New Jersey CPA - September/October 2012

Magazine of the

New Jersey Society of Certified Public Accountants

Mergers and Acquisitions Due Diligence in an M&A and the CPA’s Role How CPA Firm Consolidation Impacts Strategy The Impact of Culture on an M&A M&A Tax Considerations

Sept • Oct 2012

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September • October 2012

Ralph Albert Thomas, CGMA Executive Director rthomas@njscpa.org

Ellen C. McSherry, CGMA Associate Executive Director emcsherry@njscpa.org

features 8

Due Diligence in an M&A and the CPA’s Role See how a CPA’s expertise and trusted advisor status can be a huge help to a buyer or seller during an M&A.

Don Meyer Director, Communications & Marketing dmeyer@njscpa.org

David Plaskow Managing Editor dplaskow@njscpa.org

Jeanette L. Miller

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How CPA Firm Consolidation Impacts Strategy Hear from several partners on their thoughts on the accounting profession’s recent spate of consolidation and if an M&A is in their futures.

Editorial Assistant jmiller@njscpa.org

Editorial Advisory Board Neil B. Becourtney, CPA Timothy A. Burley, CPA Salvatore A. Collemi, CPA Rebecca B. Fitzhugh, CPA Catherine Z. Horn, CPA Bernard M. Kiely, CPA Marcella LoCastro, CPA Anthony F. Marone, CPA William C. McNamara, CPA Marc D. Mintz, CPA John F. Raspante, CPA Margaret Van Brunt, CPA

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The New Jersey Society of Certified Public Accountants 425 Eagle Rock Avenue Suite 100 Roseland, NJ 07068-1723 973-226-4494 Fax: 973-226-7425 njscpa.org

The Impact of Culture on an M&A The financial details often determine if an M&A gets done, but an organization’s culture often determines if the new company survives.

M&A Tax Considerations Discover the myriad of strategies buyers and sellers of a business can use to obtain favorable – even tax-free – tax treatment.

4 Letter to the Editor 5 Close Up New Wrinkles to CPE Landscape 6 News Briefs

20 A&A Buzz Where’s the Risk in Risk-Based Auditing?

22 Best Practices M&A Insurance Issues 24 Financial Planning Working with Your Client’s Financial Planner 26 Forensic File Business Valuation Considerations in an M&A 28 Industry Insights M&A Transaction Costs 30 Small/Sole Practitioner Transferee Liability When Selling a Business

31 Tax Talk Late 401(k) Deposits and Form 5500

32 Tech Center Getting Audit Records and Standards from Third-Party Tech Providers 46 Student Outlook Obama Versus Romney: The Student Perspective 48 Legislative Views What to Expect from the White House in 2013 50 Member Profile Keeping the Books; Keeping the Faith Society Pages 2012/13 Chapter Presidents, 34 CPE Offerings and Events, 36 Get Involved, 38 Member Benefits, 42 NJ State Board of Accountancy Report, 44 Classifieds, 45

The Warren Group Design / Production / Advertising thewarrengroup.com custompubs@thewarrengroup.com

New Jersey CPA (ISSN 1534-6692) is published six times per year by the New Jersey Society of Certified Public Accountants, 425 Eagle Rock Avenue-Suite 100, Roseland, NJ 07068. Issue No. 35 Copyright © 2012 New Jersey Society of Certified Public Accountants. Annual membership dues includes $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, 425 Eagle Rock Avenue, Suite 100, Roseland, NJ 07068-1723.

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.

Letter

to

the

editor

Society Playing Partisan Politics?

A

Dear Mr. Bednarchik,

fter reading the May/June New Jersey CPA, I’d like to know who is responsible for using this journal to advance his or her own political agenda? It’s not even RFK Jr. who takes the swipe at the “potential Republican presidency,” but rather the interviewer. Recent news has brought to the fore what a catastrophe this man’s personal life is. He has no value as some type of moral example. The NRDC is a seriously flawed organization. Why did this man speak at our convention, other than to advance someone’s political agenda?

Can I hope to see Marco Rubio at the next convention? I hope the New Jersey Society of CPAs will take the time for some serious self-examination and correct its policy regarding blatantly partisan political speakers. Into the trash can with this issue.

We can assure you that inviting Mr. Kennedy to speak at our annual convention was not a partisan decision. His environmental efforts support the accounting profession’s ongoing move toward sustainability, which many believe makes good business sense. We’ve had then-U.S. Attorney Chris Christie (R-NJ) speak at prior NJSCPA events and interviewed former Congressman Michael Oxley (R-OH) for this magazine – both of whom were able to provide some valuable insight for our members. You need only look at the track record of our NJ-CPA-PAC (njscpa.org/pac) to see that the Society is an advocate for the profession, not any political party.

Gregory P. Bednarchik, CPA Moorestown David Plaskow NJSCPA Publications Editor

Are you looking for an alternative to in-person CPE events?

Do you prefer to learn in the comfort and convenience of your home or office?

The NJSCPA Education Foundation has several ways for you to earn CPE – and even fulfill your New Jersey law and ethics requirement – remotely.

njscpa.org/education/webcasts-self-study

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CLOSE

up

New Wrinkles to CPE Landscape B y Don Meyer, NJS CPA C ommu nications & M arketin g D irector

C

PE: Those three little letters are permanently etched in the minds of all CPAs – whether they like it or not. Some view continuing professional education (CPE) as a critical mechanism for enhancing professional competency, while others see it as a necessary evil, and we can’t print what others say!

But any way you look at it, CPE requirements are mandated and not going anywhere. So, let’s review some recent changes to ensure that everyone is up to speed on the latest developments.

Annual Minimums Starting with this triennial reporting period (2012-14), New Jersey CPAs must complete a minimum of 20 hours of continuing professional education in each year of the triennial period. The New Jersey State Board of Accountancy has not specified annual minimums in technical areas, such as accounting and auditing (A&A) or tax, but it’s safe to assume that the state board doesn’t want you waiting until the last year of the triennial to take the 24 A&A credits required in each triennial reporting period. So, if you spread out the required technical classes and sprinkle in some personal development, you shouldn’t have any trouble reaching 20 annual CPE credits.

If you’re not sure you’ve reached the 20-hour minimum yet this year, visit the New Jersey Society of CPAs CPE Tracker at njscpa.org/cpe-tracker. It provides members with a report of all CPE credits earned through the NJSCPA Education Foundation and the Society's 11 chapters. It also enables you to enter CPE credits earned elsewhere. And don’t forget, all NJ licensees are required during the triennial period to complete a four-credit New Jersey Law and Ethics course provided by a state boardapproved sponsor.

Law and Ethics Audits The state board is once again auditing for law and ethics course attendance.

It has requested class rosters from 2009-11 from the NJSCPA and other providers and is comparing those rosters to 2011 CPA license renewals to identify inconsistencies. If the state board can’t match a CPA with a law and ethics course, it is requesting additional information from the CPA. Letters have already been sent, but the process is ongoing. The NJSCPA is hopeful that this audit will find fewer infractions than the 2006-08 audits, which found that 4 percent of New Jersey CPAs falsely reported they took the law and ethics course, resulting in millions of dollars in fines and hundreds of surrendered licenses.

You can help make sure it doesn’t come to that!

Unless you’ve received correspondence from the state board, you probably haven’t given any thought to its disciplinary process. No licensee believes he or she will be subject to an investigation, much less a fine or license forfeiture. Many excellent CPAs, however, have found that a minor mistake triggered a state board audit. To avoid any mistakes, stay current with New Jersey’s ever-changing CPE landscape by visiting njscpa.org/education and reviewing the CPE Requirements and CPE Policies sections.

Credit Letters The state board has requested that the NJSCPA change the way it handles CPE credit letters. Blank CPE letters will no longer be given at the end of classes, and CPA license numbers will be printed on all credit letters. After the course has been reconciled (within 45 days), attendees will receive an email link to their personalized credit letters.

It’s crucial that the Society has a current email address for attendees. No email address, no credit letter. CPAs can confirm their email addresses and license numbers on their NJSCPA member profiles at njscpa.org/profile.

Seminar Spot Checks To ensure that attendees don’t leave seminars prematurely, the NJSCPA is considering conducting spot audits, which would include asking all attendees to sign out at the conclusion of a session.

If premature departures become a consistent problem, the sign-out process may become permanent across all events.

2012/13 Board of Trustees EXECUTIVE COMMITTEE President Thomas F. Roche III, CPA President-Elect Gerard Abbattista, CPA Secretary Brad E. Muniz, CPA Treasurer Walter J. Brasch, CPA Immediate Past President Carole A. Hedinger, CPA Executive Director Ralph Albert Thomas, CGMA TRUSTEES Jose E. Bombino, CPA Susan Burke-Leichner, CPA William A. Cadmus, CPA Edward I. Guttenplan, CPA Michael W. Gutwetter, CPA Karl A. Halteman, CPA Robert P. Herman, CPA Maryann Holloway, CPA Kenneth Pogrob, CPA Jody Rorick, CPA Mary E. Zago, CPA Joseph A. Zielinski, CPA

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NEWS

briefs action. These people generally will have simple tax returns and owe $1,500 or less in tax for any of the covered years.

Taxpayers using the new procedures will be required to file delinquent tax returns along with appropriate related information returns for the past three years and to file delinquent foreign bank and financial accounts for the past six years.

Beware of Patent Troller Scheme

CPA firms in Virginia and Georgia have reported being the target of a “patent trolling” scheme by a group called Project Paperless. The group claims to hold a patent for the process of using a network scanner. It sends CPA firms a letter demanding a license fee for the use of this network scanning process or it will take legal action in the hope the firm will settle out of court. A group named Stop Project Paperless (stop-project-paperless.com) has been organized to fight this scheme.

Cheers to 125 years! New Jersey Society of CPAs Associate Executive Director Ellen C. McSherry, CGMA (left), and Society member Catherine Z. Horn, CPA, raise their glasses at the this year’s American Institute of CPAs gala in Washington, DC, to celebrate the organization’s 125th anniversary.

IRS Offers Online Search Tool for Exempt Organizations The IRS has launched a new online search tool, Exempt Organizations Select Check, on irs.gov to help users find key information about tax-exempt organizations, such as federal tax status and filings.

New FAF Council to Improve Private Company Standard Setting

The Financial Accounting Foundation (FAF) has established a new body to improve the process of setting accounting standards for private companies. The new group, the Private Company Council, will have two principal responsibilities: (1) determine whether exceptions or modifications to existing nongovernmental U.S. generally accepted accounting principles are necessary to address the needs of users of private company financial statements; and (2) serve as the primary advisory body to the Financial Accounting Standards Board (FASB) on the appropriate treatment for private companies for items under active consideration on the FASB technical agenda. Learn more at accountingfoundation.org.

IASB and FASB Agree on Lease Accounting Approach

The International Accounting Standards Board (IASB) and the FASB have agreed on an approach for accounting for lease expenses as part of a project to revise lease accounting in International Financial Reporting Standards (IFRS) and U.S. generally accepted accounting principles (GAAP).

There was widespread concern that many lease obligations currently are not recorded on the balance sheet and that the current accounting for lease transactions does not represent the economics of all lease transactions. A joint exposure draft is forthcoming.

The boards previously agreed that leases should be recorded on the balance sheet, but have continued to discuss the classification and pattern of expenses in the income statement. The boards decided upon an approach in which some lease contracts would be accounted for using an approach similar to that proposed in the 2010 leases exposure draft and some leases would be accounted for using an approach that results in a straight-line lease expense.

IRS to Help Overseas U.S. Citizens

The Internal Revenue Service (IRS) now offers a plan to help U.S. citizens residing overseas, including dual citizens, catch up with tax filing obligations and provide assistance for people with foreign retirement plan issues.

The IRS offered the new procedures that will allow taxpayers who are low-compliance risks to get current with their tax requirements without facing penalties or additional enforcement

GASB Final Pronouncements Available as Free Downloads

New Jersey Revel Casino by the Numbers

Final statements and certain other pronouncements issued by the Governmental Accounting Standards Board (GASB) are available for free downloading at gasb.org. Documents available include GASB statements, concept statements, interpretations and technical bulletins. These documents will be posted as PDF files in their originally issued form and, therefore, the documents have not been modified for any subsequent amendments.

2,400,000,000 Cost to build 476,000,000 Estimated dollar increase in NJ casino industry 38,100,000 Additional tax revenue for the state 1,900 Number of rooms 12 Number of casinos now in NJ

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Amazon Orders in NJ to Include Sales Tax in 2013

GASB Improves Pension Accounting and Financial Reporting Standards

Amazon.com will begin collecting sales tax for orders in New Jersey as of July 1, 2013, according to Governor Chris Christie. Amazon hopes to build a large distribution center in New Jersey and had originally sought a two-year sales tax holiday.

The GASB approved two new standards that will substantially improve the accounting and financial reporting of public employee pensions by state and local governments. Statement No. 67, Financial Reporting for Pension Plans, revises existing guidance for the financial reports of most pension plans. Statement No. 68, Accounting and Financial Reporting for Pensions, revises and establishes new financial reporting requirements for most governments that provide their employees with pension benefits.

Read the complete statements at gasb.org.

NJ a “Sinkhole State” According to IFTA

The Institute for Truth in Accounting (IFTA) released its annual study of all 50 states’ assets and liabilities, including pension and retirement health care obligations. Collectively, the states have more than $900 billion in off-balance-sheet liabilities, and taxpayer burdens in most states continue to grow due to poor budgeting rules and outdated accounting principles.

The states in the worst financial condition, “the sinkhole states,” and the amount each taxpayer would have to send to its state treasury are Connecticut ($49,000), New Jersey ($35,800), Hawaii ($32,700), Illinois ($31,600) and Kentucky ($23,500).

“States pay only what is due during the current budget year, which does not take in account true long-term obligations on their balance sheets,” said IFTA founder Sheila Weinberg. “Hundreds of billions of dollars of retirement liabilities are not reported, which pushes these costs onto future taxpayers.” Learn more at truthinaccounting.org.

