FASB sets up web page for implementing new standards

Courtesy of GASB

The Financial Accounting Standards Board has created a new web page to help companies implement its new standards.

FASB has been rolling out a series of important new accounting standards in recent years, including revenue recognition, leasing, credit losses and hedging, and they are set to take effect over the next few years. Companies have been getting ready to implement them, starting with the revenue recognition standard, which goes into effect next year for public companies. The new web page, Implementing New Standards, includes links to educational materials and implementation guidance for FASB’s major standards about the new standards.

The web page also deals with how FASB handles outreach and implementation assistance. The web page includes links on FASB’s outreach to stakeholders,transition resource groups, and technical inquiry servicefor implementation questions.

FASB has also produced a short video offering a brief overview of FASB’s implementation assistance efforts.

Source: Accounting Today

Talk Accounting rolls out debit cards

Talk Accounting now offers debit cards that connect directly to its accounting app, recording each transaction as it’s swiped. The cards can be white-labeled for firms so accountants can offer the cards to their clients.

Talk Accounting’s app allows users to verbally speak their transactions into their smart phone’s microphone, recording the transaction and inputting it into either QuickBooks or an Excel spreadsheet.

The new cards will be issued by Mastercard, and are electronically connected to the user’s Talk app, recording each transaction as it’s completed.

Rollout of cards for a firm will take about 90 days, Travis Beaulieu, co-founder of Talk Accounting, told Accounting Today at this week’s Accountex conference in Boston, where the company announced the news.

Source: Accounting Today

Together or alone? Preparing returns in front of clients

A tax preparer advising a client.

Bloomberg News

Is it better or worse to prepare returns in front of clients? Tax pros differ over whether it’s better to have the client present so they can answer questions, or to prepare the return distraction and check their work before sharing it with the client.

“I prepare returns in front of clients most of the time and have for about 50 years,” said Marilyn Meredith, of Michigan-based Meredith Tax Service. “This is the most efficient and most thorough way of preparing returns.”

“We prepare as many tax returns with the client present as possible,” said Enrolled Agent Debra James at Genesis Accounting & Management Services, in Lorain, Ohio. “It enables us to do a higher volume of work, ask questions while we work and get to know our clients better not just on a business level but a personal level – which I believe helps retain clients.”

“My goal is to complete the return with the client during our scheduled appointment,” added Marilyn Heller Ayers, a CPA in Brick, N.J. “During our conversation, I usually learn important facts that affect the return or will affect it in the following year.”

“My preference is to prepare returns as part of a face-to-face interview,” said Jeff Gentner, an EA in Amherst, N.Y. “I feel most confident when I sit with the taxpayers and do a thorough interview while entering data. I also know that my clients want to leave with results, as well as knowing that it is complete.”

“Having my clients sitting at my desk from start to finish is my preferred method of preparation,” said Kathy Hallford, an EA at Kathy’s Tax Service in Gilbertown, Ala. “Time is saved when questions can be asked, answered and documented all at the same setting.”

LET'S REVIEW

Time to double-check work figures is top of mind for preparers who don’t prepare returns in front of clients. “I’ll give an estimate of refund or amount due in most circumstances, but as a rule I take the return and process it in a few days and get it back to the client,” said Joel Grandon, an EA in Marion, Iowa. “It gives me a chance to review the final product and I find I make fewer errors when I’m not trying to carry on a conversation and enter data at the same time.”

Said Nicole Green, an EA at NGG Tax Group in Easton, Mass., “I prepare less than 1 percent of my returns face to face. As a solo practitioner, I want to be able to prepare the return, put it down and then review at a later time for possible errors.”

CPA Brian Stoner, in Burbank, Calif., will sometimes prep in front of clients “if the client is rushed and needs to file that day or has a pressing issue, but I prefer to not handle the returns that way,” he said. “If I do prepare the returns that way, I’ll review the returns then and discuss with the client before we sign the e-file forms.”

A MATTER OF STYLE

A recent practitioners’ survey by the National Society of Accountants revealed that slightly fewer than half of respondents (45.7 percent) collect client data in person to prepare a return. The survey didn’t specify actually preparing the return in front of the client.

“Not my style,” said Morris Armstrong, an EA and registered investment advisor with Armstrong Financial Strategies in Cheshire, Conn. “I interview a client, collect documentation and an organizer, review it and make notes and then do the return in private.”

Said Chris Hardy, an EA in Suwanee, Ga., “Most times clients don’t have all the necessary items ready to complete a return even if they complete the organizer.”

