CPA Success

Battle for private co. standards board gets hotter

CPAs aren't throwing in the towel yet in the fight over private company accounting standards.

The AICPA continues to urge CPAs to write to the Financial Accounting Foundation and demand a separate, independent board that would be devoted solely to private company reporting issues.

The grassroots initiative stems from the FAF's plan to address private company accounting standards by creating what it is calling the Private Company Standards Improvement Council. That committee would not be independent. In fact, it would be overseen by the Financial Accounting Standards Board and chaired by a member of FASB, and any changes it proposes to private company standards would be subject to a two-thirds majority vote and then be sent to FASB for approval.

That plan irked the AICPA, to the point where the Institute threatened to take steps of its own if the FAF didn't move toward an independent private company standards board.

So now we have an impasse.

We also have a Jan. 14 deadline for CPAs to submit opinions about the FAF's plan, and the profession wants to use every second to make sure its collective voice is heard.

The AICPA has created an online tool that lets CPAs and others send a letter to the FAF "in about 30 seconds." The letter focuses on the need for an independent board devoted to private company standards.

If you feel strongly about the issue, check out the AICPA's resources and send a letter of your own to the FAF.

Learn more here
In the meantime, if you want to find out more about the issue, you have three more opportunities this fall to attend one of the MACPA's hugely popular professional issues updates. They're worth four hours of free CPE for MACPA members. Pick one in your area from the list below:

• Nov. 17, Penn Alps Restaurant and Craft Shop, Grantsville
• Nov. 29, Mount Continuing Studies Center, Frederick
• Dec. 8, Waldorf Jaycee Community Center, Waldorf

Stop hoarding data. Start liberating it.

"Information," the old cliche goes, "is power."

What a crock. Information isn't power. In its rawest form, information is just ... data.

Give that information context, though, so that it tells a story, paints a picture, helps us make better decisions -- that's power. Go one step further and make that information available anytime, anywhere, in any format, and you can rule the world.

So says David Stephenson. The principal of Stephenson Strategies and author of "Data Dynamite: How Liberating Information Will Transform Our World," Stephenson drew some interesting conclusions about our data-centric world during a recent phone conversation. For instance:

• We're data hoarders. We need to be data liberators. Ours is a data-hungry world. The problem, says Stephenson, is that once we get our hands on some data, we lock it away and guard it with our lives. And there it sits in our data warehouses, doing us little to no good. "Data should automatically be available to those who need it, when and where they need it, in a form they can actually use, and with the freedom to use it as they choose," he said.


• The social movement gives depth to data. Can you crowdsource data? Absolutely, says Stephenson. "No matter how brilliant an individual might be," he says, "I would argue that, almost without exception, you will end up with a richer, more nuanced interpretation of data when you have multiple people looking at it at the same time."


• XBRL is the "secret sauce." You just knew this conversation would get around to XBRL sooner or later, didn't you? With good reason. "If I gave you the number 6, in the abstract, what does that mean?" says Stephenson. "Is it somebody's age? A street address? But if you bracket that with, say, the XBRL size tag, it now has context and meaning. Just as important, that data can then flow in real time anywhere that those same tags are found. We no longer have to go searching for data."

The MACPA team attended the 2011 XBRL U.S. Conference in Nashville recently, and we came back loaded with content that we'll be sharing with you over the next few weeks.

Before we do that, though, Stephenson's comments help set the stage perfectly. Listen to my conversation with him in its entirety.

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

Want to learn more?
These MACPA programs offer more details about the future of data:

• What Small Public Companies Need to Know About the New XBRL: This webcast is led by XBRL co-founder Eric Cohen, CPA. It's available on the following days: Oct. 20 | Nov. 18 | Dec. 19 | Jan. 19 | Feb. 22 | March 22 | April 24 | May 24


• XBRL and the New Era in Financial Reporting: Moving Beyond Theory: A live, 8-hour program on Jan. 13 in Towson

Our year in review: 20 most popular posts from 2010

As the New Year approached, I wondered: What were the most well-read CPA Success posts of 2010? So I fired up Google Analytics and found out.

