plan to meet the scheduled date. If needed, you can reschedule the Exam date once it is chosen, however, there are often fees and stipulations associated with rescheduling.

More information can be found on the Prometric website.

WHAT’S COVERED Review the AICPA Uniform CPA Exam Blueprints (aicpa.org/becomeacpa/ cpaexam/examinationcontent.html) to familiarize yourself with the format of the Exam, as well as the information covered in each section.

Next, it’s best to choose a CPA Exam review course that can help. Whether you are a recent graduate or a working professional many years removed from college, the use of a CPA Exam review course is highly recommended. Certain concepts tested on the Exam may not have been covered during college, or rules may have changed over time. A good CPA Exam review course will prepare you for the content that will be covered on the Exam and the style and format of the Exam, similar to what you will experience on your test day.

Additional information can also be found at the NJCPA website (njcpa.org/ becomeacpa). There, you can find out what’s on the test, review sample CPA Exam questions and learn how to map out a CPA Exam timeline. It also explains what it takes to become licensed in New Jersey specifically, along with what qualifies to fulfill the experience requirement. NJCPA Student Members also save on several popular Exam review courses (njcpa.org/ examprepcourses) and can enter the CPA Exam Fee Lottery.

CREATE A STUDY PLAN The amount of time needed to study will depend on how much time you have avail-

able barring work, family commitments, a Master’s program, etc. This is where “quality over quantity” study time applies.

Studying for endless hours at a time is useless if one does not retain the knowledge.

Break the information down into small, bite-sized concepts. Some general rules should apply: y Start out with two 30-minute study sessions each day (or two to three concepts each day). This plan should be adjusted to fit your schedule.

Remember to create flexibility in the study plan to account for unplanned life events. y Eliminate distractions. Maintain focus during study sessions and avoid distractions. This may include choosing a comfortable and quiet location to study or putting electronic devices far from reach or in another room. y Take breaks during studying. y Set rewards for your hard work. y Get ample rest/sleep.

Additionally, to get and stay motivated, it often helps to find a study buddy/group.

Karen Beerbower, CPA, J.D., is a professor at Saint Peter’s University. She can be reached at kbeerbower@saintpeters.edu. Philip Sookram, CPA, MAcc, is assistant professor of accounting at Saint Peter’s University. He can be reached at psookram@saintpeters.edu.

BUSINESS ADVISORY SERVICES

Using Data Analytics to Shift from Compliance to Advisory Services

BY ANDREA MORHARDT, AKSESHEN

Significant pressure exists throughout the accounting industry to shift from providing clients with low-margin compliance work toward more strategic advisory services. To offer more innovative consulting work and move into a genuine advisory relationship with clients, not only must firms develop the requisite skillsets but, more importantly, they need to retain their best and brightest people to provide these new services. Firms that properly adopt and deploy data analytics can meet both of these needs and successfully make the shift from compliance to advisory.

Many firms are not treating their clients’ data as an asset. As a result, client engagements are much less efficient and effective than they could be. Every year, firms report information to clients that their clients already know. Data analytics can help shift that perspective from the rear window to the front windshield and begin telling clients things they don’t already know. Along the way, accounting work becomes much more interesting and attractive to the best and brightest individuals.

START WITH LOW-HANGING FRUIT When firms submit requests for client data, they are often provided with information in a less-than-useful format.

CSV and PDF files are difficult to work with. More often than not, audit teams spend much more time preparing data for analysis than actually analyzing that data.

But data analytics can often be simpler than expected. The first step is data transformation: extracting, transforming and presenting information for analysis. Even when attempting to test 100 percent of transactions in a large set of data, just a few manipulations can convert data into a more usable format within Excel and can prep the data for automated analysis.

Use formulas to automate the following steps: y Reposition columns y Remove subtotals and unneeded rows y Parse combined information into separate data points (such as account number and name) y Remove or fill blank values as needed y Reformat values so the number of digits are uniform There will now be an aesthetically pleasing set of data that is ready to use and easy to handle. This will allow you to investigate unfavorable customer patterns or concentrations within a department or type of service. An investigation into which environmental factors contributed to these trends is the next step.

Now begin a meaningful analysis to examine the following questions: y Have average days to pay increased over time? y Has the outstanding accounts receivables (AR) aging trend changed?

If so, can the change be linked to a specific product line, service type or department? y Do sales trends support changes in AR at the customer level? Are these changes supported by the business plan?

NATURAL BYPRODUCTS Taking the leap into the future of the profession with data analytics will accomplish the two most important goals of most managing partners: attracting and retaining talent and driving profitability.

It’s no surprise that the youngest staff people often come equipped with

NEW JERSEY CPA | MARCH/APRIL 2020

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BUSINESS ADVISORY SERVICES

the strongest technical skills. Career fairs and interviews conjure visions of putting those skills to work in exciting careers. Instead, new staff are often met with mundane tasks like carrying forward prior year procedures. This needs to change. A data analytics training program will attract, engage and likely catapult these new staff into satisfying, challenging and long-term career paths. They naturally become their firm’s future thought leaders.

Data analytics transforms traditional audit procedures and naturally drives profitability. For example, while working with newly organized procurement data, insights naturally materialize. Staff might notice many invoices are paid weeks in advance of the due date and begin to wonder, “Could we increase working capital if we stopped paying bills early or began negotiating lengthened payment terms with vendors?”

At this point, one is just scratching the surface of the opportunities that come

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into focus as data-driven procedures are adopted.

