Today’sCPA JULY/AUGUST 2015
TE X AS SOCIETY OF
C E RT I F I E D P U B L I C AC C O U N TA N T S
Nanotechnology and Accounting Practice COSO Framework Excel in the Workplace
TSCPA Looks Back at
Years of History
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VOLUME 43, NUMBER 1 JULY/AUGUST 2015
Allyson Baumeister, CPA
EXECUTIVE DIRECTOR/CEO John Sharbaugh, CAE
EDITORIAL BOARD CHAIRMAN
James Danford, CPA
28 The People Factor
Staff MANAGING EDITOR
34 TSCPA Looks Back at 100 Years of History
DeLynn Deakins email@example.com 972-687-8550 800-428-0272, ext. 250
TECHNICAL EDITOR Brinn Serbanic, CPA, CFP® Brinn_Serbanic@baylor.edu
COLUMN EDITORS Jason B. Freeman, CPA, JD Mano Mahadeva, CPA, MBA C. William (Bill) Thomas, CPA, Ph.D.
society features 18 Spotlight on CPAs Meet CPAs Over the Century 25 TSCPA Nominations 2016-2017 Leadership Nominations 27 Capitol Interest $200 CPA Occupations Tax Repealed technical articles
Wayne Hardin firstname.lastname@example.org
38 Nanotechnology and the Practice of Accounting
42 Implementing COSO 2013 Internal Control-Integrated Framework
Ali Allie; Rosa Castillo; Jerry Cross, CPA; Anne Davis, ABC; Donna Fritz; Wayne Hardin; Chrissy Jones, AICPA; Rhonda Ledbetter; Craig Nauta; Catherine Raffetto; Patty Wyatt
45 CPE: Excel in the Workplace columns
DIRECTOR, MARKETING & COMMUNICATIONS Janet Overton
4 Chairman’s Column 100 Years: Yesterday and Tomorrow
Donna Fritz Texas Society of CPAs 14651 Dallas Parkway, Suite 700 Dallas, Texas 75254-7408 972-687-8501 email@example.com
Editorial Board Arthur Agulnek, CPA-Dallas; Aaron Borden, CPADallas; Jacob Briggs, CPA-Fort Worth; Kristan Allen Crapps, CPA-Houston; James Danford, CPA-Fort Worth; Melissa Frazier, CPA-Houston; Jason Freeman, CPA-Dallas; Baria Jaroudi, CPAHouston; Brian Johnson, CPA-Fort Worth; Tony Katz, CPA-Dallas; Mano Mahadeva, CPA-Dallas; Alyssa Martin; CPA-Dallas; Marshall Pitman, CPA-San Antonio; Kamala Raghavan, CPA-Houston; Barbara Scofield, CPA-Permian Basin; C. William Thomas, CPA-Central Texas
Design/Production/Advertising The Warren Group thewarrengroup.com firstname.lastname@example.org
Tax Topics A Look Back at More than a Century: The Federal Income Tax
10 Business Perspectives Strategic Communication 12 Accounting & Auditing Update on FASB Simplification Proposals 14 Tech Issues Six Ways to Protect Your Firm From a Data Breach 20 Chapters 2015-2016 TSCPA Chapter Officers departments 22 Take Note 52 TSCPA CPE Course Calendar 54 Classifieds
© 2015, Texas Society of CPAs. The opinions expressed herein are those of the authors and are not necessarily those of the Texas Society of CPAs. Today’s CPA (ISSN 00889-4337) is published bimonthly by the Texas Society of Certified Public Accountants; 14651 Dallas Parkway, Suite 700; Dallas, TX 75254-7408. Member subscription rate is $3 per year (included in membership dues); nonmember subscription rate is $28 per year. Single issue rate is $5. Periodical POSTAGE PAID at Dallas, TX and additional mailing offices. POSTMASTER: Send address changes to: Today’s CPA; 14651 Dallas Parkway, Suite 700; Dallas, TX 75254-7408.
100 Years: Yesterday and Tomorrow
By Allyson Baumeister, CPA | 2015-2016 TSCPA Chairman
ome of my colleagues have asked about my plans and goals during “my year” as TSCPA chairman. I may have startled them by replying, “This is not ‘my’ year!” I feel strongly that this year belongs to all Texas CPAs, and that the 100th anniversary of our Society should be the focus. TSCPA has a number of plans in the works to celebrate, and I plan to wear the biggest party hat. It is a huge deal to make it to 100 years – so many organizations don’t. It’s an amazing accomplishment. Stop and think about it … 1915. Visualize what CPAs’ work and personal lives looked like in 1915 as compared to 2015. Take a moment to ponder how far we’ve come as a society and how many changes we’ve seen. All most of us remember clearly are the changes we’ve seen in maybe the last five years or so. I mean, there was once a dark age when we didn’t have smart phones! In any event, what we ought to be focused on now is this: how do we make sure that TSCPA is still viable and successful in providing services to our members a century from now? CPAs will still be around. We’ll look different and we’ll do different
WE NEED TO TIP OUR HAT IN RECOGNITION OF HOW FAR WE’VE COME, BUT WE SHOULD ALSO TAKE CARE NOT TO STARE TOO LONG AT THE PAST.
things, but we’ll be here. As long as there is something to account for, there will need to be CPAs to do the job. Even without considering the anniversary milestone, I would not want to personally have a separate set of goals. We, as an organization, have a strategic plan, and I think it’s the Executive Board’s job to diligently advance that plan. We might need to take a fresh look at some of the issues or tweak a priority. During this, our hundredth year, it’s that much more important to keep the focus where it belongs. 4
Editor’s Note In this first Today’s CPA issue of the Society’s new fiscal year, incoming TSCPA Chairman Allyson Baumeister, CPA-Fort Worth, discusses the upcoming centennial anniversary year. Next issue, Baumeister and TSCPA Executive Director/CEO John Sharbaugh, CAE, will continue to provide a joint Chairman’s and Executive Director’s Message.
We need to tip our hat in recognition of how far we’ve come, but we should also take care not to stare too long at the past. We’re here today, and we’ve got a big future ahead of us. We’d be amiss not to look back and see what we’ve done well and judge what we might have done better; it would be very shortsighted if we didn’t. But we need to be lighting the path forward at the same time. At TSCPA’s Leadership Day this spring, we heard from a futurist who told us that one of the biggest changes ahead is that we’re becoming younger. The folks who are the stars today are much, much younger, and they are pushing back against “big” and traditional. I trust they will accomplish great things for our profession and make their own unique mark. When I was first nominated, I didn’t realize that I would be serving during our centennial, and I am honored and thrilled. In an odd coincidence, TSCPA’s first president, D.H. Kernaghan, CPA, was also from a Fort Worth firm. Kernaghan’s partner at the forefront of the fight for the first public accountancy act, William Preston Peter, CPA, was named to the first Texas State Board of Public Accountancy. My partner, Donna Hugly, CPA, is currently serving on the State Board as well this year! It’s a rather interesting continuation of the cycle of leadership. I wonder if 100 years ago, TSCPA leaders could have envisioned our organization today … nearly 28,000 members, with such diversity and prominence on the national stage? It probably never entered their minds. I think they’d be astonished. I also think they’d be happy and proud of what we’ve done – all the efforts to protect the public, to be the best we can be for our clients and our employers. I have zero fears for our future, and I hope they’d agree. To read more about TSCPA’s incoming 2015-2016 Chairman Allyson Baumeister, please see the cover article in this issue of Today’s CPA magazine. n
Allyson Baumeister, CPA
can be contacted at Allyson.Baumeister@SBF-CPA.com. Today’sCPA
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A Look Back at More than a Century: The Federal Income Tax
By Jason B. Freeman, JD, CPA | Column Editor
very April, millions of Americans brave the spring ritual of filing an income tax return. In the rush to complete their returns (and, if they are lucky, claim a refund), most give little thought to the fascinating origin and history of the tax that will celebrate its 102nd birthday this October. Our modern federal income tax represents a defining marker in our nation’s history and character, with foundational – and, some might say, uniquely American – justifications rooted in ideas of social justice, democratic values and economic theory. A tax with Civil War origins, it played a key role in the course of American class politics, evolving from a limited-scope “class tax” to the “mass tax” that became the backbone of our federal system. In the early years of our nation, the federal government was funded largely through tariffs, customs duties and excise taxes – regressive taxes that were imposed on the purchase of such wares as whiskey, tobacco, sugar and carriages. There was no federal tax on “income.” But an income tax was by no means an unknown concept. Adam Smith, in his 1776 treatise The Wealth of Nations, had written about the tax. England imposed taxes on income to subsidize the Napoleonic Wars. Why, then, was the income tax – the tax that is now so central to our nation’s tax structure – not a “permanent” part of our federal revenue machinery until 1913? Much of the answer lies in the constitutional restriction against “direct” taxes without apportionment. The rest of the answer lies in the lack of political support for such a tax and the long-run absence of a need for high levels of revenue at the federal level. In our country’s early years, the federal government played nowhere near the predominant role that it now plays. For instance, from 1789 to 1849, the first 60 years of our nation’s existence, federal tax revenues totaled an estimated $1.16 billion.1 Today, annual receipts from the income tax alone exceed that 60-year total by a multiple of more than 1,000, topping a trillion dollars. Several of the major milestones in the evolution of the income tax are marked by our nation’s defining wars. Indeed, it was the exigencies of war that gave rise to our first income tax, the predecessor to the modern income tax. The income tax was first introduced during the Civil War when, in 1862, Congress enacted and President Lincoln signed, the nation’s first income tax.2 The Civil War-era income tax provided for a progressive levy: 3 percent on income over $600 up to $10,000, and 5 percent on income over that amount. The reach of the tax was limited. Only a small portion of the population (roughly 1 percent) was actually subject to the tax; it was, in other words, a “class tax.” 6
Editor’s Note In this issue of Today’s CPA magazine, Jason Freeman, JD, CPA-Dallas, will begin writing the Tax Topics column. Freeman is an attorney-CPA with Meadows Collier Reed Cousins Crouch & Ungerman in Dallas and an adjunct law professor at SMU’s Dedman School of Law. He is an active volunteer member of TSCPA and the Dallas Chapter. TSCPA welcomes Freeman as the new column editor for Today’s CPA magazine. The tax, as one might expect, was not universally accepted. And it was challenged on constitutional grounds. However, in Springer v. United States, a case that is often overlooked by the history books, the Supreme Court actually upheld the Civil War-era income tax as a constitutional levy.3 The tax remained on the books for a decade before Congress allowed it to expire in 1872. As the country then adopted a postbellum revenue policy that depended on protective tariffs, calls to renew the Civil War-era income tax grew. The tariffs, which were regressive and protected Northern manufacturing interests from foreign competition at the cost of higher prices for manufactured goods, once again brought geographical and class differences to the forefront, rousing agrarian and populist sentiments in favor of an income tax. In 1894, Congress gave in to those sentiments and enacted a new income tax. Shortly thereafter, the tax was again challenged as an unconstitutional levy. By this time, however, the political winds, and the makeup of the Supreme Court, had changed and in 1895, in the infamous case of Pollock v. Farmers’ Loan & Trust Company, the Supreme Court reversed field and ruled that the income tax was unconstitutional. It was, the court now held, a “direct” tax imposed without apportionment. The Pollock decision has given rise to a widespread and enduring misconception that the court found the income tax to be inherently unconstitutional. In fact, the court never held that the tax was unconstitutional per se. The tax has probably always been within Congress’s broad-taxing power. The Pollock court, instead, technically struck the tax because it was implemented without apportionment – a political impossibility and a requirement that, for all intents and purposes, sounded the death knell for the income tax. The death knell, that is, until the tax was revived from the dead by the ratification of the 16th Amendment, which freed the income tax from the requirement of apportionment and ushered in a new era in federal taxation. The 16th Amendment was ratified in February of 1913. The amendment was followed later that year by the passage of the Revenue Act of 1913, which was signed into law by President Woodrow Wilson, continued on page 8 Today’sCPA
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TAX TOPICS continued from page 6 imposing the modern income tax. The basic structure of the tax, however, was based largely on the Civil War-era income tax; in other words, our modern income tax structure traces its origins directly back to the Civil War. The tax was, again, a progressive one. It provided for a 1 percent tax on income up to $20,000 with graduated marginal rates up to 7 percent. Because of a sizable exemption, however, only about 2 percent of households were subject to the tax. Proponents of the progressive income tax argued that it was fairer than the regressive tariffs that had characterized federal tax policy and that it aligned tax burdens with the ability to pay. The early income tax laws were a model of simplicity, at least compared to our current tax code and regulations. The original “tax code,” for example, drew no distinction between capital gains and ordinary income (a distinction that is the source of significant complexity) and covered a mere handful of pages in length. Contrast that with the later proliferation of code provisions, regulations, rulings and other authoritative rulings, which now span about 75,000 pages. The tax was quite successful too, and the federal government quickly realized its potential. With the fiscal demands of World War I, Congress raised the top marginal tax rate to 77 percent in 1918. However, rates dropped in the years following the First World War after the immediate need for war revenues subsided. In the following years, Congress regularly enacted new tax acts, with each new act superseding the previous acts, and the task of navigating the tax laws grew more and more complex. But Congress took an important step towards simplifying tax administration in 1939 with the first codification of the tax laws. Soon thereafter, the demands of World War II put renewed pressure on the income tax, and Congress raised the top tax rate to a now almostunimaginable 94 percent. These rate increases, combined with lower filing thresholds and the introduction of withholding during World
Jason B. Freeman, JD, CPA
War II, transformed the income tax from a “class tax” to a “mass tax,” with a greater percentage of the population represented on a return than ever before. The federal income tax was now clearly the centerpiece of the nation’s tax system. In the following years, federal income tax policy was increasingly used not just as a tool for raising revenue, but as an instrument to influence social and economic behavior. As Congress used the tax to incentivize investments, control inflation and redistribute wealth, it became more and more ingrained in our nation’s economic and social fabric. The income tax, of course, continued to evolve from these origins into the tax that we know today. While the chapters of the story that build on its origins are littered with important milestones that are too numerous to recite here, among the more significant landmarks were the 1954 re-codification of the tax laws (the second major codification of the tax code) and the 1986 re-codification, which gave us the current tax code and implemented significant tax-rate reductions. Although the tax code underwent changes almost every year following these codifications, the fundamentals of the federal income tax have largely stayed the same. In these respects, at least, it has mimicked the society that it is imposed upon. Indeed, the tax that has now seen more than a century of social and economic change continues to reflect not only a number of fundamental American ideals, but the changing values of a complex and evolving society. n Footnotes 1. Office of Management and Budget, Historical Table 1.1, available at https://www.whitehouse.gov/omb/budget/Historicals. 2. In fact, such a tax was first enacted in 1861, but it was never collected and was repealed by the 1862 tax. The 1862 tax was the first federal income tax to generate tax revenue. 3. Springer v. United States, 102 U.S. 586 (1881).
is a tax attorney with Meadows Collier Reed Cousins Crouch & Ungerman in Dallas, Texas and an adjunct professor of law at Southern Methodist University’s Dedman School of Law. He can be reached at email@example.com.
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By Mano Mahadeva, CPA, MBA | Column Editor
he roles and responsibilities of investor relations have changed significantly over the past years. Fair disclosure, the Sarbanes-Oxley Act, rules proposed by the Securities and Exchange Commission, guidelines recommended by various stock exchanges and the restoration of corporate credibility are elements that have helped make this transformation. Investor relations personnel typically serve internal and external constituencies by helping to communicate the broader strategic direction of the company and to preserve its positive image. Many chief financial officers and/or senior finance personnel manage or perform this function. Internal constituencies include senior members of management and members of the board. External constituencies include the investing community, analysts, journalists and regulators. Each of these constituencies has expectations that often change. Keeping up with these changes creates challenges and opportunities for investor relations. Two often-overlooked constituencies are employees and vendors. It is important to recognize them as they both play a critical role in the well-being of a company. Companies need their employees to be motivated and have aligned interests with those of their shareholders. Vendors, as lenders of capital, could help ease anxiety during an economic downturn. Clear and consistent communication to both groups will provide reassurance of present and future management intentions. During the past few years, we have witnessed acts and events accompanied by changes in the speed and method of information dissemination. In response, stakeholders continue to request more information on a broader range of risk issues, such as proxy battles, activism, cybersecurity, CEO compensation, board and shareholder relationships, social media and reputation, crisis management, and environmental and sustainability issues. To be successful in investor relations, the communicator needs to have financial knowledge of the company and industry, be credible, have thick skin, display excellent interpersonal skills, be a role model for confidentiality and discretion, be deft and have the gift of narrative. The communicator must have the full commitment and support of the board and senior management. Properly used, investor relations will be the eyes and ears of the company in the market and offer valuable insight into market sentiment. While it is critical that investor relations leaders be knowledgeable about all aspects of the company’s business,
Mano Mahadeva, CPA 10
prospects and challenges, the position also requires specialized functional knowledge. Investor relations leaders must be able to take information from a variety of directions and then form a response that conveys the company’s core message and still be within the requirements for full and fair disclosure. The function of investor relations can take many forms, such as meeting with investors on a periodic basis, offering rich websites, providing annual reports or sending timely news releases. The key is that the technique used delivers information to potential stakeholders so that they gain a good understanding of the company’s business, its governance, financial performance and potential future prospects. Communication is meant to be two-way in that it is about explaining, as well as to be listening and acting on feedback. Transparency is a key function of communications. Be prepared to present investors the truth, through good times and bad. Simple, unambiguous and practical communications for the average investor should be the focus of investor relations. The returns on an effective investor relations program is that of feedback from the market about its sentiments, access to cost-effective capital, greater liquidity for the company as a result of narrow bid-ask spreads and wide breadth due to frequency of share trades and that of a reasonable market valuation. The measurement of success is somewhat difficult to quantify, as most of the measurables are intangible in nature; however, increases (or decreases) in the number of institutional or individual investors could be used as one. Investor relations professionals face a difficult task as they build credibility with an anxious investment community today. The onslaught of new types of risk, a looming rate hike, fluctuating commodity prices and unrest in the Middle East make it important for a well-prepared executive to help alleviate fears of negative coverage. In the past, many public companies have announced they will not be providing earnings guidance to investors. The advent of Sarbanes-Oxley and the market reaction due to missed earnings were key reasons for this change. More companies have followed suit. These companies may provide forward-looking information, including qualitative and quantitative communications and other relevant assumptions, moving away from hopeful predictions and instead become a reliable and rich source of information. The basic investor relations strategy, however, remains the same: a credible program of frequent information flow aimed to heighten the issuer’s visibility, reputation and economic value. n
is Chief Financial Officer with Solis Health in Addison, Texas. He serves on the Editorial Board for TSCPA. Mahadeva can be reached at firstname.lastname@example.org. Today’sCPA
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Update on FASB Simplification Proposals
By C. William (Bill) Thomas, CPA, Ph.D.
s you have likely been reading, the Financial Accounting Standards Board (FASB) has recently launched a tightly focused initiative to make narrow-scope simplifications and improvements to accounting standards through a series of short-term projects. The projects included in the initiative are intended to improve or maintain the usefulness of the information reported to investors while reducing cost and complexity in financial reporting. Following is a short summary of current projects, in various stages of discussion. It is expected that exposure drafts for the first two projects discussed below will be released for public comment in the second quarter of 2015. The others are not as far along, so proposed updates to existing standards covering these topics will likely be issued later.