SEC Approves Rules and Interpretations for Regulating Derivatives

The Securities and Exchange Commission (SEC) unanimously approved rules and interpretations for key definitions of certain derivative products. The SEC rules and interpretations further define the terms “swap” and “security-based swap” and whether a particular instrument is a “swap” regulated by the Commodity Futures Trading Commission (CFTC) or a “security-based swap” regulated by the SEC. The SEC action also addresses “mixed swaps,” which are regulated by both agencies, and “security-based swap agreements,” which are regulated by the CFTC but over which the SEC has antifraud and other authority. Visit sec.gov to learn more.

njscpa.org Spotlight

Is Your Connect Profile Up to Date?

Have you taken a look at your profile on Connect, the New Jersey Society of CPAs online community, lately? As with your other social networking profiles, such as LinkedIn, it’s important to periodically review and update your Connect profile as your career progresses.

Equally as important is uploading a profile photo. Not having a photo on your social networking profiles is like attending a networking event with a paper bag over your head! Here’s how to update your Connect profile and photo: 1. Go to njscpa.org/connect and log in.

2. Click on the Profile link in the upper right corner.

3. Review each section of the profile. To edit a section, click the arrow to the right of the section.

4. If you already have an up-to-date profile on LinkedIn, there’s a tool available for you to import sections of your LinkedIn profile into your Connect profile, saving you the time of re-entering the information manually.

5. To add a profile photo, click the arrow above the default profile photo and then click “change picture.” Click “Browse” to find the photo on your computer and then click “upload.”

All NJSCPA members who have a complete Connect profile and photo by October 31, 2012, will be entered into a drawing to win one of two $50 gift cards. The winners will be randomly selected and notified by November 16.

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Due Diligence in an M&A and the CPA’s Role Two parties come to terms on a new deal. Both are excited over the prospects of a fortuitous outcome and wish to mitigate the risk imposed by this new deal. It is at this time that both parties need to move from big-picture ideas to practical and tangible items that determine the transaction’s success or failure.

Merger and acquisition (M&A) engagements are a great opportunity for CPAs to showcase their business expertise when clients are in need of their guidance and assistance.

CPA Insight

By William C. McNamara, CPA Cowan, Gunteski & Co., P.A.

A CPA’s skill set can be used on both sides of the M&A. The purchaser will have the obvious need for financial statement and tax analysis; however, many other service areas are available.

The seller can use the CPA to help provide support for the terms of the deal and present the seller’s position in the most favorable light. Historical results, return on investments and accumulation of key documents, such as financial data, tax returns, loan

documents and corporate structure, are all familiar territory to CPAs.

The Process To properly determine the amount of due diligence required in an M&A engagement, there are several factors that need to be identified and assessed while formulating the terms of the deal. Certainly, not all contingencies or risks can be completely evaluated and absolute answers created. Often, only a few critical items can be evaluated and fully resolved or disclosed.

Therefore, risk assessments of the deal’s critical areas become a high priority and must be identified. Processes are then established to build supporting information.

To successfully organize the due diligence process, a CPA must obtain an understanding of the transaction, plan and execute fieldwork, and document and communicate the findings to the client. Planning, fieldwork and reporting are all tools that a CPA may have honed from prior attest work. Many attest function products can be used to enable the CPA to accomplish the M&A objectives. However, M&A transactions do not always lend themselves to the standard checklist or audit program steps. Often, the procedures to perform

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can be qualified by the statement: “time is of the essence.” As such, CPAs must assess risks of the financial, legal and business aspects quickly and deploy actions to address or reduce the identified risk element(s).

The first order of business is the planning process, during which a CPA must read and understand the transaction’s framework. This

understanding then develops into execution steps. Dozens of critical points can be identified; however, the timing and scope may limit the CPA’s ability to address each key factor. Business judgment based on an overall understanding of the transaction is critical in identifying the issues to be focused on during the due diligence process. For example, if the

See The Good.

At the Community Foundation of New Jersey, we’re focused on helping our donors use their funds to create real impact in their communities and see the good their charitable giving creates.

Here are two recent examples of innovative ways our donors are using their CFNJ funds to make a difference:

• CFNJ Helps Fund New Report on New Jersey’s Fiscal Challenges: CFNJ, along with the Geraldine R. Dodge Foundation, the Fund for New Jersey and the Robert Wood Johnson Foundation, was instrumental in including New Jersey in State Budget Crisis Task Force. The Task Force examined the threats to near and long-term fiscal sustainability in six states. The goal of the Task Force is to move states closer to righting their budgetary problems.

buyer is acquiring a manufacturing entity, develop a flow chart of the manufacturing process and identify critical areas of the manufacturing process. Some critical points might include: • The condition of the physical plant, remaining life of the equipment and repair history.

• Terms and conditions of raw material

• Giving to Children in Foster Care: The Rogers Family Fund developed A Gift in Time as a way to fulfill gift requests of foster children. Having worked with Court Appointed Special Advocates (CASA), a non-profit devoted to supporting children in protective services, the idea for A Gift in Time was born after hearing the one thing that stood out to a young girl was a red pair of shoes given to her by a CASA volunteer. The initial launch of $5,000 to the fund has turned into $15,000 worth of small gifts that have made a big difference in these children’s lives.

If your clients are looking to make a difference through charitable giving, we’d like to be of assistance. Please contact

Hans Dekker at hdekker@cfnj.org | 973-267-5533.

To learn more, go to www.cfnj.org

2012 Year-To-Date (July): Grants Issued - $14.5MM | Gifts to Donor Advised Funds - $13MM Follow us:

facebook.com/GivingNJ

© 2012 Community Foundation of New Jersey

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twitter.com/GivingNJ

cfnj.tumblr.com

suppliers, quantity of materials on hand, identification of obsolete items and inventory turnover.

• Labor costs and hours, efficiency, key performers, quality of working conditions, safety records, and benefit or union obligations.

• Debt structure, terms, maturities, interest costs, collateral, assumption of debt and loan covenant compliance.

• Sales continuity and the product market share, competitors, economic forecast of the industry, pricing models, distribution and delivery logistics.

Each of the aforementioned could require the need for additional documentation, inquiry and support.

The CPA in charge of the engagement will be required to prioritize the critical areas and perform the procedures necessary to obtain some level of assurance that sufficient due diligence has been performed. The timing and scope of the due diligence process will, in part, dictate what can and cannot be done. The longer the due diligence window is open, the more details can be obtained and a greater understanding established.

Intangibles Many of these processes are not strictly tied to a company’s general

ledger. Intangibles, such as intellectual property, human resources and industry positioning, can all have greater value than the documented income and expenses of the transaction. The CPA’s ability to identify the need for the acquiring company to secure key employees under employment arrangements may be as important as any financial or tax consideration.

Correctly identifying the existence or value of intangible assets – patents, copyrights or market share – plays a vital role in the decision making process.

The CPA’s knowledge of the entity’s industry and its economic outlook can play a vital role in establishing agreeable sale terms.

Results Reporting findings is no less critical than assessing the areas focused on during the engagement’s fieldwork, containing the same critical timeline and relevance.

Results must provide decision makers with a clear go or no-go assessment. A CPA’s report could look very similar to the green, yellow or red of a traffic light.

Items whose assessments are complete and offer a higher degree of comfort can be considered green or go. Areas that have not been completely documented and understood can be highlighted as yellow or cautionary. Items that fail to meet the requirement of transaction

We Go To Work For You.

sustainability would be red or stop. The quantity and essence of these “stops” would impact the decision making process and survival of the deal.

Ultimately, the fit of CPAs into an M&A is created by the trusted advisor status they have obtained with clients.

CPAs who invest the time in their clients and obtain an operational knowledge of their businesses will separate themselves from accounting and tax providers who merely provide standard compliance and reporting services. It’s the integration into the clients’ businesses that expertise is achieved and significant value is obtained for all parties.

William C. McNamara, CPA, CCIFP, is the shareholder-in-charge of the Construction Services Group at Cowan, Gunteski & Co., P.A. He is a member of the New Jersey CPA magazine Editorial Advisory Board. Contact him at bmcnamara@cowangunteski.com or 732-349-6880.

Member Benefit Accounting Considerations for Mergers and Acquisitions, Including Business Combinations Wednesday, September 19, Iselin Visit njscpa.org/catalog Express Code: E1209383

Go with the biggest in the industry. We are North America’s leader in marketing accounting and tax practices because we understand the value of your firm, know how to market it and have hundreds of buyers in New Jersey who want a practice. Our biggest concern is you. Our wealth of experience culminates to make sure your comfort level is met, your questions are answered and everything is being done to sell your firm.

Give us a call today so that we may go to work for you and produce the results you desire.

1-800-397-0249 bradley@accountingpracticesales.com www.AccountingPracticeSales.com

NORTH AMERICA'S LEADER IN PRACTICE SALES

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Annual CPE Minimum Now in Effect New Jersey CPAs now must complete a minimum of 20 hours of continuing professional education in each year of the triennial period.

How CPA Firm Consolidation Impacts Strategy Developing and implementing the proper strategies to address both the opportunities and the threats that mergers and acquisitions (M&A) present will help guide firm leaders to ensure their legacies and position their firms for the future.

Firm Consolidation Stages

By Joseph A. Tarasco, CPA Accountants Advisory Group

Based upon CPA firm size and partner ages, consolidation is seemingly in its early stages. “New Jersey CPA firm consolidation is only in its infancy,” says Joel A. Cooperman, CPA, managing partner, Citrin Cooperman.

“One of the driving forces accelerating consolidation will be the aging managing partner population.”

Many of the CPA firms I speak with throughout the New Jersey area and nationally wish to remain independent and avoid merging into larger firms.

One thing is for sure, most CPA firm partners feel that consolidation of the profession is definitely underway and will be a force to reckon with for at least the next decade or more.

“As smaller clients continue to grow and mature, an ever-increasing demand exists for a higher level of technical expertise, be it audit or tax, that can only be provided by sharing the related costs of technical resources over a larger partner base,” notes Kenneth S. Botwinick, CPA, partner, Botwinick & Co. “Clients will have fewer choices, and firms will have to strategically focus on being the firm of choice as consolidation creates firms with many capabilities,” says Edward I. Guttenplan, CPA, managing partner, Wilkin & Guttenplan, P.C. “A lack of succession planning strategies will be a driving force for M&A throughout the state. Consolidation may be the

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only exit strategy for some CPA firm owners. The number of mergers will grow as Baby Boomers face the realities of retirement or an inability to compete and retain clients as progressive firms grow in the marketplace with greater resources.”

Positioning and Strategy A contemporary strategic positioning trend for CPA firms defines how to best compete now and in the future for clients and talent within the marketplace of consolidation.

This type of strategic positioning is established by developing a business model that includes service offerings, fee structuring, forging and enhancing niches and specialties, establishing business location(s) to expand the firm’s geographic reach, developing leaders and professional talent, and maximizing operational effectiveness – all of which are synchronized and aligned with the

goal of developing a successful firm of the future.

“We have positioned our firm for growth and to sustain our competitive edge with firms of all sizes through our industry specializations and family office niche,” comments Tracey B. Early, CPA, managing partner, Untracht Early.

“The need for M&A is not as much of a priority because we’ve experienced significant organic growth. However, we are considering opening strategic office locations to take advantage and leverage our brand and specialty services.”

Adds Guttenplan, “We’re committed to developing succession within our firm and executing strategies to accomplish this goal. Strategies include enhancing our platform’s technical and resource capabilities and maintaining a bestfirm-to-work-for culture. We believe our platform, culture and staff development investment create a very competitive and autonomous future for us.”

While some firms start the process from within, others first look outward.

“We’re always looking for quality professionals and merger candidates with niche specialty practice areas,” says Philip E. Goldstein, CPA, managing partner, Goldstein, Lieberman & Company.

The challenge of developing and sustaining strategic positioning primarily depends on strong leaders who are willing and capable to make tough business decisions within appropriate time frames and the synchronization of efforts of all partners and staff. Firm leaders must provide the direction to decide which changes are necessary to establish the best possible positioning or repositioning of the firm as the marketplace changes at a rapid pace through mergers and acquisitions.

Threats and Opportunities One of the most significant threats to CPA firms in dealing with the future

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effects of consolidation is denial.

Denial has run rampant in the CPA profession, especially with small firms.

The profession has changed significantly (e.g., consolidation, staffing challenges, increased competition, succession planning problems and the list goes on). Many firms are having difficulty keeping up with the changes. And new realities lead to denial. Denial is more endemic to firms with older partners because it often results from a stubborn adherence to a once-accurate perception of reality that – while comfortable – has become obsolete in a changing marketplace. It’s hard to overcome denial because it means avoiding change.

“We’re also positioning our firm for succession planning and future growth by implementing a comprehensive career development and performance management system to develop our staff

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into talented accounting professionals and firm leaders,” says Early.

In dealing with threats and taking advantage of opportunities, firms need to initiate change. “We find ourselves in a unique sweet spot,” adds Botwinick.

“We seek and execute with internal, organic growth, combined with strategic, slow and deliberate absorption of sole practitioner accountants as partners.”

“A merger strategy is valuable, and doing an M&A would be great and perhaps accelerate our growth, but we will not rely on it for growth,” comments Guttenplan.

“We think we need mergers and strategic acquisitions; however, they are just one of our many tools to grow at a geometric rate. I don’t believe being larger gives us any competitive advantages or disadvantages. What gives CPA firms a strategic advantage

My number is… 100

is superior intellectual property and superior customer service,” states Goldstein.

Many firms will be facing tough succession and strategic planning issues over the next five years. Established firms are more likely to be in denial because the old ways of doing things have worked. But they really need to take a page from Charles Darwin, “It is not the strongest of the species that survives, not the most intelligent, but the one most responsive to change.”

Joseph A. Tarasco, CPA, consultant to the CPA profession, is president of the Accountants Advisory Group. He is a member of the New Jersey Society of CPAs. He was named one of the “Top 10 Most Recommended Consultants” by Inside Public Accounting. Contact him at joe@ accountantsadvisory.com or 845-265-9046.

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The Impact of Culture on an M&A If we understand the products, services and customer base; the financial analyses make sense; and you have been able to successfully forecast where the market is going, why is it that approximately 75 percent of all mergers and acquisitions (M&A) fail to achieve the expected financial and strategic results?

By Catherine Z. Horn, CPA Alcatel-Lucent

Many times the answer given boils down to one word: culture. “There simply wasn’t a cultural fit.” “We failed to successfully merge the cultures.”