Investing in an initiative like this will be a cost center at first, but firms will be poised to experience an exponential return on investment in the near future. Once staff have acquired the skills and experience, the sky is the limit.

NEXT STEPS Going forward, here is some advice to help foster growth: y Look for clients with plentiful data and procedures that can be automated. y Begin by driving efficiency inside compliance testing and naturally progress to providing insights that present as advisory services. y Realize you’re on your way to new service offerings since some of your clients may refer others to learn about your advisory insights. y Acknowledge your firm is becoming a data driven leader.

Andrea Morhardt is the general manager at Akseshen, LLC, a full-service data analytics firm.

She can be reached at andrea@akseshen.com.

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CORPORATE ACCOUNTING

Navigating the Challenges of CECL Implementation

BY VINCENT CIGNA, CPA, MSPC CERTIFIED PUBLIC ACCOUNTANTS AND ADVISORS, P.C.

The deadline for implementing the Financial Accounting Standards Board’s (FASB) current expected credit loss (CECL) model established in Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments was recently delayed for nonpublic financial institutions and smaller reporting entities. For most credit unions and community banks with a calendar year end, this means the standard will be effective beginning Jan. 1, 2023. While it may seem far away, financial institutions should avoid delaying their implementation plans and closely monitor the methodologies employed by public lending institutions and early adopters of the standard.

The core principle of CECL is the requirement to estimate expected credit losses over the lifetime of a financial asset, considering available information relevant to assessing the collectability of cash flows.

Under current U.S. Generally Accepted Accounting Principles (GAAP), allowances for loan losses are established using an incurred loss model, whereby loss contingencies are estimated relying principally on historical information and other current qualitative factors. CECL expands upon this method by requiring companies to consider available information that will support forecasts of future conditions, in addition to historical loss information, to estimate lifetime credit losses, even if the risk of loss is remote. A key change for most lending institutions resulting from the application of the new standard is that credit losses may be recognized earlier. For instance, under the incurred loss model, reserves for loan losses would not be established for an individual or pool of homogenous loans at the date of origination because financial institutions are not able to meet the criteria for accruing a loss contingency in accordance with FASB ASC 450-20-25-2. Under the new standard, companies must estimate future losses that may occur over the contractual term of the loan and, therefore, must establish this estimate at loan inception.

One of the most challenging areas of applying the new standard will be forecasting

future conditions and being able to support assumptions used in calculating an estimate of future losses. Institutions will need to justify to their auditors and regulators that the inputs and the forecast period they have used in their modeling are reasonable. As such, the reasonable and supportable language included in Topic 326 will mean that entities must apply a consistent process and ensure that it is well documented with clear explanations of the rationale used in developing estimates.

Credit unions and other financial institutions should begin implementation preparations as soon as possible in order to determine what data is needed and what process will be used to accomplish the objective of the standard.

ASC 326-20 does not provide prescriptive guidance to estimate losses. Common methods currently employed in loss estimation include discounted cash flow analysis, regression or a probability of default model.

Choosing a model often comes down to the complexity of the entity and the information it plans to capture. Companies should begin their analysis with the existing historical information they already use to establish loan loss reserves, such as charge-off frequency for a group of financial assets with similar risk characteristics, changes in underwriting standards or the portfolio mix. Adjustments to historical information should consider available economic information relevant to the environment in which the lender operates as well as other factors specific to

borrowers. These may include, but are not limited to, monetary policy, GDP growth, unemployment rates, trends in credit scores and industry trends. Forecasted data from government agencies and other reputable sources may be used in a company’s own CECL methodology.

Those involved with CECL implementation efforts should review FASB Staff Q&A — Topic 326, No. 2: Developing an Estimate of Expected Credit Losses on Financial Assets, as this publication addresses common questions regarding the use of historical loss information, developing reasonable and supportable forecasts, and requirements regarding applying the reversion to historical loss information. The AICPA Financial Reporting Center Working Draft: Allowance for Credit Losses Implementation Issue #6 also considers many factors in developing the reasonable and supportable forecast period as well as how an entity would determine the historical loss information it will revert to once it is beyond a period in which it can make or obtain such forecasts.

Vince Cigna, CPA, is a semi-senior at MSPC Certified Public Accountants and Advisors, P.C. He can be reached at vcigna@mspc-cpa.com.

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FINANCIAL PLANNING SERVICES

Considerations for a Section 83(b) Election

BY JOSEPH DOERRER, CPA

Generally, when restricted stock awards (RSAs) vest, ordinary income will be included for the current fair market value of the underlying stock, less any consideration paid by the taxpayer. This treatment has the potential to erode a large portion of the monetary gain connected with this event. But this can potentially be mitigated by electing treatment under §83(b), which allows for this ordinary income inclusion to occur at the transfer date (typically the grant date) of the RSAs, rather than the vesting date.

This accelerated point of taxation creates a potential opportunity to minimize the ordinary income generated in this situation, as the fair market value used to calculate this income inclusion could conceivably be much lower at the transfer date than the future vesting date. Once the restriction terms lapse, there is no additional tax event beyond the initial income inclusion triggered by the election. Any appreciation above the fair value of the stock after the transfer date will be taxed as a capital gain upon sale of the stock. The issuing company’s stock plan must allow for such an election to be made.

The election is most beneficial when the value of the underlying stock is relatively low at grant and is expected to greatly increase in the future, while the restriction terms are expected to ultimately lapse.

