CPA Success

Profits, transparency join the green movement

Is your "green" glass half empty or half full?

Let's find out.

It its quarterly CFO Outlook Survey, Financial Executives International found that 48 percent of companies have taken steps to reduce energy consumption, 30 percent are reducing waste and 21 percent are implementing incentives to encourage customers to be "greener."

So what do you see -- the fact that many companies are implementing these environmentally friendly strategies, or the fact that most aren't?

I don't know if this will sway your opinion at all, but it's worth noting that 28 percent of CFOs surveyed said their companies aren't doing anything to become more sustainable.

Whether they are or not, all companies might want to take a stroll over to the SEC Web site. The Commission has released guidance on rules "that may require a company to disclose the impact that business or legal developments related to climate change may have on its business." According to the SEC, "the relevant rules cover a company's risk factors, business description, legal proceedings, and management discussion and analysis."

CFO.com's Sarah Johnson offers this take:

The problem may not be so much that companies are skirting the rules, but that they haven't received a sufficient nudge to make proper disclosure. By publishing new guidance, "the SEC is effectively saying, 'We really think you should think long and hard about whether or not greenhouse emissions and climate change are material to your shareholders,'" says Karl Strait, a partner at McGuireWoods.

And companies that haven't made the green move yet? Well, they might want to take a serious look at "Sustainability: A better brand of business?" This Statement article, written by Sustainability Partners International Managing Partner Gary Langenwalter, cites mounds of research to make this claim:

"Over the past decade, a 'learning lab' of companies devoted to the concept of sustainability -- called the Living Asset Management Program, or LAMP -- has more than doubled in value while the overall value of the S&P 500 has fallen" and has "twice the profits of (the) industry average" by "doing good for (the) community and the planet."

Talk about green.

Langenwalter talks more about the benefits of sustainability in this MACPA podcast. Listen to it, then tell us: Has your organization taken any steps to be greener? If so, what have you gotten out of it?

How to thrive in the new normal

"It's about time somebody punched this economy in the nose." --from a Southwest Airlines sign

Welcome to 2010! Time to focus on how to survive thrive in these uncertain and turbulent times.

Here are some great tips from McKinsey Quarterly in an interview with four chief strategy officers who share their thoughts about strategy and planning in these turbulent times. Here are my takeaways:

• "The discussion around a new normal is ultimately a discussion around the shape and timing of economic recovery" -- Peter Pintar, Smith International
• Niki Manby of Visa talked about forecasting using a few key measures or "indisputables" on which to base the forecast. She said it is extremely difficult to find indisputables in the current environment.
• Peter Jueptner of Estee' Lauder said there is a "new normal" in how you run your company. Adaptability is front and center.
• Niki Manby adds "flexibility" and "alignment." "You want to be nimble, but at the same time you want to make sure you are turning whole ships and not parts."
• Think "potential reviews" -- do your underlying assumptions and opportunities still hold?
• Strategy should drive structure, structure should drive business processes.
• Key question: "How do you make sure your corporate processes and the structure that you've got in pace are actually in line with where you want to go strategically?"

You can view the interview video clip or read the transcript by downloading the pdf.

What is your plan to thrive in this "new normal?"

Finance will be a job-market force in next decade

The financial services arena has taken its share of job-market hits over the past couple of years. The latest proof comes from the Bureau of Labor Statistics, which listed bookkeeping, accounting and auditing clerks among the nine professions that saw the most job losses in 2009.

An interesting note in that MSNBC article, though: "The free-for-all on Wall Street that led to many of these job losses could inadvertently help bring many of those positions back," writes Eve Tahmincioglu.

Indeed, a growing number of experts are predicting that very thing.

First, there's the Bureau of Labor Statistics' Occupational Outlook Handbook, which examines how specific professions and industries might rebound, job-wise, over the next eight years. It predicts "financial examiner" will be the fifth fastest growing job between now and 2018.

"Part of a broader trend of growth in supervisory positions, BLS foresees a 41 percent increase in demand for financial professionals who can analyze and enforce laws governing the financial and securities industries," writes Carol Tice of PayScale.com. "The field is expected to add 38,000 jobs in the next decade."

Among occupations with the largest numerical growth over the next decade, "accountants and auditors" rank eighth on the BLS list. And that only makes sense. As regulators and legislators put new financial rules and safeguards into place, we're going to need more financial experts like CPAs to make sense of it all.

In a report titled "Where The Jobs Will Be In The Next Decade," National Public Radio's John Ydstie takes a closer look at the prospects for accountants and other professions in the coming years. Listen to the report in its entirety:

What are the job prospects like at your organization?

LoveLocal Maryland: Big ideas for small business

Throughout the economic crisis, there's been a load of lip service paid to the important role small businesses play in driving our economy -- how they employ more than half of all private-sector employees, pay nearly half of all U.S. private payroll, generate almost two-thirds of net new jobs, yadda, yadda, yadda.