“The cultures of the two companies were just too different.” But what do these statements really mean, and why is a cultural fit so important? Finally, what can you do to overcome cultural challenges to ensure a successful M&A?

What Is Culture?

At its most basic level, an organization’s culture is best described as “how things are around the company.” It’s not about the personality of each individual employee, it’s the personality of the organization as a whole. What does the organization value? What is most important above all else? Is it speed or precision, quantity or quality, conformity or individuality, flair or tradition?

Are individuals rewarded or do teams receive the recognition? Is the general

mood serious or relaxed? Are people typically quiet and rigid or friendly and outgoing? How highly valued is ongoing education and achievement of certifications? Are birthdays and service anniversaries regularly celebrated or are they decidedly ignored? Are planned family vacations respected or regularly cancelled?

Employee Disenfranchisement Imagine two organizations whose missions may be aligned, but their values and priorities are fairly different. It’s quite possible they were even competitors and are now forced together in what might feel like an unnatural union, despite any public relations spin.

Consider the uneasiness and sometimes fear in the employees who are in the unenviable position of being acquired by the other company. Subtly, and sometimes not so subtly, they begin to feel the shift that they are no longer in a position of power. The individuals perceive – whether correctly or incorrectly – that they have increasingly less control of their own destinies. They sense that they are in the minority and may even be questioned as to why they perform their jobs the way they do.

Imagine the range of emotions in the acquired company as each employee begins to question his or her own job security and wonder each day if or when his/her position will be eliminated.

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Acquired employees begin to actively seek employment opportunities elsewhere, others just get bogged down in worry about uncertain futures. Regardless of real or perceived circumstances, don’t be surprised to see employees from the target company becoming distracted, resulting in decreased productivity. It’s common to have offered retention bonuses to select key employees, but there’s a significant impact on the bottom line when the general employee population is disengaged. How can the company’s mission be fulfilled unless all hands are on deck at this pivotal time?

The Goal If culture plays such an important role in ensuring M&A success, why are so many companies and employees unable to overcome this? All M&A planning teams have human resources at the table, and integration plans thoughtfully address the assignment of employees into the new organizational structure. So, why might this not be enough? The answer is simple: We all-too-often assume that the integration of people results in the integration of cultures. What can you do to avoid this tragic mistake, and how do you assure that the key driver of an M&A success – your employees – remains focused on the business of getting business done? In effect, you want to establish a new culture. Don’t focus on where you are coming from,

but rather focus on the new organization that you are building. Let’s discuss a couple of actionable elements to help establish that new culture.

Leadership Displaying strong leadership is always critical, but even more so during an M&A. The leader(s) needs to be extremely visible during times of change. They set the tone for the new organization, and their actions will drive the behavior of others. This is a time above all others to be decisive, fair and consistent. The leader must be hardworking and inspirational. But, most critically, the leader must bring the entire employee base together as one new team, one new organization, united under a single vision to achieve a common mission.

Communication Communication in all forms and to all levels of the organization must be increased and carefully crafted. Messages must be clear and consistent – this is not a time for mixed messaging or to go radio silent. Strong communication becomes incrementally more critical as the M&A is announced and during the sometimes lengthy integration process. Frequent, positive and consistent communication from the top of the organization and reinforced by middle management gives employees the ongoing reassurance they need

and deserve. It reduces rumors and allows employees to focus on the work of integration. During a merger or acquisition, employees specifically wait to hear such things as the status of product lines, office closings, benefits and ultimately positions. Therefore, it’s not just how well and how frequently you communicate, but you need to address the topics employees are most concerned about.

The most fundamental concern every employee will have is about his or her future. How well you set a positive, compelling culture for the new organization will be measured by the ability to retain a strong employee base where employees are the real assets who will assure the success of the M&A. Catherine Z. Horn, CPA, CGMA, SPHR, is the human resources director for Alcatel-Lucent. She is a member of the New Jersey Society of CPAs Volunteer Relations Committee and the New Jersey CPA magazine Editorial Advisory Board.

Contact her at cathy.horn@alcatel-lucent.com or 908-582-1967.

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M&A Tax Considerations The most basic sale and acquisition of a business is a three-party transaction: the seller, the buyer and the tax collector. Tax planning minimizes the tax collector’s share of a deal and maximizes the remaining value to buyers and sellers.

By James B. Evans Jr., CPA Kulzer & DiPadova, PA

The form of a business sale and acquisition has significant legal and tax consequences. By purchasing a seller’s stock or other equity interest in the business, the buyer inherits all of the business’ liabilities, both known and unknown. A purchase of assets generally allows the buyer to choose which, if any, of the seller’s liabilities the buyer will assume. Thus, the buyer will usually – but not always – prefer to purchase assets. An asset sale may require regulatory approvals and thirdparty consents which are unnecessary for a stock or equity sale.

If the purchase of stock or equity is otherwise desirable, the benefits of an asset sale may still be available to the parties. Internal Revenue Code (IRC) §338(h)(10) allows a qualifying corporate buyer to acquire stock while realizing the tax benefits of an asset purchase if the target is a member of a consolidated group (or a nonconsolidated selling affiliate) or an S corporation. Such an election can result in double taxation to C corporation

shareholders or a built-in tax for recently electing S corporations. You should discuss the benefits and costs of a 338(h)(10) election early in the transaction negotiations.

Acquiring all of the interests in a partnership will be treated as if the partnership assets were acquired directly by purchase. If the buyer purchases fewer than all of the assets, the purchaser may benefit from an IRC §754 election which allows the partnership to adjust the basis of its assets to reflect the difference between the buyer’s basis for the purchased equity and the buyer’s share of the adjusted basis of all target partnership property. A 754 election must be made in a written statement filed with the partnership return for a taxable year no later than the year in which the transfer or distribution occurs.

In any asset-centric transaction, including a 338(h)(10) transaction, another topic for early discussion is allocating the purchase price among the acquired assets. IRC §1060 requires the purchase price be allocated among the purchased assets. The regulations require that the consideration be allocated among the assets under the residual method. Under this method, the purchase price is allocated to the following asset classes: (1) cash and general deposit accounts; (2) actively traded securities; (3) other securities and accounts receivable; (4) inventory;

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(5) tangible personal property and real estate; (6) IRC §197 intangible assets except for goodwill; and (7) goodwill and going-concern value. The buyer and seller should each attach Form 8594, Asset Acquisition Statement Under Section 1060, to his or her federal income tax return for the year in which the sale occurred.

A tax-free acquisition of a business may be possible. The target and the buyer must both be corporations. If the target is a tax partnership, corporate reorganization rules apply. Furthermore, at least 40 percent of the consideration to be paid for the target must be stock of the buyer. Receiving some non-stock consideration is allowed, but will reduce the seller’s advantages of a tax-free transaction. In a tax-free reorganization, the buyer assumes the target’s basis in the acquired assets. There are several types of corporate reorganizations, each with different requirements. The rules for tax-free reorganizations are detailed, and even minor breaches can result in the loss of tax-free status.

A comprehensive due diligence review of tax issues is important to confirm the seller’s compliance with federal tax responsibilities and to all the states with which the seller has nexus. The buyer must consider how the seller’s operation will affect the buyer’s tax responsibilities, including new registration and filing obligations and how the buyer’s apportionment factors may change. Such a review may suggest structural and operations planning issues. Responsibility for tax filings should also be addressed, including the seller’s indemnification obligation for pre-closing-period taxes, seller’s right to pre-closing-period refund claims and the seller’s right to participate in postclosing audits.

A few upcoming developments for 2013 and beyond will increase the federal income tax on the sale of a business: the pending expiration of the Bush tax cuts; the U.S. Supreme Court’s decision upholding the Patient Protection and Affordable Care Act; and the 3.8-percent tax on net investment income – which includes capital gains, dividends, annuities, royalties, interest, rents, and income from some trades or businesses. Together, the increased 2013

capital gains rate and net investment income tax could increase the federal tax cost on business sellers from 15 to 23.8 percent.

A business owner seeking to sell may be forced to decide whether to accept a lower offer for a sale that is completed in 2012, or hold out for a better price in 2013 and risk a bigger tax bite.

Buyers, however, may find leverage in negotiating a more favorable purchase price as 2013 approaches.

Always consider state and local taxes, income and franchise taxes, and sales and transfer taxes. Many states impose real property transfer fees, and these fees may also apply to the sale of equity interests of entities owning real property, for example the New Jersey transferee’s fee on the transfer of certain commercial

real property where the consideration exceeds $1 million.

Be careful to comply with state bulk sales laws. Failure to do so may result in the buyer assuming joint liability for any of the seller’s tax liabilities, including taxes arising out of the sale of the assets.

Proper notice to state taxing authorities protects the buyer from liability for taxes due from its seller while the seller was in possession of the business or its assets.

James B. Evans Jr., CPA, J.D., LL.M., is an attorney with Kulzer & DiPadova, PA. He is a past president of the New Jersey Society of CPAs and a current member of the State Taxation and Federal Taxation interest groups. Contact him at jbe@ kulzerdipadova.com or 856-795-7744.

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A&A

buzz

Where’s the Risk in Risk-Based Auditing?

B y Nicholas Jenner , C PA, M SPC C ertified Public Acco u ntants and A dvisors, P. C .

A

uditing, like many endeavors, hinges on a crucial tenet: risk management through comprehensive and methodical analysis. More than five years after the adoption of the suite of risk-based auditing standards, the keys to their successful implementation are still being debated. Although audit risk has never been a foreign concept, these standards greatly augmented the consideration by affording greater insight of the means by which the process should take place.

Traditionally, audit risk is comprised of three components: inherent risk, control risk and detection risk. Collectively, inherent and control risk are the risk of

material misstatement, and they are considered the “client’s risk” which the auditor is faced with when performing the audit. Conversely, detection risk is the risk managed by the auditor through tailoring the nature, timing and extent of audit procedures to be performed.

Although the auditor can test the operating effectiveness of internal controls if deemed to have appropriate cost-benefit, ultimately, the internal control structure and risk it poses are the client’s risks.

Hence, discretion over the internal control policies and procedures enacted resides with the enterprise’s management, although it can be a conduit to effectively managing risk

from an auditor’s perspective.

Successful risk analysis should begin with a pervasive understanding of an enterprise and the factors influencing its operations, whether internal or external in nature.

Initially, the auditor must begin with a top-down approach which will direct the auditor’s attention to areas most prone to material misstatements. A combination of both art and science, risk assessment is a sequential and continuous process – a dynamic interaction of steps needed for identifying risks, assessing their significance and the procedures necessary to suppress them.

At its core, this approach is iterative in nature, a repetition of steps used to procure information, allow for changes to the assessment and a revision to procedures aimed at managing perceived risks.

Throughout this process, the greatest challenge faced is the possibility of overlooking factors that may have weighed on the conduct of the audit and the judgments to be rendered.

Auditors must remain balanced through the process, drawing on their business acumen while simultaneously being mindful of the professional standards by which they are bound. Also, inherent in the auditor’s assessment is a sensibility of what could go wrong – a mix of how misstatements may arise and to what degree this consideration may take place.

Further, as the assessment transpires, it will become more granular in nature requiring a greater eye for detail as the auditor becomes more critical of the assertions most susceptible to misstatement. In conjunction with this assertionlevel assessment, the auditor must

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Valerie Murray, CFP® Executive Managing Director, Client Services

contemplate what auditing procedures – either substantive, internal-control based or a combination of both – will provide the greatest cost-benefit for detecting potential misstatements. In essence, the exercise of performing this assessment is the synthesis of a circumstance at hand and the acts to be performed to mitigate a material oversight.

As far as where the risk is in riskbased auditing, the key to successful audit-risk management is effective planning via adept analysis. This includes the contemplation of all material facets of an enterprise, root causes of how misstatements may arise and why, and the performance of steps one must take to successfully audit to these risks. At the conclusion of these steps, the auditor will be able to confirm his or her judgments through an evaluation of findings.

The fundamentals of auditing have unequivocally remained the same; however, in a world where commerce has become increasingly complex and the regulations governing their practices more stringent, the burden placed on auditors to successfully navigate the myriad of challenges faced has raised the stakes for successful risk management.

Ultimately, it is incumbent upon the auditor to keep the best interests of the public in mind in order to ensure transparent and fairly stated financial reporting through audit conduct.

Nicholas Jenner, CPA, is a senior manager of quality control for MSPC Certified Public Accountants and Advisors, P.C. He is a member of the New Jersey Society of CPAs Accounting & Auditing Standards Interest Group. Contact him at njenner@mspc-cpa.com or 908-272-7000.

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BEST

practices

M&A Insurance Issues B y John F. Raspante, C PA, North American Professional L iabilit y I ns u rance Ag enc y, L L C

Coverage Company? The answers all depend on the policy language. The section of the policy detailing how an M&A is handled will address these questions. Certain policies will cover the successor in interest and do not restrict coverage for firms acquired during the policy period. Other policies will be silent as to M&A. Clearly, obtaining policy language with little or no restrictions on firms acquired during the policy period is desirable.

Tail Coverage (Extended Reporting) Tail coverage is utilized to separate exposure and protect the acquiring firm from claims that may occur for services provided by the acquired firm prior to the merger or acquisition. Several policy considerations must be addressed.

Does your carrier offer tail coverage? What should be the coverage duration? What is the cost? Some carriers will indicate duration and cost, while others do not; read the policy thoroughly. The longest tail duration is recommended, but verify the statute of limitations in your state. Cost becomes a major M&A factor as the parties must decide on who assumes the coverage cost.

Here’s what can happen if no tail coverage is in place. Firm A carries a $25K deductible, while firm B carries a $100K deductible. Firm B acquires firm A and takes over its coverage, but with no tail coverage. If firm A has a claim, its deductible just increased by $75K (the $25K original deductible less the new deductible of $100K). Depending on the tail coverage cost, it would make sense in this case to have purchased the tail coverage and not increase the deductible.

Avoid Ambiguous Language Every policy contains a section with a list of definitions.

Because M&A has reached unprecedented growth over the last few years, the definition of predecessor firm is critical.

The last thing a firm wants to receive is a denial of coverage due to an ambiguous predecessor firm definition.

A definition containing the following vague language may leave the door open for an insurance company to deny coverage: “Any reference to a majority successor in interest or conditions requiring that a certain percentage of revenue of the predecessor firm needs to be assigned to the successor firm.” In the event of a claim, a definition to the effect of “any successor in interest or any firms acquired without limitations” has proven effective.