However, not all situations will be such clear-cut wins or losses. The risks associated with making the election should always be carefully evaluated beforehand.

RISKS WHEN ELECTING §83(B) Just because the election is made does not mean that actual vesting has occurred in the ownership of the underlying stock. If, subject to the issuing company’s stock plan, the electing individual must forfeit ownership of the stock prior to vesting, no deduction is allowed in relation to the forfeiture. The only relief offered is found in situations where amounts were actually paid by the taxpayer to acquire the elected stock.

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Pursuant to §1.83-2(a), this forfeiture is treated as a sale where there is a loss equal to the excess of any amount paid for such property above any amount realized on the forfeiture. If the asset was capital in the taxpayer’s hands, the exchange will retain that character and be treated as a capital loss. Once the election is made, it may not be revoked except with consent from the IRS Commissioner.

Other considerations, beyond possible forfeiture of unvested stock, are the risk for a potential post-election decline in the value of the stock, as well as whether committing any cash up front with the election makes sense in the purview of the client’s overall financial plan.

MAKING A §83(B) ELECTION Once deciding to make the election, the election must be filed with the IRS no later than 30 days after the transfer date. The individual who performed the services that is making the election must file a signed statement with the IRS. The statement must include general information about the taxpayer, a description of the property to which the election applies, and the restrictions to which that property is subject, among other information. Additionally, the electing individual must submit a copy of the election to the person for whom the services were performed.

Rev. Proc. 2012-29 provides an example election letter, along with other general information on §83(b) elections.

It should be noted that recently issued final regulations may supersede Rev. Proc.

2012-29 on some points. This includes the elimination of the requirement to attach a copy of the election to the tax return for the year in which the property is transferred.

Choosing to elect §83(b) can be a prime tax planning opportunity that may easily be overlooked. This time-sensitive election allows for a potentially minimized ordinary income inclusion connected with the vesting of RSAs, as well as capital gain treatment on a larger portion of the

realization of any post-transfer appreciation upon sale of the stock. As this article discusses §83(b) as it relates to restricted stock awards, it is important to note that restricted stock units are not eligible for the election, as their grant does not qualify as a property transfer under §83.

Joseph Doerrer, CPA/PFS, CFP®, MST, is a New Jersey-based tax advisor. He is a member of the NJCPA and can be reached at joedoerrer@yahoo.com.

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FIRM & PRACTICE MANAGEMENT

Rise of the AI Marketing Machine — Driving Growth in Accounting Firms

BY BECKY LIVINGSTON, PENHEEL MARKETING

According to an MIT-Boston Consulting Group survey¹, more than 80 percent of executives believe artificial intelligence (AI) leads to a competitive advantage, and 79 percent believe it will increase their company’s productivity. What does that mean for CPAs and accounting firms? Are there pain points or opportunities that AI and machine learning (ML) can solve or create? The answer is yes.

There are three essential firm-growth goals AI and ML resources can assist with: marketing campaign performance, sales and revenue impact, and customer loyalty.

MARKETING CAMPAIGN PERFORMANCE AI and ML tools can be used to help analyze existing online content for gaps and opportunities; construct buyer personas based on needs, goals, intent and behavior; and adapt audience targeting based on behavior and lookalike analysis.

Each of these areas help to increase content effectiveness and relevance for the intended audience; drive lead generation and ad and social media campaign success; and create buyer personas for desired target markets.

What tools can help you accomplish those goals? y HubSpot, Dynamic Yield and Reputation.com help to create and to develop a sound brand strategy with a target market focus. y Wordsmith, Alibaba AI and Rocco assist with content optimization.

Some of these AI tools can scrape existing website content and generate new content for a blog, social media and ad channels based on trends, audience engagement and more. y Social media platforms such as Facebook, Instagram and LinkedIn, and advertising tools like Google Ads allow companies to create tar-

get audiences based on an existing audience, such as an email list.

SALES AND REVENUE IMPACT When it comes to return on investment, there are no worse words to hear than, “I don’t know.” Paid marketing efforts should provide a clear return on investment number. However, if the ads are not well made, or the target market is incorrect, the return could be very low.

What’s available to advertisers now is the ability to optimize ad campaigns to reach specific goals, e.g., sales conversion, leads, website visits and more. Several social media platforms and online ad tools use an objective-based, goal-setting algorithm that automatically adjusts ad placement based on established goals and the audience’s response to those ads.

That doesn’t mean it should be “set it and forget it.” Reviewing the campaigns at least weekly is important to pause underperforming ads or to adjust ads based on engagements. Ads may need to be rewritten or new creative may need to be designed until a successful combination is found.

The AI is optimizing the information provided to help reach a goal. When a campaign is effectively optimized, it does that while minimizing budget impact.

CUSTOMER LOYALTY In 2018, Salesforce’s State of Marketing² reported that 52 percent of consumers were more inclined to change brands if a company didn’t offer personalized communication. What does that mean for B2B companies? Should they ignore customer service when it comes to clients, leads and target markets? Of course not.

Firms can gain customer loyalty by providing the services needed and solutions desired by clients. In some cases, that could be a chatbot that answers FAQs when the office is closed, using an online portal for document sharing or leveraging a virtual assistant to help schedule

client meetings and free consultations.

Email leveraging name personalization or interest-based content is also a good way to engage with leads and clients. Here are some tools to consider: y Drift, Automat, WhatsApp offer chatbot solutions. y X.ai, Astro and Clara provide online scheduling tools that automatically update your calendar tool. y Boomtrain, Phrasee, MailChimp, Constant Contact and Motiva AI offer personalized email solutions.

