50 minute read
In Touch | president & CEO’s message
Full Speed Ahead
By Tammy J. Hofstede
Welcome to the new fiscal year! As we recognize the changes brought about by the COVID-19 pandemic over the last two years, we have evaluated and adjusted how we can better continue to serve you, our members. As we move forward to the next “new normal,” we will have expanded in-person and virtual learning, relevant and timely updates utilizing videos, advocating for the profession and addressing the pipeline challenges. As we start a new fiscal year on May 1, here are a few things we have planned for the year ahead:
Membership renewal
We made the decision to have no dues increase for the second year in a row to help members keep costs down and catch up from the impact of COVID-19.
Go-to resource
The WICPA is committed to being your go-to resource. During challenging times like those we’ve had the last two years, we rely on best practices and idea sharing of members more than ever. We are your connection to up-to-date, accurate and trustworthy information through our Featured News, social media, Connect, high-quality publications and e-news. Committee meetings and membership events are also valuable opportunities to build relationships with other professionals from different areas of the state to share ideas and common challenges. Although finalizing our media room was delayed longer than we expected due to equipment purchases and the continued impact of COVID, we plan to deliver new videos that include featured members and committees, state and national updates and interviews with members and invited guests. We will start our virtual monthly member orientation meetings again in the fall for those who wish to learn more about the WICPA.
CPE
2022 is the first year of the new two-year CPE reporting period for WICPA membership and CPA license renewal. To assist members with their CPE, your WICPA membership includes discounts on continuing education to keep you up to date on tax laws, technology, human resource issues and new standards. We will again offer free CPE programs, including three programs by Wisconsin Economic Development Corp. and one selected program from each of our conferences that will include ethics. That’s 12+ new complimentary, formal CPE credits plus the free programs already in our course catalog. Our conferences are back in person, and we continue to offer livestream as an option. Our primary venue for most of our conferences will be held at the new Brookfield Conference Center, which is easily accessible from the interstate and has free parking and an attached hotel with negotiated reduced room rates for out-of-town attendees. We researched and hired a new livestreaming vendor for our conferences. Starting in fall 2022, livestream conference attendees will have the option to select and attend concurrent sessions. The new vendor will also bring new options for our sponsors to market their products and services to our livestream attendees. For quick and convenient CPE, we have planned more one- to four-hour livestream programs including the Wednesday and Friday breakfast program season passes. The popular Individual Income Tax Update program with June Norman, a favorite that includes the Master Tax Guide, will continue to be held in person in several locations across the state (a livestream option is also available).
Increasing the pipeline
It is more important than ever to be investing in the student pipeline to our profession, and the WICPA is taking a leading role in this effort. In collaboration with our new High School Educator Committee, we are able to partner and communicate with students about the numerous opportunities in the accounting profession. In addition, a high school student membership category will be added this fall for students interested in pursuing accounting. We will be developing new recruitment and marketing materials along with swag items to promote the profession. We plan to record presentations by young professionals and provide the videos to
high schools and colleges to promote the profession as well as have a myth/fact series of videos to dispel negative perceptions of accounting. Continued collaboration with Milwaukee Public Schools, the National Association of Black Accountants (NABA) and the YES program, will enable us to provide resources and mentors to encourage diversity in the profession. Our board of directors will be meeting in June to continue the discussion on the pipeline and develop strategies for the WICPA and our members. We will look at how we can work together not only to influence students but also to look within your own organizations and networks to influence and assist those who have not yet completed their CPA certification or are on the fence about continuing in accounting.
Events
All our signature events are back in person! On May 5, we held our Member Recognition Banquet & Annual Business Meeting; the New CPA Banquet will be held on June 3; our annual golf outing at Ironwood Golf Course will be held in Sussex on Sept. 16. Also watch for networking nights to be back this fall and our Bowling Night again next April.
Advocacy
Advocacy for the profession will remain strong through these challenging times. As we saw (and stopped) legislation during the last legislative session, we will continue to see concerns and risks to the profession with introduced legislation to “remove barriers” and adopt “universal licensing.” We need to stay vigilant; continue to build and maintain relationships with legislators, leaders and agencies; and have our voices heard to protect the CPA Exam, the CPA license and business in Wisconsin. The more voices we have to educate legislators on legislation that will have unintended consequences on professional licenses that already protect the public and have mobility and models in place, the more power our advocacy efforts will have. We thank you for your continued loyalty and membership as we continue to shape programs, services and activities designed to enhance your opportunities and member experience and protect this great profession.
Tammy J. Hofstede is president & CEO of the WICPA. Contact her at 262-785-0445, ext. 4518, or tammy@wicpa.org.
Make the Most of These WICPA Website Tools!
Use the MY WICPA personal dashboard to put membership at your fingertips.
• Manage your profile and contact information. • Update your areas of interest and volunteer opportunities. • Find member benefits. • Renew your membership.
Easily track registrations, upcoming courses, events and meetings in MY CPE.
• See your upcoming WICPA programs, events and meetings. • Access and download your CPE materials and certificates. • Use the CPE Tracker to monitor your formal and informal CPE credits for the reporting period. • Add other formal and informal CPE to the tracker to keep all your records in one place.
Designate an organization administrator to manage membership and registrations for everyone at your organization.
• Pay membership dues and make Educational
Foundation contributions for your organization in one transaction. • Register multiple individuals for programs. • Update your organization’s roster, and manage employees at multiple office locations. • Add your organization’s information to Find a CPA. (Reach out to membership@wicpa.org or call 800-772-6939 to become an administrator.)
Ask questions, give advice and share information in the WICPA Connect online community.