Measurement Period Adjustments This proposal would simplify business combinations by removing the prior requirement to account for measurement period adjustments retrospectively. The proposal requires that during the measurement period, an acquirer would recognize adjustments of provisional amounts in the reporting period in which the adjustment amount is determined. The acquirer would record, in the current period income statement, the cumulative effect on earnings of changes in depreciation, amortization or other income effects, as a result of the change to the provisional amount. In the period of adoption, entities would apply this change prospectively to adjustments of provisional amounts occurring after the effective date. This project was undertaken due to comments made by financial statement preparers that the cost of retrospectively applying measurement period adjustments of provisional amounts recorded in a business combination is greater than the benefit to users. The financial statement preparers also contend that this change would not affect the usefulness of reported information to users. There will be a 45-day comment period, after which a proposed Accounting Standards Update is released. Simplifying the Equity Method This proposal is intended to simplify the following two aspects of the equity method of accounting: 1) The requirement that an entity account for the difference between the cost of an investment and the amount of the underlying equity in net assets of an investee, as if the investee were a consolidated subsidiary and related disclosures. To simplify this first aspect, the board decided to eliminate both the requirement that entities account for the basis difference, as if the investee were a consolidated subsidiary, and the related disclosures. As of the effective date of change, entities would be required to adopt this change using a modified prospective approach, meaning entities would cease amortization of all remaining basis differences. C. William Thomas, CPA, Ph.D. 12
THE PROJECTS INCLUDED IN THE INITIATIVE ARE INTENDED TO IMPROVE OR MAINTAIN THE USEFULNESS OF THE INFORMATION REPORTED TO INVESTORS.
In the year of adoption, entities would be required to disclose the nature of, and reason for, the change in accounting principle and the amortization of basis differences recognized in the comparable prior period. 2) The requirement that an entity retroactively adopt the equity method of accounting if an investment that was previously accounted for on other than the equity method becomes qualified for use of the equity method by an increase in the level of ownership interest. To simplify this second requirement, the board decided to eliminate the requirement that entities retroactively adopt the equity method of accounting if an investment that was previously accounted for on other than the equity method becomes qualified for use of the equity method by an increase in the level of ownership interest. The board decided that this change would apply prospectively to ownership level increases occurring after the effective date of the change. No disclosures would be required in the period of adoption. There will be a 60-day comment period for this topic, after which a proposed Accounting Standards Update is released.
Additional Topics and Further Reference Although it is uncertain when these projects will be finalized, they demonstrate FASB’s commitment to its simplification initiative. So far, FASB has only completed one project related to the initiative, but it has other additional projects in various stages of completion. These include (1) simplifying the measurement of lower-of-cost or market value of inventory, (2) balance sheet classification of debt, (3) accounting for income taxes and (4) accounting for stock-based compensation. For more information on these projects, see the “Simplifying Accounting Standards” link on www.fasb.org. n
is the J.E. Bush Professor of Accounting in the Hankamer School of Business at Baylor University in Waco. Thomas can be reached at Bill_Thomas@baylor.edu. Today’sCPA
Six Ways to Protect Your Firm From a Data Breach
By Tom Parker
s you go about your day conducting business online, hackers are in the wings, waiting to pounce and exploit one innocent miss-click, mistake or mismanagement of company data and files. Since you are your clients’ trusted advisor, you are responsible for protecting valuable information, from credit card and bank account numbers, to client names, Social Security numbers, tax IDs and anything else that can personally identify an individual. Standing pat, turning a blind eye or being in denial of the realities of cybercrime and data breaches will destroy lives. If you don’t believe me, here are some statistics that should wake you up. The Identity Theft Resource Center estimates there was an average of 15 data breaches a week in 2014, and according to USA Today, 43 percent of U.S. companies had a data breach in the past year. Moreover, cybercrime cost the global economy $575 billion and the U.S. economy $100 billion annually, making it the largest hit to any country, according to a report from Intel and the Security and the Center for Strategic and International Studies. It wasn’t always this way. Before the Internet became mainstream in the mid ‘90s, hackers were isolated. They were probably more successful picking your pocket or even rummaging through your trash than finding anything of value online. Today, it’s a different story—even the most unsophisticated hacker can create real problems for an organization. All the hacker has to do is copy a more-seasoned hacker’s code from the Internet and run it. It’s very scary, but it is the reality in which we live. Think of it as a chess game where you must protect your queen from being captured. In your firm, you must work toward protecting your organization from cybercrime, without fail. To keep your valuable information from being captured, following are six ways to protect your firm from a data breach. 1. Create Security Awareness You must first have the mindset that your system isn’t something that just processes information, but rather something that “lives” and needs to be protected. Build a culture of accountability with your staff and in your firm. It is everyone’s responsibility to think about security, and it’s time to make this personal by reminding the staff about their own privacy. After all, would you want your own Social Security number, bank accounts or any other data to be breached? If it can happen to you, it can easily happen to your clients. Email is a huge problem. Just one innocent-looking email to a coworker can trigger the breach, if sensitive information is transmitted. Phishing, too, is getting more sophisticated – an email that looks like it’s valid from your bank could cause great harm. A rule of thumb is that no one should ever ask for your password in an email, so clicking a link inside your email is one of the most popular ways a system gets infected. An easy way to tell if the email is a phishing expedition is to hover over or right click the “from” address. Look at the domain – if it’s anything that seems suspicious, it probably is. However, just like your accounting advice, you must take a comprehensive approach with your clients when it comes to data 14
breaches, educating them about email in terms of receiving messages and automatically opening them. For example, tell them about phishing and what you’re doing within the firm to protect their information. Not only may this conversation save them from having their data hacked, the fact that you are having the discussion also goes a long way to maintaining the trust and loyalty they have in you as their financial advisor. 2. Maintain Simple System Hygiene Protecting your firm from a data breach isn’t difficult, but it does require constant attention, something I like to refer to as “simple system hygiene.” At the very least, you want to update your security on a regular basis. This comes down to patching your systems and usually involves more than Microsoft Windows or Mac system updates, such as Java, for example. Anti-virus software helps, too, but you can’t always rely on standardized programs, such as McAfee or Norton, to protect you. All software providers provide security updates, so if you aren’t getting these or are unaware of where to get the updates, you should contact your provider right away. 3. Establish Policies and Procedures In my experience, firms and organizations that have clear, written systems’ policies and procedures are far less vulnerable to data breaches than those that don’t. Creating these policies is good for several reasons. First, it gives your staff a roadmap to follow and takes away any guesswork on their part as to what they can, for example, download from the Internet. Second, it helps protect your clients’ personal information, because you’ve implemented best practices in your organization. Third, you can tell your clients about your proactive stance in mitigating any potential risk. That establishes a great deal of trust between you and your clients. Your policies and procedures should be a working document, constantly updated as needed, and if your firm is large enough, you may have an IT professional on staff who can take it on. Regardless, you can think of these policies and procedures as the repository for a security awareness program. The main function of the program is to make all of the staff aware of what they need to do to protect the firm’s sensitive information. As basic as it sounds, include, for example, procedures on password length and how often a password ought to be changed. It is good, basic hygiene to change your passwords every 90 days. Today’sCPA
Speaking of passwords, I know you’ve seen this time and time again in your firm and probably at home – yellow sticky notes stuck to the monitors with passwords. You may think your co-workers aren’t paying attention to the notes, let alone the cleaning crew who comes in at night. Losing control of your passwords can easily lead to lots of problems and you do not want to be the one responsible for the breach. Thanks to advanced technologies, there are quite a few password programs on the market that can be had for a firm or company at a very reasonable cost. These cloud-based programs will create secure passwords and store them for you. Search for a program that makes sense for your firm and/or ask your colleagues in other firms or companies for their recommendations. 4. Establish Access Controls As a firm grows, you must implement access controls, and while you might think that a sole proprietor doesn’t need to worry about access,
you’re greatly mistaken. Even the presence of one more staff person – administrative or otherwise – could create an opportunity for a data breach. Access controls focus on “who” gets access to “what” information. Think of this in terms of your finances. Your admin may prepare the checks for you to sign, but he/she shouldn’t also have signing authority. Similarly, you want to ensure you aren’t giving access to everything in your firm to everyone in your firm. Instead, give employees access only to what they need access to, and if you get pushback, you may have a larger problem. Access controls are also referred to as role-based security, granting access designed for each employee’s specific role. A good place to write down your role-based security procedures and processes is in the document you created when you looked at simple system hygiene. continued on page 17
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FROM TSCPA BESIDES Personal and Career Development Cutting-Edge Professional Information and CPE Enhancing the Image of the CPA Profession
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TECH ISSUES continued from page 15 5. Conduct Regular Risk Assessments Risk assessments should be conducted at least once a year. It’s important to pick a vendor to do this that isn’t just running tools against your network. The vendor needs to look at your firm holistically and understand that you need a mobile, secure workforce. This is vital since your CPAs and staff are out in the field talking to clients and working from their locations. The end game here is to take a risk-based approach to your systems and processes instead of just thinking of them as stand-alone components that do not integrate with the rest of your organization. There are lots of control frameworks out there, including the ISO 27,000 Standards and the Committee on Sponsoring Organizations (COSO) framework. Do a search for resource materials on these frameworks. 6. Don’t Forget About Physical Security The last piece to discuss is physical security. Protecting your firm from a data breach isn’t just about systems and processes, but also about leaving that data exposed outside of an electronic system. I touched on this earlier
when talking about passwords, but physical security goes much further than sticky notes. While many firms have tried to go paperless with cloud-based storage, the old four-drawer metal file cabinets hanging around in your storeroom are totally exposed. Take an inventory of exactly where you are vulnerable and begin to create practical policies around physical security. No one is saying to completely ditch the file cabinets, but you could do something as simple as locking the cabinets or storing your files in a secure location offsite.
Secure Everything Security is no longer just about guards, cameras and blindly hoping your wires don’t get crossed. You must pay attention, do your research and seek help from professionals. A data breach can make or break your life’s work, so you must take action and do everything you can to protect yourself and your clients. This issue is bigger than just you and your dayto-day activities. n
is chief information officer for Avalara. Prior to joining Avalara, Parker was director of application security at Microsoft, accountable for the overall risk management of its IT application portfolio. He also served as strategic security advisor and helped shape Microsoft’s enterprise application platform business architecture. In addition, Parker was a managing consultant for Shavilk Technologies, a senior security engineer and division manager for the National Security Agency, and has held several leadership roles in the United States Navy. Contact him at email@example.com.
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Today’sCPA July/August 2015
SPOTLIGHT ON CPAS
Meet … CPAs Over the Century
By Anne McDonald Davis
he story behind the Texas Society of CPAs’ 100year history is one that ultimately belongs to the CPAs who spent a century creating a profession and organization that is committed to ethics, competence and the public good. Meet a handful of those individuals. D.H. Kernaghan, CPA, the person considered the father of TSCPA, was actually a New Orleans boy who came of age during the Civil War. He honed his skills as a head bookkeeper in Jefferson, Texas, before heading for Fort Worth to open one of the first public accounting offices in the state. In the years ahead, Kernaghan would find himself in the thick of a movement started by another founding father of Texas accounting, William Preston Peter, CPA. Having established his firm in Dallas, Peter had begun organizing other prominent practitioners to create a legally defined identity for the profession from the Texas Legislature. It wasn’t an easy process, but the first accountancy act was passed in 1915 and Kernaghan became TSCPA’s first president (now called chairman). Peter was named to the first Texas State Board of Public Accountancy. Women made inroads into the profession early on, but not in great numbers. Mary Ethel Welborn, CPA, who was from Dallas, qualified for Texas certificate No. 219 in 1925. Her certificate was lettered in gold in recognition of its being the first issued to a woman in Texas. She would later establish her own accounting practice in partnership with Luke Bunyan Garvin, CPA, who had served as the Society’s president in 192526. The resulting firm was named Luke B. Garvin & Company, so apparently Welborn was “Company.” The firm would not bear her actual name along with other 18
partners until the World War II era. When Barbara DeBusk, CPA, passed the exam 21 years later, she and two other successful candidates brought the TSCPA female membership tally to … eight! Debusk recalls that the certificates issued at the time were preprinted as such: “This is granted to ___________ entitling him to practice as a Certified Public Accountant.” She had the impression that women weren’t being thought about very much yet in the profession by the powersthat-be at that time. Johnnie Ray Seale, CPA, was one of a small group of women practicing in Texas during the 1960s. The working mother of two attended night school to complete her college education. By the time the Society elected its first female chairman, Melanie Thompson, CPA, times had truly begun to change. “I never really experienced any bias … Clients were extremely open to working with me,” recalled Thompson. “The opportunities for women in this profession to be accepted and succeed are extraordinary.”
TSCPA’s incoming 2015-16 chairman is Allyson Baumeister, CPA. She is featured in this issue of Today’s CPA magazine. In contrast to diversity in TSCPA today, the Society didn’t have its first African American member until 1969. Milton Wilson, CPA, a brilliant African American, held a master’s and two doctorate degrees and was among the first African American CPAs in the entire country. Although his membership was stalled for several years while key Society decision makers debated the prevailing social climate, Society President Edwin Merriman, CPA, and his membership committee eventually broke through the covert racial barrier and invited Wilson plus two of his faculty to join. The gentlemen were gracious enough to accept, despite the delay. Recently, African American firm owner John Baines, CPA, commented: “As we look at where TSCPA is going, what kind of blueprint will we use? How can we make our Society match the greater Today’sCPA
society? They should look like one another. We will keep working until that day arrives.” TSCPA’s outgoing Chairman Mark Lee, CPA, remarked upon attending a recent swearing-in ceremony, “I looked into the audience and at the people crossing the stage to receive their certificates … and realized the richness and diversity the Texas accounting profession now has.” San Antonio CPA Carlos Barrera observed: “Today, it’s not your name or the color of your skin; it’s what you have upstairs. TSCPA has members who’ve proven that.” Obviously, an organization the size and scope of TSCPA has had countless extraordinary leaders and volunteers over the course of a century, many active on the national stage. Past NASBA Chairman and U.S. Representative Mike Conaway, CPA, commented: “Because we have so many CPAs (in Texas), the competition to lead helps bring us the very best. Making it to leadership at TSCPA is no small feat –
Today’sCPA July/August 2015
Texas is a great training ground. It produces really great people. The cream rises to the top.” Past NASBA Chairman Billy Atkinson, CPA, also observed: “(Volunteers) are the unheralded heroes of the past 100 years, the ones who never became chairman, who maybe never even chaired a committee. They were willing to step up and promote the success of the organization that we call the Texas Society of CPAs. I don’t undervalue our many fine leaders … but it starts with the army.” n
TODAY, IT’S NOT YOUR NAME OR THE COLOR OF YOUR SKIN; IT’S WHAT YOU HAVE UPSTAIRS. TSCPA HAS MEMBERS WHO’VE PROVEN THAT.
Editor’s Note: This spotlight article was compiled from information in the Society’s recently published anniversary book, TSCPA: 100 Years, A History, 1915-2015. In
— Carlos Barrera, CPA-San Antonio
addition to the many generous individuals who consented to be interviewed, major sources for that effort included James A. Tinsley, author of Texas Society of Certified Public Accountants: A History, 1915-1981, and Carl S. Chilton, Jr., CPA, who has written extensively on this organization’s history for decades. Please see his new article on page 34 of this Today’s CPA issue.