What it boils down to isn’t the tool you use, but rather the experience you create.

An effective AI- or ML-related suite of tools can increase productivity and move the bottom-line arrow into the black. ¹axios.com/executives-say-ai-will-changebusiness-but-arent-doing-much-about-it1513305300-e041775d-a56b-4db7-be1f47d69b060427.html ²c1.sfdcstatic.com/content/dam/web/en_us/ www/assets/pdf/datasheets/salesforce-researchfourth-annual-state-of-marketing.pdf Becky Livingston is the president and CEO of Penheel Marketing, a New Jersey-based firm specializing in social media and digital marketing for CPAs and small business owners. She can be reached at penheel.com.

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GOVERNMENTAL & NONPROFIT

Best Practices for Creating a Statement of Functional Expenses

BY THOMAS H. MARTIN, CPA, KLATZKIN

Under ASU 2016-14, Presentation of Financial Statements of Not-for-Profit Entities, all nonprofit organizations are required to present an analysis of expenses by their function and natural expense classifications in one location.

This information can be presented within the statement of activities, as a schedule in the notes to the financial statements or in a statement of functional expenses (SFE).

Functional expense classification refers to the purpose for which the expenses were incurred, such as program activities and support services. The SFE reports expenses by their function (programs, management and general, fundraising) and by the nature or type of expense (salaries, rent). Natural expense classification is grouping expenses according to economic benefits received, such as salaries and wages, rents, space cost, and professional services.

RECOMMENDED USES 501(c)3s and 501(c)4s should prepare an SFE. The information is required for Form 990 and is readily available. The SFE will help improve stakeholder communications and show donors that the organization is operating efficiently.

Other nonprofit entities may present the information within the statement of activities or the notes to the financial statements. Even so, they should prepare an SFE for the reasons stated above.

Keep the SFE as simple as possible.

Too much information can be overwhelming and dilute the message. Limit the number of expense line items and group smaller categories together. Consider using expense line items similar to those on Form 990.

FUNCTIONAL EXPENSE CATEGORIES Nonprofits are required to group expenses according to a purpose. Functional

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expense categories include program expenses and supporting services such as management and general, fundraising, and membership development.

Program expenses are the direct and indirect costs incurred to accomplish the organization’s mission. Management and general expenses are necessary to operate an effective organization. They include expenses for such things as management, recordkeeping, finance, activities of the governing board and soliciting funds other than contributions and membership dues, such as government grants.

A common misconception about program expenses is that they include all costs related to the operation of a program. Administration of contracts with a government or foundation, including billing and collecting fees, should be classified as management and general expenses.

Fundraising expenses are all costs incurred to raise contributions. They can include personnel costs, professional fees, promotional materials and related indirect costs such as office expenses and rent. Membership development is the expense of a supporting service for attracting and retaining members.

ALLOCATING EXPENSES Direct costs must be classified to the functional expense category benefitted. Certain costs can be identified to a specific function, such as the salary of an employee who works exclusively on a particular program.

Many costs must be allocated because they cannot be directly attributed to a particular function. For example, the executive director is responsible for the overall management and direction of the organization but may also be involved in program services. Overhead costs, such as rent, must also be allocated.

Acceptable methods to allocate expenses are actual-time records, square

footage devoted exclusively to each category and usage studies. Reasonable estimates are acceptable.

Cost allocations made by funding source specifications may not be appropriate for GAAP. For example, funding sources may allow audit fees and internal accounting and recordkeeping costs to be allocated to programs. However, under GAAP, such expenses are identified as management and general.

ASU 2016-14 has enhanced disclosure requirements relating to the methods used to allocate expenses. Statements must adequately identify the types of expenses allocated and the methodology used.

In concept, the SFE may seem like a relatively simple statement. Even so, there can be complications and misconceptions about the SFE. The allocation methodology must be analyzed annually to ensure it remains appropriate, especially if there are changes to the organization.

Donors place a lot of significance on the percentage of expenses allocated to each function, so be sure the allocations are reasonable and consistent with GAAP. Donors want to see most of their donations going towards programs, which is why the SFE is important to show that the nonprofit is operating efficiently.

Thomas H. Martin, CPA, is the managing partner of Klatzkin and focuses on serving the audit, tax and accounting needs of nonprofits. He is a member of the NJCPA and can be reached at tmartin@ klatzkin.com.

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PROFESSIONAL DEVELOPMENT

7 Tips for Moving from Staff to Manager

BY TERRI KLASS, TERRI KLASS CONSULTING LLC

Moving from individual contributor to engagement leader is a pivotal time for many CPAs. Up until this point in one’s career, promotions were mostly dependent on how well technical skills and knowledge were executed. If a staff person was able to master all the accounting rules and regulations and then provide excellent deliverables to clients, they were recognized and rewarded.

The twist in moving to a manager role is that the skills are completely different and often not formally introduced. Leading through the crossroad from staff to manager also involves a swapping out of pronouns.

Managers can no longer just be about “me.”

They need to transform their priorities to be about “us.” A manager’s career success morphs into the team’s achievements.

The good news is that developing leadership skills for newly promoted managers is completely learnable. Savvy staff accountants are able to grow their leadership skills as well as build trusting work relationships by staying open to change.

Here are seven tips to move from staff to impactful manager: 1. THINK OF A GREAT LEADER YOU HAVE MET ALONG THE WAY An insightful exercise for all new managers is to think about a leader who has influenced them. Recognizing the qualities and characteristics that contributed to their leadership success may help new managers identify what their own leadership should look like.