• Read and participate in current discussions — or start a new one. • Personalize your profile by controlling notifications and adding interests, education, experience, signatures and your photo. • Use the Member Directory to find and connect to members across the state. • Connect with specialized groups by joining a committee such as Wisconsin or Federal Taxation,
Business and Industry, Not-for-Profit and many others.
Best of Both Worlds:
Steve Pullara, CPA, CGMA
By Marcia Tillett-Zinzow
When CPAs go into high school accounting and business classrooms to speak to students, they can and do influence young minds. If you don’t believe me, just ask Steve Pullara, CPA, CGMA, tax partner with BDO USA LLP (BDO) and the incoming chair of the WICPA board of directors. During his junior year of high school, Pullara had to choose an elective course. He didn’t want to take shop class, so he took his first accounting course. And when a CPA came in to speak to the class, that is when he first became excited about the profession. “I wasn’t thinking about it as a career. Then that CPA came in and was telling us about what he did during a week,” Pullara said. “He said that he played golf with his clients, and that struck a chord with me — not so much that you could get paid to play golf, but that accounting was not all work and no play, as some would have you believe.” After graduating from Madison’s La Follette High School in 1979, Pullara headed to the University of Wisconsin – Madison, the alma mater of his mother, a teacher who strongly influenced him to be a lifelong learner. He majored in accounting because — like many other CPAs — he was good at math but also because his father, a construction superintendent with a large commercial builder, had given him some advice. “My dad told me, ‘Don’t go into the trades. It takes a physical toll on your body, and you have to work outside when it’s cold in the winter.’ He said I should go into another profession, and I took that to heart,” Pullara said. Ironically, on his first day on the job as an accountant, he ended up working outside in the freezing cold during a snowstorm, taking inventory for a brick manufacturing company that was a client of his new employer, Smith & Gesteland LLP (S & G — now part of BDO USA LLP). “I had graduated in December (1983) and was supposed to start work on Jan. 3 or something like that, but they had a holiday party that they invited all employees to, and I went to that,” Pullara said. “The managing partner asked me if I’d like to start work early. So I started on Dec. 30 — we had 10 inches of snow that day — and there was another inventory on Dec. 31. It was neither pleasant nor what I expected from the profession, but I was just happy to get two extra days of pay.”
Relaxing in the break room at BDO’s Madison office, where Pullara is a tax partner.
[A CPA who came into our classroom] said that he played golf with his clients, and that struck a chord with me — not so much that you could get paid to play golf, but that accounting was not all work and no play, as some would have you believe.
Gauging the job market
While Pullara was still in college, the U.S. was in a serious economic recession. Inflation and unemployment skyrocketed, and the job market was extremely tight. Pullara became concerned about finding a job and wondered how he could set himself apart from the many others who would also be looking for work after graduation. His answer was to double-major, and he picked up a second degree in finance for just 12 more credits.
Pullara with some of his tax team at BDO in Madison.
“I don’t know whether that helped me get the job at S & G, but I do know that it probably did differentiate me because it showed that I was serious about what I was going into,” he said. “Interestingly, today I probably use that finance degree and those skill sets even more than the accounting degree and skill sets.” Pullara tells a story about his connection with another WICPA member, Joe Boucher, CPA, JD, a founding shareholder of Neider & Boucher S.C. in Madison, who at the time was teaching a business tax course at the UW School of Business. Pullara was in that class during his junior year and had just started interviewing for jobs. He was seriously thinking about Houston: Texas gas and oil, to be exact, which was a hot job market at the time. When he told Boucher that, he said, “Here’s my business card. Come up to my office.” “It was a beautiful office overlooking Lake Mendota, and I’m thinking, How do I get this gig and also get to golf with clients in the afternoon?” Pullara joked. When they started talking about his desire to move to Texas, Boucher put on the brakes, telling Pullara that moving away from Wisconsin — away from long-term relationships, family and friends — was a bad idea. “He told me I’d eventually have to bring in clients and develop business and said I’d be good at it because of all the people I knew and the relationships I had. He pointed out that if I went somewhere else, I’d have to create a whole new network. But if I stayed here, I’d have a head start on all the other students who stayed here but didn’t know anybody except the other students. It made sense,” Pullara said. Boucher also told Pullara that his first job should be with a smaller firm. “He said, ‘If you go to a large CPA firm, you’ll be counting rolls of toilet paper for the first two years of your career; but if you go to a smaller, local firm, you’ll actually be doing tax returns and preparing financial statements within a year or two. You’ll progress in your career and reap the rewards that much quicker. And you can always work for a larger firm once you get some real-world experience.’ For me personally, he was spot-on,” Pullara said. Pullara believes he has benefited in his career and grown professionally from working for and being a partner at both a smaller local CPA firm and a large national firm that is the member firm of BDO International.
Chatting with Erika Pospichal, CPA, a tax senior at BDO.