The numbers are impressive, and yeah, it's all true -- small businesses really do drive much of our economy. But it's time, as they say, to put our money where our mouths are -- to back up all that talk with some action that serves as evidence of our commitment to making small businesses work.

Enter LoveLocal Maryland.

It's a program aimed at supporting small businesses and connecting them to consumers through the combined efforts of a major media partner and nine organizations that represent more than 30,000 businesses.

Here's how the program's supporters describe it:

"With the LoveLocal Maryland program, small businesses -- the biggest job creators in the American economy -- get sales and marketing tools so that they can compete with big businesses. Consumers get to learn about businesses in their community and help support the local economy and those job generators.

"... Consumers can search by community and proximity to their location. This is a great feature for both consumers who are Maryland residents looking for a specific kind of business near them and for tourists who are constantly in search of businesses in an unfamiliar place."

The businesses themselves will have access to such sales and marketing tools as Web pages, e-coupons, text messaging, e-mail blasts, customer management tools, enhanced search engine features, social networking, and maps and directions. (MACPA members will get a 20 percent discount when they subscribe to the full set of sales and marketing tools. That comes to $78 per year, $6.50 per month or 21 cents per day.)

The program was initiatived by the folks at WBAL-TV, and we here at the MACPA are proud to throw our support behind it. Joining us in endorsing and supporting the program are:

• the Maryland Chamber of Commerce,
• the Restaurant Association of Maryland,
• the Maryland Retailers Association,
• the Maryland Hotel and Lodging Association,
• the Maryland Tourism Council,
• the Maryland Hispanic Chamber,
• the Maryland Bankers Association, and
• the Greater Baltimore Committee.

We're convinced this is an important program that offers significant benefits for Maryland's small businesses and consumers alike. Help us make it work.

• Visit the LoveLocal Maryland Web site.
• Watch a promo that describes the program in detail.

New year, familiar challenges for finance execs

The best thing I can think of to say about 2009 is that it's over. New year? Bring it on. Economically speaking, it can't be any worse the previous one, can it?

Of course, 2010 likely won't be a walk in the park, either. Scores of challenges loom on the horizon for corporate America, and the folks at FEI have put together a list of some of the top issues that will impact finance executives in the coming year. They include:

1. Economic recovery and the U.S. fiscal outlook: "In FEI’s most recent CFO outlook survey, respondents noted economicimprovements but were hesitant to declare the recession over, or soon to be," the FEI report states. "Meanwhile, companies continue to restructure in light of contractions in the job market and ultimately will determine how realignments can provide opportunities for future growth."
   
   
2. Health care reform: "While legislative reform will likely come in 2010, the long-term impacts on companies and their ability to design health coverage tailored to their employees needs and their company’s mission will last for years," writes FEI.
   
   
3. Employeee benefits: "Though the market has stabilized," the report reads, "pension plan funding is still a consideration as a number of plans maintain a funded status below federally mandated thresholds."
   
   
4. Financial regulatory reform: Writes FEI: "The financial crisis spurred debate on an array of regulatory issues including monetary policy, credit rating agencies, compensation, financial products, capital market regulation and resolution authority and insurance. While many reform efforts are directed at the financial services industry, regulatory changes are likely to be broad and impact all industries and sectors. Of specific interest is legislation."
   
   
5. Global convergence of U.S. GAAP and IFRS: According to FEI, operational considerations include "changes to accounting systems and contractual agreements, corporate governance considerations, litigation contingencies and human capital readiness."
   
   
6. Financial instruments: "FASB and IASB will continue to develop a comprehensive model for accounting for financial
   instruments, including hedge accounting," writes FEI, "but each started deliberating separately, planning on a subsequent joint meeting to reconcile differences.
   
   
7. Financial statement presentation: According to FEI, this joint IASB and FASB Memorandum of Understanding project "sets out significant changes to the structure and presentation of the basic financial statements, including a move to organize the components of the statement of financial position, comprehensive income and cash flows by major activities: business, financing, income taxes, discontinued operations and equity."
   
   
8. Revenue recognition: "The proposed standards focus on an entity assessing whether control has been transferred to the customer," the FEI report reads. "This will have a major impact on company financial statements."
   
   
9. Business taxation: "Major tax reform seems unlikely this year, though the 2003 'Bush tax cuts' are set to expire this year so numerous tax policies will be debated," writes FEI. "In February, financial executives should keep on eye on the Obama administration’s FY 2011 budget proposal as well as a report from the President’s Tax Reform Subcommittee of the President’s
   Economic Recovery Advisory Board."

Read the report in its entirety.