D

uring the insurance application process – initial or renewal – you should give some serious consideration to potential mergers and acquisitions (M&A) by examining critical policy language that addresses various M&A ramifications.

What If? Firm A recently submitted its 2012 malpractice insurance application which covers the policy period of January 1, 2012, through December 31, 2012. Coverage is bound and the premium is paid in full. On April 1, 2012, firm A acquires firm B. Firm A is insured by Best Coverage Company, and firm B is insured by Premier Coverage Company. Several questions arise: Is firm A required to notify its carrier? Will its premium increase due to the acquisition? Can firm A wait until the policy renews on January 1, 2013, to notify Best

Carriers While not always feasible, there are advantages for both parties of an M&A to be with the same carrier:

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• Enhanced clarity as to what constitutes professional services.

• Tail coverage alternatives, such as honoring the retroactive date of both firms.

• Greater chance of claim settlement as opposed to shifting of fault.

• Clear, affirmative policy definitions.

• Savings on tail coverage cost.

• Minimized confusion as to differences in limits, conditions and deductibles.

• Minimized differences in claim expenses vis-à-vis policy limits.

With M&A at unprecedented levels, it is critical to read your professional liability policy thoroughly, consult with your insurance agent and, as part of standard due diligence, become familiar with the insurance policy of the other party.

John F. Raspante CPA, M.S.T., CDFA, is the senior vice president and director of risk management for the North American Professional Liability Insurance Agency, LLC. He is a member of the New Jersey Society of CPAs Accounting and Auditing Standards Interest Group and the New Jersey CPA magazine Editorial Advisory Board. Contact him at johnr@ naplia.com or 508-656-1300.

Professional Education for CPAs 35th Annual Tax and Financial Planning Seminar Series Designed to meet your clients’ demands in the highly competitive and vastly changing tax world Seven Evening Sessions

Featured Speakers: Jerome A. Deener, Esq. Debra T. Hirsch, Esq. Adam M. Grenker, Esq.

September 2012 through June 2013 Saddle Brook, New Jersey Marriott Anticipated topics include: •

Review of major recent cases, rulings and regulations on income, gift and estate tax and fiduciary litigation

•

Legislative developments, particularly in light of the scheduled expiration of many tax laws on December 31, 2012

•

Year-end income, gift and estate tax planning

•

How to structure trusts so clients can take advantage of the $5 million gift tax exemption this year and continue to enjoy use of their funds

20 CPE credits - New York and New Jersey (16 Credits Tax and 4 Credits Auditing) To learn more about the program and register, visit www.foxrothschild.com/TaxSeminarRSVP

This year’s course is sponsored by:

A Pennsylvania Limited Liability Partnership

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FINANCIAL

planning

Working with Your Client’s Financial Planner B y Damien Paumi , Nisivoccia LLP

T

Moss Adams report.

Many financial planners in NJ love the integration of CPAs and planners. In fact, they hold monthly happy hours, giving planners opportunities to meet with CPAs, attorneys, bankers and so on. At a recent broker-dealer conference celebrating successful integration between CPAs and advisors, New Jersey Society of CPAs President Tom Roche, CPA, and I commented on how this is the way business is moving. CPAs want to be more involved with the client’s other professionals. So, what does a successful relationship look like? Here are a few examples:

he importance of having a successful relationship between the client, the CPA and the financial planner is as important as a stool having at least three legs to stand on.

Where the CPA is the trusted professional regarding a client’s taxes and overall financial success, the financial planner is an advisor to financial life-stage goals and savings. Having a client-centric relationship can not only help goal achievement, but also add value to both professionals. Many used to hold themselves out as a jack-of-all-trades when it came to clients’ finances. However, as life gets more complicated and we all begin to specialize in various niches, clients demand an integration of professionals just as various medical specialists work together on patients. “Building a solo practice is a perfectly viable business model, but it is not realistic to think that one professional can have the necessary knowledge and expertise in every area of wealth management,” notes a 2011

The Business I became the lead planner for a small group of successful physicians. They were facing various problems, including taxes, billing, operations and retirement plan contributions.

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Jeffrey Getzel Getzel Schiff Ross & Pesce LLP

Our firm is fortunate enough to have a health care division that was able to quickly find and correct the issues. I suggested changing from a defined benefit plan to a defined contribution plan, aligning the right trustees to the plan and allowing each physician to manage his or her own accounts through a multitrusteed plan. We were able to not only help the business, but also help the doctors get more control of their involvement.

The Individual For the past several years, a CPA and I have been working with a client on his retirement. The day arrived in February when the client needed to decide on retirement, which he elected to do.

Having a large concentration of highly appreciated company stock in the retirement plan (a candidate for net unrealized appreciation) presented a great opportunity. With the Bush tax cuts expiring in December and a further health care tax on gains in 2013 under the now-approved health care legislation, the questions become if, when and how to draw the retirement account. Where a normal broker may convince the client that a rollover is the best option, my CPA colleague and I felt it was better to wait until December to make the decision. However, other protective investment strategies have been executed to ensure the client’s financial strength. The CPA suggested a waitand-see approach, whereas I suggested the protective stance.

The client was thrilled to have a plan that not only thought about the most tax-efficient retirement distribution, but that everyone on the financial team worked together.

The Firm There are many ways that CPA firms can facilitate working with their clients’ financial planners. Some firms have a policy where CPAs reach out to planners after tax season to discuss the upcoming tax year with the client’s advisor. Other firms have joint meetings in the fourth quarter to discuss year-end tax strategies. Still others create a more formal connection between CPAs and planners.

Dedicated Client Service Teams Big Bank Products, Small Bank Attention Serving Businesses since 1929

Overall, communication between the CPA and the financial planner is critical. Having discussions about tax implications before a client makes a decision simply makes sense. And having professionals with multiple points of view looking at the same picture provides clients with a financial plan that is both tailored and well-rounded.

It’s time you switched to Sterling. Call us today to learn more or visit snb.com/stories to read about Jeffrey’s story.

Damien Paumi, CFP, CRPC, is the director of wealth management and planning for Nisivoccia LLP. He is currently on the board of the Financial Planning Association of New Jersey. Contact him at dpaumi@nisivoccia.com or 973-328-1825.

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212-757-1100

Forensic

file

Business Valuation Considerations in an M&A B y W illiam J. McDevitt, C PA, W ilkin & G u ttenplan , P. C .

E

very few months, I get a call from someone planning to sell his or her business asking for a valuation report on the business. Rarely does that report ever get written. What the owners of a business who are considering selling need is very different than a written valuation report, which is typically prepared for non-transactional purposes, such as litigation or estate and gift purposes.

Valuation reports generally use fair market value (FMV) as the standard of value. Treasury regulations give the most common valuation definition of FMV as “the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.”

However, the world of FMV is not necessarily the real world. It’s a world of hypothetical buyers and sellers. Merger and acquisition (M&A) valuation deals with actual buyers and sellers often have other considerations, such as investment, synergistic and/or strategic value.

own existing footprint and typically acquire businesses for the long-term. They also normally want to acquire 100 percent of the business.

Financial buyers want to acquire the business and often want to keep the current management. They may also provide incentives (sometimes equity) to management to grow revenues and profits. This type of buyer generally looks for an exit from the investment within three to seven years.

Buyers will use the offering memorandum to create their own financial models to project potential future earnings before interest, taxes, depreciation and amortization (EBITDA) or free cash flows (EBITDA minus capital expenditures).

The buyers will produce a range of values using a discount, or capitalization, rate specific to the return on investment required of that specific buyer.

Do We Have a Deal?

Sellers

Is there a magic price at which both the seller is willing to sell and the buyer is willing to buy? In the recent case of the sale of the Los Angeles Dodgers Major League Baseball team by the McCourt family to an investor group led by Magic Johnson, the winning bid was $2.15 billion. According to news accounts, the second highest bidder was $1.5 billion. Did the Johnson group overpay or did everyone else underbid?

The seller and potential buyers have a value in mind for the business based upon their perception of opportunities and risks in said business. If a transaction is to go forward, there needs to be an agreement on the value (selling price) and rough purchase terms. Due diligence commences and, as a result of what is learned, the potential buyer’s views may change.

If the due diligence process uncovers perceived increased risk or diminished opportunities, the buyer may seek to modify the terms of the deal. If mutually agreeable, the buyer and seller proceed to drafting a contract, including the all-important representations, warranties and closing. Along the way, the buyers are asking themselves if they are overpaying and the sellers are wondering if they left money on the table.

Sellers usually want to maximize value/selling price. However, many other considerations may come into play, such as continued employment, continued ownership of an equity percentage of the business, tax considerations and the desire to maintain continued employment for existing workers.

Sellers also need a good investment banker or business broker. The investment banker will prepare an offering memorandum to present the growth history of the business.

The offering memo is circulated to as many potential qualified buyers as possible to generate multiple interested parties and includes: • History of the business.

• Financial statement history.

• Adjustments to historical financial statements to normalize owner discretionary items.

• Three- to five-year projections.

The investment banker will also prepare financial models that indicate a range of possible values given certain assumptions. These models are generally not shared with potential buyers.

William J. McDevitt, CPA, CVA, is a shareholder with Wilkin & Guttenplan, P.C. He is a member of the New Jersey Society of CPAs Business Valuation Forensic Litigation Services and Federal Taxation interest groups. Contact him at wmcdevitt@ wgcpas.com or 732-846-3000.

Buyers There are several types of buyers. Synergistic buyers often want the business to broaden its offerings and/or expand its

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INDUSTRY

insights

M&A Transaction Costs B y Christopher W. Frey, C PA, C F O Sol utions, I nc .

into the transaction’s purchase price.

Elements that need to be considered when determining deductibility of M&A transaction costs are: (1) Were the costs incurred inherently facilitative? (2) What was the bright line date in the transaction? (3) Were there any success fees?

Inherently Facilitative Costs

T

he big issue surrounding merger and acquisition (M&A) transaction costs is tax deductibility for the purchaser. If certain costs are determined not to be tax deductible, they may then be capitalized into the purchase price. This is not an issue for

a seller, as its costs are netted against the seller’s proceeds.

When determining the deductibility of M&A transaction costs, first determine if they were facilitative in nature. Facilitative costs are not deductible and must be capitalized

These costs are considered facilitative in nature, no matter when incurred, and are not deductible. However, they may be capitalized as part of the purchase price. These costs are specifically identified as: • Securing an appraisal, formal written evaluation or fairness opinion related to the transaction.

• Structuring the transaction, including negotiating the structure of the transaction, and obtaining tax advice on the transaction structure.

• Preparing and reviewing the documents that effectuate the transaction (e.g., a merger agreement or purchase agreement).

• Obtaining regulatory approval of

audimation.com N E W J E R S E Y C P A • S e p t e m b e r • O c to b e r 2 0 1 2

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the transaction, including preparing and reviewing regulatory filings.

• Obtaining shareholder approval of the transaction (e.g., proxy costs, solicitation costs and costs to promote the transaction to shareholders).

• Conveying property between parties to the transaction (e.g., transfer taxes and title registration costs).

Bright Line Date This is important since certain costs related to the process of investigating or otherwise pursuing an acquisitive transaction are treated as facilitative to the transaction if they relate to activities performed on or after the bright line date. The bright line date is defined as the earlier of either the letter of intent date or the material terms date. The letter of intent date is the date when a letter of intent, exclusivity agreement or similar written communication – other than a confidentiality agreement – is executed by representatives of the acquirer and the target.

The material terms date is when the transaction’s material terms – as agreed to by representatives of both the acquirer and the target – are authorized or approved by the target’s board of directors, or when authorized personnel have approved or authorized the transaction’s material terms. When formal authorization is not required, the date when both the acquirer and the target have executed a binding written contract – which includes the transaction’s material terms – becomes the bright line date.

Success-Based Fees The third significant cost area which requires determining between facilitative and non-facilitative activities is success-based fees. In general, success-based fees are presumed to be facilitative and are therefore required

to be capitalized. It is the taxpayer’s responsibility to maintain sufficient documentation to establish what portion of a success-based fee is allocable to activities that do not facilitate the transaction. This area of cost had been highly subjective as to what constituted “sufficient documentation” and was open to widely varying interpretations. In 2011, the Internal Revenue Service (IRS) significantly reduced the subjectivity of interpretation by establishing a safe harbor election. The IRS now permits taxpayers to elect to treat up to 70 percent of success-based fees as costs that do not facilitate the transaction without challenging them.

In order to deduct certain M&A transaction costs, taxpayers must determine whether the costs were facilitative to the transaction.

Transaction costs that are not inherently facilitative and incurred before the bright line date may be currently deductible as costs incurred to expand the taxpayer’s business. A taxpayer should maintain sufficient documentation to support all of the costs in M&A transactions, particularly success-based fees and cost allocations to non-facilitative activities.

However, if the success-based fee allocation to non-facilitative activities is 70 percent or less, the IRS has provided a safe harbor election.

Christopher W. Frey, CPA, is the managing director of CFO Solutions, Inc. (cfosolutionsinc.com). CFO Solutions works with emerging to mid-sized companies that are growing, restructuring or are in some other transitional situation. He is a New Jersey Society of CPAs member.

Contact him at 973-761-8971 or cwfrey@cfo-solution.com.

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Small/Sole

practitioner

Transferee Liability When Selling a Business B y Lowell S . Kirschner, C PA

W

hen advising a client who is about to sell a corporation, it is important to be aware of transferee liability. Transferee liability could occur when a corporation incurs federal income tax liability, as in the case of a C corporation; or built-in gains tax or excess net passive income tax liability, as in the case of an S corporation.

For example, assume that during year one, a seller owns 100 percent of the stock in a corporation and is a calendaryear taxpayer. At the time of the sale, the corporation has accrued a federal income tax liability payable on or before March 15 of year two. Further assume that the seller sells all of his or her stock in the corporation to a purchaser during year one. After the sale, the purchaser receives all of the corporation’s assets – resulting in its inability to pay its liabilities, including the federal income taxes – and then dissolves the corporation.