Lessons learned and passed along
Pullara learned early on that CPAs are really in the financial education business, not necessarily the tax or financial reporting business. “We educate clients so they can control their own financial destinies,” he said. He explained a kind of epiphany he had three or four years into his career with what he calls his “client from hell.” “This client was just miserable. It was a second- or thirdgeneration family business, and they weren’t making any profit. Their financial position was getting worse instead of better; they were late on their payroll taxes; they complained about their bills,” Pullara said. “It was just no fun to work on. I wasn’t smart enough to know how to get out of working with this client after a year or two — like some of the other accountants had — so I had been working on the account for about three years.” Then, Pullara said, a new staff accountant started working on the account and working with the client’s owners directly. Suddenly, the company was more profitable, their cash flow was better, and they weren’t behind on their payroll taxes. What’s going on here? he thought. When he observed what the new staffer was doing with the owners, he saw that she was telling them why it’s important to have a budget; that if they didn’t pay their payroll taxes on time, they’d have to pay significantly more than they otherwise would; and how they’d be better off borrowing the money to pay the taxes. “She was just explaining basic financial management principles and concepts, cash-flow planning and management, how to understand and read financial statements and those sorts of things,” Pullara said. “That’s when the light went on: Oh, gosh, she’s educating them! They’re not going to become accountants, but they’re going to understand as entrepreneurs how to manage the finances of their business and use the financial statements as a tool to help them improve their profitability, their financial position and their cash flow.” It was a huge realization — one that ultimately led him to teaching business financial management for UW–Madison’s Small Business Development Center (SBDC), which he’s been doing now for 35 years. “I really enjoy it,” he said. “I don’t get paid for it, but it’s a way to give back to the community. It’s helping to grow businesses, create jobs and raise capital.” Pullara married his wife, Patti, in 1984. The two met when Pullara was a teen and they were both working part time at his aunt’s clothing store. They didn’t hit it off until much later, when he was a senior in college — and then they married in 1984. “Patti has been the most enthusiastic supporter of my career that I could ever imagine,” Pullara said. For fun, he plays golf and is a member of competitive senior and open softball leagues. “The open league is where I play with ‘kids’ who are younger than some of my softball jackets,” he laughed. “It makes me feel old sometimes, especially when a young player says ‘I’ll never be able to do that at age 40, much less your age!’ But it is a fun, competitive sport that I’ve enjoyed for over 40 years, and it keeps me young at heart.”
Marcia Tillett-Zinzow is a Wisconsin freelance writer and editor. Contact her at mtzinzow@icloud.com.
Introducing your WICPA Board of Directors
The WICPA Board of Directors provides strategic governance in accordance with the WICPA strategic plan, mission and vision. The board ensures the WICPA serves the diverse needs of members, enhances professional competency, promotes the value of members and the profession, advocates on behalf of the profession and builds community among members. New members began serving after they were elected May 5, 2022, at the Member Recognition Banquet and Annual Business Meeting.
CHAIR
Steven A. Pullara, CPA,
CGMA, tax partner, BDO USA LLP, Madison CHAIR-ELECT
Matthew J. Schaefer, CPA,
CGMA, vice president, Bank of Wisconsin Dells PAST CHAIR
Angela C. Thomas, CPA,
state controller, State of Wisconsin SECRETARY/TREASURER
Lucien A. Beaudry, CPA, JD,
equity shareholder, Reinhart Boerner Van Deuren s.c., Milwaukee
DIRECTOR
Christopher M. Cholka,
CPA, CGMA, accounting manager, Cousins Subs DIRECTOR
John R. Heindel, CPA,
business partner, Lauber Business Partners, Milwaukee DIRECTOR
Donna R. Scaffidi, CPA,
partner, Baker Tilly DIRECTOR
Kyle R. Stephens, CPA,
president, Craft Beverage Warehouse LLC, Milwaukee
DIRECTOR
Stacy A. Stinson, CPA,
assistant professor – accounting, Concordia University, Mequon AICPA COUNCIL
Ruth A. Kallio-Mielke, CPA,
managing director, Deloitte & Touche LLP, Milwaukee AICPA COUNCIL
Neil R. Keller, CPA/ABV,
CVA, partner-in-charge, tax services, Sikich LLP, Brookfield
The Global Transformation of Money
Bitcoin and altcoin are changing our perception of money.
Technology is rapidly transforming every aspect of our lives, and money is no exception. You know the new cryptocurrencies have become mainstream when someone like Elon Musk can send out
By John H. a 140-character tweet that can
Higgins, CPA, raise or lower the fortunes of CITP cryptocurrency holders by billions of dollars in a matter of minutes. This article will provide you with a basic introduction to bitcoin and other cryptocurrencies and the impact they are having on the global monetary system.
The evolution of money
A good place to start is to review the evolution of money and define what money actually is. There are three key attributes that define money: a measure of value, a medium of exchange and a store of value. When we think of money, we typically think of currency like the U.S. dollar. Virtually any physical object has the potential to be used as money: gold, paper notes, match sticks, etc. And now we enter the era of digital data being used as money. When you think about these attributes, the real key is having consensus among the users of the money as to what establishes its value. With trust and consensus, anything can be used as money. Prior to the advent of cryptocurrency, there were essentially only two types of money: Fiat money, whose value and supply are under the control of a government or central bank and is established as legal tender; and commodity-based money, which is tied to a specific tangible commodity — the most notable being gold, silver and copper. We now have a new form of money — digital money — which has been around for quite some time. Digital money is simply a collection of data transactions that are recorded and stored digitally in computer systems. Credit cards, which have also been around for quite some time, are the original form of digital money. We use the credit card to initiate the recording of a digital transaction to transfer money from one entity or individual to another. We are now entering a whole new era of digital currency that may be in the form of either fiat currency controlled by government or cryptocurrency controlled by an agreedupon protocol. The first example of the former is the digital Chinese yuan called the digital currency electronic payment (DC/EP). This digital yuan is being rolled out in China
right now. Chinese banks are required to convert a portion of their physical yuan holdings into digital form and distribute it to their customers on their smartphones. The key is that this is legal tender under control of the Chinese government. On the other hand, the first cryptocurrency was bitcoin, and that is where this discussion will begin.