2015-2016 TSCPA CHAPTER OFFICERS Abilene Chapter
El Paso Chapter
San Angelo Chapter
Michelle A. Beaty, President
Paul Meza, President
Brianne Killam, President
Adelaide A. Odoteye, President-elect
Terri Rutter, President-elect
Cara D. Hilbrich, Vice President
James M. Caylor, Vice President
Rachael Jacoby, Secretary
Gerald A. Reid, Secretary/Treasurer
Joe F. Hernando, Vice President
Shane Wilson, Treasurer
Hugo Olivares-Acosta, Vice President
Austin Chapter Connie B. Clark, President Olivia Espinoza-Riley, President-elect Jennifer Brown, Vice President
Imelda A. Moreno, Secretary Jonathan W. Lucas, Treasurer
Fort Worth Chapter
Mark J. Goldman, President Charles T. Clark, President-elect Jan Edmondson Beverley, Vice President
Kate Rhoden, Vice President
Susan I. Adams, President
Kimberly A. Nourie, Vice President
Kristy K. Holmes-Hetzel, Vice President
Kelly R. Hein Jr., President-elect
Priscilla A. Soto, Vice President
Kimberly J. Chapman, Secretary/Treasurer
Brandon R. Booker, Vice President
Kathleen Dvorak, Secretary/Treasurer
Paul B. Matthews, Secretary/Treasurer-elect
Gregory A. Kubes, Vice President Amanda F. Johnson, Vice President
Brazos Valley Chapter James M. Larkin, President Amy N. Restivo, President-elect Lauren Chapman, Secretary Jennifer Mabe, Treasurer
Marianne G. Barry, Secretary/Vice President Michaela J. Cromar, Treasurer Norman B. Robbins III, Treasurer-elect
Houston Chapter Gerrad Heep, President
Central Texas Chapter Teri Lynn H. Meyers, President Angela M. Ragan, President-elect Nancy G. Miller, Vice President Lindsey Skinner, Secretary Sally W. Wolfe, Treasurer
Corpus Christi Chapter Jeffery Smith, President Misty G. Mata, President-elect Setal Patel, Vice President Kellie J. Shipley, Secretary/Treasurer
Dallas Chapter Arthur M. Agulnek, Chair William D. Schneider, Chair-elect Jose L. Luna, Treasurer William H. Sims, Treasurer-elect
East Texas Chapter Michael S. Thomas, President Kelly G. Noe, President-elect Royce E. Read, Vice President Veronda F. Willis, Secretary/Treasurer
Debra D. Seefeld, President-elect Sheila A. Enriquez, Vice President Stephen King, Secretary J. Ramsey Womack III, Treasurer Guadalupe R. Garcia, Treasurer-elect
Panhandle Chapter Selena R. Fogg, President Christopher M. Pace, President-elect Shannon Brittain, Vice President Karis C. Jesko, Secretary Lani V. Hall, Treasurer
Permian Basin Chapter Michael D. Dunlap, President Elena Levario, President-elect Aaron Estrella, Vice President Dâ€™Anne R. McNaughton, Vice President Doak R. Painter, Secretary/Treasurer
Rio Grande Valley Chapter Barbara J. Kremer, President Christopher Deaver, President-elect Nora C. Gutierrez, Vice President Bill Ruppert, Secretary Carol B. Collinsworth, Treasurer
San Antonio Chapter
South Plains Chapter Gregory L. Freeman, President Justin R. Pinkston, President-elect Jeffrey M. Norris, Vice President Justin R. Pinkston, Secretary/Treasurer
Southeast Texas Chapter Julia Hayes, President Joshua LeBlanc, President-elect Wendi C. Taber, Vice President Jane M. Whitfield, Vice President Melissa A. Staggs, Secretary Marylyn M. Byrd, Treasurer
Texarkana Chapter Carolyn A. Wilder, President Nikki Laing, President-elect Cynthia Young, Vice-President Kevin Barnhart, Secretary/Treasurer
Victoria Chapter Joshua K. Page, President John H. Neukomm, President-elect Kyle W. Noack, President-elect Nominee Andrew J. Merryman, Secretary/Treasurer
Wichita Falls Chapter James K. Rowland, President Shannon D. Adams, President-elect Monty Walker, Vice President Rosella Salinas, Secretary Ryan C. Cannedy, Treasurer Todayâ€™sCPA
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TAKE NOTE TSCPA Launches 100-year Anniversary Celebration
Renewing Your Membership
At the Annual Meeting of Members in June, TSCPA officially launched its centennial anniversary celebration. This milestone recognizes the 100-year anniversary of TSCPA and the accounting profession in Texas. The Texas Legislature created the Texas State Board of Public Accountancy in 1915 and TSCPA was created that same year. The first meeting was held in Fort Worth with 16 members. A century later, TSCPA’s membership totals nearly 28,000 people, with 20 chapters across the state.
If you haven’t already renewed your TSCPA membership, now is the time! TSCPA dues notices were sent out in April and paper statements were sent to members who had not yet renewed their dues by the end of May. You can access and update your records and pay your dues online at tscpa.org; don’t forget to consider our affiliate contributions, if applicable.
This milestone was reached due to the key qualities of the profession – public trust and integrity. CPAs have spent the last 100 years building a profession dedicated to ethics, competence and the public good.
Go to tscpa.org to learn more about …
You can read more about the history of the organization and some of the individuals who have contributed to the Society and the profession in the article on page 34 and the Spotlight on CPAs article in this issue of Today’s CPA magazine. n
TSCPA Recognizes 2015 Rising Stars TSCPA congratulates the 2015 Rising Stars honorees. The 18 honorees were selected by a TSCPA task force based on their contributions to the accounting profession and their communities. The 2015 Rising Stars include: • Kristy Holmes-Hetzel, CPA - Austin Chapter • Lindsey Skinner, CPA - Central Texas Chapter • Sharon Ellington, CPA - Dallas Chapter • Kelly Noe, CPA - East Texas Chapter • Royce Read, CPA - East Texas Chapter • Susi Barron, CPA - El Paso Chapter • Belen Briones, CPA - El Paso Chapter • Amanda Johnson, CPA - Fort Worth Chapter • Austin Carlson, CPA - Houston Chapter • Adam Dimmick, CPA - Houston Chapter • Jamie Klosterman Sanders, CPA - Houston Chapter • Sharon Taylor, CPA - Houston Chapter • Jimmy Hudson, CPA - Permian Basin Chapter • Josephine Behrend, CPA - San Antonio Chapter • Jan Beverley, CPA - San Antonio Chapter • Dustin Michalak, CPA - San Antonio Chapter • Marylyn Byrd, CPA - Southeast Texas Chapter • Ricardo Colon, CPA - Southeast Texas Chapter These members will be featured in the September/October 2015 issue of Today’s CPA. n 22
If you have a question regarding your member dues, please contact Member Services at 800-428-0272, option 1. TSCPA looks forward to continuing to serve you in the 2015-2016 year. n
What’s New On the TSCPA Website TSCPA’s Incoming Chairman. TSCPA’s incoming 2015-2016 Chairman Allyson Baumeister, CPA-Fort Worth, is highlighted. Go to About TSCPA on the right side of the homepage, then to Leadership, and scroll down and click on TSCPA Chairman. n
TSCPA Welcomes New Technical Editor forToday’s CPA Magazine TSCPA is pleased to announce that Brinn Serbanic, CPA-Central Texas, CFP®, accepted the position of technical editor for Today’s CPA magazine. She’ll be taking over for C. William (Bill) Thomas, Ph.D., CPACentral Texas, who retired from the position after having served as technical editor for more than 13 years. Serbanic is a practitioner at BKD LLP in Waco and an adjunct professor at Baylor University. She holds a master’s of taxation degree and a bachelor’s of business administration from Baylor University. Serbanic has been an active member of the Society’s Editorial Board for several years and was named a TSCPA 2014 Rising Star. The technical editor’s responsibilities include soliciting technical material for Today’s CPA, reviewing and processing completed manuscripts, evaluating the editorial content, and maintaining contact with authors. If you or someone in your organization would like to submit an article for consideration in Today’s CPA, have an idea for a potential article or would like to receive our editorial guidelines, please contact Serbanic at Brinn_Serbanic@baylor.edu or managing editor DeLynn Deakins at firstname.lastname@example.org.
Dr. Bill Thomas retired as the technical editor for Today’s CPA magazine effective at the end of May. TSCPA recognizes and thanks Dr. Thomas for his many years of exemplary service to the magazine.
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TSCPA thanks our sponsors for their generous this year TSCPA thanks our sponsors forsupport their generous support this year as TSCPA we honor andour celebrate Society’s rich 100-year history thanks sponsors for their generous support this year as we honor and celebrate the Society’s richthe 100-year history and ourand dedicated professional community. as we honor celebrate the Society’s rich 100-year history and our dedicated professional community. and our dedicated professional community.
A thanks our sponsors for their generous support this year SILVER SPONSORS CENTENNIAL SPONSORS we honor and celebrate the Society’s rich 100-year history Susan Adams – Huselton Morgan & Maultsby P.C. Financial Executives International – Texas Chapters and our dedicated professional community. S ILVER S PONSORS CENTENNIAL SPONSORS SBilly ILVER PONSORS CENTENNIAL PONSORS M. S Atkinson, CPA Jackson Walker S LLP Susan Adams –P.C. Huselton Morgan & Maultsby P.C. Financial Executives International – Texas Chapters Susan Adams – Huselton Morgan &Davis Maultsby Financial Executives International – Texas Chapters Davis & LLC – Sales Tax Experts Billy M. Atkinson, CPA Jackson Walker LLP SILVER SLLP PONSORS NIAL SPONSORS DIAMOND SPONSORS Billy M. Atkinson, CPA Jackson Walker John Eads, CPA Susan Adams – Huselton Morgan & Maultsby P.C. ancial Executives International – Texas Chapters Davis & Davis LLC – Sales Tax Experts Goodman Financial CorporationDavis & Davis LLC – Sales Tax East Texas Chapter of Texas Society Billy M. Atkinson, CPA kson Walker LLP Experts DIAMOND SPONSORS John Eads, CPA Davis & Davis LLC – Sales Tax Experts Gray Reed & McGraw P.C. of Certified Public Accountants DIAMOND SPONSORS Goodman Financial Corporation John Eads, CPA D SPONSORS John Eads, CPA East Texas Chapter of Texas Society Sanford Baumeister & Frazier LLP Joe Joyce, CPA odman Financial Corporation East Texas Chapter of Texas Society Gray Reed & McGraw P.C. Goodman Financial Corporation of Certified Public Accountants East Texas Chapter of Texas Society ay Reed & McGraw P.C. of Certified Public Accountants Weaver Mondrik & Associates Sanford Baumeister & Frazier LLP nford Baumeister & Frazier LLP Joe Joyce, CPA Joe Joyce, CPAP.C. Gray Reed & McGraw of Certified Public Accountants Jim Oliver & Associates P.C. aver Mondrik & Associates Weaver Mondrik & Associates PLATINUM SPONSORS Jim Oliver && Associates P.C. LLP Sanford Baumeister Frazier Lisa M. Ong, CPA Joe Joyce, CPA M SPONSORS Jim Oliver & Associates P.C. Lisa M. Ong, CPA BKD LLP Stephen CPA and Karen C. Phillips, CPA D LLP Weaver Stephen R. Phillips, CPA and Karen C. Phillips, CPA PLATINUM SPONSORS Mondrik & Associates LisaR.M.Phillips, Ong, CPA Briggs and Veselka Co. ggs and Veselka Co. Rudy Q. Ramirez, CPA Rudy Q. Ramirez, CPA CPA and Karen C. Phillips, CPA BKD LLP Stephen R. Phillips, nn S. Kupper, CPA Jim Oliver & Associates P.C. John and Carolyn Sharbaugh Lynn S. Kupper, CPA John and Sharbaugh Briggs and Veselka Co. mian Basin Chapter of Texas Society South Plains Chapter of Texas Society RudyCarolyn Q. Ramirez, CPA PLATINUM SPONSORS PermianLynn Basin of Texas Lisa Society of Certified Public Accountants M. Ong, CPA of Certified Public Accountants SouthJohn Plains Chapter ofSharbaugh Texas Society S. Chapter Kupper, CPA and Carolyn iversity of the Incarnate Word Mr. and Mrs. Robert J. Sweeney BKD LLP of Certified Public Accountants R. Phillips, CPA and Karen C. Phillips, CPA Permian Basin Chapter ofStephen Texas Society of Certified Public Accountants South Plains Chapter of Texas Society Victoria Chapter of Texas Society PONSORS UniversityofofCertified the Incarnate Briggs and Veselka Co.Public Accountants PublicWord Accountants of Certified Mr. and of Mrs. RobertPublic J. Sweeney Rudy Q. Ramirez, CPA Certified Accountants ndley and Company LLP Carol Warley, CPA University of the Incarnate Word Texas Society vis Kinard & Co., P.C. – Abilene, Haskell, Lynn S. Kupper, CPA Mr.Chapter and Mrs.ofRobert J. Sweeney Donna Holliday Wesling, CPA John and Carolyn SharbaughVictoria GOLD SPONSORS lainview and Seymour of Certified Public Accountants Victoria Chapter of Texas Society y Kelley, CPA PLLC/Dutton, Harris & Co.Permian Basin Chapter of Texas Society Condley and Company LLP South Plains Chapter of Texas Society G OLD S PONSORS Carol Warley, CPA Public Accountants dgett, Stratemann & Co., LLP of Certified of Certified Public Accountants & Co., – Abilene, Davis Kinard Condley andP.C. Company LLPHaskell, out, Barrett & Co., P.C. of Certified Public Accountants DonnaCarol Holliday Wesling, Warley, CPA CPA itley Penn LLP Plainview and Seymour & Co., P.C. – Abilene, Haskell, Davis Kinard University of the Incarnate Word Mr. and Mrs. Robert J. Sweeney Donna Holliday Wesling, CPA Billy Kelley, CPA PLLC/Dutton, Harris & Co. Plainview and Seymour of Texas Society Padgett,Billy Stratemann & PLLC/Dutton, Co., LLP Victoria Kelley, CPA HarrisChapter & Co. GOLD SPONSORS Ridout, Padgett, Barrett &Stratemann Co., P.C. & Co., of LLPCertified Public Accountants Condley and Company LLP WhitleyRidout, Penn LLP Barrett & Co., P.C.Carol Warley, CPA Davis Kinard & Co., P.C. – Abilene, Haskell, Whitley Penn LLP Donna Holliday Wesling, CPA Plainview and Seymour Billy Kelley, CPA PLLC/Dutton, Harris & Co. Padgett, Stratemann & Co., LLP Ridout, Barrett & Co., P.C. Whitley Penn LLP
CGMA Designation: More About the Exam AICPA and the Chartered Institute of Management Accountants (CIMA) created the Chartered Global Management Accountant (CGMA) designation. It is a global designation that recognizes U.S. CPAs and CIMA members who work in management accounting roles. All candidates for the CGMA designation are now required to pass a comprehensive exam. The CGMA exam is a computerized case study testing a candidate’s readiness to apply management accounting knowledge in real-world business situations. It assesses theoretical knowledge and the ability to apply that knowledge in an open-ended format. Exam takers are given a data set and industry information about a hypothetical organization seven weeks in advance of the testing date. This material is available to download up until the last day of the exam window. The three-hour exam is available four times a year during five-day testing windows. To register, call AICPA at 888-777-7077. The exam fee is $325, payable at the time of scheduling and registration. Visit CGMA.org/exam to learn more. Today’sCPA July/August 2015
Accountants Confidential Assistance Network Seeks Volunteers The Accountants Confidential Assistance Network (ACAN) program befriends a number of CPA candidates around the state as part of the ACAN peer assistance program. The program assists Texas CPAs, CPA candidates and/or accounting students who are dealing with alcohol, chemical dependency and/or mental health issues. Can you help? Please contact Craig Nauta at 800-428-0272, ext. 238; 972-687-8538 in Dallas; or at email@example.com. On behalf of John B: this is a 12th man doing a 12th step. n 23
Disciplinary Action As a result of a decision by a hearing panel of the Joint Trial Board, the following member had his TSCPA membership: Expelled – • Charles R. Massie of Plainview was found guilty of violating Article III, Section (8)(d) of the TSCPA Bylaws for failure to cooperate with the Professional Ethics Committee in an investigation. The expulsion is effective June 18, 2015. n
The following people have had their membership in TSCPA suspended by the Executive Board for a period of three years for non-compliance with TSCPA Bylaws Article III, Section (4A) (1) for non-compliance with the Texas State Board of Public Accountancy’s continuing professional education requirements. • Harish D. Dand, CPA, Arlington • Douglas C. Nash, CPA, Dallas • Shelly Gazaway Sanders, CPA, San Antonio • Mark E. Steakley, CPA, Houston n
The following people have had their membership in TSCPA expelled by the Executive Board under TSCPA Bylaws Article III, Section (4B)(1). This action was a result of the revocation of their CPA certificate by the Texas State Board of Public Accountancy. • Louis J. Buytendorp, Scotts, Mich. • Robert Lantz Deering, Houston • David Lay Doss, Houston • Verland Eugene Hosey, Plano • Pat C. McBride, Bellaire • James Henry Simpson, III, Danville, Calif. • Kenneth White, Houston n
GR WTH It’s what the CGMA designation stands for ®
Officially, it’s Chartered Global Management Accountant . Established by AICPA and CIMA, two of the world’s most prestigious accounting bodies, the CGMA designation represents accomplished professionals who drive and deliver business success, worldwide. Find out more at cgma.org
13085-312 CGMA/State Soc CoBrand Ads_HalfPage.indd 1
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2016-2017 LEADERSHIP NOMINATIONS The nominations process is one of the most important activities affecting the success and future of the Texas Society of CPAs. Your input is vital! I urge you to complete this form and return it by August 1, 2015. The Nominations Committee members are: Keith Reeger, Vice Chair, Connie Clark, Carol Collinsworth, Phil Davis, Mark Goldman, Kelly Hein, Gail Neely, Royce Read, Teri Reinert, Ken Sibley and Lei Testa. They are not eligible for consideration for any positions for which they are nominating.