What was on our readers' minds during 2010?

Legislation, legislation, and legislation. Health care reform, the 1099 saga, the FTC's "red flags rule" and the IRS's bid to register tax preparers were particularly popular topics on the blog in 2010.

Here are our top 20 posts from 2010. Check 'em out, then tell us: What was your top issue for 2010?

1. Health care reform: What will change? (March 22)
2. IRS launches online PTIN registration system (Sept. 28)
3. Congress leaves 1099 red tape firmly in place (Aug. 3)
4. Seven reasons clients leave their CPAs (Jan. 11)
5. Top seven growth areas for CPAs (Jan. 15)
6. Top 3 training issues for CFOs and top 3 skills needed (Aug. 31)
7. Score one for CPAs as Senate OKs financial reform (May 21)
8. CPAs see signs of life in a down economy (Oct. 13)
9. Unemployment never looked so good ... or bad (Jan. 29)
10. Another 'Red Flags' extension, this time to Dec. 31 (June 1)
11. Health care reform: What's in it ... and what's not (March 30)
12. Another 'Red Flags' delay: CPAs get 90 more days (April 30)
13. IRS seeks to regulate tax preparers; CPAs excluded (Jan. 5)
14. Par for the political course: 1099 repeal fails in Senate (Nov. 29)
15. Bid to remove 1099 reporting rule falls short (Sept. 14)
16. Supreme Court: PCAOB appointments unconstitutional (June 29)
17. Top 5 skills of the post-recession leader (Feb. 19)
18. Congress revisiting 1099, tax preparer regulations (Aug. 11)
19. Finance will be a job-market force in next decade (Jan. 6)
20. Your life is a script. Time for a rewrite. (July 26)

Is leadership dead?

Yes! At least according to Emmanuel Gobillot in his latest book, Leadershift: Reinventing Leadership for the Age of Mass Collaboration. He says four major trends are working to make leadership irrelevant unless we are ready to make some major changes -- a shift, if you will.

The four major trends are:

• Demographics: multicultural, multigenerational, big differences
• Expertise: Your expertise and value creation may take place outside your organization in co-creation and networks that go beyond your organizational boundaries.
• Attention: Your organization might not have the attention of your workers if you cannot provide them coherence and cohesion. They will find it among other social networks readily available.
• Democratic: Think about the new dotted lines of matrix organizations. The new model is that we are devoid of positional power, leaders need to find new ways to engage people. When the social, intellectual and informational capital of an organization no longer sit inside a leader's span of control, democracy takes over.

The question he asks is, "Why would anyone want to be led by you?

So how should you shift?

Emmanuel says leadership is about engagement, alignment accountability and commitment. In this new environment, the old ways of leadership are not working the same way they once did. Factor this in with the rapidly changing and turbulent environment and it is easy to feel overwhelmed. Emmanuel offers some hope and answers.

Leaders need to be able to facilitate more conversations in our organizations. We call this "network leadership." Emmanuel offers four big ideas to help you think about what this new approach might look like:

1. Sense and simplicity: Leaders need to think about making meaning and simplifying things.
2. Narratives: Leaders need to contribute to the narrative and help weave the stories of the organization together and spread them.
3. Tasks: Roles are less important in an age where the work can get done anytime / anywhere. Focus on the work tasks and who needs to help get it done and less on formal hierarchy.
4. Love: If you don't love what you do, leave! Connecting to people's emotions and creating a safe and productive environment make for much better productivity. Period!

When I saw Emmanuel at the Association DigitalNow Conference in April 2010, he closed with one big question for all leaders:

Have you made your followers feel stronger and more capable?

One more thing: Emmanuel is speaking at the AICPA / CPA-SEA Interchange Conference in Pasadena, Calif. This conference is being chaired by someone who represents the new style of leadership. She is the COO of the Maryland Association of CPAs, a friend and colleague, and my right and left arms. This post is dedicated to her (and I know she will hate me for this). Thanks for your leadership and leadershift, Jackie Brown!

• See our earlier post by Bill Sheridan, who examined Emmanuel's DigitalNow presentation.
• Here is Emmanuel's website.
• Follow him on Twitter.