Consider the following: y What made this individual a great leader? y What qualities or behaviors did they possess that evoked strong leadership? y What important lessons did I learn from them that have shaped my accounting career?

2. UNDERSTAND YOUR STYLE OF LEADING Each new manager has a natural style of communicating and interacting with others.

Becoming self-aware of their work styles through a personality or behavioral assessment helps new managers identify both

their strengths and their blind spots. Then focusing on ways to flex to the different work styles of their team members becomes invaluable.

3. BUILD A NETWORK OF TRUSTING RELATIONSHIPS New managers realize early on that they can’t go it alone if they want successful deliverables. That begins by showing others that they are trustworthy and approachable.

When managers do what they say they will do, team members will model the same behavior. The result is a more trusting and transparent workplace where each person holds himself or herself accountable. Where there is trust, accounting managers and team members can admit mistakes and learn from them. Great innovation can result.

4. LEAD BY KEEPING YOUR GOALS FRONT AND CENTER An important responsibility of new managers is to help their team members set technical as well as relationship goals. Partnering with their different team members to set SMART (specific, measurable, achievable, relevant and time-bound) goals is essential.

5. BECOME A STRONG AND CLEAR COMMUNICATOR Sharing a message in a clear, open and respectful way is an important skill for new managers. It won’t matter how important the idea is if they are unable to explain it with clarity and conviction. Technology may drive accounting firms, but without professional communication, client and colleague needs will never be fully met.

6. MANAGE YOUR TIME, DON’T LET IT MANAGE YOU This hack can trip up even the best of new managers. Only those managers who learn how to prioritize and delegate with authority will be successful. Highly accomplished CPAs have mastered the daily management of their time. A great place to start is by creating a to-do list that is revisited at the end of each day. Then learning how to delegate will

not only save time for new managers but will also help develop team members.

7. GIVE AND RECEIVE FEEDBACK LIKE A PRO The big tip here is that new managers need to look at feedback as a true gift.

Honest and constructive feedback is what enables managers to grow their team members into future managers of the firm.

Coaching others how to perform at their highest levels and reach their potential is what leadership is all about. In turn, new managers must also be open-minded to hear authentic feedback for their professional development.

Terri Klass is the CEO and founder of Terri Klass Consulting, LLC, which offers leadership skills training and coaching. She can be reached at terriklassconsulting.com.

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MARCH 19, WEBINAR

COACHING SKILLS FOR

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APRIL 22, WEBINAR

MANAGEMENT FUNDAMENTALS

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NEW JERSEY CPA | MARCH/APRIL 2020

21

TAX

Advanced Section 1031 Exchange Exit Strategies

BY DAVID M. GORENBERG, JD, CES®, WILMINGTON TRUST

The Tax Cuts and Jobs Act (TCJA) had a y profound impact on IRC §1031 by amending §1031(a)(1) to read, “No gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment if such real property is exchanged solely for real property of like kind which is to be held either for productive use in a trade or business or for investment.” Where previously it was possible to structure the exchange of virtually any business or investment asset (e.g., construction equipment, fleets of cars, artwork and sports memorabilia), §1031 exchanges are now limited to transactions involving real estate.

Many investors are confused about the meaning of the phrase “like kind,” often believing that it would require the exchange of a condo for another condo, or a shopping center for another shopping center. IRS regulations state that “like kind” refers to “the nature or character of the property and not to its grade or quality.” (Reg. §1.1031(b).)

Clearly, an investor may acquire property that is the same or similar to what they relinquished. But for those who want to escape day-to-day management obligations, there y are alternatives: y Triple-Net Property — When a property is subject to a triple-net lease, the tenant agrees to pay all of the real estate taxes, building insurance and maintenance on the property, in addition to rent and utilities. In many — but not all — cases, these properties were built with a single tenant in mind, such as Walgreens or Best Buy. The upside is that the tenant is a national credit tenant who is responsible for all of the daily operational expenses associated with the building. The investor receives the rent payments “net” of those costs.

Conversely, this lack of diversification in the occupancy exposes the investor to potential vacancy in the event of tenant bankruptcy or store closure, as in the cases where Toys R Us or Sears was the tenant.

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Tenants in Common — When the investor pools his or her investment together with others, not in the form of a partnership or multi-member LLC they typically take title to the property as tenants in common. In this structure, the replacement property would be owned by two or more parties, each of whom owns their fractional share pro-rata to the amount that they invested in the property. Further, each party is reflected on the deed, and each may dispose of their interest in the property independently of the other.

The advantage here is that the investor is able to invest in a larger property, often with multiple tenants. However, the IRS limits the number of investors to 35 (Rev. Proc. 2002-22, Section 6.02), and the number of properties to one in any one transaction (Rev. Proc.

2002-22, Section 5.02(3)). Further, voting on most management issues must be unanimous, and the investors may not have protections if another investor goes bankrupt.

Delaware Statutory Trusts — While a trust is not like-kind to real estate, IRS Revenue Ruling 2004-86 tells us that a beneficiary of a Delaware Statutory Trust (DST) is treated as owning an undivided fractional interest in the DST’s real estate for federal tax purposes, including §1031. Generally, the DST is the borrower, and the loans are non- recourse to the investors. Conversely, the investors have limited voting rights on the daily operations of the underlying real estate. But there is no limit to the number of investors, or the number of properties, so owning an interest in a geographically diverse, multi-property portfolio becomes a viable option for many §1031 exchange investors.

y Oil, Gas and Mineral Rights — The courts have long held that an overriding royalty interest in minerals is like-kind to a fee simple interest in real estate.