TSCPA Position Statement on Campaigning: Organized letterwriting campaigns and/or other methods of electioneering are NOT encouraged. Communiques from the general membership should not be sent to individual members of the Nominations Committee, but rather to the chairman of the Nominations Committee, in care of the TSCPA office in Dallas.
Please send your completed form to: Nominations Committee, TSCPA; 14651 Dallas Parkway, Suite 700, Dallas, TX 75254-7408; Attention: Ali Allie, Staff Liaison; or by email at firstname.lastname@example.org; or by fax: 972-687-8602. Mark D. Lee, Nominations Committee Chair
Nominated by: Chapter: City/State: Email:
Chairman-Elect 2013-2014 Mark D. Lee
Houston 2014-15 Chairman
2013-2014 James R. Oliver, Jr.
San Antonio 2014-2015 Treasurer
2013-2014 Susan S. Roberts Fort Worth
2014-2015 Allyson B. Baumeister
2015-2016 Kathryn W. Kapka
2014-2015 Roxie Samaniego
2015-2016 Jesse Dominguez
2014-2015 Melanie C. Geist
2015-2016 Mitchell G. Perry
El Paso 2015-2016 Treasurer
Austin 2016-2017 Treasurer
(Three-year term ending 2014-15)
Kathryn W. Kapka
(Three-year term ending 2015-16)
(Three-year term ending 2016-17)
Christi Mondrik Austin
Randy L. Crews Rio Grande Valley
Jerry D. Spence Corpus Christi
Toni McBee Joyner Brazos Valley
Randy L. Crews Rio Grande Valley
Edith T. Cogdell San Antonio
Jerry D. Spence
Toni McBee Joyner
(Three-year term ending 2015-16)
(Three-year term ending 2016-17)
Ryan Bartholomee Permian Basin
Kirby H. Jackson, Jr. Dallas
Susan J. Spillios Houston
Stephen G. Parker Houston
Joan E. Schwartz
William J. Kelley
Benjamin C. Simiskey Houston
(Three-year term ending 2014-15)
Christi Mondrik (Three-year term ending 2015-16)
2013-2014 Appointed Ryan G. Bartholomee Permian Basin
Todayâ€™sCPA July/August 2015
(Three-year term ending 2015-16)
(Three-year term ending 2016-17)
David E. Colmenero Dallas
Includes six Executive Board members for staggered terms. Four current members have unexpired terms. Two members for three-year terms will be selected by the Nominations Committee. Three members will be appointed by Chairman-elect Kathy Kapka for a one-year term, 2016-2017. The TSCPA executive director/CEO also serves as an Executive Board member.
Michael L. Brown
East Texas 2016-2017 Chairman
Fort Worth 2015-16 Chairman
Executive Board Members
Fill in nominations below:
Fill in nominations below:
Three-year term (ending 2018-2019)
(Three-year term ending 2018-2019)
(Three-year term ending 2016-17)
(Three-year term ending 2017-18)
(Three-year term ending 2017-18)
John E. Baines Dallas
2016-2017 LEADERSHIP NOMINATIONS Directors-At-Large Terms Expiring 2016
Terms Expiring 2017
Terms Expiring 2018
Jennifer M. Fox
C. Wayne Barton
Michelle R. Downs
Michael L. Brown
Thania D. Gonzalez
Jason B. Freeman
Royce E. Read
Charlotte M. Jungen
Kelly R. Hein
Carol S. McIntosh
Benjamin C. Simiskey
Carol B. Collinsworth
Marshall K. Pitman
Blaise C. Bender
Anthony B. Ross
Wendi C. Taber
Joan E. Schwartz
Phillip C. Davis
Michael W. Young
Sheri K. DelMage
East Texas El Paso
Fort Worth Houston Abilene
Rio Grande Valley San Antonio Austin
San Angelo Panhandle
Central Texas Dallas
Rio Grande Valley San Antonio
Rio Grande Valley Central Texas
Nominations Committee Member
Members of the Committee on Nominations shall have been members of the Society for at least five years and may not serve two succeeding years. Terms Expiring 2015 William Hornberger, Chair Dallas E. Leroy Bolt, Vice Chair Abilene James M. Larkin Brazos Valley Sally W. Wolfe Central Texas Koshy Alexander East Texas Kym Anderson El Paso
Matthew G. Malcom Austin Terri E. Hornberger Dallas Susan I. Adams Fort Worth Benjamin C. Simiskey Houston Martha C. Perez San Antonio Fred J. Timmons San Antonio
Terms Expiring 2016 Mark D. Lee, Chair Houston Keith Reeger, Vice Chair South Plains Connie Clark Austin Phil Davis Permian Basin Mark Goldman San Antonio Kelly Hein Fort Worth
Gail Neely Houston Royce Read East Texas Teri Reinert El Paso Ken Sibley Dallas Carol Collinsworth Rio Grande Valley Lei Testa Fort Worth
Ten members represent Texas. Three-year terms plus one one-year designee. The current TSCPA chairman-elect automatically fills the one-year designee vacancy, and the current TSCPA chairman automatically fills one of the three-year vacancies for AICPA Council. Terms Expiring 2015 Jean M. Hobby Dallas (Board member) James A. Smith Dallas Tracy B. Stewart Brazos Valley Donna H. Wesling Austin David A. Jentho Houston (At-Large Member) Mark D. Lee Houston (One-year designee) 26
Terms Expiring 2016 E. Leroy Bolt Abilene Dora J. Dyson Central Texas Stephen G. Parker Houston Fred J. Timmons San Antonio Allyson B. Baumeister Fort Worth (One-year designee)
(Terms expiring 2019)
Fill in nominations below:
Terms Expiring 2017 William H. Hornberger Dallas Kenneth D. Sibley Dallas Lei D. Testa Fort Worth
Fill in nominations below: (One-year term)
(Term expiring 2017)
Fill in nominations below: (Terms expiring 2019)
Terms Expiring 2018 Mark D. Lee Houston Jim Oliver San Antonio William L. Reeb Austin Permanent Member: B.Z. Lee Houston
$200 CPA Occupations Tax Repealed
By Bob Owen, CPA | TSCPA Managing Director, Regulation and Legislation
SCPA had a successful 2015 legislative session, which ended June 1, 2015. The biggest news was the repeal of the $200 professional occupations tax on all professions, including CPAs. Each year when you renew your license to practice, you pay a $200 so-called “professional fee” that is really a tax that goes directly into the state’s general fund. That’s in addition to the license fee used by the Texas State Board of Public Accountancy to administer the accountancy act and the CPA examination. The repeal was a joint effort by all the regulated professions. It was passed in two separate bills in the House. The repeal was finally achieved in House Bill 7 in the very last days of the session with little fanfare and no press coverage despite it being over $200 million in tax relief. The headlines were about the larger $3.8 billion tax relief bills reducing franchise taxes and increasing the school property tax exemption. The franchise tax rate was reduced by 25 percent, effective with the next franchise tax returns. The EZ tax rate was also reduced from 0.575 percent to .331 percent, while the threshold for EZ tax qualification was increased from $10 million to $20 million. The school property tax exemption was increased from $15,000 to $25,000, giving the average homeowner about $125 in tax relief. Whether a homeowner’s taxes actually go down will depend on home appraisals and local school district tax rates, but at least school property tax increases will be less. TSCPA was also successful in seeing its proposed legislation pass on the last day possible. TSCPA suggested a bill to eliminate redundant
filing requirements by limited partnerships and professional associations. Those entities were required to file periodic reports with the secretary of state to keep their right to do business in Texas. This requirement was passed long before these entities had to file franchise tax returns. TSCPA pointed out that these entities could include the required information on the franchise tax return and the other reports could be eliminated. The secretary of state and state comptroller agreed. CPAs and TSCPA members Rep. John Otto and Sen. Charles Perry were the authors and sponsors, and they were successful in passing the legislation. TSCPA was also effective in preventing the passage of legislation that might have negatively impacted CPA regulation. Several bills were offered that would have given non-CPAs the opportunity to challenge the requirement that only CPAs perform certain services. Another bill was filed designed to challenge professional licensing in general. None of these bills made it to the floor of either the House or Senate for debate. TSCPA had a successful session thanks to the CPA volunteers who served as bill reviewers, key persons and those who gave to our political action committee. All of you other CPAs out there should give those volunteers your sincere thanks for their good work. n Bob Owen, CPA
is TSCPA’s managing director of regulation and legislation. Contact him at email@example.com.
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Learn more at www.woodwayfinancial.com or call 713-683-7070. From left standing: Judy Bozeman, Donnie Roberts, Allen Lewis and Michael Ringger From left seated: Bill Cunningham, Maureen Phillips, Rick Morales and Tom Williams Today’sCPA July/August 2015
10000 Memorial Drive, Suite 650 • Houston, Texas 77024 firstname.lastname@example.org 27
Allyson Baumeister, CPA-Fort Worth, is serving as TSCPA chairman during the Society’s centennial anniversary year
For 2015-2016 Chairman Allyson Baumeister, CPA-Fort Worth, it’s all about relationships
By Anne McDonald Davis
o many of Allyson Baumeister’s friends are CPAs that she’s a little worried. “At one point I actually wondered, is this bad; does this mean all I do is work?” muses TSCPA’s incoming chairman. “I decided no. It’s because CPAs are awesome people.” Below, Baumeister shares her journey with Today’s CPA, elaborating on just why she considers so many of the CPAs she’s met to be “great humans” and how that has shaped her outlook on the profession, as well as her approach to work and volunteerism. She will serve as chairman during TSCPA’s centennial anniversary year. Q: You’re a partner at Sanford, Baumeister & Frazier, LLP in Fort Worth and have worked for many types of CPA firms. Why did you choose a career in public accounting? A: I took accounting as a high school senior. I went to a little bitty high school and we didn’t have very many electives. (chuckles) So there were not a whole lot of choices for me to pick from as a senior, and they had accounting. I thought, well, why not? That sounds interesting. I like math. A lot of kids think math and accounting go hand in hand. So I took accounting … and I fell in love with it. I loved the preciseness of it, the organization. I was really good at that. So I decided I’d major in accounting when I went to college. One of my parents’ best friends, Bill Armstrong, was a CPA in public practice with Armstrong, Backus & Co. in San Angelo, Texas, where I’d grown up. He talked to me about being a CPA. I remember asking him, “Will this be a good profession for a woman, for me?” Looking back, it’s a little surprising to me that he said “yes” because there were not very many women in the profession back in 1981. Still, he said, “It would offer you a lot of flexibility.” At the time, I thought I would be a lot like my mom – I would graduate from college, get married, have a job for a while, and then I would have kids, quit my job and be a stay-at-home mom, perhaps going back into the workforce when my kids started school. I just kind of assumed that would be my life, and I thought accounting would be flexible and would allow me to be able to do that. That’s not quite what happened.
Today’sCPA July/August 2015
Q: But did an accounting career give you the flexibility to deal with what did happen in your life later on? A: It did. It’s still a flexible profession today, one that allows people to do all kinds of work in all kinds of ways and places. Q: And the specific choice for public accounting? A: When I graduated, the Big Eight CPA firms were the only ones interviewing on the A&M campus. The man I was going to marry had moved to Fort Worth, so that’s where I started my career with Arthur Andersen. I graduated in December, got married in May and then started at Arthur Andersen in July. For those months in between, I worked my first “busy season” at Armstrong, Backus & Co. I’d already worked one summer during college for them, and they invited me to come back, knowing full well I would be there for less than five months. Looking back, that was very generous, knowing that I was totally green, and they’d be training me and I wasn’t even staying. They were just giving back to the next generation. Really cool! I have stayed in public accounting my entire career. Once, about two years in, I was getting burned out. I thought, “Man, this is really hard. Maybe I ought to go look out in industry and see what else might be there.” So I interviewed for a couple of industry jobs and I thought, ugh, this just doesn’t sound like me. Q: Not a fit? A: Not a fit for me. Q: I’ve heard that paying your dues with one of those big firms can be a real pressure cooker. A: Yes, absolutely. On the good side of that, though, is I learned a whole lot in a concentrated amount of time. You know, I’ve argued that I worked at Arthur Andersen for four years, but I probably got five to six years of experience in that time. They did a really, really good job of making, encouraging, forcing … however you want to (laughs) look at it … their folks to work at or above their capability. So you learned very quickly. continued on page 30 29
FEATURE continued from page 29 Photographs © Scott Williams, ScottWilliamsPhotography.com
Allyson Baumeister and her husband Rick Baumeister, CPA-Fort Worth
They didn’t handhold you – they pushed you to take giant leaps, not baby steps. And it worked. Now, that did create an atmosphere of “only the strong survive,” but that part didn’t scare me. It was just the rest of the culture that wasn’t for me. That’s why I left to start my own firm. Q: Was gender a factor? A: It really wasn’t. I’ve spoken about this before. I was not in the first group of leading-edge women in the profession, more in the second wave. The women about 10 years ahead of me really took the brunt of the gender stuff. Q: And now the profession is about 50/50 men and women. A: Time flies so fast. I can’t believe I’ve been doing this for more than 30 years. I just finished my 31st spring tax season, and that blows my mind. I remember being young and hearing “old folks” talk about 30 years and thinking, “That’s so far in the future.” And now it feels like all I did is blink, and I’m already there. It’s kind of like when you live with your young kids and you don’t think they’re growing … but then you go on vacation for a week or two and come back and all of a sudden, they look different. That’s kind of the way I feel about women in our profession. I was living it, so I don’t really remember the bumps in the journey until reminded. Q: Blatant sexist behavior is more of an aberration now. A: Absolutely! However, I had an experience about four years ago, not in the accounting world. I was in a social club in downtown Fort Worth when a man behaved poorly to a group 30
of women, most of whom were much younger than I. They were appalled. I asked, “Have you guys never experienced this?” Most were about 40. And they said, “No, never.” For me, it was such an affirmation of how far we’ve come. These women had been in the workplace over 20 years, and this was a foreign experience. So to me, that was huge – like this light bulb going off in my head. We have four female partners in our firm. I was the first female partner in a medium-sized Fort Worth firm, and that was 15 years ago. Our young folks who come to us now say, “Y’all just don’t realize how unique this firm is. We can be anything we want to be here. There are no limitations for us.” I’m glad, very glad, that I’ve helped create an environment where people can feel that way. Q: What do you find to be the other rewarding aspects of your career? A: Again, people. I feel lucky every day to work with our team. Everybody I’ve worked with has made me better in some way, even the challenging ones. You learn something from that too. And right now – you know, it may be a cliché – but we have the best team we’ve ever had. We just have a great group of people, and that makes it exciting to come to work every day. I made a promise to myself that if I ever had my own firm, I would not work for clients who I didn’t like and who didn’t share the same values. I’ve kept that promise. Most of my best friends are my clients and the people I work with. That is absolutely the best part of my job. It’s all about people. continued on page 32 Today’sCPA
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Photographs © Scott Williams, ScottWilliamsPhotography.com
FEATURE continued from page 30
Natalie Baumeister and Bobby Baumeister
Q: You have been a TSCPA member for more than 25 years, chairing and serving on a number of statewide committees, as well as on the Board of Directors. You have also served in executive leadership roles in the Fort Worth Chapter, including chapter president, and in roles with the American Institute of CPAs. Why is service in these organizations so important to you, and what has been the impact on you professionally? A: You know, the Fort Worth Chapter asked me to speak to its board recently on this very topic. I had to think about why … as you said, I’ve been doing this a long time. It’s become who I am, and I think that it’s the same for a lot of CPAs. I don’t know if it’s just part of our makeup; maybe a lot of the same type of people are drawn to this profession. I see CPAs of all generations who have this strong desire to give back. For me, some of this goes back to my parents. They gave back to their community and their church. My mom and dad are two of the most generous people I know, so I think that’s where it started. I learned young that you’re supposed to be generous with not just your money, but your time and your expertise. Also, in my very first job with Arthur Andersen, when I passed the CPA exam, they all said, “OK, you now need to sign up for membership in the Texas Society and AICPA.” It was just a given. My supervisor also said, “Now, we need to get you involved in the Fort Worth Chapter, and I don’t mean just being a member. I mean get you on a committee and get you involved.” And I’m like, “OK, what do I do?” I was 24 years old. Once I started (to volunteer), that was it. I’ve had something of an overachiever attitude all my life. (laughs) If I join something, I feel like I’m supposed to make it to the top. I’m not going to just become part of something for a minute; I’m going to stay and give it all I can give until I’ve done everything I can. That’s been my mindset from day one, and I’ve loved it. 32
Bill Armstrong was also responsible for getting me involved at the Texas Society. When I was 26, Kerry Balthrop (Andersen colleague) and I went out and formed our own firm. Bill was so proud. He watched me grow up. He went to high school with my parents, so he’s known me from the day I was born. His daughter lived in Fort Worth, so one of the times he was in town, he just dropped by our office to see it. While he was there visiting, he said, “You need to get involved in the Texas Society,” and I said, “Well, how do I do that?” He said, “Hang on.” And he picked up the phone and called Jim Smith, former chairman of TSCPA, and asked him to add me to a committee that they served on together. So that’s how I got involved. It took people informing me, inviting me. I’ve always loved what we do, what we stand for, how we help our members. Volunteering outside of the profession is the same kind of thing. It’s amazing how many organizations need a treasurer. (laughs) Nobody wants to be treasurer! So we kind of have a built-in seat on the board anywhere we are. I’ve been on the board of the Fort Worth Chamber of Commerce for many years. I started on the finance committee and worked my way up to treasurer. I was the first woman treasurer, still the only woman treasurer, and the second woman officer. So that has been a phenomenal experience, as well. I’ve learned so much about the Fort Worth community. In fact, I feel I’ve learned so much more than I ever gave back in any of these situations. Everything I learned being on the AICPA board … oh my gosh. I kept pinching myself when I’d sit in those rooms, wondering how I got there. I feel all of my volunteer experiences have certainly made me a better mom and a better partner in my firm. I can’t imagine a time in my life that I won’t be volunteering for something. It’s just too much a part of who I am. After this next year, I’m excited about the opportunity to volunteer for different things, maybe organizations that help children. Today’sCPA