Now go get this book and let me know what you think: Is leadership changing? Will the old ways of working still work in this "new normal?"

In SOX's wake, is fraud actually on the rise?

Wasn't the Sarbanes-Oxley Act supposed to put a dent in corporate fraud?

You bet it was.

Whether it has or not is open to debate.

In a piece of Forbes.com commentary, James Kaplan argues that fraud -- or at least the motivation to commit fraud -- has risen sharply since Sarbanes-Oxley took effect in 2002.

"CEOs' and CFOs' biggest incentive to 'cross the line' is to maximize their own compensation. And that incentive has gotten ever bigger as the percentage of pay linked to stock prices has increased," writes Kaplan, co-founder and chairman of the financial research firm Audit Integrity. "As the economy has faced mounting stress, many companies have been feeling pressure merely to survive. This pressure may lead to fraudulent behavior to mask decaying operations."

The Committee of Sponsoring Organizations (COSO) of the Treadway Commission has produced some numbers that support Kaplan's conclusion. In a recent report, COSO found evidence of 347 cases of alleged public company fraud between 1998 and 2007, up from 294 cases between 1987 and 1997. The dollar amounts of those alleged cases also skyrocketed between 1998 and 2007.

The consequences of high-profile fraud are severe. According to the COSO report, "news of an alleged fraud resulted in an average 16.7 percent abnormal stock price decline in the two days surrounding the announcement. Companies engaged in fraud often experienced bankruptcy, delisting from a stock exchange or asset sale, and in nine out of 10 cases the SEC named the CEO and / or CFO for alleged involvement."

When so much is on the line, why would fraud seemingly be on the rise?

Kaplan has some ideas. In his Forbes.com article, Kaplan says corporate fraud will persist as long as boards of directors aren't subjected to greater scrutiny, the economy remains strained and executive compensation is linked to stock prices.

Then there's this, courtesy of one of Kaplan's readers: "Lack of personal integrity is the problem. Legislation will not change that."

I buy that. Doing the right thing means you aren't doing the wrong thing. It all comes down to your own personal code of ethics ... or lack thereof.

Learn more here
Dan Dreibelbis Jr., special inspector general of the Troubled Asset Relief Program, will present a program titled "Vendor Fraud: Detection and Investigation by CPAs," as part of the Maryland CPA Summit (formerly the MD Biz Expo) on June 29. Get details and register here.

The MACPA also offers a ton of ethics training. Visit our online CPE catalog and search for "ethics," then tell us: How big of a problem is fraud in your organization?

3 steps to embracing change (from an unexpected source)

I was watching a movie during this last blizzard (here in Maryland, where we now have the dubious record of the most snowfall this season in the U.S.!) and was fascinated by the cultural clues.

There was a scene with Michael Douglas looking at a monstrous computer monitor. Remember when computer monitors took up most of your desk? The movie was Disclosure (based on the book by Michael Crichton).

This got me thinking about change and how long it has been since I had one of those humongous monitors. I looked at the date of the movie and it was 1994. Wow, 16 years! 

A lot of things have changed in 16 years. iPods now play our music, computers are smaller than books, books are read on e-readers ... you get the idea. The point is that change continues to happen at an accelerating pace and we all need to learn how to deal with it.

Then I came across these suggestions from an unexpected source.

Three keys to dealing with these turbulent times:

1. Understand the new (business) landscape.
2. Respond with vigor.
3. Adjust accordingly.

These were in the remarks from SEC Chair Mary L. Schapiro at a recent conference (thanks to Edith Orenstein at the FEI blog for her post, Climate Change at the SEC). Her speech, titled Embracing the Change, is a great read to understand where the SEC is going under her leadership. She explains some of the learning since the "market meltdown," tell us what we can expect as the SEC responds to the crisis, and offers some good advice on dealing with change.

I think we all have to become "Navigators of Change" as we deal with this accelerating pace of change.

See our recent post, "How to Change When Change is Hard."

How do you deal with change? Any advice?

Skilling's appeal: More salt in our Enron wounds

Wanna make your blood boil? Think about this one for a second:

A few short months from now, Jeffrey Skilling might go free.

