A new video shows the support available to management accountants globally who are under pressure to compromise their ethical standards.
New year and new challenges – brief yourself on global and local ethics and sustainability news with our newsletter Ethical lens. Read the February edition.CIMA
SKEPTICAL
Being sceptical is no longer enough. It must be reflected in firms’ cultures, policies, procedures, and audit reports. So the faculty is developing practical guidance that will help members meet the increasingly demanding professional requirements they face.(ICAEW)
.ICAEW PUBLICATION
This publication is a practical guide to the audit of related party relationships and transactions, providing suggestions in the form of a five-point action plan to improve audit quality in this area. It reflects the significant change in approach that is required under the revised ISA.
It highlights the importance of planning the audit of related party relationships and transactions, the need to involve the entire audit team in this, to assign staff with the appropriate level of experience to audit this area and upfront discussions with the client to identify related parties.
The audit of related parties in practice – international edition (PDF 620KB/32 pages).
Financial statement discussion is required to include specified minimum content to promote comparability among entities and consistency within an entity over time. Entities determine the matters and level of detail to present—specific detailed disclosure and presentation requirements are not provided. When information that is required to be included in financial statement discussion and analysis is presented or disclosed in the financial statements, it is not required to be reproduced in the financial statement discussion and analysis. Financial statement discussion and analysis is required to include the following minimum content, while allowing entities to report on specific information most relevant to the entity: An overview of the entity helps users to understand the entity and how the environment in which it operates affect its financial statements. Information about the entity’s objectives and strategies enables users of the financial statements to understand the entity’s priorities and to identify the resources that must be managed to achieve its objectives. An analysis of the entity’s financial statements including: A description of the significant events, trends, conditions, and factors that affected the current period financial statements to enhance users’ understanding of the financial statements. Analyses of variances and trends for those financial statement items which are important and significant to enhancing users’ understanding of an entity’s financial position and performance and changes in financial position and performance over a period of time. Information about the entity’s risks and uncertainties helps users to evaluate the impact of risks in the current period as well as expected outcomes.(Source-IFAC)
All CITP professionals should possess an understanding of the following knowledge and skills:
| Section 1 – Risk Assessment |
Risk Assessment
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| Section 2 – Fraud Considerations |
Fraud Considerations
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| Section 3 – Internal Control and IT General Controls |
Internal Controls
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Information Technology General Controls
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Information Security
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| Section 4 – Evaluate, Test, and Report |
Types of Audit and Attest Services
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Auditing Techniques & Procedures
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Assessment of Controls
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Information Assurance
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| Section 5 – Information Management & Business Intelligence |
Information Management
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Business Process Improvement
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Data Analysis & Reporting Techniques
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Performance Management
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Q: Our firm wants to provide everyone in our office with new and larger USB thumb drives to be used for transporting and sharing data files. Is this a good idea, and, if so, what size and type should we get?
A: The emergence of cloud-based data storage such as the free Windows Sky Drive (“Technology Q&A: A Sky-High Solution,” JofA, Oct. 2011, page 78) is fast making USB thumb drives obsolete. With a cloud-based solution, your data can be shared securely with anyone on virtually any computer, tablet or smartphone.
If you are still determined to implement a portable solution, I recommend that you consider using Secure Digital (SD) cards instead of thumb drives because SD Cards are easier to keep up with. I’ve purchased at least 30 USB thumb drives in the past 10 years, but I currently can account for only six of them. Where did the others go? I have children in high school and college—that might explain where some of them went. In all probability, however, several of them have been lost, misplaced or, perhaps, stolen. Because a USB thumb drive must be unplugged before transporting a laptop computer, it can be harder to keep track of.
In contrast, an SD card fits securely in your laptop (or desktop) computer’s SD card slot and can remain there when transporting your laptop. Other benefits of SD cards are that they typically cost a little less than thumb drives, and they can be used in most digital cameras, cellphones and smartphones. In addition, many SD cards have a sliding tab that locks the SD card, allowing the files on the SD card to be read, but not erased. I would recommend 8 gigabyte to 16 GB SD cards at a minimum, and a quick price check (at pricegrabber.com) shows 8 GB and 16 GB SD cards available starting at $6.17 and $11.49, respectively.
Q: Is there an easy way to copy formulas that are arranged horizontally across an Excel worksheet and paste them vertically down the page? When I try this using Excel’s Paste-Transpose command, the cell references change and no longer reference the correct cells.