Q: What other types of activities are you involved with as a professional? I understand that you have traveled through several states presenting a seminar for CPA firm owners and provide financial guidance for professional groups in your local area. How did that come about? A: I’m not doing that currently, but back when I was on the PCPS (Private Companies Practice Section) committee, AICPA asked some of us if we would be willing to volunteer as speakers. Bill Reeb, who is also from Texas, developed an eight-hour course for public practitioners on being a trusted business advisor to their clients. It was a combination of me sharing my experiences and videos from Bill and others in the profession. Then the participants got to actually practice having conversations with their clients. It was one of the more unique things that I’ve ever done and I learned so much from it. I’ve also participated in the Society’s financial literacy program, speaking to different kinds of companies. One, I remember, was an engineering firm, and the owner of that firm wanted me to talk specifically about some things like leasing a car versus buying. He had noticed that some of his employees were driving BMWs and sports cars, and he knew that they could not afford those on what he was paying them. Another company had mostly lower income employees and they wanted me to talk about how to reduce and minimize credit card debt. Also through many strategic planning retreats from the Fort Worth Chapter, TSCPA and AICPA, I learned skills that I was able to take back and use in my firm. In the last year, I’ve had two large strategic planning retreats with my clients to help them develop more structure inside their companies, some accountability programs for their employees and to help add to their bottom line. When you get to help a business be a better business, that’s just a huge, rewarding feeling. Q: Your husband Rick Baumeister, CPA-Fort Worth, is managing partner at Sanford Baumeister & Frazier and you have four children. Tell us a little about your personal life and interests. A: Well, my husband’s the best guy in the world. I told him the other day he’s probably the only man who could be married to me. (laughs) And he’s also my business partner. A lot of people think that’s odd. They don’t know how we can work together and live together, and … it’s not that hard. We were partners for quite a while before we were married, so we had the partner thing down. We do take it home every now and then, but it’s usually when there’s something big and exciting that’s going on. And Rick’s my biggest cheerleader. He’s awesome, a huge supporter of anything like this (serving as TSCPA chairman) that I want to do. In fact, all of my partners are. I remember when a fellow volunteer called me and said, “Would you be willing to be nominated for this?” I had been saying “no” for a while because our kids were young and they were in school. And Rick and I had made an agreement – he had also been asked – that we didn’t want to be gone that much when our kids were home. We both also knew that it might mean we would lose out on the opportunity, because it might just pass us by. That was OK, since our kids were very active in a lot and we didn’t want to miss those things. Today’sCPA July/August 2015
We are huge proponents of being part of their lives and letting them know we were there when they wanted us. Q: Now they’re out of the nest and you accepted the nomination. What are they up to as you embark on this new adventure? A: They are all very different. We are a blended family, but they are our kids. Natalie Baumeister is 24. She graduated from TCU in 2013 with a finance/real estate degree. She lives in Dallas, works for First Western Title, is having a blast and loving life. You know, parents’ best hope is that their kids are happy. It is awesome that all of our kids are happy at the moment. Parker Turner is 22, and he is a senior at Texas A&M. He’s majoring in agricultural economics and will graduate in May of ‘16. He also has his own business, so he’s just kind of ready to get out and start the next chapter of his life. Bobby Baumeister is 20, a junior at TCU and our only accounting major. He will start in the fall as a member of the business school in the accounting program. He plans on getting his master’s degree and then sitting for the exam. At least, those are his plans today. (chuckles) He currently works for a small CPA firm in Fort Worth during the summer and holidays, and loves that. And they love him. Our youngest is Reed Turner. He is 19 and currently doing what everybody is very jealous of – participating in the International Wilderness Leadership School. He started in January in Nevada and Utah, and now he’s in Alaska for the rest of the time. He has attained his wilderness EMT certification, and now he’s doing mountaineering, backpacking, canyoning, whitewater rafting and rock climbing. It’s the coolest thing ever. He’s having the time of his life. And then he’ll start his next chapter in September. I’m not sure what that’s going to look like, but probably not in the state of Texas. He may be our one kid who won’t be a Texan. They’re all super bright, unique, incredible young adults, and I’m lucky to know them all. Q: On that happy note, do you have a favorite story from your years in the profession? At this point in the interview, Baumeister leans back to ponder what to share. Of the stories she told, the one about her staff finding a way to cope during busy season will probably resonate with many CPAs. It seems that a couple of years ago, she and several from her firm stepped back from the furor to host an event for the firm’s professional women contacts and referral sources at an outside venue in downtown Fort Worth. Then they headed back to the office to hit the bricks again. A: There were about four of us, including me and one of my partners, Susan Roberts. We were carrying leftover food for the troops. When we stepped off the elevator into our office, we saw three tax associates pretty busy not preparing tax returns. One was actually riding a bicycle around our lobby. Another was standing and actually eating popcorn while watching the show! The last, the actual owner of the bike, was so trying to look innocent and not a part of this adventure. Of course, it was his idea. The look on their faces when we walked in was worth much more than the price of admission. There was this slight pause in the festivities while they waited for our reaction. We, of course, just burst out laughing as hard as we could. It was the perfect stress reliever! n 33
Texas State Board of Public Accountancy – The First Board of Directors, 1915. Left to right: Milton Morris, CPA, Austin; Edward J. Archinard, CPA, Fort Worth; Harry V. Robertson, CPA, Amarillo; E. F. Hunter, CPA, San Antonio; and W. P. Peter, CPA, Dallas.
TSCPA Looks Back at
Years of History 34
By Carl S. Chilton, Jr.
he year 2015 recognizes our 100th anniversary, a significant occasion in the life of the Texas Society of CPAs (TSCPA). We are now an organization with some 28,000 members and 20 chapters around the state. This is quite a change from that day in October 1915 when 16 accountants gathered in Fort Worth and organized TSCPA. In the early 1900s, there were few accountants in Texas. There was little in the way of commerce or industry. But within a few years, railroad transportation came into existence, and businesses began to develop in the fields of cotton, cattle, lumber and oil. The larger cities saw the establishment of banking, and wholesale and retail distribution of goods. This created a need for accounting services and the first public accounting practices were established. There was no CPA law in Texas, and anyone could provide accounting services. The number of accountants slowly increased, and the Texas Legislature passed the Public Accountancy Act of 1915. The Texas State Board of Public Accountancy (TSBPA) was established, with five members. Accountants who had been in practice three years could become a CPA by waiver. This was a popular way to become a CPA, and 50 waiver certificates were issued, including waivers to the five members of the State Board. The TSCPA Accountancy Museum has in its collection a copy of the Public Accountancy Act of 1915, as well as Texas CPA certificate number two, issued to H. V. Robertson of Amarillo. The first CPA exam was given in July 1915. Exam questions were prepared by State Board members. D. H. Kernaghan was elected the first president of TSCPA. He had been a bookkeeper in Jefferson, Texas, then moved to Fort Worth and opened one of the first public accounting offices in Texas. Those early-day CPAs were described as tough, ambitious and very territorial. They were suspicious of their colleagues and found it difficult to work together. TSCPA made little progress in the early years, but slowly that began to change. By the end of the 1920s, the Society had about 80 members and began developing a code of ethics and a program of communicating with the public. TSCPA struggled through the Great Depression of the 1930s. In 1933, total receipts were $827 and delinquent dues were nearly double that amount. Delinquent members were supposed to be dropped, but it was decided that if that were enforced, there would be “very few members.” Annual meetings in the 1930s attracted some 50 members. The 1940s would see the beginning of growth, especially after World War II. National firms began to establish offices in Texas, raising the profession’s public profile. A significant event was the passage of the Public Accountancy Act of 1945, which limited the practice of public accounting to CPAs and “registered public accountants.” Non-CPAs who had been practicing were permitted to continue, and the number of registered public accountants greatly exceeded the number of CPAs. The late 1940s and 1950s saw further growth and recognition of the profession, along with some controversies and problems. Today’sCPA July/August 2015
The legal profession contended some CPA work in the tax field consisted of practicing law, especially in regard to estate tax work. This controversy continued for several years before a settlement was reached. Registered public accountants made regular legislative efforts for continuing registration, efforts successfully opposed by TSCPA. In the early 1950s, some began urging the Society to establish an office with a full-time staff. Tom Leland, a professor at Texas A&M, had been secretary for many years, maintaining a TSCPA office on a part-time basis. The matter of a full-time staff continued under discussion and in 1953, it was decided to proceed. The office was located in Dallas, and on Oct. 1, 1953, Dan Dansby became the first executive director. Locating the office in Dallas was in dispute for several years, and some advocated moving it to Austin. Dallas was the initial choice because of the many CPAs located in the DFW area, convenient transportation from other areas of the state and the many governmental offices nearby. Those favoring Austin asserted it was the home of TSBPA and other state agencies. In 1957, the issue came before the Board of Directors, who voted to remain in Dallas, which ended the controversy. New opportunities for service began to show up on several fronts. State legislation was passed requiring every school district in Texas to have annual audits. In 1955, the Texas insurance industry was rocked by scandals, and public confidence in the industry declined. The Texas Insurance Commission asked the profession to audit every Texas-chartered insurance company. By the 1950s and 1960s, it became apparent the Society should become more involved in providing continuing professional education (CPE) to members. In 1954, a Tax Institute was held in Houston, attracting a large attendance. This encouraged TSCPA to make it an annual affair and later the program was offered in other cities. It was decided TSCPA should add a professional development director to the staff. A new staff person, Forrest Black, was employed, and the level of professional development activity picked up considerably. Following this, a Professional Development Council was established to set policy and provide guidance for this activity. In 1965, 60 courses were provided, generating $85,000 in revenue. Also in the area of education, in 1959, the Accounting Education Foundation (AEF) was created for the purpose of making loans to qualified students studying to become accountants. Over the next five years, some 60 students qualified for assistance. The first fundraising campaign in the 1960s raised $75,000 and was followed by other campaigns in the 1970s. The fundraising, along with memorial gifts and interest received on loans, enabled the AEF to build up a fund balance of over $500,000 by 1980. TSCPA members Kenneth Hurst and Stanley Voelkel both made gifts with a value in excess of $100,000. The AEF undertook additional activities, sponsoring a conference for accounting educators and the Accounting Excellence Award. continued on next page
FEATURE continued from previous page
In the 1950s, local chapters began growing larger and achieving a degree of independence. In 1959, local chapters were allowed to incorporate, employ staff and contract for rental of office space. By 1965, both the Houston and Dallas chapters had over 1,000 members. Through the years, all chapters continued to grow, and many employed an executive director and began offering CPE. TSCPA and the accounting profession as a whole enjoyed substantial growth and progress beginning in the years after World War II and continuing in the 1950s and 1960s. CPAs had become widely recognized as valued business advisors and tax experts. In 1966, the Society celebrated its 50th anniversary. All chapters were asked to hold a 50th anniversary dinner and invite prominent citizens to participate and learn about professional progress. Then in the 1970s, the profession came under attack in several ways, with an effect on the Texas Society and its members. The profession was criticized by investors, creditors and government agencies for failure to develop accounting and auditing standards that would prevent negligent and substandard work. At the same time, the Federal Trade Commission (FTC) and the Department of Justice (DOJ) accused members of several professions of violating laws through restrictions on advertising and competitive bidding. Various studies were made offering solutions to these problems. One solution was to require all CPAs to attend a minimum level of continuing education programs. TSCPA president Frank Rea appointed Lloyd Weaver chairman of a committee to develop goals for the Society in regard to continuing education. The committee worked for about a year, holding hearings and studying the matter. It was decided that a mandatory requirement was premature, and in 1972, the committee’s recommendation was to call upon all members to “voluntarily complete” 24 hours of continuing education each year. This generated a surge in attendance at CPE programs. The question of mandatory CPE remained an issue, however, and in 1982, TSBPA announced a requirement of 40 hours per 36
year of continuing education to qualify CPAs to hold a permit to practice accounting. The restrictions on advertising and competitive bidding were also eliminated during those years. In the early 1980s, a new effort was undertaken to improve CPE. There was concern that much of the course material was prepared by out-of-state authors, and did not always address the needs of TSCPA members. It was felt a Texas CPA experienced in public accounting could do a better job of designing courses needed by TSCPA members. A person with these qualifications was employed and began working on a part-time basis, helping design courses, working with authors and reviewing course material. This program was successful in improving the content of Texas CPE courses. In earlier years, most annual meetings were held at Texas locations. In the 1970s, Texas CPAs began venturing forth to new locations. Annual meetings were held in New Orleans, Las Vegas and San Francisco. The 1983 annual meeting had been scheduled for Nashville, but when it was discovered the Opryland Hotel would be undergoing a remodeling program at the same time, it was decided to seek a new location. After much research, a decision was made to hold the annual meeting in Hawaii. This popular choice was enjoyed by a record number of members. For over 20 years, the TSCPA office location was in downtown Dallas. In the 1970s, it was decided to move to a new location near the intersection of Stemmons and Mockingbird. This location, expedient for both airports, enabled convenient access to the office. After 10 or more years in that location, it was decided in the early 1980s to purchase an office building a few blocks away. This was also a convenient location, with adequate space for committee meetings and CPE courses. However, the late 1980s saw economic problems develop. The Federal Reserve Board, in an effort to bring down inflation, followed policies that brought a large increase in interest rates. At Today’sCPA
the same time, a crisis developed in the savings and loan industry, followed by a big decline in the price of oil. These economic problems affected the Dallas economy and made it impossible for the Society to rent space in the building. The ownership and maintenance of the building became a financial burden, and in the early 1990s the Executive Committee recommended that the building be sold. This was a controversial issue, with strong differences of opinion, but the Board of Directors finally voted to place the building on the market and it was sold. Then the Society leased office space in North Dallas and has been located in that area for some 15 years. In 2002, Congress enacted the SarbanesOxley Act, known as SOX, which significantly impacted the accounting profession. It was enacted in response to fallout from collapsed Houston energy giant Enron. The issues surrounding Enron’s bankruptcy on Dec. 2, 2001, brought down its auditor, Arthur Andersen, one of the oldest and largest public accounting firms in the world. Although ultimately cleared by the U.S. Supreme Court, Andersen was not able to weather a period of bad publicity and loss of client confidence, and 85,000 employees worldwide lost their jobs. The Great Recession, as it has been called, officially lasted from December 2007 to June 2009. It began with the bursting of a housing bubble and the resulting loss of wealth led to sharp cutbacks in consumer spending. In 2010, a slow and sometimes faltering, but budding recovery from the staggering Today’sCPA July/August 2015
worldwide recession was occurring. Government fiscal stimulus, deficit spending and increased regulation occurred in Washington, D.C. The economy has steadily rebounded in recent years, with business activity and the job market in recovery. As TSCPA enters into its second 100 years, the Society continues its work to
connect, protect and advance the accounting profession, as well as bring future generations into the profession and association leadership. The Society’s programs provide opportunities for leadership development and volunteer experiences to the next generation of CPAs. TSCPA’s 100-year legacy is passing to capable hands. n
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CONGRATULATING Texas Society of CPAs 100-YEARS STRONG!
Nanotechnology and the Practice of Accounting
By Richard L. Banham, CPA (Retired), JD, Ph.D., and Lewis L. Laska, CPA, JD, Ph.D.
cientific advances create new materials that are used to enhance existing products and/or create new products. Major advances create new industries and along with these industries come opportunities and risks that impact the financial, managerial and auditing practice of accounting. Historically, some of these advances have altered business and opened new areas of specialization extending the knowledge requirements of accounting practice. This article examines the “science of the small,” nanotechnology, to introduce CPAs to its social issues, financial issues, risk factors and the potential of a new practice specialty. In a study by Satterfield, et al. published by Nature Nanotechnology in 2009, approximately 50 percent of the public said it knew little or nothing about nanotechnology despite predictions that it could vastly change business and society by the year 2015. What is the science of the small? What should be the CPA’s approach to this new science? What is the nature of the firms in this new industrial segment? What are the major risks posed by this emerging technology? What impact might nanotechnology have on the conduct of business and on the accounting profession in its roles as advisors, business development 38
consultants and auditors? What is the potential for a new area of practice specialization?