Commissioner v. Crichton, 122 F2d 181 (5th Cir., 1941). IRS Revenue Ruling 55-526 went further, confirming that royalty interests in oil and gas in place constitutes real property for federal income tax purposes. Royalty holders do not invest in the exploration, drilling or operations costs. However, their investments are subject to commodity price fluctuation and the eventual depletion of the asset over time.

Thus, investors utilizing §1031 are not constrained to actual “like-for-like” exchanges. These are a few of the more common replacement property options pursued in exchanges. Each has its advantages and disadvantages, and investors should consult with their tax, legal and investment professionals in making their final selections.

David Gorenberg, JD (not in public practice), CES®, is a vice president at Wilmington Trust 1031 Exchange LLC. He can be reached at dgorenberg@ wilmingtontrust.com.

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TECHNOLOGY & INFORMATION MANAGEMENT

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Data Protection from the Inside Out

BY BILL SORENSON, NETGAIN

Cybersecurity challenges and data breaches continue to grow and impact all industries.

And 2019 showed a huge increase in the number of firms and customers that had their private information exposed and compromised. Risk management, therefore, has become a required core competency of every IT department. Managing internal users and the risks they bring to an accounting firm or corporate finance department is where least privilege and zero trust should come into play.

THE PRINCIPLE OF LEAST PRIVILEGE (POLP) It’s a change in thinking processes. Instead of trusting people and verifying what they do, this kind of risk management moves toward a never-trust-and-always-verify approach. POLP focuses on making sure every employee has access to the data and information they need to do their job — and no more! It may seem Orwellian, but there are significant reasons why now’s the perfect time to implement this.

UNDERSTANDING THE RISKS We’re talking about insider threats. With new accountant turnover at the highest rates in recent history, more and more junior people are entering and leaving firms and companies. Each one of these individuals brings an added risk to the organization and the exposure of customers’ data. This exposure can be accidental or deliberate, but it’s time to reduce this risk to a manageable level.

Organizations typically have large groups of employees that have access to large volumes of data. This may include significant scope in the ability to see customer information, work on previous years’ projects and have access to information that they would never use. This provides dramatic risk to the organization and limits the ability to understand what happened when data is exposed.

Junior staff members typically have access to information beyond their needs. This access allows movement of that information

outside the company, including down­loading to laptops or copying to Dropbox or Google drive, resulting in accidental exposure.

Additionally, when a breach happens, the scope of that breach depends on what that specific user has access to. By using the POLP approach, the scope of that breach risk is dramatically reduced.

FINDING SOLUTIONS What’s the answer? First, within the applications accountants use for tax, audit and other services, restricting user access to only the customers they’re working on can help. This reduces the risk dramatically and appropriately limits exposure to what that employee has access to. And this isn’t just for junior accountants, this is for everyone in the company.

Second, it’s wise to reduce the amount of data the person has access to. This includes files and folders, the volume of previous years’ data, and other shared information within the company. Employees should have access to what they need but not anything extra.

Lastly, from a technical support standpoint, system administrators should live within these boundaries as well. Each system administrator should have a normal account that they use on a day-to-day

basis. They then have a second administrative account, with escalated privileges to see everything they need to, and do the work they need to do. This second account is audited and monitored so that any and all changes beyond the scope of their normal work gets recorded and can be reviewed later. This significantly limits the casual exposure of data and any nefarious activities.

Using this process solidifies one’s commitment to risk management within an organization. It’s best to understand and address risks, while creating an environment that protects both the customers’ data and the organization’s. This can be achieved with the POLP approach.

Bill Sorenson is the vice president of strategy of FinTech – CISO at Netgain. He can be reached at bill.sorenson@netgaincloud.com.

Netgain’s IT Cloud is an NJCPA member benefit provider that offers optimized application hosting within a robust IT environment.

Learn more at njcpa.org/benefits.

NEW JERSEY CPA | MARCH/APRIL 2020

23

NJCPA NEWS

CPAs Teach Students Why Accounting Matters More than 100 NJCPA members descended on New Jersey high schools last fall to espouse the benefits of pursuing an accounting career. Through the NJCPA Career Awareness Program, members discuss how the role of an accountant has changed over the past few years, what it takes to obtain a CPA license and what the designation means.

Presenters, who typically have connections to a particular community either by previously attending that high school or by residing in the area, work with high school accounting and business teachers.

Several routinely present at the same high school every year and others are new to the program. More than 3,000 students attended last fall’s presentations.

Gary N. Bagoff, CPA, a partner at Citrin Cooperman and a presenter at Ridge High School in Basking Ridge, noted that as a resident of Bernards Township, he was very proud to present to the students and encourage them to consider pursuing an accounting degree to become a CPA. It was an opportunity, he said, “to open the minds of the students to the dynamic technological revolution occurring in our economy and profession.”

“It’s a great opportunity to explain first-hand what it means to be an accountant,” added Christopher Haspilaire, a tax consultant II at Deloitte and a presenter at

STARTING your practice?

Monmouth Regional High School in Tinton Falls. “The students are always very interested and eager to learn.”