“I used to do it all the time. I was doing a quick and dirty calculation before they left anyway, to give them an idea of what they would owe or get back,” recalled EA Terri Ryman, of Southwest Tax & Accounting in Elkhart, Kan., whose husband asked why she didn’t just finish the return in front of the client and probably get paid faster. “Very seldom would it be incorrect when I reviewed it later that day before transmitting,” Ryman said.

VALUE SERVICE

EA William Keats of Keats Tax & Financial Service in North Merrick, N.Y., prepares about three-quarters of personal returns in front of clients. “Estate returns and corporation returns, as well as payroll and sales tax returns, are usually dropped off or mailed in to me,” he said.

With complex returns such as those corporations or partnerships, EA Laura Strombom at All About Numbers in Stockton, Calif., gets the information for the entity or complex portion of the return on a 1040 either through her bookkeeper or from the client, “and then we review their books and ask questions before going with the books on a return,” she said. “I then prepare the return outside of the client appointment … and then present the return to them in the appointment.”

Those trained in some chains were used to the face-to-face. “Ninety-five percent of the returns I prepare are done in front of my clients,” said Frederick Reynolds, an EA in Utica, N.Y. “I work for H&R Block, and that’s just the nature of the beast.”

“The first year that I did taxes was at H&R Block, in 2000,” Armstrong recalled. “We did do most returns with the client sitting there – and they’d interrupt all the time and ask, ‘What are you doing?’ One person wanted to watch everything and have everything explained to him so that he could do the returns for his friends … .”

“A key motivation is that by reviewing a return as a whole, without the pressure of the client, there’s a better chance of spotting something else in the big picture that would be beneficial, said EA Richard Ogg at The Master’s Tax & Financial Services in Santa Rosa, Calif. “Another downside is if you are too quick, some clients may wonder why they’re paying the fee that we charge.”

“Preparing returns in front of clients could have a downward pressure effect on fees for preparers,” added Stephen Mead, an EA in Bradenton, Fla. “Time trumps knowledge in [clients’] value equation.”

“I do 80 percent of my clients’ returns in my office while they wait,” said Patrick O’Hara, an EA in Poughkeepsie, N.Y. “These are clients that we can prepare, print and review returns within an hour or less. Many of my peers disapprove of this model,” he added, “but I believe it’s a more efficient use of my time and I’m able to get paid on the spot. It’s also a good opportunity to reinforce relationships and ask for referrals or a review of our service.”

“I do prepare returns in front of clients, generally speaking. But I do give them an option to … send it via mail, fax it, scan and e-mail it or we can even do a Skype meeting,” said Theodore Prioleau, an EA at Hunt Valley, Md.-based Teddy The Tax Man and Hunt Valley Retirements. “I find that the more flexible I am, the more options they have, the more they love it.”

Source: Accounting Today

Why your child won’t be an accountant

Seriously. Your child won’t be an accountant.

Not because your child wants to go into some other profession.

Even if your child loves what you do as an accountant today, is inspired by you and wants to follow your footsteps in the accounting profession, your child won’t be an accountant.

Why?

According to “The Future of Employment: How susceptible are jobs to computerisation?” research report from the Oxford Martin School (a research and policy unit of the world-renowned University of Oxford), technology will create the danger of replacing:

• 94 percent of accountants and auditors;
• 97 percent of payroll and timekeeping clerks;
• 98 percent of bookkeepers/bookkeeping, accounting, and auditing clerks; and,
• 99 percent of tax preparers.

That is scary!

THE GOOD NEWS

Let us dive a bit deeper into what exactly is in the danger of being replaced by technology. It is not that technology will replace “accountants and auditors.” It is what they do as work that is being examined for possibilities of replacement by technology.

And therein lies the good news.

Interestingly, the American Institute of CPAs has focused its descriptions more on the “impacts” that accountants’ work has on their clients’ lives and businesses. For example, the institute says, “Accounting deals with interpreting and communicating information, which, as interpreted by CPAs, allows executives to make informed business decisions-decisions that help those companies become more successful. ….Accounting links the past with the future. …. A CPA is a trusted financial advisor who helps individuals, businesses, and other organizations plan and reach their financial goals.”

But it appears that the replacement potentials are based not on the AICPA’s description but on some other definitions of the occupations of “Accountants and Auditors” that need serious updating.

Here is how narrowly these accounting profession-related occupations are defined (mainly because accounting professionals were indeed performing the activities and tasks mentioned in these definitions).