Bitcoin: Where it all began
Bitcoin originated out of a subculture referred to as cypherpunks. These are individuals advocating widespread use of strong cryptography and privacy-enhancing technologies as a route to social and political change. (I think of them more as libertarians.) After the financial crisis of 2008, in which the cypherpunk community observed the government manipulating the financial system and money supply to stop the bleeding in the financial markets, the bitcoin cryptocurrency emerged. Bitcoin was created by Satoshi Nakamoto. This is a pseudonym, and we do not know if Satoshi is an individual or a group of individuals, and we likely never will. In 2008,
Satoshi posted a white paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System.” Believe it or not, this nine-page white paper is the foundation for the cryptocurrency protocol we call bitcoin, which at the time of this writing has a market capitalization of approximately $750 billion. An in-depth explanation of the bitcoin technology is simply not practical in an article of this length, but here is a high-level explanation of how it works: 1. Bitcoin is simply a series of transactions recording the exchange of value measured in terms of digital bitcoins. 2. The transactions are recorded in a ledger, which is then replicated and distributed across the network and stored by all the participants, who are referred to as miners. 3. Bitcoin transactions are recorded and validated in blocks in a digital ledger, using sophisticated algorithms and cryptography, as defined in Satoshi’s white paper. Once a single miner successfully validates the block of transactions by being the first to solve the complex algorithm, it is immediately confirmed by the other miners and recorded in their ledgers. The result is tens of thousands of ledgers that are identical and distributed across the network. 4. Miners are compensated for validating and confirming transactions with bitcoins.
5. The bitcoin ledger is completely open source, which means anyone can access and view every single bitcoin transaction since the beginning. 6. Since every transaction is associated with a public key (which is a string of characters) that is associated anonymously with a particular individual, you have a situation in which there is both privacy and transparency. This is obviously a simplistic explanation, but it is a start. When it comes to developing an understanding of how bitcoin works, you must ask yourself how much knowledge is enough. I like to compare it to the U.S. dollar-based financial system or the New York Stock Exchange. I do not understand the details and complexities of how either of them works. What I do know is there is a level of trust through consensus that gives me the confidence to
participate in both. The exact same thing is happening with bitcoin and other cryptocurrencies. Most of the people who participate have little or no technical knowledge of how cryptocurrencies work, but they have developed a level of trust through consensus. For those of you who really want to dig into the technology, there are numerous YouTube videos that explain every aspect of the bitcoin ecosystem as well as other cryptocurrencies. The following are some of the unique attributes of bitcoin that help to establish its value: 1. There is no such thing as a physical bitcoin. A bitcoin is simply a transaction recording the transfer of digital units (aka bitcoins) from one account to another. 2. Bitcoin is the first commercial application of blockchain technology, which is now being researched and developed for a multitude of applications throughout commerce. 3. Bitcoin’s value is completely market driven based on supply and demand at a single point in time. In the U.S., its value is measured in dollars, but it is not directly tied to the value of the dollar. 4. There is no individual or group that controls bitcoin. Anyone can recommend changes to the bitcoin protocol, but they will be put into effect only if there is consensus among the entire bitcoin miner community. 5. Satoshi’s design puts a technical cap on the maximum supply of bitcoin at 21 million coins. There is no opportunity to go beyond that supply. A monetary system having a fixed supply has a substantial influence on its value — unlike all the fiat currencies of the world, including the U.S. dollar, that can expand or contract by government fiat. 6. The most common way to participate in the bitcoin system is to open an account on an exchange such as Coinbase or Binex. The exchanges allow you to exchange dollars for bitcoins and vice versa. Any discussion of bitcoin would not be complete without mentioning altcoin. “Alt” is a term used to describe all the other cryptocurrencies that provide an alternative to bitcoin. There are thousands of cryptocurrencies in the marketplace today. The most substantial competitor to bitcoin in both value and application is ethereum. One of the key attributes of ethereum that makes it unique is its ability to support “smart contracts.” This is a concept that allows for the automatic execution of transactions without human intervention. As an example, a smart contract could unlock the door of an Airbnb rental at the precise time agreed to in the contract, upon confirmation that the monies have been deposited in the agreed-upon account. In this example, the monies paid would be in the ethereum cryptocurrency, which is called ether. Cryptocurrency is a completely new concept of money based on mathematics and cryptography. Therefore, it is hard for many people to get their heads around it. There are those who truly understand the technology — primarily engineers and mathematicians. Then there are those of us who understand how it works conceptually — which is the majority of participants in cryptocurrency. Finally, you have the masses of people who do not understand it and do not know how (or want to know how) to participate in it. I can make the case that, as CPAs, we need to at least understand cryptocurrency conceptually because our clients are going to be seeking to understand this market. CPAs do not have to become financial advisors but should be prepared to answer the basic questions about cryptocurrency. I believe the most important message to communicate to your clients is that this is an evolving technology still in its infancy and that, as a financial asset, it has a high degree of both risk and volatility.
John Higgins, CPA, CITP, is chief partnership officer and co-founder of CPA Crossings LLC. He shares his expertise as a nationally recognized speaker on business technology at education conferences and strategic planning retreats and through online webcasts. Contact him at jhiggins@cpacrossings.com.