You remember Jeffrey Skilling. He ran a little company called Enron, whose implosion destroyed wealth, lives and dreams and (along with a couple of guys named Sarbanes and Oxley) fundamentally changed the ways in which CPAs and corporate finance types do business.

Skilling is currently serving a 24-year, 4-month prison sentence for, among other things, conspiracy, insider trading and making false statements to auditors. But he has appealed his conviction, and in October the U.S. Supreme Court agreed to hear his appeal.

According to National Public Radio's Wade Goodwyn, Skilling's appeal centers on two central arguments -- that a judge should have granted Skilling's request that the site of his trial be changed, and that the prosecution's assertion that Skilling deprived Enron employees and investors of his "honest services" is, in the words of Time, a "bogus charge."

What does that "honest services" argument mean? Beats the heck out of me. Goodwyn does a much better job of explaining it that I ever could, so listen to his NPR report in its entirety.

The Supreme Court is expected to hear the case in early 2010.

The mere fact that the Supreme Court is hearing the case means there's a pretty good chance that Skilling will walk. I'm quoting here from The Houston Chronicle:

"The Supreme Court gets about 10,000 requests a year and typically picks fewer than 80 cases to hear, usually ones raising legal issues that might prompt the high court to overturn lower courts' rulings. It generally reverses 65 percent to 75 percent of the cases it hears, and that's what it did in the prior two Enron-related cases it heard."

So Enron sinks like a rock, takes with it the life savings of countless employees and investors, then forces lawmakers to rewrite accounting regulations, and Skilling is on the verge of going home. Is anyone besides me angry about all of this?

What do you think: Should Skilling's conviction be overturned?

Learn more about Sarbanes-Oxley-related issues at these MACPA programs:

• Feb. 10: Integrating the New Risk Assessment and Yellow Book Standards into the Audit Process
• April 27: Internal Controls Design, Evaluation and Communication for Not-for-Profits

New math: Risk management + strategy = strength

The corporate battlefield is littered with little risk bombs these days, isn't it? New regulation, data protection, network security, economic recovery ... it's a mine field out there, and every step brings considerable risk.

If you plan your route and know what to look for, though, mitigating that risk gets considerably easier.

That seems to be the message from the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. In a new report titled "Strengthening Enterprise Risk Management for Strategic Advantage," the panel says aligning risk management with strategy will strengthen an organization considerably.

“Management is often being asked to provide their boards with more information regarding key risk exposures,” said COSO Chairman David Landsittel. “The challenge facing management is designing and implementing an enterprise-wide approach to risk management that is both strategic and value-adding so that the board and senior management have a rich understanding of the organization’s top risk exposures."

The report focuses on four areas in which a company's senior management and board members can work together to mitigate risk:

• Discussing risk management philosophy and risk appetite.
• Understanding risk management practices.
• Reviewing portfolio risks in relation to risk appetite.
• Learning of the most significant risks and how to respond.

Align risk management with strategy? Doesn't exactly sound like rocket science, does it? Then again, an awful lot of companies have been taking part in an awful lot of risky behavior these days. Maybe the COSO paper is the perfect reminder at the perfect time.

Read the paper in its entirety, then check out these additional resources:

• Keep taking those risks ... but carefully
• Risk management: Do what's right and you won't go wrong
• MACPA virtual seminar, Nov. 18: Enterprise Risk Management in Personal Wealth Management
• MACPA virtual seminar, Dec. 2: Enterprise Risk Management in Innovation and Learning Initiatives
• MACPA virtual seminar, Dec. 16: Enterprise Risk Management in the Health Care Sector

Transparency, accountability, efficiency: Time for a revolution

"A little revolution now and then is a good thing." -- Thomas Jefferson 

Our profession has a rare opportunity to start a revolution that can help regain trust in our financial markets and government and unleash the power of the people. The seeds of that revolution can be seen in two unlikely places for CPAs -- Wired Magazine and The Huffington Post.