A: I can think of three ways to accomplish your task, as follows:
1. Copy using absolute references. Edit each formula to be copied by inserting a dollar sign in front of each row and column reference. This action creates absolute cell references, which prevent the formulas from changing when they are copied and pasted. Next, copy the row of edited formulas and paste the formulas to the desired location by selecting Paste, Paste Special from the Hometab, then check the box next to Transpose, and click OK.
2. Replace equal signs. A slightly faster way to copy-transpose formulas is to highlight the formulas to be copied and replace the equal sign (=) with a number sign (#) as follows. From the Home tab, select Find & Select, Replace, enter an equal sign (=) in the Find what box and enter a number sign (#) in the Replace with box. Make sure that the Within box is set to Sheet, and click the Replace All button. This action temporarily converts the formulas to text so they can be copied and pasted without changing the cell references. Next copy the row of formulas and paste-transpose the formulas to the desired location from the Home tab by selecting Paste, Paste Special, then check the box labeled Transpose, and click OK. To complete the process, highlight the pasted formulas and replace the number signs (#) with equal signs (=) by selecting Find & Select, Replace from the Home tab, enter a number sign (#) in the Find what box, enter an equal sign (=) in the Replace with box, then click the Replace All button.
3. Using the OFFSET method. My preferred option for solving this problem involves using the more advanced OFFSET function, as follows: In the cell where you want your vertical formulas to start, write a formula using the OFFSET function as pictured below.
In the OFFSET formula =OFFSET($A$1,3,ROW(B1)), the first criteria ($A$1) references the top-left corner of the data range; the second criteria references the number of rows down from the top row where the data to be copied resides; and the third criteria references the number of columns across from the first column where the data to be copied resides.
To complete the process, copy the newly created formula down the appropriate number of rows. As the formula is copied downward, it references cells across the page. (Note that inserting the phrase ROW(B1) as the third criteria instead of the number “1” allows the formula to be copied down vertically while referencing horizontal data across the worksheet.)
Cost segregation of building components can shorten recovery periods of the affected parts of a taxpayer’s building and therefore accelerate deductions for depreciation. However, taxpayers must be wary of potentially unfavorable side effects of cost segregation.
These side effects include, in taxable exchanges of cost-segregated property, possible recapture of depreciation under Sec. 1245, subjecting it to an ordinary income tax rate potentially higher than the 25% recapture rate for real property under Sec. 1250. This recapture can be a particular hazard for boot gain realized in like-kind exchanges. An additional complication for cost-segregated property in a like-kind exchange is the requirement that components be grouped according to kind or class.
However, the interplay of cost segregation with bonus depreciation rules is often taxpayer friendly, particularly given a recent liberal IRS definition of “components” of self-constructed property qualifying for bonus depreciation.
Cost segregation can complicate allocating costs to deductible repairs rather than capitalizing them, since the IRS is scrutinizing accounting method change requests where the taxpayer’s definition of “unit of property” may have changed.
Other possible considerations for taxpayers using cost segregation include alternative minimum tax liability and cost segregation’s effect on the domestic production activities deduction.
Larry Maples (lmaples@tnstate.edu) and Robert D. Hayes (rhayes@tnstate.edu) are professor of accounting and professor emeritus, respectively, at Tennessee State University in Nashville, Tenn.
Several indictments in recent years outline how organized crime has infiltrated publicly traded U.S. businesses. Various criminal groups have executed a variety of schemes to defraud investors and government agencies out of hundreds of millions of dollars.
Among the criminal organizations named in these indictments are the Italian Mafia, the Russian mob and an Armenian-American organized crime ring.
A federal indictment in New Jersey accuses a group with Mafia ties of taking over a publicly traded Texas company and pillaging it into bankruptcy. The alleged conspiracy involved threatening board members to seize control of the company and then using various methods to defraud investors of $12 million.
Individuals linked to organized crime have to stay behind the scenes from business transactions likely to be scrutinized by internal and external accountants. The criminals often hide their involvement by setting up a maze of easily formed shell companies.
Organized criminals often have a thorough understanding of audit procedures and know how to disguise their fraudulent activities in company financials. One of the most popular tactics is to set up a shell company that is paid through a consulting deal with the company being looted. It’s difficult to quantify whether consulting or other services have been rendered.
CPAs performing accounting services for a company, including preparing a company’s financial statement, may identify signs of possible fraud, such as vendors or other entities that the company has paid but that list post office boxes as their addresses.
CPAs who encounter suspicious transactions in the financials may determine to ask questions of management and others to find out the crucial details of the deal. Who approved the transaction? What services were rendered or products purchased? What documentation is there to show that the transaction was legitimate?