“Not only do the students benefit from having a professional give them some practical, hands-on advice, but the CPAs also learn what’s on the minds of students and what it takes to inform them about a career in accounting,” said Ralph Albert Thomas, CPA (DC), CGMA, CEO and executive director NJCPA member Christopher Haspilaire (left) with Monmouth Regional High at the NJCPA. School teacher Susan Wolff The Career Awareness Program is part of the NJCPA’s inicollege-bound New Jersey high school tiative to give back to the next generation seniors who intend to major in accounting of young professionals by making them or obtain a concentration in accounting. It aware of the many career choices they also awards $6,500 one-year scholarships can have as a CPA. to accounting students entering their The NJCPA also assists students fourth or fifth year at a New Jersey college through the NJCPA Scholarship Fund, or university. In 2019, NJCPA awarded which has distributed more than $7 more than $375,000 in scholarships to 75 million since its inception in the 1960s. high school and college students. Learn The Fund awards $7,000 scholarships to more at njcpa.org/scholarship.

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NJCPA NEWS

Nominations Open for Ovation Awards Do you know a coworker who tirelessly serves the local community, an emerging leader who goes above and beyond or an accounting professor who deserves recognition? The NJCPA is looking to celebrate all kinds of stellar performance in the accounting profession. Nominations for the 2020 Ovation Awards are open until May 1.

The Ovation Awards were created to recognize the many ways that accounting professionals give back to their community, further diversity in the workplace or advance the profession, whether technologically, through innovative methods or keen leadership or other accomplishments. The awards honor significant contributions to the accounting profession in the following seven categories: y Emerging Leaders. Individuals who have had noteworthy professional accomplishments; combined personal and professional achievements that merit special recognition; actively participated in the advancement of the profession or NJCPA; and stand out in the areas of professional knowledge, skill, integrity and leadership. (Awarded to NJCPA members only) y Diversity, Equity & Inclusion. Those who champion diversity, equity and inclusion; work passionately to make the accounting and finance profession open;

y

y

y

y

and encourage and promote initiatives and change, regardless of race, sexual orientation, religion, age, gender, disability status or other dimension of diversity.

Innovation. Eligible candidates are driving innovation of all kinds, as it relates to accounting — leveraging new technologies, using forward-thinking data analytics strategies, implementing alternative business models or rolling out experimental engagement strategies to improve employee culture.

Exceptional Educators. These are college accounting educators who distinguish themselves with their excellence in teaching and prominence in state-wide or regional activity to encourage careers in accounting and by serving as role models in academia.

Women to Watch. These are female leaders who are recognized for their leadership, potential, contributions and/or commitment to fostering the success of their colleagues. (Awarded to NJCPA members only) Impact. Acknowledges those who dedicate meaningful time and energy to any of the following commendable endeavors: Giving back to the community; sharing professional expertise to support others; or advancing the interests and needs of the accounting profession through active engagement, leadership or advocacy.

y Lifetime Leader. This individual has abundant professional achievements, extensive community service, steadfast determination and model leadership, making the recipient of this distinction a truly exceptional, lifetime leader. (Awarded to NJCPA members only) “The Ovation Awards are a wonderful way to acknowledge the dedication of outstanding individuals who make a difference in the lives of their coworkers, staff, students or the community,” said Theresa Hinton, director of member engagement at the NJCPA. Self-nominations are welcomed, along with nominations from NJCPA members as well as nonmembers. Award recipients are recognized at the NJCPA Annual Convention & Expo in June, are included in NJCPA media communications, receive a marketing toolkit and are featured in a special section of the September/October issue of New Jersey CPA. For more information or to nominate a candidate, visit njcpa.org/awards.

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25

NJCPA NEWS

NJCPA Remembers Former Executive Director Bob Garrity The NJCPA is saddened by the passing of former Executive Director Robert (Bob) L. Garrity, retired CPA, on Jan. 13. He was predeceased by his daughter, Erin Cummings, and is survived by his wife, Ruth; children Robert, Jr., Patricia Lowe, Thomas, Kevin and Maureen Price (who is a business development specialist at the NJCPA); 13 grandchildren; and other extended family.

Bob served as executive director at the NJCPA for more than 24 years. In his tenure, he was a key driver of enhancing membership services and furthering the accounting profession’s reputation among legislators.

After retiring in 1996, Bob was named an “honorary past president.” He has since been active in NJCPA leadership initiatives, past president events, committee meetings and golf outings.

“Bob will be sorely missed. He will be remembered for his determination in putting members’ interests first, for his dedication to the CPA profession and as a friend to all,” said Ralph Albert Thomas, CPA (DC), CGMA, the NJCPA’s current CEO and executive director.

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CLASSIFIEDS

MERGERS/ACQUISITIONS

Seize a merger/acquisition opportunity with benefits for you. We are looking for firms ranging from $300,000 to $5,000,000 eager to combine forces as we continue to grow across northern NJ, Westchester and the Hudson Valley region. Goldstein Lieberman & Company is ideally situated to service all types of industries. Visit www.glcpas. com; email me, Phillip Goldstein, CPA, Managing Partner, philg@glcpas.com; or call me at 800-839-5767 to have a confidential conversation.

Matthews, Panariello P.C., a well established Bergen County firm located in Paramus, is looking to acquire small firms and sole practitioners ranging in size from $100,000 to $550,000. We are a full service, peer reviewed firm with a strong track record of client satisfaction and retention. We have been successful in prior acquisitions; let's talk. Please visit our website at www.mpcpas.com.

To confidentially discuss this opportunity email us at pmanetta@mpcpas.com.