The corporation’s creditors, including the Internal Revenue Service (IRS), cannot collect on their respective debts from the corporation because it no longer exists. The IRS’ alternatives for collecting the income tax debt depend upon state law. In the case of a corporation that is subject to New Jersey law, a creditor has options pursuant to the New Jersey Uniform Fraudulent

Transfers Act. Pursuant to this act, a transfer is deemed fraudulent with respect to a creditor if the debtor engages in a transaction that is disadvantageous to a debtor, in other words, where the debtor does not receive the fair market value of assets in a sale or exchange.

One example of a fraudulent transfer is when an insolvent corporation issues a dividend because, by definition, the debtor corporation receives nothing in the exchange.

In the aforementioned example, the creditor can then recover his/ her claim against the corporation by seizing its assets which are now held by the shareholder. Accordingly, the IRS now becomes a creditor because of the corporation’s unpaid federal income tax liability. In general, the IRS has four years from the due date of the corporation’s income tax return, including extensions, to exercise this option, which is comprised of the normal three-year period for assessing income tax deficiencies plus one year.

Regarding the sale of a business, the seller has to be concerned about transferee liability if the seller sells his/her corporate stock and the sales proceeds are derived directly from the corporation. In this case, the seller would be the transferee and would thus have

transferee liability if the corporation’s liabilities exceed its assets (i.e., if the corporation becomes insolvent) after the sale of the corporate stock.

Therefore, it is crucial that the seller performs due diligence regarding the purchaser before selling the business; it is not sufficient to merely know that the purchaser has the funds to buy the business. Among other things, the seller should, with the assistance of legal counsel, determine (1) whether the purchaser intends to continue the corporation’s business; (2) that the purchaser has the ability to pay the corporation’s liabilities; and (3) how the purchaser intends to fund the business purchase.

The seller should also be wary if the purchaser claims that he/she can reduce the corporation’s federal income tax liability with respect to the year of sale and, therefore, would be willing to purchase the corporation’s stock at a price greater than the fair market value of its equity. The seller should be especially skeptical if the corporation already sold its business assets in a prior sale, resulting in the corporation only holding cash. This is because the tax court has held that the seller was liable for a dissolved corporation’s unpaid federal income tax liability at the time of a sale when the seller knew, or should have known, that the liability would never be paid by the corporation. Therefore, it is crucial for the seller’s accountant to independently verify the purchaser’s income tax reduction claims.

Lowell S. Kirschner, CPA, LL.M., is a member of the New Jersey Society of CPAs Federal Taxation Interest Group. Contact him at lowell.kirschner@gmail.com.

Member Benefit Surgent McCoy’s LLC and Partnership Tax Return Preparation Workshop Wednesday, October 31, Voorhees Visit njscpa.org/catalog Express Code: E1210241

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TAX

talk

Late 401(k) Deposits and Form 5500 B y Stephen F. Herbes , C PA, Law Office of Stephen F. H erbes

A

ccountants are painfully aware of the many ticking time bombs hidden in the Internal Revenue Code (IRC). But here’s one they may not have focused on recently.

The Department of Labor (DOL) requires all employers who maintain 401(k) plans to deposit employee contributions as soon as they can be reasonably segregated from the employer’s general assets. (As an aside, the DOL often uses seven to 14 days as a rule of thumb for when an employer should have been able to segregate contributions.)

Employers with less than 100 participants on the first day of the plan year can take advantage of a DOL safe harbor. If the employee contributions are deposited by the seventh day after they are received by the employer or would have been payable to the participants in cash, the DOL won’t treat the amounts as plan assets. Any employee contributions that are deposited more than 15 business days after the end of the month in which they are received by the employer or would have been payable to the participants in cash will be treated as plan assets.

Why does this matter to employers?

With limited exceptions, the Employee Retirement Income Security Act (ERISA) requires that all plan assets be held in trust. Failure by an employer to timely deposit employee contributions in trust is a breach of its fiduciary duties and a prohibited transaction.

A fiduciary who breaches his or her fiduciary duties is personally liable for, and must make good to the plan, any loss incurred because of the breach.

The fiduciary must also restore to the plan any profits made by it through the improper use of plan assets.

If the failure is a prohibited transaction, the IRC authorizes a 15-percent excise tax on the “amount involved.” Generally, this is the greater of the fair market value of the property given in the transaction (e.g., participants’ lost earnings) or, where appropriate, the excess compensation paid. ERISA allows the DOL to assess a 20-percent penalty on any fiduciaries who breach their fiduciary duties.

The penalty is based on the amount recovered by the DOL as part of a settlement agreement or court order.

One way to correct a late deposit is to calculate the participants’ lost earnings using the DOL calculator, contribute the participants’ lost earnings to their individual accounts, file Form 5330 with the Internal Revenue Service (IRS) and pay the 15-percent excise tax. But there’s a potential problem with this approach. Not only is the employer unprotected in a subsequent DOL audit, but the employer may be forced to file under the DOL’s Voluntary Fiduciary Correction Program (VFCP) regardless.

Line 4(a) of Schedules H and I of Form 5500 requires the accountant or return preparer to indicate whether employee contributions were contributed within the time period prescribed in DOL Regulation §2510.3-102. An affirmative response on either schedule often results in a DOL notice inquiring about the late deposits and encouraging the employer to correct under VFCP. Employers

who do correct under VFCP report fewer instances of a DOL audit or the DOL seeking to recover the 20-percent fiduciary liability penalty. Here are some actions to consider: • Carefully review each client’s deposits for the past several years.

• If a client made late deposits, calculate the participants’ lost earnings due on the deposits using the DOL calculator or another DOL-authorized method.

• Have your client contribute the participants’ lost earnings to the participants’ individual accounts.

• File Form 5330 with the IRS and have your client pay the 15-percent excise tax.

• Complete line 4(a) of Schedule H or Schedule I of Form 5500, as applicable.

• Consider filing under VFCP to preempt a DOL inquiry and potential audit.

A review of 401(k) deposits can help uncover late deposit problems and diffuse them before a DOL audit triggers significant penalties. However, the clock is ticking.

Stephen F. Herbes, CPA, J.D., LL.M., is the principal at the Law Office of Stephen F. Herbes. He is a member of the New Jersey Society of CPAs Federal Taxation Interest Group and the Immediate Past President of the Morris/Sussex Chapter. Contact him at sherbes@herbeslaw.com or 973-993-9209.

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TECH

center

Getting Audit Records and Standards from Third-Party Tech Providers B y B eth S . Brilliant, C PA

O

utsourcing has grown into a significant part of modern business practices. Outsourcing organizations often contract with individuals or companies (often called third-party providers) to perform tasks or entire business processes that were once done internally.

So, why are companies outsourcing technology functions more and more?

Technology is advancing at an everincreasing rate, and companies can use outsourcing to keep up technologically without having to develop the resources themselves, thus allowing them to focus on their core businesses.

This leads us to why auditors of outsourcing organizations need to be concerned about getting audit records from third-party tech providers. When performing an audit, the auditor is required to obtain evidence to support assertions in the outsourcing organization’s financial statements that are affected by information provided by the third-party tech providers.

Auditor Options The outsourcing organization’s auditor has a couple of choices in obtaining the reports that he or she needs: (1) the auditor could perform an internal control testing at the third-party tech provider that is relevant to the financial reporting; or (2) have the third-party tech provider give an audited report of the internal controls provided by an independent auditor.

SSAE 16 Before, June 15, 2011, third-party tech provider auditors would provide an SAS 70 report to the outsourcing organization’s auditor. However, the American Institute of CPAs

replaced SAS 70 with the SSAE 16.

The new standard is in conformity to international standards and was moved from the auditing standard to an attestation standard. Therefore, the auditor now must attest to the existence, implementation and effectiveness of controls in the thirdparty tech provider’s organization. The standard now covers the establishment of controls of the complete functional system. The auditor must now provide a detailed report that assesses and attests to the implementation of controls along with proof of effectiveness.

The SSAE 16 standard is also referred to as Service Organization Controls (SOC). There are three SOC reports, and each report can be either a Type 1 or Type 2. The difference is the Type 1 report will cover the design of controls assertion and will still be as of a point in time. A Type II report will not only address the design of controls assertion but also cover the test of operating effectiveness assertion. This report will cover a recommended period of time of no less than six months.

SOC Reports At a minimum, the auditor should obtain an SOC 1 Type 2 report from the third party tech provider. An SOC 1 report is written as an auditor-toauditor communication report that measures data center controls as relevant to financial reporting.

However, the auditor should consider also requesting an SOC 2 Type 2 report which measures controls specifically related to information technology and data center service providers. The five controls are security; availability; processing

integrity ensuring system accuracy, completion and authorization; confidentiality; and privacy. There is no reason to get an SOC 3 report which is a seal of approval to be used by the third-party tech provider for marketing purposes. Based on what an organization outsources, there may be other compliance or governance that the third-party tech provider must give: • HIPPA audit documentation.

• Documentation that the third-party tech provider is PCI DSS complaint, if the outsourcing organization accepts credit cards.

• ISO 27001 certification, which is one of the most widely recognized, internationally accepted, independent security standards.

Other Considerations The auditor should also beware that if the outsourcing organization uses a sub-service provider, that sub-service provider may also have to provide an SSAE 16 SOC 1 report.

It is important, but not required, for auditors to obtain the financial statements from their third-party tech providers. A company may have great internal controls, but if it is losing money it may need to start looking at other options.

Finally, don’t make any assumptions just because a thirdparty tech provider is a large, wellknown company. Remember, Nick Leeson had wiped out the 233-yearold Barings Bank due to lack of controls.

Beth S. Brilliant, CPA, CITP, is a member of the New Jersey Society of CPAs Technology Interest Group.

Contact her at bbrilliant@comcast.net.

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SOCIETY

pages

2012/13 Chapter Presidents Atlantic/Cape May

Trigo earned a B.S. in accounting from St. Peter’s College. He and his wife, Yvette, reside in Jersey City and have a son and a daughter.

Joseph A. Barrett, CPA, Principal, Capaldi Reynolds & Pelosi P.A., Northfield, joined the New Jersey Society of CPAs in 2005. In the Atlantic/Cape May Chapter, he has served as a director.

Barrett is a member of the American Institute of CPAs. In his community, he is treasurer for the Holy Spirit High School Board of Trustees.

Barrett earned a B.A. in business studies from Richard Stockton College of New Jersey. He and his wife, Kelly, reside in Margate.

Mercer

Enrico J. Ballezzi, CPA, Principal, Bartolomei Pucciarelli, LLC, Lawrenceville, joined the New Jersey Society of CPAs in 1993. In the Mercer Chapter, he has served as vice president, secretary, treasurer and director.

Ballezzi served as president of the West Windsor Networking Association.

Ballezzi earned a B.S. in accounting from Drexel University. He resides in Lawrenceville and has a son and a daughter.

Bergen

Charles A. Lota, CPA, Partner, Lota & Bernard, LLC, Midland Park, joined the New Jersey Society of CPAs in 1984. In the Bergen Chapter, he has served as vice president, secretary, treasurer and director.

He has also served as chair of the NJSCPA Professional Conduct Committee and as a member of the Cooperation with Bankers Committee, Membership Category Task Force and Financial Services Resource Group.

He is chair of the Audit Committee of NVA Bank in Englewood.

Lota earned a B.S. in accounting from Fairleigh Dickinson University. He and his wife, Gina, reside in Wyckoff and have two daughters.

Middlesex/Somerset

Vinay S. Navani, CPA, Shareholder, Wilkin & Guttenplan, P.C., East Brunswick, joined the New Jersey Society of CPAs in 1994. In the Middlesex/ Somerset Chapter, he has served as vice president, treasurer and director. He also served as a member of the NJSCPA Federal Taxation and International Taxation interest groups.

Navani earned a B.A. in economics from the University of Virginia, an M.B.A. in accounting from New York University and an M.S. in taxation from Temple University. He and his wife, Swati, reside in Belle Mead and have two sons.

Essex

Yusufali F. Musaji, CPA, President and CEO, Yusufali & Associates, Short Hills, joined the New Jersey Society of CPAs in 2001. In the Essex Chapter, he has served as vice president and director. He is currently a member of the NJSCPA E-YoungCPA Writers Pool and has served as a member of the Cooperation with Bankers, Accounting & Auditing Standards and Technology interest groups.

He is a member of the American Institute of CPAs, (ISC)2 and the Payment Card Industry Data Security Standard.

Musaji earned an M.S. in computer science and management from the Massachusetts Institute of Technology. He and his wife, Naomi, reside in Short Hills and have three sons.

Hudson

John Trigo, CPA, Sole Practitioner, Jersey City, joined the New Jersey Society of CPAs in 1987. In the Hudson Chapter, he has served as secretary and director. He has also served as a member of the NJSCPA Student Programs & Scholarships Committee and the State Taxation; Federal Taxation; and Estate, Trust & Gift Taxation interest groups and the Tax Resource Group.

Trigo is a member of the American Institute of CPAs. In his community, he is a volunteer for the Liberty Humane Society.

Monmouth/Ocean

Roy H. Kvalo, CPA, Director of Litigation & Valuation Services, The Curchin Group, LLC, Red Bank, joined the New Jersey Society of CPAs in 1994. In the Monmouth/Ocean Chapter, he has served as vice president, secretary, treasurer and director. He also has served as a member of the NJSCPA Business Valuation Forensic Litigation Services Interest Group and vice leader of the Matrimonial Accounting Interest Group.

He is a member of the American Institute of CPAs and vice president of the Estate and Financial Planning Council of Central New Jersey.

Kvalo earned a B.A. in accounting from Rutgers University. He and his wife, Carolyn, reside in Wall and have a daughter.

Morris/Sussex

Robert P. Sokoloff, CPA, President, Robert P. Sokoloff, CPA, P.C., Lincoln Park, joined the New Jersey Society of CPAs in 1998. In the Morris/ Sussex Chapter, he has served as vice president, secretary and director. He has also served as a member of the NJSCPA Federal Taxation Interest Group and Tax Resource Group.

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Get More For Your Money

He is a QuickBooks ProAdvisor and a member of the Tri-County Chamber of Commerce. In his community, Sokoloff is a Eucharistic minister at Our Lady of Good Counsel Church.

Sokoloff earned his B.S. in accounting from Seton Hall University. He and his wife, Mary, reside in Pompton Plains and have four sons and a daughter.

Enjoy CPE savings for a full year!