Science of the Small Tiny particles are put into the blood stream, travel to individual cancer cells and kill them. Cancer cured. Billions of tiny solar cells atop houses and office buildings produce all needed electricity. Imagine, all these advances being virtually free; this is the vision of nanotechnology. Every day, researchers are discovering and isolating new molecules, understanding their properties and working to commercialize them. Collectively, China, Japan and South Korea could be more advanced in development than the United States; no one knows. These countries are investing major resources into nanoresearch. The commercial applications of these products continue to grow; more than 1,300 products in all major industries now incorporate nano-particles. A recent example is the use of nano-particles in the lining of LG and Samsung refrigerators to prevent bacteria-forming mold from attaching to the liner. Nanotechnology is a broad-based general purpose technology impacting almost every aspect of modern Today’sCPA
society. Experts in the area see major reshaping of manufacturing, medicine, services provision, information technology and business processes occurring simultaneously, called convergence. The unit of measurement is the nanometer, a billionth of a meter. This unit is incredibly small; for example, a human hair is about 100,000 nanometers in diameter. The first man-made particles were “buckyballs” and carbon tubes. The “buckyballs” were fashioned from graphene, a cousin of graphite (the so-called “lead” in pencils), consisting of about 60 atoms. The new structures being created don’t act like the molecules of their big brothers; they tend to have different electrical and chemical properties. Take nano-gold. Unlike real gold, it will not conduct electricity; it’s a liquid and it’s red. Nano-gold is the leading candidate for cancer drugs. Another example is nano-aluminum. It’s instantly explosive when it contacts oxygen; it’s being considered for rocket fuel. Buckyballs are being looked at as containers for molecules as they shield molecular particles from the environment, preventing dangerous interactions.
During this early period, they fail to receive sound financial advice, which handicaps the firms’ ability to move forward with the implementation phase of business. The second and stronger players in the segment are firms that developed a nano-material and/or are in the process of applying it for their own industry. The firm can achieve greater financial rewards by licensing the technology to other noncompeting firms across multiple industries. These firms commonly choose to use an intermediary to conduct this outreach. For example, a Canadian manufacturer that holds a patent on a process utilizing nano-carbon tubes employs a U.S. venture capital firm, as grantor of its patent rights, to actively seek licensees in diverse industries to utilize the nanotechnology.
The CPA’s Approach to Nanotechnology CPAs think incrementally and expect refinement, not revolution. For example, first we used room-sized computers and miles of magnetic tape (reels), then desktops and now cloud computing. Looking back, it seems inevitable and it was manageable. But what if several technological breakthroughs occur simultaneously? What if every imaginable software application that accounting firms or their clients use was available at the same time at virtually no cost on the Internet in 2017? What if every type of accounting software simply appeared from the hands of Chinese firms that had created it by using DNA molecules (called wet nanotechnology), each of these “thinking” molecules akin to having a million programmers writing software? Accompanying all of this software appear desktop computers capable of storing the entire Library of Congress in a unit the size of a sugar cube. Meanwhile, nano-sensors count money, record transactions and prepare daily financial statements. This sounds like science fiction, but given the large worldwide investment in nanoresearch, this is indeed possible. Convergence may not occur or it may not be as soon as forecast. Believing, however, that nano-tech looms too far in the future to give it practical importance now may disserve one’s career. The truth is that nano-particles are already used in flat screen TVs and monitors, a billion cell phones, printers’ ink and more than 1,300 other consumer products. No one has a true idea of the actual usage in industrial products, although thousands of tons of carbon-based nano-particles are produced each year for use in tires. Cosmetics and sunscreens contain nano-particles. The titanium shafts of some golf clubs employ them. Armed with knowledge, the accountant can embrace broader truths about nanotechnology and understand its potential impact.
Health and Human Safety Risk New manufacturing processes and materials create risks, and the CPA needs to be knowledgeable, plus able to assess and address these risks from a financial, managerial and auditing point of view. Given the size and make up of nano-particles, environment, health and safety (EHS) concerns are often the first risks cited. In 2000, the federal government established the National Nanotechnology Initiative (NNI) to “support responsible development of nanotechnology.” The NNI is overseen by The Nanoscale Science, Engineering and Technology Committee (NSET), a subpart of the National Science and Technology Council (NSTC). In 2006, the NNI established the Nanotechnology Environment and Health Implications Working Group, which defined five EHS research areas: 1. Instrumentation, Metrology and Analytical Methods 2. Nano-materials and Human Health 3. Nano-materials and the Environment 4. Health and Environmental Exposure Assessment 5. Risk Management Methods
The Structure of the Segment Many nanotechnology startup firms are the outgrowth of government-sponsored research. Their founders are academics with no business experience who obtain additional grants to develop the process for manufacturing a nano-material enhanced product. Today’sCPA July/August 2015
Risks An underlying consideration in choosing the second party grantor model is its ability to shield the creator firm from the unknown risks created by this new particle. These risks may be significant, and their impact on clients should be clearly understood by CPAs.
The NNI Subcommittee on Nanoscale Science released its Strategy for Nanotechnology-Related Environmental, Health and Safety Research in 2008, which provided a risk-management model and timeline for EHS nanotechnology. The timeline indicated that by 2015, many new nano-materials were projected to be in production and the funding for population impact research would have just begun. Based on the timeline, it will be 2021 or later before Occupational Safety and Health Administration (OSHA) will know the impact of nanotechnology on the environment. In 2011, the Strategy for Nanotechnology-Related Environmental, Health and Safety Research was updated. The new plan established research goals for human health, environment and human exposure research, and an information repository to expedite the communication of research outcomes. The goal is to use predictive modeling and informatics to allow the federal agencies whose responsibilities fall continued on next page
FEATURE continued from previous page under the three research areas to apply risk-management models in regulating the implementation of nanotechnology. The plan abandoned the timeline established in the 2008 document in favor of a 10-year “Roadmap” developed by the Nanoinformatics 2010 Workshop, with a goal to speed the development of regulations. From a risk point of view, the producers of nanotechnology-based products face two risks. The first is that the government using risk models based on preliminary studies could overreact and remove a product from the market. The second is that their product could later be shown to have adverse effects not only on consumers, but also on workers, resulting in costly litigation – asbestos on steroids so to speak. This possibility is reflected in a statement by the AFLCIO reported in the New Haven Independent, which indicated it was “walking blind” when it came to workplace risks.
Patent Risks The EHS and manufacturing processes are creating a secondary industry focused on the development of methods to accurately analyze, measure and track nano-materials. The explosion of new materials, products, process and tools plus the coming convergence could result in an explosion of patent applications. The existence of firms outside of the United States working simultaneously on developing nanotechnology makes protecting the value through the patent process a complicated matter. Given the level of worldwide government sponsorship of this new science, the cost of securing patents and/or defending a patent across international jurisdictions could require a firm to expend significant resources. In fact, a material itself may not be patentable, but the process of producing it could be. Further complications arise as a result of China being one of the major players in the nanotechnology development race. The Chinese do not recognize foreign patents, so instead of firms securing a patent providing protection, the patent could open the door for unauthorized and competing products. This suggests that instead of patenting a manufacturing process, a firm might pursue the strategy of treating the process as a trade secret. Where a patent exists on a nano-material that can be employed in different products across multiple industries, the licensee model comes into play. The allocation of patent enforcement rights creates another important risk. The licensee needs to assure that the license provides for infringement enforcement protection and sole application of the patent within the product area. The license should include a failureto-act provision allowing for action by the licensee should the patent holder fail to pursue violations that impact the licensee’s market and profitability. In addition, the licensee should be granted the ability to participate in the allocation of any damage awards where the licensee’s business has been negatively impacted and the grantor successfully litigates the infringement. Additionally, the licensee should have the right to seek damages and injunctive relief should the grantor license the technology to a competitor of the licensee. Impact on Business and Accounting The nature of the industry, the EHS and patent aspects of the nanotechnology present financial reporting and business risk issues. The CPA needs to work closely with the client in addressing the needs 40
of both internal and external stakeholders. As noted, the EHS risks are not currently known. Firms need to engage in sound risk-management assessment practices, risk analysis and active risk mitigation in order to shield their current and future profitability. Besides contributing to a client’s risk mitigation activities, the CPA needs to be proactive in monitoring changing financial reporting trends that could increase the firm’s financial risk. Since 2010, the Securities and Exchange Commission (SEC) has increased its focus on environmental impact as part of Regulation S-K (Business, Legal Matters) and Management Discussion & Analysis (MD&A). In addition, the push toward sustainability reporting needs close attention. Not only are there pending reporting and financial issues for SEC client firms that accountants need to monitor, recent actions by the Financial Accounting Standards Board (FASB) suggest the potential of future financial reporting risks for all clients. In August 2010, FASB met to consult with the staff on drafting a “final” pronouncement on contingent liabilities. Proposed Accounting Standards Update, Contingencies (Topic 450) Disclosure of Certain Loss Contingencies leaves the current test for disclosure of “unasserted claims” unchanged except for the replacement of “at least reasonably possible” with “more than remote.” Careful examination of the exposure draft indicates nanotechnology firms are part of the group that “represent a unique set of loss contingencies for which specific guidance is necessary.” During the September 2010 board meeting, FASB approved two modifications to the respective interpretive paragraph, 450 20 55 14. The first was the addition: “an entity should consider all evidence available to it” when determining whether to disclose a potential unasserted claim. The second focused on industries where there exists “peer reviewed studies in reputable scientific journals that indicate potential hazards related to the entity’s products.” While the board has not issued a final pronouncement, it has signaled a continued interest in strengthening the contingent liability reporting requirements. Given the revolutionary nature of the technology, a high probability exists that nanotech firms will have to react to adverse EHS study findings. The nanotechnology-aware CPA will play two significant roles in response to this event. First, as an auditor, the accountant may have to assure the required disclosures meet changing SEC and FASB standards. The second role may come as part of the advisory function in documenting either the processes used to develop loss estimates or that potential losses are not determinable. Today’s accountant who is familiar with nanotechnology and looking ahead at this future risk could be invaluable in laying a foundation that allows the firm to mitigate any challenge that arises in this uncertain environment.
Startup Problems and Raising Capital Many of the startup firms will have tax and financing issues similar to other firms. However, because the initial capital for some nanodevelopers is government grants and the founder is an academic with no business experience, many nano-startups are financially handicapped. The founders do not realize the need for an accountant until the company seeks traditional financing and must produce audited/reviewed financial statements. At this stage, many of these firms will have committed tax or financial missteps due to their efforts to use more of the grants’ funds for research. For example, the Today’sCPA
records indicate funds were paid as salary to the primary researcher, firm founder, as specified in the grant; while in actuality, the cash was retained, a liability accrued and no income taxes were paid on the amounts specified as salary in the grant.
Potential as a New Practice Area According to the Project on Nanotechnology, Texas is one of the top four states involved in research and nanotechnology development. This opens the door to developing a firm’s expertise into serving this new industry. Become a specialist or designate a younger member of the firm as a specialist. The specialist’s role will be to research the technology and then promote the firm’s expertise within the existing client base and the community. Nanotechnology startups can benefit greatly from sound business and financial advice. Where several companies are operating in a CPA firm’s area, a public service seminar on tax and financial aspects of using government grants to fund a startup business could open the door to future involvement of local startups with the CPA firm and help the research-focused academic founders avoid early pitfalls. Where Will Your Firm be in 2017? Nanotechnology is here; clients are using it, and its impact on business in the future is inevitable. The timing and extent of the impact, however, is debatable. The reality is that an existing material
could radically change a client’s products and transform his/her firm. The CPA who is proactive in this area will be in a position to capitalize on the opportunities nanotechnology offers while working closely with clients to minimize their exposure as they seek to employ this new technology. Given the lack of knowledge in the general population, a client may have no idea that a nano-material exists that could vastly improve his/ her product. What if his/her CPA does and introduces the client’s firm to it? It could only take one startup or one existing client’s emergence as a dynamic industry leader to create a ripple effect that will dynamically enhance a firm’s revenue and reputation. n
Richard L. Banham, CPA (Retired), JD, Ph.D.
just retired from his position as an associate professor of Accounting at Tennessee State University. He may be contacted at email@example.com.
Lewis L. Laska, CPA, JD, Ph.D.
is a professor of Business Law at Tennessee State University. His most recent articles on nanotechnology EHL have appeared in the Journal of Nanotechnology Law & Business and also Trial magazine. He may be contacted at firstname.lastname@example.org.
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Implementing COSO 2013 Internal Control-Integrated Framework
By Alyssa Martin, CPA
oday’s current business environment is highly automated and global in nature. Remote workforces are common, and businesses face expectations for greater transparency. The 2013 COSO Internal Control-Integrated Framework acknowledges those changes. The 2013 COSO Framework retains the principles-based internal control components found in the 1992 COSO Internal Control Framework while re-codifying 17 concepts associated with those components. That enables organizations to more effectively address internal control concerns. The Committee of the Sponsoring Organizations of the Treadway Commission (COSO) released its updated IntegratedInternal Control Framework in May 2013. The updated framework serves as an enhancement of the 1992 COSO Integrated-Internal Control Framework and was recommended to be implemented by Dec. 15, 2014, for companies that must comply with Securities and Exchange Commission regulations. The Institute of Internal Auditors also recommended prompt implementation of the 2013 framework. Regardless of the particular compliance requirements an organization faces, residual value accompanies implementing the 2013 framework as soon as possible.
The Need for an Updated Framework Internal organizational environments and specific control needs for today are very different in comparison to 1992. Technology drives virtually all business activities. Organizations face
COSO 2013 Internal Control Framwork Internal controls is defined as a process affected by an entity’s board of directors, management and other personnel and designed to provide reasonable assurance regarding the achievement of objectives in the following categories: • Effectiveness and efficiency of operations • Reliability of financial reporting • Compliance with applicable laws and regulations The COSO 2013 framework identifies five principles that need to be in place and integrated for achievement of each of the above. Entities should evaluate their control environment to ensure it: • • • • • 42
Demonstrates commitment to integrity and ethical values Exercises oversight responsibility Establishes structure, authority and responsibility Demonstrates commitment to competence Enforces accountability
stronger overall governance expectations, along with increasing expectations to prevent and detect fraud. Outsourcing and other contractual relationships are more common. Global commerce is more prevalent. Compliance measures enacted during the past two decades require specific control measures, and organizations face stakeholder expectations for greater accountability and transparency, too. Organizations have always needed to consider the likelihood of an adverse event occurring and its potential impact. The revised framework now specifies risk velocity and risk persistence as crucial factors to be evaluated as part of the risk assessment process. Discovery of a data security breach, for example, represents a high-velocity risk. A data security breach may also be viewed as a persistent risk, an always-present risk, one requiring continual monitoring of information technology (IT) networks, security patches and other mitigation efforts whenever a new vulnerability emerges. Recognition of how different internal control needs manifest in today’s business environment illustrates the benefits gained from applying the 2013 framework.
The Enhanced Benefits Associated with the 2013 Framework The 2013 framework retains the principles-based approach of the 1992 framework, as well as the role of management judgment in implementing and sustaining internal control. That flexibility enables companies across all industries to scale and adapt the framework to fit unique organizational characteristics. The 2013 framework also retains the 1992 framework’s focus on control environment, risk assessment, control activities, information and communication, and monitoring. Table 1 lists the 17 principles and their relationship to the five internal control components of the 2013 framework. That combination of principles and components provides structure and direction for incorporating effective, integrated internal controls while also affording flexibility and scalability to address specific organizational characteristics. The control environment component addresses how internal control is designed and sustained throughout an organization. A vital element of an organization’s control environment is its senior leadership’s “tone at the top.” That element is encompassed in Principle 1. The other related principles address how that commitment to integrity and values is defined, implemented, evaluated and enforced throughout the organization. Today’sCPA
TABLE 1: 2013 COSO Internal Control-Integrated Framework Components and Principles INTERNAL CONTROL COMPONENT 1: CONTROL ENVIRONMENT • Principle 1: Demonstrates commitment to integrity and values. • Principle 2: Exercises oversight responsibility. • Principle 3: Establishes structure, authority and responsibility. • Principle 4: Demonstrates commitment to competence. • Principle 5: Enforces accountability. INTERNAL CONTROL COMPONENT 2: RISK ASSESSMENT • Principle 6: Specifies suitable objectives. • Principle 7: Identifies and analyzes risks. • Principle 8: Assesses fraud risk. • Principle 9: Identifies and analyzes significant change. INTERNAL CONTROL COMPONENT 3: CONTROL ACTIVITIES • Principle 10: Selects and develops control activities. • Principle 11: Selects and develops general controls over technology. • Principle 12: Deploys thorough policies and procedures. INTERNAL CONTROL COMPONENT 4: INFORMATION AND COMMUNICATION • Principle 13: Uses relevant information. • Principle 14: Communicates internally. • Principle 15: Communicates externally. INTERNAL CONTROL COMPONENT 5: MONITORING • Principle 16: Conducts ongoing and/or separate evaluations. • Principle 17: Evaluates and communicates deficiencies.