According to the U.S. Bureau of Labor Statistics:

• 13-2011 Accountants and Auditors. Examine, analyze, and interpret accounting records to prepare financial statements, give advice, or audit and evaluate statements prepared by others. Install or advise on systems of recording costs or other financial and budgetary data.
• 43-3031 Bookkeeping, Accounting, and Auditing Clerks. Compute, classify, and record numerical data to keep financial records complete. Perform any combination of routine calculating, posting, and verifying duties to obtain primary financial data for use in maintaining accounting records. May also check the accuracy of figures, calculations, and postings pertaining to business transactions recorded by other workers.
• 13-2082 Tax Preparers. Prepare tax returns for individuals or small businesses.
• 43-3051 Payroll and Timekeeping Clerks. Compile and record employee time and payroll data. May compute employees’ time worked, production, and commission. May compute and post wages and deductions, or prepare paychecks.

Fortunately, there is a key flaw in the calculation of replacement potential projections. The replacement potential percentages mentioned above are based on these narrow (and seemingly somewhat outdated) definitions of what these professionals (are assumed to) do. The AICPA’s “impact-driven” descriptions do not seem to have been fully considered in these projections. This flaw has skewed the replacement potential percentages way beyond realistic estimates, which, fortunately, is a good news!

In my experience of working with accounting professionals day in and day out, they do far more than what is mentioned in these definitions. Their roles are evolving. The positive impacts they deliver on the lives of their clients are also evolving. These definitions/descriptions do not truly capture the new and evolved functions accounting professionals perform.

Hence, the good news is that these high-percentage, grim-looking projections of replacement potential are not truly reflective of the replacement of accounting professionals. At best, these percentages may, somewhat, reflect the replacement potential of what accounting professionals do as described in these definitions. In other words, there are no predictive models to show what future accountants will do that capture the essence of the evolving roles and responsibilities of accountants.

I mentioned that accounting professionals were indeed performing the activities and tasks. They are, increasingly, not performing these activities and tasks, as technology has evolved to do some of them. But, for whatever reasons, the definitions to describe these occupations have not evolved, at least at the same pace as technology has evolved to make a serious dent in what humans did in these professions.

Let's distill what accountants, auditors, bookkeepers, payroll processors and tax preparers did as work: examine, analyze, interpret, prepare, give advice, audit, evaluate, install or advise on systems, compute, classify, record, keep records complete, calculate, post, verify, obtain primary financial data, maintain accounting records, check the accuracy, prepare tax returns, compile and record time and payroll data, compute time worked, compute production, and commission, compute and post wages and deductions, or prepare paychecks.

Now, think how many of these things the software you use at your firm do right now. Take a look at how Blockchain can impact several of these tasks.

Next, think of how many of the tasks you and your people do that are not currently included in the above list.

You now know that all these “definitions and descriptions” do need serious change – like seriously quickly. Do you agree?

Honestly, if your children – mostly Gen Y and Gen Z - are reading the current definitions of these jobs, not only are they getting perplexed (“Why aren’t these tasks being done by technology?”) but they are also getting disillusioned about what you – their parents – are doing as accounting professionals. Your child would not want to do those things that define these occupations. The perceptions of what accountants do are far from reality. And perceptions will drive away new talent from the profession.

It is year 2017. The time has come to more accurately define what accountants, auditors, bookkeepers and tax preparers do. Otherwise, the perceptions caused by these current definitions are extremely potent in their ability to scare the future generations away from the accounting profession. The very same perceptions will make future clients wonder why should they go to accountants if technology ends up doing everything that clients perceive accountants are doing. According to the AICPA’s PCPS Top Issues Survey 2017, “finding qualified staff (at all levels) and retaining qualified staff” are among the top five issues for firms of all sizes. Perception about the accounting profession is surely one of the key causes that have accentuated this talent issue.

Your child won’t be an accountant – certainly not as per the current definitions and descriptions of what “accountants” do.

What should be the new definitions and descriptions?

Source: Accounting Today

Internal control weaknesses correlate with financial fraud

Former Sen. Paul Sarbanes (D-Md), co-author of the Sarbanes-Oxley Act.

Bloomberg

The audits of companies’ internal controls mandated by the Sarbanes-Oxley Act are good predictors of financial fraud, according to a new study.

The study, by professors Matthew Ege of Texas A&M University and Dain C. Donelson and John M. McInnis of the University of Texas at Austin, found the incidence of fraud disclosures at companies previously found by auditors to have material weaknesses in their internal controls is approximately 80 to 90 percent greater than companies on average, depending on how it was measured. Of the 127 fraud cases identified by the study, 36 of them, or nearly 30 percent, occurred after auditor reports of material weakness in internal controls. The study appears in the August/October issue of Auditing: A Journal of Practice & Theory, a quarterly published by the American Accounting Association.