Passaic County

Alfred J. Fontanella, CPA, Fontanella & Babitts, CPAs, Totowa, joined the New Jersey Society of CPAs in 1990. In the Passaic County Chapter, he has served as vice president, secretary, treasurer and director. He also has served as a member of the NJSCPA Management of an Accounting Practice, Cooperation with Bankers and Litigation Services committees.

He is a member of the American Institute of CPAs, Pennsylvania Institute of CPAs and past president of the Financial Managers Society.

In his community, Fontanella is treasurer and trustee for the Passaic Valley High School Education Foundation.

Fontanella earned a B.S.B. from Seton Hall University. He and his wife, Carolyn, reside in Totowa and have a son and two daughters.

Southwest Jersey

Joseph M. Kempter, CPA, Attorney, Kulzer & DiPadova, P.A., Haddonfield, joined the New Jersey Society of CPAs in 2000. In the Southwest Jersey Chapter, he has served as vice president, secretary, treasurer and director. He is currently a member of the NJSCPA Meetings & Special Events Committee.

Kempter served as president, treasurer and secretary for the Estate and Financial Planning Council of Southern New Jersey and as a board member of the Society of Financial Service Professionals – South Jersey Chapter.

He was listed in New Jersey Super Lawyers as a “Rising Star.”

Kempter earned a B.S. in accounting from Penn State University, a J.D. from Widener University and an LL.M. from Villanova University. He and his wife, Susan, reside in Voorhees and have a son and a daughter.

Union County

Jerome M. Newler, CPA, Principal, JM Newler CPA & Co., Springfield, joined the New Jersey Society of CPAs in 1980. In the Union County Chapter, he has served as vice president, secretary, treasurer and director. He has also served as a member of the NJSCPA Professional Conduct Committee and the Business Valuation Forensic Litigation Services Interest Group.

He is a member of the American Institute of CPAs, the National Association of Certified Valuation Analysts and the Institute of Business Appraisers. A frequent lecturer to various financial and legal groups, he has also been listed in Who’s Who. In his community, Newler is a member of B’nai Brith and Alpha Epsilon Pi. Newler earned a B.B.A. from Marquette University. He resides in Long Branch and has a son and a daughter.

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SOCIETY

pages

CPE Offerings and Events Upcoming Education Foundation Events Date

Event/Code

Location

CPE Credit

9/20

Surgent McCoy's Guide to Understanding the Key Issues in Preparing S Corporation Tax Returns (E1209191)

Freehold

8/TX

9/20

Construction Contractors: Accounting, Auditing and Tax (E1209291)

Jamesburg

8/AA

9/20

Cooperation with Bankers Cocktail Reception (E1209070)

West Orange

1/MC

9/21

Governmental and Nonprofit Annual Update (E1209301)

Jamesburg

8/AA

9/21

Advanced Tips and Tricks of Investment Tax Management to Enhance Client Wealth Accumulation and Retirement Security (E1209201)

Iselin

8/TX

9/21

Loscalzo's GAAP Refresher (E1209061)

Roseland

8/AA

9/24

Advanced Partnership/LLC Workshop: How to Do Optional Step-Up in Basis Under 754 and Related Provisions (E1209211)

Iselin

8/TX

9/24

A Complete Guide to the New 2011 Yellow Book (E1209221)

Mount Laurel

8/AA

9/25

What You Need to Do Now in Estate Planning (E1209241)

Mount Laurel

8/TX

9/25

Compilations and Reviews: Engagement Performance and Annual Update (E1209231)

Iselin

8/AA

9/27

Surgent McCoy's Federal Tax Camp (E1209130)

Iselin

8/TX

9/27

Advanced Auditing of HUD-Assisted Projects (E1209311)

Iselin

8/AA

9/27

Comprehensive Accounting Issues of Estates and Trusts: Fiduciary Accounting and Tax Issues (E1209251)

Jamesburg

8/AA

9/27

Streamlined Tax Staff Training – Level 4 – Tax Research and Quality Control Issues (E1209421)

Roseland

8/TX

9/27

Loscalzo's Auditing Manual Utilizing the Risk-Based Audit Standards (E1209051)

Roseland

8/AA

9/27

New Jersey Law and Ethics Webinar (E1209084)

N/A

4/PE

9/28

Health Care Conference (E1209140)

Iselin

8/MC

9/28

Applying A-133 to Nonprofit and Governmental Organizations (E1209321)

Iselin

8/AA

9/28

Streamlined Tax Staff Training – Level 3 – Complex Return Issues (E1209091)

Roseland

8/TX

9/28

Advanced Selected Issues for Trusts, Estates and Their Beneficiaries (E1209263)

Jamesburg

8/TX

10/1

Excel Tips, Tricks and Techniques for Accountants (E1210413)

Roseland

8/CS

10/2

Business Valuation, Forensic Investigation and Litigation Services Conference (E1210020)

Edison

8/MC

10/2

Cloud Computing (E1210423)

Roseland

8/CS

10/2

Divorce Course (E1210441)

Roseland

8/CS

10/3

Tax Smart Financial Planning for Individuals Under 40 (E1210471)

Roseland

8/CS

10/3

Excel Budgeting and Forecasting Techniques (E1210433)

Roseland

4/AA, 4/MT

10/4

Fim Administrators Appreciation Breakfast (E1210730)

Iselin

N/A

10/4

IT: Risks and Controls in Traditional and Emerging Environments (E1210273)

Voorhees

8/AA

10/5

Internal Control Essentials for Financial Managers, Accountants and Auditors (E1210283)

Voorhees

8/AA

10/8

AICPA's Annual Update for Controllers (E1210293)

Freehold

8/MT

10/9

Critical Skills for Creating Great Budgets: Maximizing Profits, People and Power (E1210303)

Iselin

8/MT

10/11

International Taxation: To and from the United States (E1210313)

Voorhees

8/TX

10/11

Only Financial Officer: Skills for Smaller Company Financial Managers (E1210123)

Iselin

6/MT, 2/AA

10/12

Corporate Finance Check-Up: Renovate Your Analytical Toolbox (E1210133)

Iselin

8/AA

10/12

Basis/Distributions for Pass-Through Entities: An IRS Hot Spot (E1210321)

Voorhees

8/TX

10/16

New Jersey Law and Ethics Webinar (E1210084)

N/A

4/PE

10/18

New Jersey Taxation Conference (E1210100)

Iselin

8/TX

10/18

The Top 50 Business Tax Mistakes Practitioners Make and How to Fix Them (E1210161)

Jamesburg

8/TX

10/18

The Top Ten Fraud Schemes: How to Detect and Prevent Them (E1210333)

Roseland

8/AA

10/19

Business Law Essentials for Accountants (E1210343)

Roseland

8/MT

10/19

Surgent McCoy's Top 10 Tax Issues in Dealing with LLCs and Partnerships (E1210171)

Jamesburg

8/TX

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36

10/19

Loscalzo’s Tax, Cash and Modified Cash Basis Financial Statements and Other Alternatives to GAAP (Special Purpose Frameworks) (E1210113)

Iselin

8/AA

10/22

AICPA Advanced Workshop: Practical Guidance for Peer Reviewers (E1210461)

Iselin

8/AA

10/22

Innovative Solutions to Real-World Problems for Today's Financial Professional (E1210353)

Roseland

8/MT

10/23

Sales and Use Tax Conference (E1210390)

Edison

8/TX

10/23

The Controller and CFO in the Organization of the Future (E1210363)

Roseland

8/MT

10/24

Surgent McCoy's Advanced Critical Tax Issues for S Corporations (E1210181)

Roseland

8/TX

10/24

Service Organization Reporting Frameworks: Life After SAS 70 (E1210501)

Roseland

8/AA

10/25

Loscalzo's Introduction to the International Financial Reporting Standards (E1210043)

Iselin

8/AA

10/25

Surgent McCoy's Advanced Critical Tax Issues for Limited Liability Companies and Partnerships (E1210191)

Roseland

8/TX

10/25

Young Professionals Happy Hour at P.J. Whelihan's Pub and Restaurant (E1210250)

Cherry Hill

N/A

10/26

The Best Federal Tax Update Course by Surgent McCoy (E1210201)

Jamesburg

8/TX

10/26

Loscalzo's Using Tax Basis and Other Special Purpose Frameworks Presentations Effectively and Professional Ethics for New Jersey CPAs (E1210051)

Freehold

4/AA, 4/PE

10/29

IFRS for Smaller Entities vs. U.S. GAAP: A Study in How the Financial Statements Look and Feel Different (E1210213)

Iselin

8/AA

10/29

Small Business Internal Controls, Security and Fraud Prevention (E1210063)

Roseland

4/AA, 4/CS

10/29

Financial Managers Career Skills Workshop (E1210373)

Mount Laurel

8/MT

10/30

Financial Forecasting and Management Decisions (E1210383)

Mount Laurel

8/MT

10/30

Choosing the Best Entity Structure Under the New Tax Law in 2012 (E1210231)

Voorhees

8/TX

10/30

Advanced Excel (E1210073)

Roseland

8/MT

10/30

Fair Value Accounting: Making the Complex Issues Understandable (E1210223)

Iselin

8/AA

10/30

Loscalzo's 2012 FASB and AICPA Update (E1210031)

Jamesburg

8/AA

10/30

Young Professionals Halloween Beer Break (E1210260)

Fairfield

N/A

10/31

Surgent McCoy's Limited Liability Company and Partnership Tax Return Preparation Workshop (E1210241)

Voorhees

8/TX

Upcoming Chapter Events Date

Chapter

Event/Code

Location

CPE Credit

9/20

Atlantic/Cape May

Social Media Presentation (E1209489)

Somers Point

2/CS

9/20

Bergen

Kick-Off Dinner – Professional Issues Update

Washington Township

2/PD

9/21

Hudson

New Jersey Law and Ethics (E1209549)

Secaucus

4/PE

9/22

Mercer

Dinner and Broadway Musical (E1209499)

New York

N/A

9/28

Southwest Jersey

New Jersey Law and Ethics (E1209159)

Voorhees

4/PE

10/5

Essex

New Jersey Law and Ethics (E1210569)

East Hanover

4/PE

10/18

Bergen

New Jersey Law and Ethics (E1210409)

Paramus

4/PE

10/19

Atlantic/Cape May

Tax Topic – Cooper Levenson (E1210519)

Somers Point

2/TX

10/22

Monmouth/Ocean

New Jersey Law and Ethics (E1210159)

Neptune

4/PE

10/27

Union County

New Jersey Law and Ethics (E1210599)

Union

4/PE

AA – Accounting & Auditing MC – Multiple Categories PE – Professional Ethics

KEY CS – Consulting Services MT – Management SK – Specialized Knowledge

EC – Economics PD – Personal Development TX – Taxation

njscpa.org/catalog

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Get Involved

The guys and dames of interest group and committee leadership were the cat’s pajamas at the NJSCPA Convention Roaring 20s Gala.

NJSCPA 2012/13 Interest Groups and Committees

A recent LinkedIn survey found that one in five employers hired someone primarily because of his or her volunteer service outside the office.

That means now is the perfect time to get involved with the New Jersey Society of CPAs. Volunteering as a member of an NJSCPA interest group or committee can help you: • Develop new skills.

• Expand your network.

• Gain satisfaction beyond your job.

• Increase your exposure, both in and out of the office.

Learn more at njscpa.org/getinvolved.

Interest Groups – Join one of the technical communities below to learn more about a certain discipline or build a network of people who share the same areas of specialization: • Accounting & Auditing Standards • Business Valuation Forensic Litigation Services • Cooperation with Bankers • Federal Taxation (Domestic and International) • Governmental Accounting & Auditing • Health Care • Insolvency and Reorganization • Nonprofit • Personal Financial Planning • State Taxation • Technology

NJSCPA Leader-Level Committees – These appointed committees address high-priority issues of the profession and the Society. To be considered for a leader-level position, members must meet the applicable qualifications and complete the Volunteer Interest Profile at njscpa.org/getinvolved: • Audit Committee • Board of Trustees • Education Foundation Executive Committee • Executive Committee • Finance Committee • Investment Committee • Meetings & Special Events Committee • NJ-CPA-PAC • NJSCPA Insurance Trust • NJSCPA Scholarship Fund • Nominating Committee • Peer Review Executive Committee • Professional Conduct Committee • Retirement Savings Plan Committee • Strategic Planning Committee • Volunteer Relations Committee • Young CPAs Council Volunteer Committees – Volunteer committees allow members to work together in smaller groups to accomplish objectives and complete projects that support the NJSCPA mission and strategic plan: • Educators • Financial Literacy • Student Programs & Scholarships

The Nook Versus the Kindle for E-Reading

By Victoria Kosuda, CPA Beyond Financials Consulting There are many options for e-reading devices today. Users need to consider an array of technical specifications as well as their lifestyles to make smart purchases. When we have the ability to read electronic media on our computers, e-readers, tablets and smartphones, how do we choose the best device?

Because so much attention has been given to tablets and their ever-growing functionalities, the desire for a pure e-reader can almost become lost. For a moment, let’s strip away the high-tech world of apps, productivity and entertainment (and the associated higher costs!) and just focus on the capabilities of e-readers for enjoying books, magazines and newspapers.

Currently, the two leading e-readers are the Barnes & Noble (B&N) Nook and Amazon Kindle. Both products are good choices with multiple product variations and price points.

Here, we will examine the Kindle, Kindle Touch, Kindle Keyboard and Nook Simple Touch. We’ll forgo the Kindle Fire and Nook Color/Tablet due to their many capabilities beyond e-reading.

The Nook and Kindle have very similar characteristics, making them specifically geared to reading versus tablet computing.

Both have the following comparable specifications:

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• Small, thin and lightweight (6.5 to 7.5 inches and 5.98 to 8.5 ounces).

• Black and white e-ink display that looks more like words on paper, with no glare.

• Long battery lives.

• Built-in Wi-Fi. • Purchases can also be read on tablets with B&N or Amazon apps.

• Can purchase media and borrow from the library.

• Purchases from one provider cannot be read on the e-reader of the other.

There are also several key differences between the Nook and Kindle:

Storage

• The basic Kindle holds 1,400 books or 2GB of on-device storage. The Kindle Touch and Kindle Keyboard hold 3,500 books or 4GB of on-device storage. All content can be saved to the cloud.