Every organization faces risks, and the risk assessment component provides a means for identifying and evaluating those risks. Principle 6 emphasizes a top-down approach in which the most crucial risks receive the most attention. Direction for applying that top-down approach is defined in Principles 7, 8 and 9, with additional emphasis on examining scenarios that present fraud exposure. The control activities component provides direction for establishing practices that mitigate risks. As stated in Principle 10, an organization needs control activities designed to mitigate risk. Principle 11 acknowledges the pervasive importance of general IT controls to all operations, reporting or compliance controls. Principle 12 codifies the importance of defining and documenting how internal controls are deployed with the expectation of consistence execution. The information and communication component emphasizes the importance of obtaining and sharing relevant information for internal control purposes. Recognizing that data tells a story, but must be managed and turned into information for management’s use, Principle 13 emphasizes the importance of culling crucial information from that data. The information needs to be communicated to internal and external stakeholders, as emphasized in Principle 14 and Principle 15. The monitoring activities component illustrates the need to regularly evaluate internal control functions and effectiveness. Principle 16 addresses the need for regular examinations to Today’sCPA July/August 2015
ensure consistent execution and performance of the control activities, while Principle 17 emphasizes the importance of addressing and communicating deficiencies. Each supporting principle is supplemented with points of focus offering additional direction. The 2013 framework also recognizes the integration among an organization’s operations, reporting and compliance objectives. A further enhancement is the recognition of an organization’s entity, division, operating unit and functional layers components. The 2013 framework acknowledges that critical business transactions, such as sales and supply chain activities, span risk and influence concerns across various business objectives and functions. Greater internal control integration is needed to address such concerns. For example, inventory practices are a vital operations concern, as well as a crucial financial reporting concern. Likewise, safety issues relate to multiple organizational objectives. Such recognition helps organizations move beyond silo internal control responses, identify control gaps and eliminate instances where redundant controls may exist for a single vulnerability.
Initial Planning for 2013 Internal Control Framework Implementation Initial planning for implementing the 2013 framework should include senior leaders, operational managers and others with internal control responsibilities. Those individuals have the greatest impact for establishing a positive internal control environment. Those individuals are also responsible for overseeing the implementation of more specific controls related to operations, reporting and compliance objectives. Organizations function in dynamic environments. Individuals take different leadership roles. New IT components replace older hardware and software. Proposed compliance requirements become law. So much change occurs. Organizations should evaluate current internal control structures against the new framework. The 2013 framework specifies that a control be present (in place) and functioning (working as anticipated). Operational processes evolve in response, but existing controls might not recognize such change. That may result in control gaps. Longstanding controls may not incorporate the most effective design. In some cases, redundant controls may have been implemented by various organizational functions. Evaluating the existing internal control structure to ensure the coverage of each principle and the relative design effectiveness is a healthy exercise for any organization. Within various organizations, internal control structures sit along a spectrum that ranges from informal actions that focus on just trying to record transactions to highly intentional, effectively managed and mature controls. Upon examination, a business might conclude its control structure is near the mature, effectively managed end of the spectrum. Such a business is likely already adhering to 2013 framework specifications. On the other hand, ad-hoc organizations that are not strongly controlled, stale and/or highly dependent upon manual controls need to implement more material changes. continued on next page 43
FEATURE continued from previous page TABLE 2: Four Maturity Levels for Internal Control LEVEL 1: INFORMAL OR AD-HOC • Control activities fragmented. • Control activities may be managed in “silo” situations. • Control activities dependent upon individual heroics. • Inadequate documentation and reporting methods. • Inadequate monitoring methods. LEVEL 2: STANDARD • Control awareness exists. • Control activities designed. • Control activities in place. • Some documentation and reporting methodology exists. • Automated tools and other control measures may exist, but are not necessarily integrated within all functions. • Accountability and performance monitoring requires improvement. LEVEL 3: MANAGED AND MONITORED • Key Performance Indicators (KPI) are defined for monitoring effectiveness. • Well-understood chains of accountability exist. • A formal controls framework exists. • Automated tools and other control measures are used to generate more standardized assessments. LEVEL 4: OPTIMIZED • Highly automated control infrastructure. • Benchmarking, best practices and continuous improvement elements incorporated into monitoring efforts. • Real-time monitoring.
Table 2 lists four levels in internal control maturity and the characteristics associated with each level. The table provides guidance for evaluating existing controls and any needs for improvement. Numerous factors need to be considered when assessing the completeness of coverage and current maturity level of the organization’s internal control structure across the significant processes. Internal changes require adapting existing controls or implementing new controls. The desired outcome of the COSO 2013 evaluation is to establish a layered control environment that incorporates all of the internal control principles and has a balance of automated and preventive controls that accompany management review and manual procedures. Various risk-assessment factors – likelihood, impact, velocity and persistence – need to be considered in determining the appropriate maturity level for each control. Change in prioritizing resources is likely to occur based on the risk assessment under the new framework. In addition, more mature environments align the control activities with the relevant risk and operations key performance indicators. As part of the evaluation, an organization should also consider how its internal control efforts align with the specific compliance requirements it faces. For some public corporations, the primary compliance requirement might be Sarbanes-Oxley. A health care organization may need to address Health Insurance Portability and 44
Accountability Act requirements, while a retailer may need to meet Payment Card Industry requirements. The compliance standards relevant to the organization should be used as benchmarks for evaluating internal control effectiveness. Organizations vary immensely in staffing resources, financial resources and other factors. Automating controls whenever possible and imbedding control functions within routine processes represent improvement opportunities for virtually any organization. Automated controls reduce risks associated with human error or neglect. IT access restrictions or application files that close following brief periods of inactivity are examples of automated controls. Higher level automated controls may include dashboard reporting tools that provide real-time updates or data mining tools that extract transaction anomalies from vast data sets. Making control functions part of everyday activities mitigates the possibility that a deficiency could go unnoticed for a considerable span of time. Such imbedding may include prompt reconciliations for financial transactions or brief worksite safety inspections each day. Once internal controls have been designed, the organization can review, identify and remediate any unforeseen difficulties.
Long-Term Benefits of Applying the 2013 COSO Internal Control-Integrated Framework Meeting applicable compliance measures may provide impetus for implementing the 2013 framework, but the benefits extend far beyond satisfying regulatory requirements. Introduction of the revised framework presents a great opportunity to take a fresh look and determine if the way business is transacted could be more effective, efficient or automated to benefit the company. Are processes scalable if the company experiences growth? Is automation being deployed to prevent adverse events, while also lowering labor costs? Are such automated controls standardized, so they can be transferred to a new location? Every business can benefit from asking such questions and having internal controls that are intentional and prevention focused. The paradigm used in examining internal control issues has a direct relationship to the outcome, as well. That is why consultative assistance is so beneficial. Experts help attain that extra value, rather than approaching an internal control examination as an academic exercise that involves checking the right boxes. The updated framework provides direction for more effectively addressing various exposures that were not present or as prevalent in 1992, thereby more effectively mitigating the risks associated with adverse events. Migrating to the 2013 framework prompts an organization to engage in self-assessment, which leads to identification of controls gaps, ineffective controls, redundant controls and potential improvements. By ensuring that an effective internal controls framework is in place, an organization is better equipped to mitigate risks and respond to opportunities. Efficiency, trust and confidence follow, thereby enabling the organization to more effectively pursue its business strategies. n Alyssa Martin, CPA
is an executive partner at Weaver in Dallas. Contact her at firstname.lastname@example.org. Today’sCPA
Excel in the Workplace:
Core Competencies and Practical Applications for CPAs By J. Owen Brown, CPA, Ph.D., and Bradley Lail, CPA, Ph.D.
Every CPA recognizes the continuing need to enhance his/her technical skills, especially those related to Excel. In fact, the American Institute of CPAs (AICPA) believes that anyone entering the accounting profession, regardless of his/her specific career path or the accounting services he/she performs, must be able to leverage technology and develop the necessary skills to use these tools effectively.1 The challenge is finding time to acquire these skills while performing the everyday job. And while opportunities exist everywhere to learn Excel, deciding which skills are the most critical to improve Excel efficiency is not easy. In this article, we highlight some Excel musts, or core competencies, that are necessary for spreadsheet proficiency. We then demonstrate the following five advanced skills that enhance these competencies and are necessary for Excel mastery: pivot tables, reference functions, keyboard hotkeys, logic functions
Curriculum: Other - Specialized Knowledge and Applications Level: Basic Designed For: Accounting and finance professionals in public practice and industry Objectives: To highlight Excel core competencies that are necessary for spreadsheet proficiency and demonstrate five advanced skills that enhance these competencies Key Topics: Dynamic spreadsheet solutions, pivot tables, reference functions, keyboard hotkeys, logic functions and raw data manipulation tools Prerequisites: None Advanced Preparation: None Todayâ€™sCPA July/August 2015
and raw data manipulation tools. These skills, while not unique or exhaustive, were collected from discussions with various practicing professionals across many areas of accounting whose jobs demand these skills to successfully complete their responsibilities. Improving Excel skills requires a level of curiosity and willingness to learn. To sacrifice time to complete a particular task and instead focus on skill development, you should strive to find those skills that are applicable to a variety of tasks. With this in mind, the five skills we have selected can be utilized by auditors, tax professionals, managers and individual practitioners. Additionally, these skills are adaptable and cover a variety of tasks, including tax preparation, budgeting and reporting, among others. However, before we walk through each of these Excel skills, something needs to be said about the necessary proficiency in Excel core competencies.
Excel Core Competencies The following core competencies are not particular Excel skills, but rather speak to the common-sense use of the application that makes it a viable tool in the workplace. They also serve as reliable internal controls. By incorporating these competencies into the original creation of a spreadsheet, future use by anyone will be seamless. Presentation is the most basic of competencies, but is often underutilized because it takes time and does not necessarily resolve the task at hand. However, spreadsheets that are hard to follow and lead to re-creation of prior work (and frustration) are the opposite of efficient. Proper presentation begins with a header section that includes the name of the creator, the date of creation and a purpose statement of the workbook. The workbook should then include separate data and analysis sections, which provide a critical internal control and ensure solutions are easily identified. The data section includes the raw inputs that may vary by job or by day, while the analysis section flows from the inputs and provides a solution to support a decision. Only the inputs in the data section should be changed in order to review possible alternative solutions. Figure 1 illustrates a proper heading that can be included on the front page of a workbook or presented on the same page with the data and analysis sections. These sections do not take long to create and provide a good audit trail when spreadsheets are shared within an organization. Proper presentation also includes the use of basic tools such as borders, fonts and text formatting. Cell highlighting and conditional formatting (under Styles in the Home ribbon) help as visual aids that direct readers to the proper cells of the workbook. Closely related to presentation is proper workbook use. A common mistake promoting inefficiency is the use of separate Excel files as opposed continued on next page 45
CPE ARTICLE continued from previous page Figure 1: Header
to a multi-tab workbook. While separate files can be linked together, data values do not automatically update between files if both are not open. A multi-tab workbook allows formulas to link between tabs and makes sharing files much easier. To best utilize a multi-tab workbook, renaming the tabs with clear labels, inserting blank tabs to separate collections of tabs with similar tasks and coloring tabs (by right-clicking on the tab and selecting the desired color) are all helpful. When a workbook grows beyond 10 or more tabs, the use of a table of contents tab comprised of links/buttons and “home” buttons (i.e., inserting shapes and assigning hyperlinks) on each subsequent tab is beneficial to navigate through a workbook. Workbook use also includes proper protections at the file and cell levels. When a well-designed Excel workbook must be shared across employees, protecting particular worksheets and/or particular cells restricts users to only alter various key inputs to reach alternative solutions. An entire Excel file can be password-protected within the File menu under Protect Workbook or under Changes in the Review ribbon. Other protection options include restricting access (read versus write) and protecting particular sheets or cells via a password. The final core competency alludes to the most common misuse of Excel: treating a workbook as a one-off solution. All too often spreadsheets are used more as a word processing tool and less as a data analysis tool. Excel can serve as a quick calculator, but a majority of our tasks are recurring, which necessitates a dynamic spreadsheet that can be used routinely to provide the needed solution. Dynamic spreadsheet solutions require separate data and analysis sections (as previously discussed) and the proper use of formulas that incorporate relative, permanent and/or mixed cell references (using the F4 key to toggle quickly between reference types). Such referencing allows 46
for the proper copying/dragging of formulas to relate to the correct rows and columns. The use of check figures, zero-balance tests and expected ranges, combined with conditional cell formatting, help indicate when solutions provided could be inaccurate. Having discussed the proficiency needed in Excel core competencies, we now turn to five important Excel skills and applications that can enhance your ability to summarize data, analyze outcomes and communicate results.
Excel Skill #1: Pivot Tables While often perceived as an advanced Excel topic, pivot tables are easy to develop when needing to analyze a set of data with many rows and columns. Figure 2 presents the typical output of a pivot table illustrating industry revenues and assets grouped by region. Pivot tables help answer questions quickly, such as: What is the total revenue for each region (by month and year)? Which customer has purchased the most items? What is the average cost of each raw material by vendor for each of the last three years? Where do the percentages of our taxable revenues originate by business unit? Pivot tables do not require the use of formulas and can be easily refreshed as the contents of the data change. The cells within pivot tables can also be manipulated in terms of fonts, borders, etc., like all other cells in Excel. We cannot cover all pivot table options, so our focus is on the basic functionality and recommend practicing additional options on a set of data. We also created an accompanying video at https://www.youtube.com/watch?v=Xz ZX5Tcq7fE&feature=youtube to demonstrate the figures and specific skills covered in this section. Pivot tables are best utilized with large amounts of data with many records and variables. To create a table, first highlight the data and then select Pivot Table under the Insert ribbon. You will then be prompted to select the location of the table output. As shown in Figure 3, a sidebar then appears that shows the pivot table fields representing the columns in the data set (so ensure that all columns of your data are properly labeled). The flexibility of the pivot table is demonstrated by how easily you can drag these fields to either the ROW, COLUMN, VALUES or FILTERS box at the bottom of the sidebar. The ROW and COLUMN options allow you to group by particular fields that are non-numeric, while numerical fields are used in the VALUES box. Dragging multiple fields within the rows allows you to create subtotals while the columns allow you to calculate values in a two-dimensional setting. The VALUES box allows you to apply a variety of functions (sum, count, maximum, minimum, average, etc.) by selecting the Value Field Settings option from the small drop-down arrow on any field included in the VALUES box. The “Show Values As” tab in the settings also allows you to calculate percentages of rows and columns instead of displaying particular calculations. Dragging a particular field into the VALUES box twice will also allow you to perform multiple calculations on the same field. The FILTERS box is a display setting that allows you to only display data in the pivot table for particular non-numeric fields (for example, to filter by “Year” as shown in Figure 3). You can further modify what is shown by using the dropdown menus for each field heading within the pivot table. Filters can be applied by non-numeric fields (Label Filters) or numeric fields (Value Filters), as well as sorts by all label fields selected. The data contained in a pivot table can then be referenced by formulas external to the pivot table using the GetPivotData function (allows the function to adjust as the Today’sCPA
location of cell values change within the table) or standard functions. One caution with the use of pivot tables is that the table will not automatically update as the raw data changes or if the raw data expands beyond the initial data selected; however, the option to update the data in both cases is located in the Data section under the Analyze ribbon for pivot tables. The Analyze and Design ribbons provide many other pivot table options (when the active cell is located within the pivot table) or by right-clicking within the pivot table. Once a user is willing to attempt and understand the power of pivot tables, the ability to analyze data quickly and accurately using a variety of options becomes much easier.
Figure 2: Pivot Table Output
Excel Skill #2: Reference Functions More tools related to handling large sets of data include advanced functions like the VLOOKUP and HLOOKUP. The “V” corresponds to a vertical search for a particular value and “H” for horizontal. Given that a majority of data sets move vertically, we will focus on VLOOKUPs, but the functionality of the HLOOKUP is similar. The purpose of this tool is to find particular transactions, records or other values in a large data set. While a sort could be applied to the data to locate a particular record, utilizing the VLOOKUP formula allows the user to request any needed field from a particular record or easily change the lookup value. Figure 4 provides an expanded look into how this function could be used when trying to locate the amount owed for a particular vendor from an accounts payable subsidiary ledger. The first input in the function is the value you want to look up (Vendor ID), which should be a unique identifier in the data set. You can either specify the particular vendor number or, using a more dynamic approach, input the value in a cell and refer to this cell in the formula, which can then be copied/dragged for many inputs (while using the appropriate F4 cell referencing). Next is the table_array to indicate the location of the raw data. While this reference formula can be a powerful tool, the data must be set up correctly for the formula to work properly. In particular, the first column of the table array must contain the value being looked up (in this example, Vendor ID), and the column must be sorted in ascending order. The table_array should be formatted as a permanent Figure 3: Pivot Table Field Options cell reference. Lastly, the col_index_num specifies which column contains the value that you want returned. In this example, because the amount owed is in the fifth column of the output (using the location of the lookup value, Vendor ID, as the first column), the number “5” is inputted. A series of values can be returned in separate cells by simply changing the column number containing the desired data. In summary, executing a successful VLOOKUP requires the following three steps: continued on next page Today’sCPA July/August 2015
CPE ARTICLE continued from previous page Figure 4: Vlookup Syntax
Figure 5: Common Shortcut Keys Hot Key
switch worksheet tabs, left-to-right
switch worksheet tabs, right-to-left
move in the selected direction to the next blank cell
select all cells in a given range
save your Excel workbook
insert (cell, column, or row)
delete (cell, column, or row)
1. Input the function (“=VLOOKUP”) and select the unique identifier that will serve as the lookup value; 2. Highlight the table array containing the raw data – this must include the unique identifier in the first column sorted in ascending order; 3. Indicate which column in the table array contains the value that you want returned. A final comment regarding VLOOKUPs is how to capture a particular record when the record identifier repeats in the data set. For example, if the above-subsidiary ledger contained transactions by month, there could be multiple occurrences of a particular vendor number. In this situation, the vendor number and month should be combined and added to the data set using the CONCATENATE function (which connects text strings). The VLOOKUP could then reference the combined value to lookup data. For the function to perform effectively, each record identifier should only occur once in the data set; otherwise, the VLOOKUP will reference the first instance of the repeating identifier from the data set.