The researchers collected 14,000 internal-control opinions from auditors for large and midsized corporations, examining the relationship between reports of material weaknesses and reports of corporate fraud within the following three years.

“Although material-weakness reports mostly reflect accounting errors and portend revelations of fraud only infrequently, the fact that they precede almost 30 percent of the instances where fraud does, in fact, come to light should lead investors, regulators and legislators to take notice,” Ege said in a statement.

The study provides ammunition for defenders of the Sarbanes-Oxley Act of 2002, particularly Section 404(b), which mandates outside audits of public companies’ internal controls. The legislation was passed in the aftermath of the wave of accounting scandals of the early 2000s at companies such as Enron and WorldCom. However, Congress later relaxed the requirement for so-called “emerging growth companies” in the JOBS Act of 2012, in an effort to spur the development of startup businesses with less than $1 billion in annual revenues that want to go public. The Financial Choice Act that the House passed in June would lower the threshold further to $50 million.

“SOX Section 404(b) provides a potential benefit of an early warning system for future fraud revelation,” said the study. “Given the criticism of SOX and discussion in favor of its repeal or curtailment, this benefit is an important consideration alongside the costs of internal control reporting.”

Source: Accounting Today

Congressmen concerned about misuse of .cpa domain

A group of four lawmakers has sent a letter to an internet governing body expressing concern about how the proposed .cpa domain extension might be exploited by fraudsters pretending to be CPAs.

The American Institute of CPAs has been working to secure a .cpa domain string, in partnership with the Australian accounting body CPA Australia, since 2014. The two groups have pending bids for what is technically known as a “generic Top-Level Domain string,” or gLTDs, before the Internet Corporation for Assigned Names and Numbers, also known as ICANN, the global nonprofit that oversees internet namespaces.

Rep. Steve Pearce, R-N.M., Michael Conaway, R-Texas, Steve King, R-Ind., and Ruben Kihuen, D-Nev., are asking ICANN to develop and promulgate verification regulations for gTLDs that are at the most risk of fraud and abuse, including “.cpa.” Conaway is a CPA who is a member of Congress’s CPA Caucus.

In a letter last month, the lawmakers pointed out that a 2013 communique by ICANN's Governmental Advisory Committee identified several domain extensions connected to regulated or professional sectors, including the accounting profession. “The GAC recognized that ‘these [gTLDs] are likely to invoke a level of implied trust from consumers, and carry higher levels of risk associated with consumer harm,’” they wrote. “Further, the communique highlighted that gTLDs such as ‘.cpa’ could be used to deceive consumers of CPA services in the United States and around the world if granted to those outside the global CPA community.”

“Ultimately,” the lawmakers added, “the communique recommended ICAAN ‘[e]stablish a working relationship with the relevant regulatory, or industry self-regulatory, bodies, including developing a strategy to mitigate as much as possible the risks of fraudulent, and other illegal, activities,’ and specifically cited ‘.cpa’ as requiring "Category 1" safeguards.”

“Unfortunately, to date, ICANN has not fully implemented this recommendation,” they noted. “While it has taken steps in the right direction, gTLDs, such as ‘.cpa,’ are still not regulated in a way to prevent fraud and abuse. For a gTLD that has a strong connection to a regulated industry, such as ‘.cpa,’ the protection of the public against fraud or other illegal activities should be of paramount concern to ICANN. Strong, reliable verification procedures are essential to protect the public interest. The importance of the public trust to the CPA profession around the world cannot be overstated, and the potential harm to the public of fraudulent or illegal use of a ".cpa" domain is immense.”

The lawmakers are encouraging ICANN to come up with verification procedures for websites that try to claim .cpa domain names. “ICANN cannot combat fraud by simply requiring applicants to make a representation, without any verification,” they wrote. “We recognize that although such verification is not a simple task, but it is an essential one.”

Source: Accounting Today

House passes bill to curb IRS asset seizures

Randy Sowers, a dairy farmer whose $60,000 bank account 

was seized by the IRS.

Photo: Institute for Justice

The House unanimously approved a bill late Tuesday to discourage the Internal Revenue Service from using civil asset forfeitures to seize money and property from taxpayers.

The bill, known as the Clyde-Hirsch-Sowers Restraining Excessive Seizure of Property through the Exploitation of Civil Asset Forfeiture Tools (RESPECT) Act, would revise the authority and procedures the IRS uses to seize property that has been structured to avoid Bank Secrecy Act reporting requirements. Under the bill, the IRS could only seize property it suspects has been structured to avoid BSA reporting requirements if the property comes from an illegal source, or if the funds were structured for the purpose of concealing the violation of a criminal law or regulation other than structuring transactions to evade BSA reporting requirements.