• The Nook holds 1,000 books or 2GB of content, plus an expandable memory card can provide an additional 32GB of content.

Books purchased at barnesandnoble.com remain on the account and can be accessed at any time.

Access

• Nook has free Wi-Fi in B&N stores.

• Kindle Keyboard and Kindle Touch have slightly more expensive 3G versions (additional $50), which may be better for the power user or frequent traveler.

Selection

• B&N advertises more than 2.5 million titles available.

• Amazon advertises more than a million titles available.

• Amazon has a better selection of popular fiction, nonfiction and business books.

Amazon uses special offers to keep the price of the Kindle down. Advertisements are on the home and sleep screens of the Kindle. A device without the ads costs an additional $30. The price tag for the Nook includes free in-person support at B&N stores.

THE BUSINESS DIVORCE GROUP AT LOWENSTEIN SANDLER

DISPUTES AMONG CO-OWNERS OF A BUSINESS RAISE DIFFICULT QUESTIONS: Should I buy out my partner? Should we sell the business? Is my partner stealing from the business? Is my partner breaching his or her fiduciary duties? Can I be fired? What are my rights? Should I sue?

SOMETIMES IT’S MORE THAN JUST BUSINESS. The litigators and transactional attorneys in Lowenstein Sandler’s Business Divorce Group have decades of experience representing clients in business divorce and shareholder disputes. They possess the practical and broad-based knowledge to help clients achieve nonlitigated resolutions of business divorces and obtain court intervention if negotiations fail. Business divorce matters are complex and the stakes are too high to proceed without an experienced advisor.

Lowenstein Sandler—The Right Answer Practice leaders: Steven B. Fuerst and Nicholas San Filippo – 973 597 2500

www.lowenstein.com/businessdivorce New York Palo Alto Roseland 65 Livingston Avenue Roseland, NJ 07068 © 2012 Lowenstein Sandler PC. In California, Lowenstein Sandler LLP.

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Each has other product nuances that could tip the scales. For instance, the new Nook Simple Touch with GlowLight has an illuminated screen that allows for reading in the dark. The Kindle has text-to-speech computer-generated voice and better highlighting capabilities.

Ultimately, it boils down to personal preference. Fortunately, the customer cannot go wrong with either device. If you are interested in the simplicity of an e-reader, both the Nook and Kindle are good investments.

Victoria Kosuda, CPA, CITP, is the managing consultant at Beyond Financials Consulting.

Her roles have included financial management, budgeting, forecasting and financial system design. As a member of the New Jersey Society of CPAs Technology Interest Group, she coordinates its technology

product review blog which can be found on njscpa.org/connect. Contact her at vicki@ beyondfinancialsconsulting.com.

Get Involved Now

Volunteer opportunities are available throughout the year. Here are a few activities that need your support now. Let us know how you’d like to be involved at njscpa.org/ getinvolved.

Contribute to the Young CPAs Food Drive – The NJSCPA Young CPAs Council is sponsoring a food drive for the Community Food Bank of New Jersey September 17 through November 16. Bring your non-perishable items to NJSCPA headquarters in Roseland. Additional drop-off locations are listed at njscpa.org/youngcpas. Invite your co-workers to participate. Contact Lauren Walsh at lwalsh@njscpa.org.

Pay It Forward Speakers – Revisit the hallowed halls of high school as a speaker during Pay It Forward week beginning November 12. Tell high school students about the career opportunities that come from pursuing an accounting degree and becoming a CPA. Our ready-to-go presentation, which includes speaking points, fun facts, quizzes and videos, makes it fun, easy and rewarding.

Pick the school or location where you would like to speak when you register online at njscpa.org/payitforward.

Be a Mentor and Make a Difference – CPA members under the age of 36 are needed to be mentors for the 2013 NJSCPA high school scholarship recipients to provide guidance throughout their college careers. Apply online

by December 14 at njscpa.org/mentor. Contact Janice Amatucci at jamatucci@njscpa.org for more information.

Maximize Tax Deductions with Strategic Pension Design!

Think outside of the SEP/SIMPLE box and let the experts at ExpertPlan Consulting Services provide you with a free illustration of the tax savings that can be achieved by your clients.

Traditional Defined Benefit / Cash Balance

Contributions allowable in excess of $50,000 Full deductions still available for 2012 Plan design works well for owners aged 35 and older Minimize contribution costs for rank and file employees Owners have the potential to shelter 100% of earned income up to $250,000 in certain circumstances To learn more about ExpertPlan Consulting Services visit ExpertPlanExpertViews.com Call: 866-724-7770 (Option 3 for Consulting) or email: EPCSConsult@expertplan.com As an alternative solution to defined benefit plans, ask us about defined contribution plans, including new comparability.

CPA Ad July 2012 7.375W x 4.875H.indd 1

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7/27/2012 1:25:52 PM

JOB BANK

njscpa.org/jobs Employers njscpa.org/jobs njscpa.org/jobs Jobseekers njscpa.org/jobs njscpa.org/jobs njscpa.org/jobs njscpa.org/jobs njscpa.org/jobs • Access to highly-qualified, professional candidates

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• Search hundreds of job postings

• Elect to remain anonymous to employers • No cost to post a resume

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See the answers on njscpa.org/newjerseycpa.

Across

1. Tom pairing 3. Hall pairing 7. Cops pairing 9. Hammer pairing 10. Yang pairing 11. Ned’s pairing in “The Nedliest Catch” 12. Mom pairing 15. Wine pairing 18. Ryan O’Neal pairing 19. Off pairing 20. Wall or Pal? 22. Kermit and Miss ____ 23. Jan pairing 24. Rice or Archer?

27. Brad pairing 29. Jacob pairing 30. Either pairing 32. Federer match pairing 33. Mickey pairing

Down

1. Ben pairing 2. Batman pairing 3. Ashley and Mary-Kate 4. Ike pairing 5. Ren pairing 6. Brush pairing 8. Adam pairing 13. Not to be pairing 14. Bonnie pairing 15. Tennille pairing 16. Set to be paired 17. Family Stone pairing 18. Airline, for short 20. Teller pairing 21. Holmes pairing 24. Jordan pairing 25. No, in a way 26. Ice or Rubik’s?

28. Internet laughter 31. Two-way

The New Jersey Society of CPAs offers a sizable compliment of member benefits for you and your business when both large and small issues arise: Problem: A deadline is approaching and you need to send important forms to a client in a hurry.

Solution: FedEx offers members as much as a 29-percent discount on express mailing services.

Problem: You have open positions but don’t have time to look through stacks of résumés of unqualified candidates.

Solution: The NJSCPA Job Bank features jobs and résumés in the financial industry so that you can concentrate on candidates with the skills you need. Visit njscpa.org/jobs.

Problem: Your firm is growing and you need a payroll system that will grow with it.

Solution: Eliminate back-office tasks and get quick answers to payroll questions with ADP. Problem: The cooler months are approaching, and saving on your electric bill could really help your bottom line.

Solution: Energy Plus allows you to earn cash back and monthly savings on your home and business electric bills.

Problem: It’s difficult to know which risk management advice to trust.

Solution: CAMICO Mutual Insurance/Bollinger, Inc., provides affordable professional liability coverage and practice and risk management services to firms of all sizes.

Problem: You need a customized training course for several staff members that fits your schedule.

Solution: NJSCPA onsite training comes to you with highly qualified instructors who can customize topics according to your needs and schedule. Contact On-Site Training Specialist Sharon Drucker at 973-226-4494 x229.

For more information about NJSCPA member benefits, visit njscpa.org/marketplace.

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Advertisers Index New Jersey CPA is the only way to reach each of the 15,500 members of the New Jersey Society of CPAs, and 55 percent of readers take action after seeing an advertisement in the magazine – by either purchasing the product, contacting the advertiser, visiting a website or recommending the product or service to a client.

For advertising opportunities, contact Advertising Manager George Chateauneuf at custompubs@thewarrengroup.com.

Accounting Practice Sales

10

accoutingpracticesales.com

ADP 14 accountant.adp.com/my#

Askin, Weber & Reed, Inc.

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awrins.com

Audimation 28 audimation.com

Beacon Trust

21

beacontrust.com

Bollinger, Inc.

52

bollinger.com

Columbia Bank

15

columbiabankonline.com

Community Foundation of NJ

9

cfnj.org

CPE LINK

35

cpelink.com/value-pass

Erickson Whitman, LLC

47

ericksonwhitman.com

ExpertPlan 40 expertplan.com

Fox Rothschild LLP

23

foxrothschild.com/taxseminarrsvp

Investors Bank

49

myinvestorsbank.com

Landy Insurance Agency, Inc.

29

landy.com

Lowenstein Sandler

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lowenstein.com/businessdivorce

Medallion Business Credit

51

medallion.com

Plymouth Rock Assurance

46

njscpaquote.com

PNC BANK

2

pnc.com/cfo

Sterling National Bank

25

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NJ State Board of Accountancy Report Didactic/Non-Didactic CPE Continues to Be an Issue Newark (June 21)

the AICPA to determine the best way to sanction those who receive Uniform Penalty Letters.

Thomas mentioned NJSCPA Career Night on October 3 and a managing partner retreat on October 17 and 18.

Andrew L. DuBoff, CPA, mentioned the issue of audit firm rotation, which was discussed at recent NASBA regional meetings. DuBoff is concerned that the issue will ultimately trickle down to small firms and private companies.

Dr. James J. Carroll, CPA, discussed an ambiguity on the firm renewal form with respect to a deadline for an affidavit for exemption.

He requested that the Statutes/Rules/Regulations Committee review.

Miscellaneous

A licensee had an inquiry about a question listed on both the individual and firm license renewal applications: “Does the firm issue audited, reviewed or compiled financial statements?” This licensee points out that it is the client’s responsibility to issue the financial statements and the licensee’s responsibility to issue a report on the financial statements. As such, he suggested a change to the forms. The board will make the suggestion during the next application review session.

The board received another communication from a licensee regarding didactic CPE instruction. The issue is currently with the Statutes/Rules/Regulations Committee. The board would like to emphasize that when CPE is delivered in a live manner and audio/ video is merely used as a supporting tool, then a course may be deemed didactic. However, if a moderator simply initiates the playing of an audio/video for the course without live interaction and discussion, then that course would not be considered didactic.

Furthermore, licensees should note that at least 60 credits per triennial must be via didactic means.

Newark (July 19) President’s Remarks

State Board President Keith Balla, CPA, commented that with the recent addition of several new board members, the committees are now up and running.

Miscellaneous

The NASBA submitted a CPA Exam performance report for 2012 Q2.

New Jersey candidates had an average score of 69.1 and an average pass rate of 42.5 percent.

Correspondence was received from Checkpoint Learning inquiring if the state board would accept self-study CPE credits that have been calculated using the new NASBA/AICPA word count formula method.

The board replied it is under review.

Public

New Jersey Society of CPAs Executive Director Ralph Albert Thomas, CGMA, echoed the didactic/non-didactic CPE discussion by indicating that NJ is the only state that defines didactic instruction. Thus, because NJ would presumably have a higher standard, this could become an issue for those licensed in both NJ and another state.

Thomas discussed his attendance at the American Institute of CPAs Council meeting in Washington, DC, in May and his presentation of thought leadership papers to the NJ Congressional delegation on “Financial Statements of the U.S. Government” and a “Tax Rate Calculator” to determine the effective tax rates for any jurisdiction.

Thomas shared with the board a program administered by the National Association of State Boards of Accountancy (NASBA) where it will, for a fee, pre-evaluate CPA candidates’ credentials for the CPA Exam. He indicated that the program has met with some success in other states and could potentially be a fit for New Jersey.

Thomas mentioned that there is still some confusion when CPA candidates attempt to get information from NASBA regarding qualifications and the waiver process. The board indicated that it has a New Jersey coordinator who will be working with the NASBA to mitigate the issue.

A discussion arose regarding action against serial violators of CPE requirements. Thomas said that the NJSCPA is working with

Committees

CPA Examination – The committee is looking at a fall schedule for CPA Exam testing facility visits. It would also like to obtain exam passing statistics for New Jersey schools.

CPE – The committee discussed several issues surrounding the new NASBA/AICPA CPE regulations. There was clarification on what constitutes a national or state professional organization for the purposes of CPE sponsorship applications. The potential sponsoring organization must be somehow associated with accounting and finance.

Public

NJSCPA President Thomas F. Roche III, CPA, indicated that the Society has sent a mailing to NJ's Congressional delegation for potential sponsors of a bill that would move the due dates for some tax returns to help alleviate tax season compression.

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CLASSIFIEDS Marketing Support Need business? Want to market better?

Increase brand recognition? Contact Eileen Monesson, PRCounts, at 609-570-2150 or emonesson@prcounts.com. Let us make you famous.

Mergers/Acquisitions Central Jersey CPA firm seeks an individual preferably with a small practice for future partnership with retirement-minded partners.

Email bam4711@yahoo.com.

Established, northern New Jersey and New York City, mid-sized CPA firm seeks to merge with another like-minded CPA firm for mutually beneficial growth.

We are seeking firms in the $500,000 to $2 milion size in northern or central New Jersey or New York. This is your opportunity to expand without being gobbled up by one of the big guys. To confidentially discuss this opportunity, please contact nynjcpas@gmail.com.

Denville sole practitioner seeks to grow.

Would like to do so by acquisition or merger with similar local CPA. Current billings are in excess of $200,000 consisting of tax and financial planning. I am also looking for local office space to sublease or share. Reply to bentax@optonline.net.

Retirement-minded sole practitioner in Somerset County seeks merger/acquisition with another practice. Four-year succession plan desired. Reply to retiringcpa@ optimum.net.

Do you keep telling yourself that this tax season was your last? If so, we have an opportunity for retirement-minded practitioners looking for a merger/succession plan or outright sale of their practices. We are a well-established CPA firm in Essex County with a diverse client base and wonderful support staff. Practices with $200K-$1 million in business clients are welcome to call 551-655-1600. We can offer your clients the continuity and great service they deserve.

Livingston sole practitioner seeks CPA with practice to assist in servicing clients leading toward association. Staff and office space available. Reply to cpalivingston@aol.com.

New Jersey – CPA firm wishes to acquire or merge with progressive, small to mid-sized firms. File 0701

The Curchin Group, LLC, a central NJ, Monmouth County firm is seeking to merge-in near-retirement sole practitioners and small firms needing succession planning. Other individuals seeking growth and expansion are welcome to inquire.