Retirement-minded Passaic County CPA, looking for a CPA to take over my firm. Gross $300K. Must have strong background in tax. Helps if you have small existing client base. Reply in confidence nardone@cox.com.

Monmouth County tax and wealth advisory firm seeking partnership with CPA practice(s): looking for an additional source of recurring revenue to compliment your tax practice? Looking to enter the wealth advisory business without the costs and complexities? Do you have a succession plan for incapacity or retirement?

Contact Gregg at gshaw@hstaxwealth.com, 732-268-8813; www.hstaxwealth.com.

Union County Accounting and Tax practice seeks growth through retirement-minded practitioners looking to transition toward retirement. Ideal annual billing should range from $250K to $750K, but would welcome all discussions. Please reply in strict confidence to gary@mlcpanj.com. To learn more about us, please visit www.mlcpanj.com.

New Jersey Practices for Sale: Multi- location (3 Territories) Tax Franchise $200K gross, high-traffic locations, remote operation opportunity, approx. 800 annual returns. For more information, call 800397-0249 or visit www.aps.net.

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Long Beach Island. Well established, quality oriented, tax based CPA firm seeking either retirement-minded practitioners or experienced "partner oriented" CPAs looking to relocate and practice in a high visibility office building with experienced staff in a state of the art facility located on Long Beach Island. Southern Ocean County is a rapidly growing area for entrepreneurial minded individuals.

Reply to ciccone@cgkcpas.com or 609494-1181.

Traphagen & Traphagen CPAs, a wellestablished firm in Bergen County with diverse client base and credentialed support staff is seeking small firms and sole practitioners for acquisition or merger.

We are looking for firms ranging in size from $300K to $700K. This is an opportunity to align with a quality peer- reviewed firm, while continuing to provide your clients with exceptional service. To confidentially discuss this opportunity please email us at carolynn@tfgllc.com.

To see additional classified listings or to place an ad, visit njcpa.org/classifieds.

Quality Review for CPA firms: audit, review, compilation; guidance in revenue recognition.

Contact James M. Sausmer, CPA at 732-2617710 or james.sausmer@gmail.com.

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27

MEMBER STORY

years beginning in 1986. “I remember driving here in a snowstorm in my boss’ Trans Am,” she remarks. Today, she’s responsible for handling the accounting needs of 75 employees in the U.S. and 85 employees in Canada. “I even prepare the tax returns of the individual owners.”

With its biggest customers being Walmart, Dollar General, Dollar Tree and Target to name a few, and producing and selling over 2 billion candy rolls per year, it’s a mature business. “Our top 20 customers cover 75 percent of our sales,” she says. It wasn’t always easy managing the finances for such an organization since not everyone looked at the candy business from an accounting perspective, but Tina was always up for the challenge — making one of her first tasks to modernize the accounting processes.

All in the Family

BY KATHLEEN HOFFELDER, NJCPA CONTENT EDITOR

Tina M. Moyer, CPA, never thought she would be the controller of a candy company — though she definitely dreamed of candies as a little girl and certainly was good with numbers. Those two worlds combined when she was a manager at what is now RotenbergMeril and she was offered the controller position at the family-run Smarties Candy Company in 1999.

Known for its twist wrapped roll of pastel candies and candy necklaces, the Smarties Candy Company was founded in 1949 when Edward Dee brought his family from England to New Jersey and set up operations in a rented facility. Today, Smarties is run by Dee’s granddaughters Liz Dee and Jessica Dee Sawyer and their cousin Sara Dee, who are all co-presidents. It operates a factory in Union, New Jersey, and another in Ontario, Canada, where Smarties are referred to as “Rockets.”

Having just celebrated its 70th anniversary, the candy company continues to grow

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in popularity in the U.S. and abroad due to its school- and kid-friendly qualities — vegan, gluten-free, dairy-free, peanut-free and allergy-free. A new brand, Smarties Squashies, recently debuted in the U.S.

by Swizzels Matlow Co., a confectionary manufacturer in the U.K. that owns 20 percent of Smarties Candy Company, owing to a partnership years ago with the Matlow family who make a version of Smarties called “fizzers.”

With global customer demands and routine accounting needs in the office, Tina’s job is always interesting. “It’s a lean machine here,” she explains. “I’m responsible for all of the accounting side of the business, banking, insurance renewals and human resources, plus I’m the administrator of the profit-sharing plan, and all the benefit programs run through me,” she says. Before working at Smarties, Tina was very familiar with the company, having audited Smarties Candy Company for 13

ALL IN THE FAMILY To those who know Tina, she fits right into the family-run business. Since graduating from Rutgers University in 1986, Tina has only ever had two real jobs — working for a small accounting practice that eventually morphed into RotenbergMeril and working at Smarties. While it’s exciting to have such a national brand with global operations, she loves that it is still run on a small scale. To Tina, it offers the best of both worlds. “Everybody here has a true desire to continue this business into the next generation,” she says.

Close ties with vendors and clients are also par for the course at Smarties; RotenbergMeril is still Smarties’ accounting firm. “I think that was one of the contingencies when I took this job,” she says jokingly. “Where can you go where you know everyone and know everything about a company before you switch positions?”

“Accounting is a great profession. A lot of people go this route and end up working for their clients. You have such a good background in corporate taxes or payroll, for example,” she adds, noting that math and science have always been her strong suits — skills she handed down to her children. Her son Ryan, age 24, is a physics teacher and her daughter Dayna, age 17, wants to be an aerospace engineer.

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