Within 30 days of seizing property, the IRS would need to make a good faith effort to find all owners of the property, as well as notify the owners of the post-seizure hearing rights established by this bill. The IRS could apply to a court for one 30-day extension of the notice requirement if it can establish probable cause of an imminent threat to national security or personal safety.

If the owner of the property asks for a court hearing within 30 days after the date on which notice is provided, the property would have to be returned unless the court holds a hearing within 30 days after notice is provided and finds there's probable cause to believe the property derived from an illegal source or the funds were structured to conceal the violation of a criminal law or regulation other than a structuring violation. The bill amends the Tax Code to exclude from gross income any interest received from the federal government with respect to an action to recover property seized by the IRS under a claimed violation of the structuring provisions of the BSA.

The bill was sponsored by Reps. Peter Roskam, R-Ill., chairman of the House Ways and Means Tax Policy Subcommittee, and Joseph Crowley, D-N.Y. The Clyde-Hirsch-Sowers RESPECT Act is named after two small-business owners who had their entire bank accounts seized by the IRS for alleged structuring Jeff Hirsch and Randy Sowers. Hirsch had over $400,000 seized from his convenience store distribution business on Long Island, while Sowers, a Maryland dairy farmer, lost $29,500 to the IRS. Even though neither of them was ever charged with a crime, it took years of legal proceedings before they recovered their funds. They were both represented by the Institute for Justice, a libertarian law firm and advocacy group.

“The IRS used civil forfeiture to steal from innocent, hard-working small business owners,” said Institute for Justice attorney Robert Everett Johnson in a statement. “With Congress so bitterly polarized, it’s encouraging to see hundreds of representatives stand together against this inherently abusive practice.”

A study by the Institute for Justice found that from 2005 to 2012, the IRS seized more than $242 million in over 2,500 cases for alleged structuring offenses. One-third of those cases involved nothing more than making a series of sub-$10,000 cash transactions.

House Ways and Means Committee chairman Kevin Brady, R-Texas, praised passage of the legislation. “The House sent a clear signal to the IRS this week that bullying law-abiding Americans will not be tolerated,” Brady said in a statement. “After years of bipartisan oversight to hold the IRS accountable for their wrongdoings, the Clyde-Hirsch-Sowers RESPECT Act stands up for the innocent small business owners and farmers who were forced to hand over their hard-earned dollars to the IRS—in some cases losing their livelihoods and life savings. The bill puts in place strong safeguards to prevent the IRS from wrongfully seizing the assets of hardworking Americans. I commend Tax Policy Subcommittee Chairman Roskam and Rep. Crowley for their work to protect taxpayers, and I urge the Senate to pass this important legislation.”

Two wide-ranging civil forfeiture reform bills are also under consideration in Congress. Rep. Jim Sensenbrenner, R-Wis., has reintroduced the DUE PROCESS Act, which would strengthen safeguards for business owners, while Sen. Rand Paul, R-Ky., has sponsored the FAIR Act, which would prohibit federal agencies from keeping forfeiture proceeds and abolish the so-called “equitable sharing” program, under which the proceeds of seized assets are shared between state and federal law enforcement authorities.

Under “structuring” laws, the IRS has routinely confiscated cash from ordinary Americans because they frequently deposited or withdrew cash in amounts under $10,000. The IRS is able to keep that money without ever filing criminal charges.

An April report by the Treasury Inspector General for Tax Administration found the IRS’s use of structuring laws “compromised the rights of some individuals and businesses.” In a sampling of 278 investigations, it found no evidence in 91 percent of those cases “that the structured funds came from an illegal source or involved any other illegal activity.”

In October 2014, the IRS’s Criminal Investigation unit introduced a new policy specifying that it would no longer pursue the seizure and forfeiture of funds related to legal source structuring. However, in the same month the policy changed, the TIGTA report noted, The New York Times reported that IRS Criminal Investigation had been seizing funds in structuring investigations without filing a criminal complaint, leaving property owners to prove their innocence. Many of them gave up trying.

In July, Roskam noted that the IRS had reviewed 454 petitions for the return of property forfeited under the structuring laws and returned more than $6 million to property owners. The IRS also transferred 250 petitions to the Department of Justice for review, but the DOJ has only acted on 73 of the petitions. The Justice Department approved returning money in only 32 percent of cases—far below the IRS’ recommendation of 80 percent. In their 2016 party platforms, both the Republican and Democratic Parties condemned civil forfeiture and called for reforms to the practice. Since 2014, according to the Institute for Justice, 24 states have reformed their forfeiture laws while over 260 editorials have criticized the practice.

Source: Accounting Today