Initial practice continuation also an option.

Reply in confidence to Peter Pfister, CPA, at 732-747-0500 or ppfister@curchin.com.

Klatzkin & Company, LLP, an established firm with offices in Mercer County, NJ, and Pennsylvania is looking to acquire or merge-in small firms or sole practitioners in need of succession planning. We offer our clients an extraordinary and individualized level of commitment, a dedicated staff and a broad spectrum of available services. We work with a constantly expanding, diversified client base. Firms seeking growth and stability are encouraged to inquire. Reply to bsnyder@klatzkin.com.

Goldstein Lieberman & Company LLC, one of the region's fastest growing CPA firms, wants to expand its practice and is seeking merger/acquisition opportunities in northern NJ and the entire Hudson Valley region, including Westchester. We are looking for firms ranging in size from $300,000 to $5 million. To confidentially discuss how our firms may benefit from one another, please contact Phillip Goldstein, CPA, at philg@glcpas.com or 800-839-5767.

Want to sell or merge your accounting practice? Accounting Practice Sales has qualified buyers waiting and financing available to sell your practice quickly and get you the best deal possible. For information regarding our risk-free and confidential services, call Bradley Holmes at 800-397-0249. Buyers see listings and register for free email notifications at accountingpracticesales.com.

Growing CPA firm with first-class marketing culture in central NJ is looking to expand its practice. Ideal merger candidates are sole practitioners or small firms with established niche focus and strong business development skills and/or in need of a succession plan. Reply in confidence to dcowan@cowangunteski.com.

Small Clifton CPA firm looking to buy out retirement-minded practitioner over 2-4 years. Will pay top dollar with large down payment. Let's discuss over coffee.

File 80612

Professional Services Peer Review – Do you need a practical system or engagement reviewer? Obtain a free quotation at bbertscha@yahoo.com.

Audits – Does your client need an audit, but you don't provide audit services? You do the tax work, and I'll do the financials; contact bbertscha@yahoo.com.

Real Estate Bridgewater office for rent in conveniently located building near routes 22, 287 and 78.

Fully furnished office in CPA firm. Includes use of conference room, copier, fax and computer network. Call Tom: 908-419-9603.

Fairfield office for rent in prestigious building near Essex County Airport. Fully furnished partner's office in local CPA firm. Includes use of conference room, copier, fax and computer network. Phone and receptionist services available. Opportunity for potential affiliation with experienced CPA. Call Michael Kaplan at 973-227-0086.

Accounting office space available immediately in Washington Township. Two offices available in a beautiful, professionally decorated office. Old-world-style décor.

Includes an 800-square-foot conference room and 300 square feet of storage space.

Call Ted Harrington at 856-275-3256 for more information.

Real estate appraising – Tax appeals, eminent domain, unusual properties; consulting; business valuations. Charles A. McCullough, CPA, M.B.A., State Certified General Real Estate Appraiser, American Society of Appraisers member; camcpavalue.com, renwickandassociates. com, cmccullough@camcpavalue.com, 856-779-7050, 609-923-5879.

Classified Advertising Replies to ads with file numbers should be sent to: File________________________ New Jersey CPA Classifieds 425 Eagle Rock Avenue, Suite 100 Roseland, NJ 07068-1723 To see additional classified listings or to place an ad, visit njscpa.org/ classifieds.

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STUDENT

outlook

Obama Versus Romney: The Student Perspective The Case for Barack Obama

By Jeremy I. Kaye Being president of the U.S. certainly requires practical experience. And there is no one more experienced at the moment – for both the country and for students – than the incumbent, Barack Obama.

Post-secondary education is becoming extremely difficult for students to afford. Universities are constantly raising their prices

due to supply and demand. In his campaign, President Obama promises to make college more affordable for all students. In his first term, the president did make college more affordable by doubling federal funding for Pell Grants, and the number of students who receive these grants has risen from six million to nine million since 2008. The president also plans to simplify the process for repaying student loans, which gained some traction in his first term. This would help relieve some of the stress of paying back the loans and helping students ease into the workforce.

A hot topic of the 2012 presidential election – particularly to students – is job creation. Since his inauguration, Obama has helped create more than 4.3 million jobs. The U.S. has also seen 27 consecutive months of job growth. These are real jobs: police, firefighters and teachers – people who enhance the community – not Bain Capital jobs with questionable numbers that seem to change from week to week.

Obama has indicated that he will make it his mission to grow hightechnology U.S. manufacturing capacity and supply clean energy

NJSCPA members now receive an additional 15% discount on New Jersey car insurance through Plymouth Rock Assurance.

For your free quote and special 15% member discount, call 1-888-391-4910 or visit www.NJSCPAQuote.com today.

Insurance offered by Plymouth Rock Management Company of New Jersey under the brand name Plymouth Rock Assurance. Discount applies to policies written in High Point Property and Casualty Insurance Company. If the discount is not currently applied, it may be added upon request. May not be combined with any other group discounts. Offer available to New Jersey residents only.

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A successful firm retreat starts with experienced, expert facilitation & planning

EricksonWhitman

has that experience & expertise

Jeremy I. Kaye is majoring in accounting at Lehigh University. He is a 2011 New Jersey Society of CPAs scholarship recipient.

The Case for Mitt Romney

By Joseph R. Hark II An unprecedented 15.2 trillion dollars in debt, more than 8-percent unemployment and a wavering recovery from the worst financial crisis in 80 years. These are the signs of a company on the brink of Chapter 11. Unfortunately, it is not a company, but the United States.

Republican presidential nominee Mitt Romney can be the CEO of the U.S. and return the country to its pre-2008 prosperity level. College students across the country are turning their attention to November in hopes of electing a leader who can best help them. One of the first moves Romney would make to benefit students would be to restructure the financial aid system. By reducing

spending on aid programs, Romney would essentially be working to diminish the inflationary pressures on college tuition. Stabilizing tuition prices would make college more accessible to more people. Also, Romney would reduce the Pell Grant program that President Obama has drastically expanded. The current grant program is too large, and by offering grants to only those who show extraordinary need, Romney will be promoting the long-term sustainability of the loan fund. Lastly, Romney would look to fund colleges that show unique approaches to reduce their operational costs, rather than funding schools that continue to increase costs and tuition.

Romney would end forgiveness of college student loan debt, which would return a sense of self-responsibility – rather than entitlement – to the loan system.

Romney believes that students, like consumers, need to be better educated in any loans they take. The best way to accomplish this would be to involve the private sector.

Romney also shows immense potential in restoring the labor market for graduates. With his background at the Olympics and in private equity at Bain Capital, Romney understands that investment in businesses, not government handouts, ultimately drives job creation. This is America’s chance to turn things around. As a member on the board of directors of the United States, do your part and vote Romney for CEO in 2012.

Joseph R. Hark II is a corporate finance and accounting major at Bentley University and a 2011 NJSCPA scholarship recipient.

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projects with American-made parts and equipment. America needs to keep up with technological advances that many of the European and Asian countries have made. Decreasing our dependence on fossil fuels also makes environmental and national security sense, which are issues that deeply impact young people today.

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What to Expect from the White House in 2013 B y Jeffery T. Kaszerman , NJ SC PA Government R elations D irector

W

ith the 2012 presidential election campaigns in full swing, it isn’t too early to think about what we will see in Washington if President Barack Obama wins a second term or if former Massachusetts Governor Mitt Romney is elected president.

To get a sense of the issues that will be hot in 2013, we talked with Donna Mullins, managing partner, and Rob Zucker, partner, at Winning Strategies Washington, an independent, bipartisan, full-service government relations firm that works with Fortune 500 companies and public and nonprofit sector clients on a diverse array of policy and funding issues. Here are some of the developments these bipartisan insiders expect in Washington that could impact CPAs when the dust settles after the November election:

If Governor Romney Is Elected President Health Reform – Romney has pledged to repeal the Affordable Care Act on day one of his presidency. Assuming the Democrats keep at least one house in Congress, such repeal is easier said than done. Nonetheless, Romney can still have a significant impact. First, he can slow the act’s implementation significantly through executive orders.

Second, for those provisions he can’t repeal without Congressional approval, he may instead seek proposals long sought by governors to “block grant” Medicaid, which gives states more flexibility in deciding which services they provide with Medicaid funds.

Tax Reform – Romney has pledged to make the 2001 and 2003 tax cuts permanent, but for practical purposes the first order of business may simply be to extend them, as they will expire right before Romney would be scheduled to take office as president. Beyond an immediate extension, expect Romney to pursue overall tax reform to spur growth through lower rates and simplification, which could become the signature initiative of his first term.

Rollback of Sequestration as It Relates to Defense Spending Cuts – With the failure of the Joint Select Committee on Deficit Reduction (aka the Super Committee) to come up with a trillion dollars in spending cuts last year, automatic spending cuts would take place the month Romney takes office, totaling $110 billion, with half from defense programs. Expect Romney to block the cuts in defense, while allowing domestic spending cuts to take place.

Easing of Energy and Environmental Regulations – Since 2009, the Obama administration has pursued an aggressive campaign to regulate what it could not legislate, with N E W J E R S E Y C P A • S e p t e m b e r • O c to b e r 2 0 1 2

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the Environmental Protection Agency seeking new rules on mercury emissions from coal-fired power plants, fracking and greenhouse gases. A Romney administration would put all of these on hold or roll them back entirely. Further, Romney would approve the Keystone XL pipeline, stalled by Obama, and pursue an all-of-the-above approach toward domestic energy production while eliminating tax preferences for renewable energy, such as wind and solar, that have been the focus of the Obama administration’s energy policy.

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An End to the 2001 and 2003 Bush Tax Cuts – When Obama agreed to a two-year extension of the 2001-03 tax cuts in order to secure a deal on fiscal year 2011 spending after the drubbing that Congressional Democrats took at the polls, many of the remaining Democrats protested. With re-election under his belt, Obama would not be expected to yield this time around as he presses for higher marginal rates for families earning more than $250,000 and a rise in the capital gains rate.

Corporate Tax Reform – Corporate tax reform may represent the common ground that Obama can find with Congressional Republicans in 2013, many of whom are eager to streamline and lower corporate tax rates. Unlike Republicans, however, Obama may insist that any tax cuts be paid for by eliminating other tax provisions or closing tax loopholes. This would prompt a fierce fight to protect provisions, such as the mortgage interest deduction, and other preferential treatments under the current code.

Medicare and Social Security Reform – While it may seem like heresy for a Democratic president to alter Medicare or Social Security, Obama opened the door to reforming at least some aspects of Medicare when seeking a grand bargain on the debt ceiling in 2011. With re-election behind him and deficits extending into the future, Obama could seek to raise the Medicare tax rate, implement means testing for Social Security or increase the retirement age in order to strike an agreement.

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Keeping the Books; Keeping the Faith

By David Plaskow, NJSCPA Publications Editor

I

van G. Watson, CPA, learned much at a young age growing up in Kingston, Jamaica. He realized the professional path he wanted to follow, as well as the spiritual one. The former happened one day during a career day at Kingston College. “There was a representative from Price Waterhouse who talked about accounting as a career,” says Watson. “I figured I could use my strong math background, and it didn’t hurt that the representative mentioned perks, such as a company car.”

Watson subsequently joined Price Waterhouse as a junior accountant where he became an auditor for manufacturing, retail and hotel clients.

A few years later, Watson met his future wife, Patricia. “She was living in Plainfield, NJ, but was in Jamaica visiting family, and we met through our church,” recalls Watson.

As many others have, Watson relocated for love and found himself in the U.S. “I worked at Johnson & Johnson, went to Rutgers at night and raised a family,” notes Watson.

“Thankfully, I received credits for my courses at Kingston College and tuition reimbursement from J&J.” Watson graduated from Rutgers in 1986 with a B.S. in accounting.

From the mid-1980s through the late 1990s, Watson worked for a variety of companies in industry, earning the CPA designation in 1999. “I had spoken with a headhunter and asked if I was better off going for a master’s degree or the CPA,” he says. “He told me that if I planned to stay in accounting, I should go for the CPA because it carried more weight, and that proved to be great advice.”

A few months after receiving his CPA license, Watson became a member of

the New Jersey Society of CPAs. “Even though I ultimately wanted my own practice, you can’t do it all alone,” notes Watson. “The Society helps me acquire knowledge and grow.” He served as an NJSCPA trustee and is currently a director for the Middlesex/ Somerset Chapter. In 2000, Watson did open his own practice, Watson CPA LLC in Middlesex, where he does tax, general accounting and consulting. He also specializes in audits and attestations for medium-sized businesses and nonprofits.

In his spare time, Watson likes to fish and work on cars. “My family calls me ‘Mr. Fix-It,’” he laughs. “I do plumbing, electric, masonry, you name it. I even did all the telecommunications wiring for my office.”

Watson recounts another lifechanging day in his teens. “Until then, I had a slow and gradual pull to the church,” he says. “Then, one day, when I was 17 or 18, I felt compelled to give my life to Christ.” After praying, he left his school grounds, found the nearby Bethel United Church and became born again.

Watson became a member of that church, later becoming president of youth programs and eventually national vice president for all of the church’s youth programs in Jamaica.

“When I came to the U.S., I joined First

United Church in New York City, eventually becoming an ordained minister in 1990,” says Watson. He even took the lead in building a new $3.5 million facility in Brooklyn.

“Being a CPA certainly helped during a project of that nature,” he adds.

Bringing his sermons closer to home, Watson formed the Triumphant Community Church of Jesus Christ in 1993 in Somerset. As for the spiritual ROI he gets from being a minster? “It’s rewarding seeing other people overcome problems or issues and become born again,” points out Watson. “And I get great joy in seeing young people develop, like my daughter, Jennifer, and son, Mark, who are both church leaders.”

Can being an ordained minister and a CPA go hand in hand? “When I wear my CPA hat, I can help my flock as well as other parishes with obtaining financing or establishing oftenoverlooked accounting systems. Also, for example, the tax aspects regarding clergy can be somewhat complicated,” notes Watson. “And when I wear my ministerial hat, I can help clients who are stressed or anguished during tax season. There have been times, with clients’ consent, where I’ve actually led them in prayer. When it comes to tax season, every little bit helps.”

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