The revolution is about radical transparency, lower costs of government and business compliance, smart regulators, and an army of citizen regulators watching over the free markets and our governments (federal, state and local). The tools of that revolution are two of our favorite subjects here at CPA Success -- XBRL and the Enhanced Business Reporting Consortium, both started by the AICPA,

Dan Roth offers us a great starting place in his "Wired Manifesto":

Next, we can follow David Stephenson's advice and create smart regulation (is that an oxymoron?) using these same tools.

In his post, Recovery.gov: The First Step Toward Smart Regulation, W. David Stephenson sums it up like this: "If eventually adopted not just by Recovery.gov but agencies in general, such an approach could dramatically reduce companies' and local governments' reporting burdens; improve regulatory oversight by giving agencies simultaneous, real-time access to the same data; and, as a bonus, help improve organizations' efficiency."

This is not rocket science. It is already working and using a proven technology and methodology! I know because I had the opportunity to meet Harm Jan van Burg (thanks to my XBRL mentors, Eric E. Cohen and Mike Willis at PwC) from the Ministry of Finance in the Netherlands, who has created the model of this new form of "smart regulation."

Harm Jan led the Dutch Taxonomy Project, in which he helped save the Dutch government millions of euros and reduce the costs of compliance by businesses by $322 million annually. (For a country roughly three times the state of Maryland, that is not bad.) Australia estimates reduced costs of government burden of $800 million, New Zealand's estimate $55 million to $75 million. All of these are annual savings that recur year after year -- an annuity that benefits both government and the people.

There are examples at the FDIC, and even two states (Nevada and Oregon) have implemented XBRL into Standardized Business Reporting projects to create transparency, accountability, and efficiency.

(Pictured: Eric E. Cohen, Harm Jan van Burg, and yours truly at the Rutgers World Continuous Reporting/Assurance Conference, October 2008)

Diane Mueller, vice chair of XBRL International, talks about the opportunity in her post Free the Data: eGov and Open Standards, in a plea to President Obama's newly appointed CIO, Vivek Kundra, to use XBRL in his efforts to democratize federal government information. She writes:

"When President Obama appointed his new federal CIO, Vivek Kundra, last week, Kundra announced ambitious plans to "democratize" federal government data by making it accessible in open formats and in data feeds. His plan calls for the creation of a single point of access to all public federal information. The idea is to enable the data to be accessed by developers whose applications will open up federal data to the sunlight of millions of citizens by encouraging them to scrutinize how the Recovery Act’s dollars will be spent."

Vivek, if you are out there, please listen to Diane and the rest of us: What you are describing is XBRL.

Dennis Howlett over at the Accman blog says it well in his post recapping the latest developments in XBRL: "Whether Huffington Post can be regarded as a credible source for reporting on IT is another matter, but the fact the topic is entering the U.S. mainstream consciousness should be a wake up call to us all."

"The time to act is now," writes Dan Roth. "An exhaustive study by the Transparency Policy Project at Harvard University's John F. Kennedy School of Government — analyzing disclosure rules for everything from restaurant cleanliness to SUV rollover risk — found that there's a very brief window after any calamity for government to institute changes. (Wait too long and the special interests start regaining their confidence and pushing back.) In the financial world, the old order is still trying to find its new shape. So the window is, briefly, cracked. Caveat vendor."

But revolutions are not easy. Howlett offers this warning: "XBRL creates new opportunities but making the best of them requires new thinking. So far, the profession has shown itself to be occasionally opportunistic but not radical in the way it assists clients." I think it is time we get a little radical.

I encourage you to read the full article, "Road Map For Financial Recovery: Radical Transparency Now!" by Wired Magazine senior writer Daniel Roth and W. David Stephenson's post "Recovery.gov:The FIrst Step Toward Smart Regulation."

What do you think? Is it time for a revolution?

If so, I hope you will join us on June 16 at our Maryland Business and Accounting Expo, where we will continue this conversation with thought leaders from XBRL and EBRC. Who knows? Maybe it can be the start of the revolution.