As the United States becomes more diverse, companies face increasing pressure to reflect that diversity in the workplace. Diversity, equity, inclusion and accessibility (DEIA) encompasses all of the efforts that companies can make to ensure that all employees are represented, welcomed and included in the workplace regardless of their differences. Ninety percent of millennial and Generation X job seekers say that a company’s commitment to workplace diversity affects their decision to work there.1 Generation Z is the most diverse generation in U.S. history and values equity and inclusion more than simple integration and representation, as past generations did.2 Clients, shareholders and other stakeholders are increasingly taking diversity into consideration when deciding where to spend their dollars. Diversity is no longer a box to be checked off — it truly impacts the company bottom line. Further, government agencies have renewed focus on DEIA in the workplace. In early 2022, the U.S. Equal Employment Opportunity Commission (EEOC) and the U.S. Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) announced the launch of a new initiative, Hiring Initiative to Reimagine Equity (HIRE), to reimagine hiring practices that advance equal employment opportunity. The goal of this initiative is to identify innovative and evidence-based practices that will help workers from underrepresented communities gain access to good jobs and help employers utilize their talents across America’s workforce. While the initiative has not announced any changes in regulatory expectations, employers should anticipate closer scrutiny of equal employment opportunity (EEO) obligations. In January 2021, the Biden administration released Executive Order 13985: Advancing Racial Equity and Support for Underserved Communities Through the Federal Government, which directs federal agencies to evaluate whether their policies produce racially inequitable results when implemented and to make the necessary changes to ensure underserved communities are properly supported.3 This could set the tone for how private businesses are expected to operate in the future.
By Natalie D. Fluker, JD
While the accounting field has made great strides in recent years to increase diversity in the workforce, it lags behind in many metrics. While women make up about 50% of managers, supervisors and senior staff, they make up only 33% of management committees and 27% of partners and principals.4 In 2019, an AICPA survey found that only 2% of CPAs were African American and 4% percent were Latino/Hispanic — and those numbers are halved at the partnership level.5
Why DEIA?
Creating a diverse workplace can result in better decisions, spur innovation and increase profits. Research shows that diverse groups pay closer attention to facts and make fewer errors, resulting in better decision-making processes and innovative solutions.6 The benefits of diversity
1 https://onlinedegrees.und.edu/blog/diversity-in-accounting/ 2 https://www2.deloitte.com/content/dam/Deloitte/us/Documents/consumer-business/ welcome-to-gen-z.pdf 3 https://www.whitehouse.gov/briefing-room/presidential-actions/2021/01/20/ executive-order-advancing-racial-equity-and-support-for-underserved-communitiesthrough-the-federal-government/ 4 2019 Accounting MOVE Project https://www.afwa.org/wp-content/uploads/2019/06/2019accounting-MOVE-report.pdf 5 https://us.aicpa.org/content/dam/aicpa/interestareas/accountingeducation/newsandpublications/ downloadabledocuments/2019-trends-report.pdf 6 https://www.whitehouse.gov/briefing-room/presidential-actions/2021/01/20/executive-orderadvancing-racial-equity-and-support-for-underserved-communities-through-the-federal-government/
also produce positive financial results. A 2019 McKinsey report found that companies in the top 25% for racial and ethnic diversity are 36% more likely to have aboveaverage profitability, and companies in the top 15% of gender diversity are 25% more likely to have above-average profitability.7 A diverse workplace often leads to a diverse and expanded client base. Diverse employees hold a cultural competency that leads to higher-quality service and increased insight into client needs. This is particularly important for businesses that rely on personal connections to build clientele. Employees with disabilities, for example, may be able to identify accessibility issues with websites and how other services are delivered. Employees with different backgrounds can help avoid miscommunications based on cultural differences and can identify business opportunities within new communities. Ultimately, any effort to increase diversity can be successful only if qualified diverse candidates are available. In 2018, the demand for diverse candidates far outpaced the number of diverse students enrolled in bachelor’s and master’s programs for accounting.8 Accounting professionals must engage with their communities early and often to achieve long-term success. Research has shown that many people who study accounting either knew someone who was an accountant or learned about the field in a high school accounting class.9 Accounting firms and professionals should take advantage of volunteer opportunities and career days at high schools and colleges with diverse student populations to expand the talent pipeline. Finally, investing in DEIA efforts could help avoid negative legal exposure. Well-implemented DEIA programs show a clear commitment to providing an equitable and inclusive workplace and can communicate to employees and others that a company has made substantial steps toward its outlined goals. When management is properly trained to not only identify discrimination but also prevent it through embracing equity and inclusivity, this creates a strong culture of diversity, in which employees know their issues can be addressed internally. A well-thought-out DEIA plan should
8 https://us.aicpa.org/content/dam/aicpa/interestareas/accountingeducation/ newsandpublications/downloadabledocuments/2019-trends-report.pdf 9 https://www.journalofaccountancy.com/news/2021/may/dei-diversity-equityinclusion-issues-in-accounting-profession.html
encourage breaking down historical patterns of discrimination in the workplace while not impeding the rights of nonminority groups. Creating and implementing a DEIA plan can be challenging, and employers should consult a legal professional.
Proactive steps for employers
Strengthening DEIA efforts in the workplace is a critical component in not only attracting and retaining talent but also complying with EEO laws. Further, customers, investors and shareholders increasingly want proof of workplace DEIA efforts. Employers should consider taking the following steps to ensure they are compliant with state and federal laws and to ensure they are providing an attractive work environment for the brightest and best talent:
1. Create a DEIA plan with quantifiable short- and longterm goals, and build in systems of accountability.
2. Create and strengthen connections with colleges and universities that have a diverse student body to increase the pipeline of diverse job candidates. 3. Examine hiring and recruitment practices — such as degree and experience requirements, job descriptions and advertisements, and interview questions — for potential bias.
4. Reach out to recruitment vendors who use artificial intelligence (AI) and other technologies to ensure they understand the employer’s EEO obligations.
5. Utilize a third party to monitor equitable wages and benefits and employee opportunities for advancement.
6. Review employee handbooks and workplace policies for gaps of coverage.
7. Train all levels of employees regularly on EEO policies and the importance of DEIA in the workplace.
Natalie Fluker, JD, is an attorney with von Briesen & Roper s.c. in Milwaukee. She focuses her practice on government and labor and employment. Contact her at 414-287-1428 or natalie.fluker@vonbriesen.com.