And that doesn't include the spectre of combined business reporting, sales taxes on services and other potential legislative hurdles that Maryland's General Assembly might set up in Annapolis.

It should be an interesting year, to say the least.

What are the biggest issues on your radar screen?

CPAs take next step in private company debate

Public companies get all of the press, but it's a private-company world.

Want proof? Consider this: There are about 17,000 public companies in the United States today, compared to more than 29 million private companies.

Economically speaking, it's not even close.

So it's not a big surprise that the AICPA and the Financial Accounting Foundation plan to create a blue-ribbon panel to examine U.S. accounting standards and how they can "best meet the needs of users of private company financial statements."

According to the AICPA, the panel will "provide recommendations on the future of standard setting for private companies, including whether separate, standalone accounting standards for private companies are needed."

This new group won't be alone, of course. The FASB's Private Company Financial Reporting Committee has been studying that question for years. Most recently, PCFRC Chair and MACPA member Judy O'Dell said the release of "IFRS for SMEs," a standard that examines the benefits of applying international financial reporting standards to small and mid-size entities, is bringing the discussion to a head.

"That subject has been around for as long as I've been in the profession, which is going on 40 years," O'Dell said in this MAPCA podcast. "It waxes and wanes, but now I think the situation is different. We're at a real tipping point in this conversation."

The time has come to give private companies their due. The AICPA and the FAF are expected to announce the roster of their new panel in January 2009, and the folks involved will take the private-company discussion to the next level.

Here's hoping they choose well.

R&D Tax Credit: The evolution continues

Funny thing, that Research and Development Tax Credit. It's been around since 1981, but it has never been made permanent. Every time it dies, Congress comes along and resurrects the darned thing. It has more lives than a cat -- 13 and counting, to be exact.

Its latest extension came in late 2008 as part of President Bush's $700 billion plan to bolster the struggling economy, but time will run out on the credit once again on Dec. 31, 2009.

In the meantime, there's no shortage of advice on how to make use of the credit.

Randy Crabtree, a CPA who specializes in the credit, takes a closer look in "The Constantly Evolving R&D Tax Credit." The article examines the qualifications, recent case law, IRS pronouncements and legislative action.

More pressing is the latest in a series of recommendations from the Government Accountability Office aimed at "making the credit more fair and effective in its intended goal of encouraging domestic research and development activity." Congress occasionally asks for opinions from the GAO as it considers whether to make the credit permanent. Among the GAO's latest recommendations:

• “There appears to be no reason to prohibit taxpayers from electing either the (Alternative Simplified Credit) or (Alternative Incremental Research Credit) method of credit computation on an amended return.”
  
• "Taxpayers should be allowed to change their election if, as a result of an audit, the IRS adjusts the amount of (qualified research expenditures) or base QREs in a manner which would make an alternative election more advantageous to the taxpayer.”

The report also recommends "an organized dialogue among the Treasury, IRS, taxpayers and tax practitioners in order to reduce some uncertainty as to the types of research documentation which are acceptable."

• Read the GAO's recommendations in their entirety.

Time will tell if the credit lives beyond its Dec. 31, 2009 expiration date. Given its history, though, I'm not betting against it.

XBRL: The sooner you start, the better

The XBRL flywheel continues to turn.

The first phase of XBRL-based financial filings -- those for the largest public companies -- arrived in June. More large public companies will be required to file via XBRL in 2010, and by 2011 all public companies will be using the data-tagging language to file their financial reports.

And if mandated filing dates don't pique your XBRL interest, a recession might. The demand for accurate, timely and transparent financial information is as high as it has ever been. It seems the financial crisis is tailor-made for XBRL.

Despite all of that, Taylor Hawes says some significant challenges remain.

Hawes is CFO of intellectual property and licensing for Microsoft. He is also chair of the XBRL US National Conference Advisory Committee, and he says companies that must file via XBRL in 2010 have a ton of work to do ... and very little time in which to do it. In the immortal words of Jerry Reed, they've got a long way to go and a short time to get there.
 
"In Year 2, companies will be required to tag their footnotes at a level of detail that is relatively substantial, even exponentially larger than what they've had to do in the first year," Hawes said in a recent phone interview. "I think some of the challenges involve gaining the knowledge internally that will allow a company to do that, having the technical resources to be able to understand how XBRL will translate into a rendered document, and dealing with the sheer volume of tagging that's required. Getting all of that done in a compressed amount of time is significant."

It's hardly Mission: Impossible, though. The key to success, says Hawes, is to start early.

"The sooner you work through the taxonomy and extension issues that you might have, and the sooner you understand the complexity of your financial statements relative to the reporting requirements, the better off you'll be," he said.

That sounds like a pretty strong argument in support of "global GL," a concept that would find XBRL tags "baked" into financial reporting tools so that the output is pre-tagged with XBRL. "That makes a lot of sense," Hawes said. "When you bring it back to the challenges companies have with tagging ... having the data pre-tagged at a transactional level makes it a lot more compelling."