Resources:

• XBRL and Public Sector Reporting Study, by the AGA
• Enhanced Business Reporting: It's Time has Come, featuring a podcast with EBRC founding member Bob Laux, CPA, of Microsoft and his presentation in Second Life (Bob will be speaking at the Expo)
• Lessons from the XBRL frontlines, a post featuring Maryland CPA Ken Kelly and his work at McCormick on XBRL (Ken will also be at the Expo)
• Virtual workshop examines reality of XBRL, featuring a presentation by Eric E. Cohen and Mike WIllis of PwC, who also will be at the Expo)

Is your CFO certified?

Bob Tarola has a point. 

Last week, I attended the AICPA Regional Council meeting with our Maryland delegation. Maryland is well represented with two AICPA board members (Carter Heim and Lisa Cines) and one at-large council member (Robert Tarola, pictured in the middle), plus our designated and elected representatives (Lou Satchell; Ed Rommel, pictured at left; Tami Bensky; Al DeLeon, pictured at right; and Kimberly Ellison-Taylor).

At that meeting, I had a chance to catch up with our volunteer leaders and we had a good discussion about a topic that is extremely relevant in light of the recent financial scandals and auditing issues. The question is: Why is the emphasis on corporate and accounting scandals always focused almost solely on the auditors? What about the preparers?

The point is that you cannot "audit in" the quality of financial reporting. There should be a renewed emphasis on the competency and qualifications of financial preparers -- CFOs, CAOs, controllers, etc. -- in addition to the focus on auditors. The people who are the first line of defense in understanding and reporting on the financial and economic affairs of the business have as much or more obligation to the public interest than the auditors that check on them ... or do they?

The SEC's new sign-offs required by Sarbanes-Oxley and the requirement that a financial expert serve on public company boards are a good first step, according to Tarola, but do they cover accounting expertise? And what about the public interest?

That was the subject of our conversation while in New York. It is also covered in Bob's whitepaper, CPAs Can Be the Backbone of the Financial Reporting System. Bob makes the point that having demonstrated accounting expertise and the responsibility to protect the public interest that accompanies a CPA license may be an idea that can add one more layer of protection in the financial reporting process. He should know; he has been on both sides of the financial reporting process, as an auditor and as a preparer. Bob is the retired CFO of W.R. Grace and former audit partner at PricewaterhouseCoopers.

I agree with Bob and want to emphasize two key points that having a CPA license adds:

1. It is based on a uniform national CPA exam that tests practical competencies in accounting and auditing.
2. It is a license issued by states with an additional obligation to protect the public interest. That is very different from other credentials that do not include the additonal responsibility of a state granting you the rights, privileges and obligations that go with licensure.

Wouldn't it be nice if either the chief accounting officer or the chief financial officer certifying financial statements to the SEC was a licensed CPA? This would add one more element of oversight and responsibility to the public interest to the financial reporting process. It also is not the first time this idea has surfaced.

Funny how I was re-reading the MACPA's 2002 Accounting Reform Task Force (of which Bob was a member) whitepaper as I was prepping for a presentation I am giving on corporate and accounting scandals to accounting students at Salisbury University later this week. In it, I found the same recommendations. Our blue ribbon task force had these as two of our major suggestions for restoring public trust in financial reporting :

1. Have the principal accounting officer and principal auditor in corporations be currently licensed CPAs where possible.
2. Include an outside CPA on the audit committee to provide financial accounting and auditing expertise.

Even Financial Executives International included this concept in its recommendations during the Enron-WorldCom scandals of 2002. In its paper titled, Improving Financial Management, Financial Reporting and Corporate Governance, the FEI made a recommendation that "the principal accounting officer should be a licensed public accountant or possess equivalent knowledge and experience, and should be current and knowledgeable in the understanding of GAAP and the SEC’s rules and regulations governing the preparation and audit of financial statements."

It reminds me of our ad, "Your doctor is certified. Your lawyer is certified. Shouldn't your accountant (CFO or CAO) be certified?"

• Read Bob Tarola's whitepaper and tell me what you think.
• See CPAs commit to protecting the public interest at the official swearing-in ceremony in Maryland.
• See Bob's interview during our CPA road show in which he talks about a career as a CPA.
• Read the MACPA's accounting reform white paper.