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The Business Case for ESG Reporting
With social and regulatory momentum building behind environmental, social and governance reporting, business leaders and their advisors should make meaningful ESG practices an immediate priority.
By Carolyn Tang Kmet, MBA
Environmental, social and governance — more commonly known as ESG — reporting is having a moment. As investors, employees, supply chain partners and stakeholders of all stripes turn to ESG reporting to inform key business decisions, business leaders and their advisors are struggling to establish and prioritize ESG efforts. The challenge is that while ESG reporting becomes increasingly popular and valuable, the lack of formal regulations and standards stymies leaders looking to make meaningful changes to how they do business. Part of the problem is that ESG reporting examines a wide variety of factors, both tangible and intangible. Put simply, ESG reporting is an examination of an entity’s involvement in environmental, social and governance issues. Environmental factors could include an organization’s impact on climate change, natural resource scarcity, pollution and waste. Social factors commonly explore an organization’s values and practices around issues such as labor and supply chain standards; diversity, equity and inclusion efforts; and customer privacy. Governance factors often delve into issues like oversight and management structures, diversity within the board of directors, executive compensation and crisis response. While some issues, like diversity within the board, may be easier to quantify, other factors, like sustainable supply chain measures or the effectiveness of oversight, aren’t immediately apparent in financial statements — yet the appeal and influence of these standards are undeniable. “Investors, executives and consumers increasingly understand that a company’s value is largely intangible and consists of more than just assets and products,” explains Marcy Twete, CEO and founder of ESG consultancy firm Marcy Twete Consulting. “How a company interacts with its stakeholders, community and the planet is a value driver that directly impacts its bottom line.”
The bottom line for ESG
The COVID-19 pandemic is an active example of how ESG factors impact the bottom line. Organizations with solid lines of support for employees, nimble business operations that were able to pivot to serve rapidly changing needs, and adaptable strategies for successfully navigating uncertain times were more likely to survive — or even thrive — during the pandemic. Mary Adams, founder of Boston-based Smarter Companies, believes that the pandemic’s impact on ESG investment activities proves that ESG is more than just a passing fad. “If it was a fad, then everyone would drop it in a crisis,” Adams explains. “What happened during the
– Marcy Twete
pandemic is that companies that had the trust and confidence of their employees and customers performed better through the disruption. We know there’s a link between ESG and a company’s performance. It may not be easy to pin down, but there’s definitely a connection.” Even if we can’t see the impact of ESG on the bottom line, we can definitely see it in the flow of investment dollars. According to Moody’s Investors Service, investments in ESG products increased 140% in 2020. Similarly, Morningstar reported that ESG-rated funds took in $51.1 billion in new investments in the same year.
– Mary Adams
– Corinne Dougherty
Chirag Shah is chairman of Simfoni, a company focused on leveraging spend analytics to help companies achieve supply chain sustainability. In July 2021, he successfully raised $15 million in Series B funding. “ESG goals are a moral and ethical necessity. As responsible corporate citizens, it’s our duty to take care of the future of our society,” he emphasizes. Shah believes that product and technology innovations have progressed to the point where companies are able to achieve both ESG goals and business benefits. He says that raising the bar on ESG efforts not only mitigates risks but improves corporate performance. “Focusing on ESG can reduce unnecessary costs,” Shah says. “Additionally, with social media enabling customers to have more of a collective voice, it’s evident that making responsible choices can result in higher brand value. Corporations that make a positive impact can increase their appeal to existing and potential customers and attract new market opportunities.” Corinne Dougherty, audit partner with IMPACT, KPMG’s sustainability program, and a member of the AICPA Sustainability Assurance and Advisory Task Force, agrees that there are measurable business benefits: “Implementing an ESG strategy and reporting on progress will help companies unlock new value, build resilience and drive profitable and measurable growth today and in the future,” she says. Dougherty adds that ESG reporting further benefits the bottom line by helping business leaders understand and address emerging risks that threaten profitability, attracting a new investor base while meeting the ever-changing and increasingly stringent requirements of institutional investors, gaining access to capital, competing for top talent and building a loyal customer base.
The momentum behind ESG
The motivation to implement ESG practices is driven by both external and internal factors. Externally, investors, customers and regulators are calling for increasingly rigorous and sophisticated ESG reporting to help inform investment decisions and to hedge systemic risks in their portfolios. “There’s no way you can hedge against climate change, right? You have to start advocating for a systemic solution,” Adams explains. “Additionally, during a time of great disruption, we often see exciting and innovative solutions, so that could be driving external interest in ESG efforts as well.” According to a November 2020 report issued by the Forum for Sustainable and Responsible Investment, 33% of total U.S. assets under professional management are using sustainable investment strategies. By their count, those assets grew from $12 trillion at the start of 2018 to $17.1 trillion at the start of 2020 — an increase of 42%.
But there are also internal pressures driving companies to implement ESG best practices. “In both public and private companies, employees are demanding better supply chains, carbon footprints and labor practices, leading companies to prioritize their ESG efforts,” Adams explains. Bryan English is the CFO of Elkay, a global manufacturer headquartered in Downers Grove, Illinois. He says the momentum toward ESG practices goes further than the financial or branding concerns, with much of it driven by societal expectations and the innate need to “do the right thing.” “Today’s consumers and workforce, who are really one and the same, expect companies to do right by their employees and their customers, to do good within their communities, to be good stewards of the planet, to be good corporate citizens and to be a company with a purpose,” English says. “Because these expectations drive buying behaviors and affect whether you’re an employer who can attract top talent, they’re at the heart of why ESG is becoming such a critical focus area for companies today.”