In the meantime, there are plenty of other XBRL-related issues to examine, including the implications for non-profits, uses for XBRL outside of the financial reporting realm, and how international financial reporting standards factor into the equation. Hawes touched on all of these issues in this MACPA podcast.

• Subscribe to our podcast here, or search for "CPA Spotlight" in iTunes.

Find out more about XBRL with these related resources:

• XBRL International
• XBRL U.S.
• SEC resources
• IASB resources
• The ABCs of XBRL: Here's what it can do
• XBRL and government: A marriage made in ... Nevada?
• XBRL case studies
• Demonstrations of XBRL in action
• More demos: Microsoft | Edgar Online | Rivet Software Crossfire | Google OneBox
• XBRL taxonomies
• Six Steps to XBRL (from the Journal of Accountancy)
• ROI on XBRL (from the Journal of Accountancy)
• Improved Business Process through XBRL
• Benefits and uses for business

SOX 404: Does small biz exemption mean more fraud?

It all sounds like a great idea on the surface, doesn't it?

I'm talking about a proposal floating around Congress to exempt small public companies from having to comply with the onerous and expensive requirements found in Section 404 of the Sarbanes-Oxley Act.

You remember Section 404, right? That's the one that requires finance executives to sign off on their companies' internal controls over financial reporting. When Sarbanes-Oxley was enacted in 2002, Section 404 was at the center of a contentious debate. Small businesses protested, saying the monetary and manpower costs involved in complying with 404 were too steep. In those scandal-ridden post-Enron days, though, those companies had few friends in their corner, so they bit their tongues and took it.

Now, seven years later, along comes the Investor Protection Act and, more importantly, an amendment that would exclude smaller public companies from having to comply with Section 404(b) of the Sarbanes-Oxley Act, "which requires companies to include in their 10-K reports an independent auditor's opinion on their internal controls," writes CFO.com's Sarah Johnson. The amendment also would "require the SEC to study how the regulator could reduce the cost-of-compliance burden for companies with market caps between $75 million and $250 million."

Suddenly, everything seems to be balancing out for small companies, who felt from Day 1 that they were paying an unfairly exorbitant amount to comply with Section 404.

But there's an elephant in the room.

The Association of Certified Fraud Examiners says such an exemption "would lead to a higher incidence of fraud and an increase in the amount of fraud losses."

Talk about your kill-joys.

“At a time when the economic downturn has heightened the risk of fraud for organizations large and small, it simply does not make sense to weaken accounting rules that are in place to protect investors,” said ACFE President James D. Ratley, CFE. “The bottom line is that internal controls are one of the best fraud prevention tools for any organization to have in place. Providing exemptions for some public companies from the SOX 404 requirements only leads to an increased risk of fraud.”

So who's right -- the companies trying to stay in business or the folks trying to prevent fraud? Or is there some kind of middle ground that we haven't considered yet? Let us know what you think, then check out these related resources:

• MACPA program, Nov. 25: Auditing Bits in Bytes, Session 3: Internal Control Considerations
• MACPA program, Dec. 4: Internal Control Procedures for QuickBooks Users
• MACPA program, Dec. 23: Auditing Bits in Bytes, Session 7: Identifying, Evaluating and Communicating Internal Control Deficiencies

Jack has it right: It truly is an 'accounting vortex'

Jack Ciesielski is dead-on in his post "An Accounting Vortex," in which he describes the turbulent, spinning changes in accounting regulations and standards.

Specifically, he is referring to the SEC's quick reversal from a slowdown to a race to get to IFRS fast. 

Then there is the House bill exempting small-cap public companies from the internal control audits required under Section 404.

And we have to add the proposed "Perlmutter amendment" to the Financial Stability Improvement Act of 2009 to create a Federal Accounting Oversight Board (which has its origins in HR 1349). Check out Edith Orenstein's coverage at FEI's Financial Reporting Blog.

Wikipedia defines vortex as a spinning, often turbulent flow of fluid in which the speed and rate of rotation increases as you near the center. Based on that definition, I hope we are close to the center, as the rate of change is starting to get scary!

On the subject of Congressional intervention into accounting standards, MACPA members agree with the AICPA and FEI, which recently wrote in opposition to the Perlmutter amendment to create a FAOB Federal Accounting Oversight Board. In our professional issues updates / town hall meetings with more than 1,200 members participating, members unanimously and emphatically say, "Keep Congress and government out of financial accounting standard setting." We will be ready to mobilize our members should this unnecessary amendment start to move. On the Senate side, Sen. Chris Dodd seems to be against government intervention.

What do you think: Should the federal government get involved in accounting standard setting?