Organized crime specializes in spotting CPAs and other professionals who have a personal vice, such as a gambling problem, or who are willing to compromise their ethics in certain situations. The criminals then use the threat of exposure or even physical harm to push the professional to act as an inside agent who helps execute and hide illegal activities within the victimized business.
Randal A. Wolverton (randal.wolverton@gmail.com) is a retired FBI special agent who owns Randal A. Wolverton CPA LLC in Kansas City, Mo.
A current flaw in U.S. GAAP/IFRS financial reporting standards distorts the calculation of working capital and the current ratio, understating the liquidity of most companies.
Conventional financial reporting places the current portion of long-term debt (CPLTD) among current liabilities because it is a liability due in the current period. That approach, however, incorrectly implies that CPLTD will be repaid from the conversion of current assets into cash.
The standard balance sheet fails to match the CPLTD with the fixed asset that repays it. To truly “balance” a balance sheet in terms of what is current and what is long term, a new concept is needed—the current portion of fixed assets (CPFA). The CPFA is the portion of the fixed asset that will be used up in the current period to generate revenue. This year’s CPFA is next year’s depreciation expense.
The debt service coverage ratio, used in commercial lending, is an effective tool for measuring repayment of long-term loans. It correctly captures the concept that the use of the fixed asset generates revenue that is used to repay the CPLTD.
Two possible approaches could fix the current distorted liquidity picture: focusing on the trading cycle by taking CPLTD out of current liabilities; or developing a new “current ratio” that leaves CPLTD with current liabilities but calculates CPFA and reports it with current assets. The latter approach would require a change in financial reporting standards.
The AICPA’s Private Companies Practice Section (PCPS) recently completed a national survey about the attitudes and aspirations of the most promising young accounting professionals. The 2011 PCPS Top Talent Study (available at tinyurl.com/6tygubv) suggests how firms of all sizes can hang on to top talent.
Foster a culture of trust and open access to management. The survey reported decreased trust in firm leadership among 40% of high-potential CPAs. This might indicate that firm leaders did not communicate well during the recession and failed to adequately explain key decisions. To foster better communication, firm leaders should maintain a true opendoor policy for employees. That’s easier at small firms, where the hierarchy is more informal, allowing for continual interaction between staff and firm leaders. At firms with more than 10 employees, management should hold face-to-face meetings with high potentials at least once a year.
Make work/life balance a firm priority. The brightest young CPAs are much more focused on successfully integrating their professional and personal lives than their predecessors were. High-potential CPAs rank flexible work schedules (77.5%) and telecommuting (63.1%) as the top priorities in maintaining work/life balance. Firms also should monitor work hours and travel time to make sure future leaders aren’t burning out. Regardless of size, firms should encourage staff to take vacations and address family matters when needed.
Provide a competitive compensation package. Salary is the top factor in retaining high-potential CPAs and the second most important factor in attracting them, the survey found. That’s to the advantage of large firms (those with at least 21 employees), which usually can pay higher wages than smaller firms. Young talent also highly values retirement plans.
Transform each engagement into a training opportunity. Involve top young talent from start to finish, ensuring they grasp the breadth and complexity of each engagement. Smaller firms can assign only limited resources to each engagement, allowing high potentials greater access to key individuals. However, larger firms can offer unique training opportunities by exposing most promising young talent to a broader portfolio of clients in multiple industries. This is important because career development ranks as the top attraction factor and No. 2 retention factor for high potentials.
Implement diversity initiatives for women and minorities. Such programs can have a substantial effect on attracting and retaining women and minorities by enhancing their sense of belonging and recognition. The survey found that nonwhite respondents are particularly interested in tuition reimbursement, sabbatical leave, firmwide diversity initiatives, equity incentives and a mentoring program, formal or informal. Nonwhites are 97% more likely than whites to stay at an employer with a firmwide diversity program and are 102% more likely to stay with a firm that offers tuition reimbursement.
Identify emerging partners as early as possible. With career growth high on the high potentials’ priority list, it is important to establish a career road map with top talent. This can help them enhance leadership and business development skills. Emerging partners should be exposed to client retention and client development meetings. They also should participate in networking activities, speaking engagements and business proposals involving the acquisition of new clients. This can be best achieved by pairing an emerging partner with an experienced partner.
—By Yasmine El-Ramly, CPA/CITP, (yelramly@aicpa.org), a project manager with the AICPA’s Private Companies Practice Section in Durham, N.C.
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