The regulatory vacuum
Currently, ESG disclosure is a voluntary best practice, though the U.S. Securities and Exchange Commission (SEC) is signaling that more formal guidance may be coming soon. In March 2021, the SEC announced the creation of a climate and ESG task force in the Division of Enforcement that will develop initiatives to proactively identify ESG-related misconduct. Their initial focus will be identifying any material gaps or misstatements in climaterisk disclosures. And in April 2021, the SEC’s Division of Examinations issued a risk alert, noting deficiencies and internal control weaknesses within investment funds that purported to be engaged in ESG investing. The seven-page alert included examples such as portfolio management practices that were “inconsistent with disclosures about ESG approaches”; controls that were “inadequate to maintain, monitor and update clients’ ESG-related investing guidelines, mandates and restrictions”; and proxy voting that “may have been inconsistent with advisors’ stated approaches.” “Regulators have certainly increased their ESG scrutiny,” acknowledges Kristie Paskvan, CPA, MBA, board director of Smith Bucklin, NCCI, First Women’s Bank and the United Way Metropolitan Chicago and an Illinois CPA Society member and Insight [magazine] columnist. “In the United States, we expect rules will be implemented that require banks to account for the sustainability impact of their lending and investment policies. Therefore, all banks have this on their radar and are moving at various speeds to implement policies and procedures.” Twete says there’s a natural tension between wanting to emphasize materiality and wanting to achieve standardization. “As readers of sustainability reports or ratings, we want to be able to easily compare Apple to Exxon, Macy’s to McDonalds, even though their business models and material issues are different,” she explains. “That
– Bryan English
kind of standardization is not only difficult, but it can also be a slippery slope. But while no system will be perfectly ‘one-size-fits-all,’ there’s hope for a more streamlined measurement framework for companies.” English believes that we’re starting to see some standardization among ESG models that work best for businesses, though he’s still hesitant about the possibility of the level of standardization associated with traditional financial reports. “There are too many variances between businesses and their impact on consumers, society at large, the planet, their own people and the communities where they do business. When you standardize a reporting model, you leave out room for all the nuance — the good, the bad and the ugly — that’s at the heart of why consumers care about ESG reporting in the first place,” English says.
Starting your ESG journey
Even without across-the-board standardization, English believes ESG reporting should be undertaken because it’s a powerful way to express corporate social responsibility. “ESG reporting backs up storytelling with data and facts, which adds credibility and helps distinguish those who are doing the work and making a real difference,” he says. While each company’s ESG journey is unique, the process of implementation is similar across all industries. Here are Dougherty’s four steps to start your own journey: 1. Develop an ESG strategy. Understand and anticipate stakeholder expectations by identifying issues and assessing gaps, risks and opportunities to integrate ESG into your business strategy. 2. Operationalize the strategy. Embed strategy into operations by understanding the implications for the workforce, supply chain, operations, controls, technology, infrastructure and governance and managing the controls around collecting and processing data to track progress. 3. Measure, report and assure. Understand the different standards, frameworks and metrics for reporting ESG data; develop capabilities to measure the ROI of ESG initiatives; and provide accurate and fit-for-purpose disclosures and reporting. 4. Transform with ESG. Growing with ESG in mind requires a new approach to transactions, strategies and partnerships. All these events create risks and opportunities for ESG strategy. Understanding those implications and developing processes to evaluate them during the transaction life cycle can future-proof your ESG approach. Twete suggests that an initial step toward ESG reporting might be to conduct a materiality study to understand the risks and impact of ESG issues within your own company. “Consider which issues have the potential to negatively or positively impact your business. What do your stakeholders expect of you? From there, you can assess these key material ESG issues with your existing risk-management process,” she says. She emphasizes that companies need to address ESG issues with the same rigor they apply to operational or financial risk — and remember that ESG cannot succeed in a silo. These efforts will reach across and transform every aspect of an organization. With increased regulatory and social attention on ESG issues, now is the time to identify, prioritize and act on ESG measures that can improve your organization’s reputation and resilience — while also making the world a noticeably better place.
Carolyn Tang Kmet, MBA, is a senior lecturer at the Quinlan School of Business at Loyola University Chicago.
Reprinted courtesy of Insight, the magazine of the Illinois CPA Society (www.icpas.org).
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New LLC Law Signed by Gov. Evers
This article supplements an earlier article published in the January/February 20221 edition of On Balance, in which the upcoming version of the LLC law we hoped would pass and be signed by the governor was discussed
By Joseph W. in some detail. Since then, the
Boucher, CPA, Wisconsin Legislature unanimously MBA, JD passed Senate Bill 566 (SB 566) in and February. Gov. Tony Evers signed this bill into law on Friday, April 15. It will become effective Jan. 1, 2023. The 500-page bill covers three specific important areas: First, it updates the Wisconsin limited liability company (LLC) law; second, it updates the Wisconsin limited partnership law; and finally, it Craig Billings Miller, MBA, JD “harmonizes” business entities such as general, limited and limited liability partnerships, corporations (both forprofit and nonprofit) and LLCs. (The Revised Uniform Limited Liability Company Act (RULLCA) was discussed in the January/February 2022 article.) LLCs now comprise over 90% of the newly formed entities in Wisconsin. The original LLC law became effective
Jan. 1, 1994. Attorney Adam Tutaj of Meissner, Tierney,
Fisher & Nichols in Milwaukee referred to it as a “homebrewed law” in his written testimony to the October 2021
Joint Hearings in the Wisconsin Legislature. This reference relates to the fact that the original LLC law was not based upon a uniform national law that existed at that time — since there was no uniform national LLC model law at that time.