Excel Skill #3: Hotkeys Many users of Word or Excel are familiar with basic keyboard commands (i.e., hotkeys) such as Ctrl+C to copy, Ctrl+V to paste and 48
Ctrl+Z to undo actions. To most efficiently use Excel, a user should know how to apply a variety of approaches to get the task done. Just like clicking on the buttons and drop-down boxes in the ribbons or the right-click commands with the mouse, many Excel users are unaware that hotkeys can be utilized for most of the same commands. While a hotkey will not execute a task more quickly, the cumulative and combined effects of using the mouse and keyboard will improve efficiency. Accounting students at our university are required to take timed Excel exams creating a schedule without the use of a mouse. Results have shown that Excel proficiency and efficiency increase when students are able to use a combination of the mouse and hotkeys. We present a number of frequently used shortcut keys applicable to Excel in Figure 5. Applying the hotkeys comes down to taking the time to remember them after determining which ones are most applicable to your daily tasks. Another way to understand how hotkeys can be applied is by simply pressing the ALT key. This causes Excel to display the subsequent keys above the ribbon that will open menus and/or activate particular ribbons. From there, options can be selected with subsequent key choices. Again, remembering key combinations quickly will lead to particular underlining, sorting, page layouts, etc., that may be used regularly.
Excel Skill #4: Logic Functions We next consider a group of logic functions based upon the basic IF statement and then expand to more advanced uses of the IF statement. Logic functions are applicable to many circumstances and often require the use of embedded functions (or functions within functions). The use of embedded functions, not unique to just logic functions, expands upon the dynamic use of a spreadsheet and improves data analysis. The basic IF statement has three key parts: the criteria statement, such as a mathematical comparison of two values (e.g., “if C2 > C3”), the consequence if the criteria statement is true and the consequence if the criteria statement is false. These are great for internal controls such as returning a value of “NO” if total debits do not equal total credits. You can raise the complexity of the IF statement by introducing AND or OR functions in the criteria. The AND statement will return a true consequence if both criterion are true, while the OR statement returns a true consequence if either criterion is true. For example, you may want an indicator variable equal to 1 if the year of the transaction equals the current year and the dollar amount exceeds $1,000. A filter could then be applied on the indicator variable to identify the material transactions. You can also embed additional IF statements within the first IF statement’s true and false consequences. Using the previous example, if the transaction was less Today’sCPA
Figure 6: Simple and Nested IF Statements
Figure 7: SUMIF and COUNTIF Statements
than $1,000, a second IF statement can be utilized if the criteria statement is false. This embedded statement could change the indicator variable of a value of 2 if the transaction is still greater than $500. Figure 6 presents the related syntax for these two IF statements. Relying on the premise of returning a true value to a criteria statement, the IF statement could be modified to a SUMIF function. The syntax for SUMIF is similar to the traditional IF statement, but it allows you to sum a range of cells if they meet particular criteria. Instead of using indicator variables and filters to sum transactions, a SUMIF function will do this for a range of cells. Figure 7 demonstrates this process, using the SUMIF command to sum the invoice amounts owed for a series of vendors based on vendor name. The steps for the SUMIF command are as follows: 1. Specify the range of cells that contain the criteria for which you are looking (the column of Vendor Names); 2. Reference the summation criteria (i.e., the Vendor Name where you are collecting the sums); and 3. Specify the cell range that you want to sum if the criteria is met (Invoice Amounts). Today’sCPA July/August 2015
A careful use of permanent and relative cell references allows the formula to easily be copied/dragged down to each vendor name. The same procedures can be performed to calculate the average size of a transaction by changing the function to AVERAGEIF. Lastly, you can count the number of transactions for a particular vendor by using COUNTIF. An example of the COUNTIF syntax for “Aetna Inc” is also shown in Figure 7; the only difference in syntax for this statement is there is no sum or average range. Pivot tables can perform many of these same computations; it really depends upon the circumstances as to which tool is the best option.
Excel Skill #5: Raw Data Manipulation Tools One of the more challenging tasks is taking data from an external source and converting it into usable Excel data. The source of such data can be output from websites (e.g., banks), software (e.g., QuickBooks) or other various systems used by clients, customers or even systems internal to your own organization. Most often this data comes into Excel in text form and requires the use of several Excel tools and a bit of creativity to continued on next page 49
CPE ARTICLE continued from previous page Figure 8: LEFT Text Function
create a workable spreadsheet. We discuss a few of the tools needed to help avoid a cell-by-cell manual approach, which is time consuming and prone to errors. The starting point for manipulating a raw data file is understanding how the source data is delimited (or separated). The standard options are typically space, tab or comma delimited, but data can actually be separated by any identifier. Alternatively, data can be separated at a fixed width; it really just depends upon the source. Then apply the following steps: 1. Highlight the columns of source data brought into Excel; 2. Select Text to Columns within Data Tools under the Data ribbon, which walks you through a three-step conversion wizard; 3. Specify whether the data is delimited or fixed width in the first step, and then provide the delimiter or widths; and 4. Select the type of data in each column. If the data is cleanly separated, this wizard often takes care of the conversion, and the data is ready to use; however, if the data needs further alteration, several text commands can help. Additional text alteration commands that may be useful are LEFT, RIGHT, MID, TRIM and CONCATENATE. After initially converting the data, some of the fields may still have text strings that need separating. Figure 8 demonstrates how to extract the Vendor ID from the Vendor Name. If the Vendor ID has a standard size such as four digits, a LEFT function can specify the cell containing the text string and then return the leftmost four characters. (Note: to separate the Vendor ID and the Vendor Name into two columns, using the Text to Columns feature described above would be more appropriate). The RIGHT function works similarly by returning the rightmost number of characters specified. The MID function adds more complexity by allowing you to return a middle number of specified characters from a text string. The function first refers to the text string, then the beginning position where you want the returned characters, and lastly the number of characters to be returned. The TRIM function trims extra spaces within a text string except single spaces between characters. This can be a helpful function prior to using some of the previously mentioned text functions, or it can be embedded within those functions in one step. Lastly, instead of cutting text strings, you may occasionally need to combine text strings that were separated in the conversion process. CONCATENATE is a straightforward function that allows you to combine as many text strings as necessary into one. One word of caution to make these five text functions useful across many rows or columns of data: Some consistency across data is necessary. Otherwise, modifying the functions for each data input is no different 50
Figure 9: Excel Skills Summary Excel Skill
Excel Location/ Syntax
Analyze large data sets with several fields (Excel columns)
Insert Ribbon, Pivot Table
Locate a specific record within a data set
=VLOOKUP (xx, xx, xx)
Provide shortcuts for executing an Excel task
Return a value based on the parameters of the logic function Manipulate raw data into a usable Excel format
Raw Data Tools
=IF (xx, xx, xx); =IF (AND(xx, xx), xx, xx) Data Ribbon, Text to Columns
than manually manipulating the data cell by cell. Many other text commands are also available – select the Fx button next to the formula bar and search under the Text category for other useful options.
Concluding Thoughts In this article, we identify a set of Excel core competencies and five key skills that are applicable to CPAs across many areas of accounting. The five key skills and their purpose are summarized in Figure 9. Effectively leveraging this technology can increase the efficiency of task completion and enhance professional development. While the competencies and skills discussed in this article were assembled based on firsthand experience, discussions with accounting professionals and other related technology training events, we have merely scratched the surface of Excel’s potential. We encourage interested readers to seek additional resources to further enhance their Excel skills and to develop more advanced skills, such as utilizing macros for repetitive tasks, performing regression analysis and implementing the solver add-in. Excel University at http://www.exceluniversity.com is one such online resource that is tailored specifically for CPAs. Additionally, TSCPA offers CPE that targets Excel skills. No matter your background or skill level, online resources and tutorials are available. n Footnote 1. American Institute of CPAs (AICPA). Core Competency Framework and Educational Competency Assessment. Available at: http://www.aicpa.org/interestareas/ accountingeducation/resources/pages/corecompetency.aspx
J. Owen Brown, Ph.D., CPA
is an assistant professor in Accounting, Hankamer School of Business, Baylor University. Brown may be reached at Owen_Brown@ baylor.edu.
Bradley Lail, Ph.D.
is assistant professor in Accounting, Hankamer School of Business, Baylor University. Lail may be reached at Bradley_Lail@baylor.edu. Today’sCPA
By J. Owen Brown, CPA, Ph.D., and Bradley Lail, CPA, Ph.D.
Excel in the Workplace: Core Competencies and Practical Applications for CPAs 1 When trying to make a decision using Excel, which of the following should
6 How can you make the VLOOKUP function perform effectively when the
be changed in order to review and compare possible alternative solutions?
record identifier is repeated?
A. Raw data inputs
C. Analysis of the original solution
A. Sort the data.
D. Spreadsheet header
B. Perform the HLOOKUP function.
2 Which of the following is not true regarding the use of multi-tab workbooks? A. Additional tabs create a navigation problem that cannot be solved. B. Formulas are allowed to link between tabs, making files easier to share.
C. Change the col_index_num. D. Use the CONCATENATE function to reference a combined value.
7 What hotkey switches between worksheet tabs left-to-right?
C. A table of contents tab with hyperlinks and buttons can improve workbook navigation.
A. Ctrl + pgUp
C. Ctrl + Up Arrow
D. The user avoids keeping separate linked files open.
B. Ctrl + pgDn
D. Ctrl + Right Arrow
3 Using what key (or combination) will toggle between cell reference types while in a formula? A. Alt + 4
D. Ctrl + 4
4 The five Excel skills presented are meant to do which of the following? A. Analyze a set of data with many rows and columns. B. Enhance your ability to summarize data, analyze outcomes and communicate results.
8 If you do not have hotkeys memorized, what is an alternative method for understanding how hotkeys are applied? A. Press the ALT key
B. Hold down the CTRL key
9 Which of the following is not a key part of an IF statement? A. Consequence if the criteria statement is true B. Embedded Function
C. Enhance spreadsheet internal controls.
C. Criteria statement
D. None of the above.
D. Consequence if the criteria statement is false
5 When analyzing pivot table information, why should you be careful around changing the raw data? A. You will need to change the Value Field Settings. B. The table will not automatically update. C. You will need to use lookup and reference functions on the new data. D. None of the above.
10 Which text manipulation function would most efficiently remove excess spaces between characters? A. LEFT B. MID C. CONCATENATE D. TRIM
Today’s CPA offers the self-study exam above for readers to earn one hour of continuing professional education credit. The questions are based on technical information from the preceding article.
Mail the completed test by August 31, 2015, to TSCPA for grading.
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If you score 70 or better, you will receive a certificate verifying you have earned one hour of CPE credit – granted as of the date the test arrived in the TSCPA office – in accordance with the rules of the Texas State Board of Public Accountancy (TSBPA). If you score below 70, you will receive a letter with your grade. The answers for this exam will be posted in the next issue of Today’s CPA.
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After completing the exam, please mail this page (photocopies accepted) along with your check to: Today’s CPA; Self-Study Exam: TSCPA CPE Foundation Inc.; 14651 Dallas Parkway, Suite 700; Dallas, Texas 75254-7408. TSBPA Registered Sponsor #260.
(Please check one.) 5=excellent 4=good 3=average 2=below average 1=poor 1. The authors’ knowledge of the subject is: 5____ 4____ 3____ 2____ 1____. 2. The comprehensiveness of the article is: 5____ 4____ 3____ 2____ 1____. 4. My overall rating of this self-study exam is: 5____ 4____ 3____ 2__ 1____. Name _______________________________________ Company/Firm__________________________________________ Address (Where certificate should be mailed)_____________________________________________________________ City/State/ZIP_________________________________________________________________________________________ Email Address________________________________________________________________________________________ Please make checks payable to The Texas Society of CPAs. __ $15 (TSCPA Member) __ $20 (Non-Member) Signature_____________________________________________________________________________________________ TSCPA Membership No._______________________________________________________________________________
Answers to last issue’s self-study exam: 1. C 2. C 3. B 4. A 5. B 6. A 7. D 8. C 9. A 10. D Today’sCPA July/August 2015
TSCPA CPE COURSE CALENDAR
Mark Your Calendar â€“ August and September CPE Courses Date
Galveston Summer Cluster
Up to 24
Getting More Active With Passive Activity Rules and NIIT
Shortcuts to Tax Cuts: Business Tax Planning Strategies for S Corps and LLCs
GASB No. 68 - In-Depth Government Pension Accounting and Auditing Seminar
GASB No. 68 - In-Depth Government Pension Accounting and Auditing Seminar
Audits of 401(k) Plans: New Developments and Critical Issues
The Top 50 Mistakes Practitioners Make: Individual Tax & Financial Planning
The Top 50 Business Tax Mistakes Practitioners Make, How to Fix Them
FASB Annual Update and Review: Critical Developments for All CPAs
Texas Franchise (Margin) Tax
Year in Review: Exploring the Latest Issues and Challenges Facing CPAs
Personal and Professional Ethics for Texas CPAs
8/12 - 8/13
2015 Texas State Taxation Conference
Financial Statement Presentation and Disclosures-Realistic Approach
Auditing Employee Benefit Plans
Forensic Accounting Investigative Practices
Forensic Accounting Investigative Practices
Identity Theft: Detecting and Investigating
Applying the Uniform Guidance for Federal Awards in Single Audits
Personal and Professional Ethics for Texas CPAs
Governmental and Not-for-Profit Annual Update
Internal Control and COSO Essentials
Group Broadcast: 2015 Compilation and Review Update
Compilation and Review Annual Update: A Seminar Designed for Smaller Firms
Texas Franchise (Margin) Tax
Applying the Uniform Guidance for Federal Awards in Your Single Audits
Financial Statement Presentation and Disclosures-A Realistic Approach
Governmental and Not-for-Profit Annual Update
Annual Update for Accountants and Auditors
Individual and Finanical Planning Tax Camp
Accounting and Auditing Update for Tax Practitioners
Revenue Recognition: Mastering the New FASB Requirements
Multigenerational Financial and Tax Planning for Clients
Personal and Professional Ethics for Texas CPAs
Governmental Accounting and Auditing Update
Performing Single Audits in 2015 and Beyond
8/27 - 8/28
2015 Advanced Estate Planning Conference
Audits of 401(k) Plans: New Developments and Critical Issues
Annual Update for Accountants and Auditors
Compilation and Review Annual Update: A Seminar Designed for Smaller Firms
Revenue Recognition: Mastering the New FASB Requirements
Personal and Professional Ethics for Texas CPAs
Recognizing and Responding to Fraud Risk in Gov. and Not-for-Profit Organizations
Accounting & Assurance (Audit & Review) Update
Accounting and Reporting for Non-for-Profit Organizations
Audit Workpapers: Documenting and Reviewing Field Work
Streamlined Tax Staff Training-Level 1 Individual
Fraud Update: Detecting and Preventing the Top 10 Fraud Schemes
Audit Workpapers: Documenting and Reviewing Field Work
Internal Controls and Risk Assessment: Key Factors in a Successful Audit
Streamlined Tax Staff Training-Level 2 Business
Oil and Gas Taxation: Landowners & Investors
Accounting & Assurance (Audit & Review) Update
Oil and Gas Taxation: Landowners & Investors
Annual Accounting Update and Review for Accountants in Industry
2015 Financial Institutions Conference
Recognizing and Responding to Fraud Risk in Gov. and Not-for-Profit Organizations
Annual Yellow Book Update and Review: A Realistic Approach
Accounting and Reporting for Not-for-Profit Organizations
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Today’sCPA July/August 2015
CLASSIFIEDS Positions Available Sugar Land, TX area CPA sole practitioner with 3 employees seeks manager to administer a $500,000+ gross revenue CPA firm in anticipation of the sole practitioner’s retirement in a few years. Sale of practice to manager expected within 2 to 8 years of initial employment. The firm has 50% tax & 50% QuickBooks monthly accounting clients. Candidate must have a minimum 5 years likekind experience with a CPA firm. Send resume and personal financial statement to File Box #5212, Texas Society of CPAs, Attn: Donna Fritz, 14651 Dallas Parkway, Suite 700, Dallas, TX 75254. TAX MANAGER North Dallas – $250,000 firm serving small business. Take over ownership as sole proprietor retires. Reply to email@example.com. Staff Accountant – Bragg & Davison, CPAs, Dalhart, TX, BBA in Accounting. QuickBooks and Microsoft Office experience. Agriculture and small business clients. Fax/Email resume to 806-244-7202 or firstname.lastname@example.org.
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Today’sCP A JAN/FEB 2015
TSCPA offers opportunities for members and non-members to advertise in the Classifieds section of Today’s CPA magazine. To request a classified ad, contact Donna Fritz at email@example.com or 800-428-0272, ext. 201 or in Dallas at 972-687-8501; Fax 972-687-8601.
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In this issue, TSCPA welcomes new chairman Allyson Baumeister and celebrates its centennial.