This “home-brewed law” approach makes it challenging for statutory interpretation since the original LLC law was not based on references to other state statutes (or a model law), which can cause confusion and unpredictable results. Furthermore, very few LLC cases reach appellate courts to provide lower courts with written precedent for interpretation. SB 566 attempts to provide additional resources for statutory interpretation and updates the Wisconsin LLC law to more closely follow the current RULLCA. The earlier article summarized the key aspects of the updates to the LLC law, so please refer to it for additional details. What follows is a condensed and slightly edited summary of the updates to the Wisconsin limited partnership law presented at the hearings referenced above by Attorney Tom Nichols of Meissner, Tierney, Fisher & Nichols. This is the second major component of SB 566, the limited partnership law. The current Limited Partnership Act, Chapter 179, was based on the uniform law promulgated in 1976 (before the 1985 amendments to that uniform law) by the Uniform Law Commission2 (formerly known as the National Conference of Commissioners on Uniform State Laws). SB 566 adopts the most recent version of the Uniform Limited Partnership Law (including the 2013 amendments). The thrust of all of these changes is to reflect case law and developments during the approximately 40 intervening years.
Senate Bill 566 was passed by Wisconsin legislators and signed by Gov. Tony Evers on April 15, 2022.
For example, the Revised Uniform Limited Partnership Act (RULPA) includes the following improvements: • Eliminates troublesome language that implies management participation potentially triggers personal liability for limited partners, which courts have struggled with ever since the initial Uniform Limited Partnership Act was promulgated. As we all know, when courts struggle, business owners pay higher legal fees. • Adopts case law that imposes an obligation of good faith and fair dealing on limited partners, something that makes common sense. • Specifically allows limited partnerships to elect to be “limited liability limited partnerships” so that the general partners do not have unlimited liability. This allows general partners to avoid having to incorporate a separate corporation (usually an S corporation) to act as the general partner of the limited partnership, saving both legal and accounting fees on an ongoing basis.
• Conforms the partner distribution liability and dissolution claims bar procedures to those in the revised Model Business Corporation Act. This prevents defaulting entities from taking advantage of the crossspecies merger and conversion provisions in order to disadvantage creditors. The third major component of SB 566 “harmonizes” the various provisions of Chapters 178 (general and limited liability partnerships), 179 (limited partnerships), 180 (corporations), 181 (nonstock corporations) and 183 (limited liability companies) of the Wisconsin statutes. What does “harmonization” mean? It means that these statutes are now aligned with respect to the formation of entities and online entity activities and — importantly — also with respect to cross-species mergers and domestications. This means that all entities, such as general partnerships, can merge with corporations, corporations can merge with LLCs, LLCs with for-profit or nonprofit corporations, and so
on. There may be very good business reasons for these mergers. In other words, entities can switch their entity form as needed. While this may appear to be a great option from a flexibility standpoint, advisors must be concerned about and pay attention to the federal and state tax issues when taking advantage of these opportunities. While this legislation makes it easy to switch between entity forms, one must be careful to ensure that a conversion or merger does not lead to adverse tax consequences. Another piece of harmonization is the so-called domestication of entities. For example, some Wisconsin business owners previously formed either a Delaware corporation or LLC to take advantage of Delaware’s updated entity statutes and robust case law interpretation of those statutes. However, Delaware entities require annual filing fees not only in Delaware but also in Wisconsin because the corporations are presumably doing business in Wisconsin. This results in double filing fees (and/or reporting requirements). With this new law, the business owner can move the entity from Delaware to Wisconsin and domesticate it quite easily, eliminating the double filings. Finally, this harmonization law also makes it easier for all entities to terminate. Obviously, this is a high-level summary of SB 566. There are many more details that you will be learning over time from various sources. We want to thank the various parties who worked on the passage of this bill, including the WICPA and the various members of the Wisconsin State Bar Business Law committees, including Attorneys Tom Nichols, Adam Tutaj and Randall Brotherhood of the Meissner, Tierney, Fisher & Nichols law firm in Milwaukee. There are many terrific references, background materials and summaries3 of this law that were produced for the October 2021 joint hearing on the bill.
Joseph W. Boucher, CPA, MBA, JD, is a shareholder of Neider & Boucher S.C., a Madison law firm. Contact him at 608-661-4535 or jboucher@neiderboucher.com. Craig Billings Miller, MBA, JD, is an attorney with Neider & Boucher and can be reached at 608-661-4523 or cmiller@neiderboucher.com.
3 https://docs.legis.wisconsin.gov/2021/proposals/sb566.
Angela Thomas, CPA, Holds New Post With State of Wisconsin
Angela Thomas, CPA, past chair of the WICPA board of directors, has advanced to the State Controller’s Office as Wisconsin’s new state controller. She most recently had been expenditure and revenue accounting section chief in the Bureau of Finance at the Department of Natural Resources (DNR), where she oversaw a team of 21. Prior to that, Thomas served as general accounting section chief at the DNR, as an accountant in the Bureau of Budget and Finance at the Department of Justice and as a budget analyst at the University of Wisconsin Hospitals and Clinics. Thomas is currently chair of the WICPA Public Policy Committee and was recognized with the WICPA Outstanding CPA in Government Award in 2017. She also currently serves on the Dane County Airport Commission and the Sun Prairie Community Development Authority. Thomas holds the rank of Lieutenant Colonel in the United States Air Force Auxiliary–Civil Air Patrol and has received three Meritorious Service Awards and nine Commander’s Commendations.
