OSCPA candidate screening process provides CPAs with valuable voting insight

September 27, 2010

By David A. Simko, CPA, Chair, OSCPA Statewide Candidate Screening Committee

The 2010 elections are very important to Ohio’s future and to all of us as CPAs and citizens. In this very challenging economic environment, Ohio needs leaders with proven skills to address its financial problems head on and make the difficult decisions necessary to put the state on a path for a strong recovery.

This election in particular underscores for me as chair of OSCPA’s candidates screening committee just how valuable a resource we have in The Ohio Society’s endorsement process.

Every two years OSCPA engages dozens of CPAs from across the state in a comprehensive interview and selection exercise that spans several months and culminates in a select group of candidates receiving OSCPA’s endorsement for public office.

It is a very thorough, objective and bipartisan process—one in which candidates are invited to confidentially share their views and policy positions on issues that are important to CPAs. Each of these affect Ohio’s business climate, economy and, ultimately, all Ohioans.

This year, OSCPA significantly weighted its endorsement decisions by considering how candidates plan to address the budget deficit and what they plan to do to make Ohio economically competitive again. We weren’t looking for line item by line item specifics, but rather a strong sense of candidates’ commitment to address areas such as making government more efficient and effective, cutting costs, driving economic development, and closing the budget shortfall.

As a result, CPAs across Ohio now have a very qualified resource to study before making the decision how they will vote in the November election. I encourage you to do your own research on the candidates and their plans for Ohio, and to read the 2010 OSCPA Election Guide that was printed in the September issue of CPA Voice. It includes endorsements for numerous House, Senate and Congressional candidates, as well as all of Ohio’s statewide races. Our regional and statewide screening committees spent considerable time vetting these individuals who have pledged to promote business-friendly programs and work diligently to move Ohio back on track financially.

OSCPA is one of the few Ohio organizations that so thoroughly screens candidates for their views. As a result, an OSCPA endorsement carries considerable weight in legislative circles and with the public at large.

Most importantly, I hope you will make your voice heard by voting on Nov. 2. For more information on the 2010 elections, visit the Society’s Election page.

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Let’s Make a Deal That Makes Sense for Small Business

August 6, 2009

Listening to wiser-than-me OSCPA Accounting & Auditing Committee members shape a response to the AICPA Accounting and Review Services Committee’s Reliability exposure draft, I’ve noticed that we often circle back to the same discussion: relevance of standards for the smallest of business entities.

Micro-entities comprise more than 50% of the U.S. gross domestic product, and numerous CPAs specialize as trusted advisors to the smallest businesses that collectively drive a significant portion of our economy. Part of our mission in serving the public interest includes looking out for the relevance of the profession’s rules to this important, overlooked segment of the economic picture.

The proposed “reliability” SSARS is a good step in allowing financial statement users to distinguish between independence impairments caused by helping the client prepare more reliable statements and impairments caused by other relationships.  (Whether independence impairments for assisting the client should be allowed in a review is a separate debate, and the primary concern of the committee’s response.) In many cases, users of small business financial statements will be better served knowing that the statements were prepared by a CPA, even if the CPA is not independent due to their level of involvement in the underlying accounting.

The discussion of usability arose again in a review of the FASB preliminary views document on financial statement presentation – a joint IASB/FASB vision of the future of what financial statements will look like. While organization of financial statements by type of business activity may prove useful to analysts of the largest public companies, the committee’s perception was that the benefit to the vast majority of users by no means justifies the costs of conversion and ongoing preparation (The standard should be optional for private companies.)

Reliability, consistency, independence, comparability, relevance –what’s most important in determining the applicability of accounting standards? Most important to that decision is the usefulness to the consumers of the information. As we consider the future of accounting for small business, let’s look behind the doors of three of the most common options under debate.

Behind Door #1: GAAP

Supporters of U.S. generally accepted accounting principles for small business cite research findings that the marketplace values GAAP for its consistency and comparability. An increase in GAAP departures, due to users and preparers frustrated by the irrelevance of requirements such as FIN 48 or FIN46(R) to their specific situation, indicates that some alternative version of GAAP may be preferable for private entities. Whether that will be exceptions to existing GAAP requirements, or a separate “little GAAP” for small business, some users continue to ask for GAAP – as a “known” standard (after all, it’s “generally accepted!”) or “gold standard” (although the U.S. may be losing that status as the rest of the world adopts a combined alternative).

Behind Door #2: IFRS for SMEs

In July 2009, the International Accounting Standards Board issued long-awaited International Financial Reporting Standards for Small and Medium Entities. In issuing a separate set of standards for small business, the IASB recognized the cost/benefit imbalance of more complex disclosures for this segment’s users. IFRS for SMEs presents another alternative for small business owners who:

  • Desire separate standards for private entities
  • Have no need for more complex disclosures required by U.S. GAAP or full IFRS
  • Recognize that sources for capital are increasingly global
  • Recognize the potential for future business growth or acquisition internationally

And Lastly, Door #3: The OCBOA Option

One argument for IFRS, presented particularly by accountants in business and industry, is reducing the necessity to maintain separate sets of books when conducting business internationally. For many micro entities, the only set of books maintained is for the purpose of internal business management (possibly a modified cash basis) or tax compliance. Reporting under an Other Comprehensive Basis of Accounting (OCBOA) is an option for the small business user to maintain only one set of books and prepare financial statements on that basis (such as cash, modified cash, or tax basis).

Arguments against OCBOA include a lack of market recognition (the market “values GAAP”) and a lack of consistency, due to the absence of “generally accepted” standards. A frequent discussion of the OSCPA committee is the opportunity to provide greater education and consistency/comparability in OCBOA reporting to maximize value to the profession’s many micro- business clients.

Many lenders to the smallest of businesses would benefit more, the discussion goes, from tax basis financial statements and an agreed-upon procedures engagement verifying cash, accounts receivable and inventory balances, for instance. Such statements would be far more relevant to business owners, for whom the two overriding questions about any action are, “How will this affect my taxes?” and “How much cash do I need?” Many CPAs who serve micro-businesses state that increasing education to lenders and the user public regarding such alternatives would be a public service.

Achieving acceptance of OCBOA statements would be responsive to the “standards overload” issues for practitioners serving small business, and, frankly, address many frequent peer review findings. As the number of practitioners performing attest services continues to decline, directing the full attention of small business specialists to the needs of their clients and the third parties with whom those clients deal would be a win for all.

The profession can serve a role providing presentation and disclosure guidance to practitioners to provide greater comparability and consistency in practice regarding OCBOA engagements. Current professional guidance in this area is dated, and in the absence of such guidance, we run the risk of PPC, CCH or other provider becoming the “standard-setter” in this arena. More importantly, it would help resolve the very real, and very stubborn, application problems many firms face on a daily basis.

The micro-business market and current trends in practice should not be overlooked in shaping the future of private company accounting – we have multiple choices to make in what best serves our public.


CPA/client privilege bill is a positive step for Ohio

May 26, 2009

Right now, there’s an important piece of legislation being considered in the Ohio Senate that is long overdue for clients of CPAs: S.B. 80. The bill would be a major step forward for Ohio, and for thousands of business owners and Ohio citizens who rely on CPAs to provide qualified financial advice that affects their bottom line.

S.B. 80 would create a very narrow client testimonial privilege that would clear the way for business owners and taxpayers to have confidential, advice-seeking discussions with their CPA on both problems and opportunities before they make critical financial decisions. Right now, businesses and individual taxpayers don’t have the freedom to disclose sensitive details and explore financial strategies with their trusted advisor because their own CPA can be forced via a subpoena to reveal details of these discussions.

But current law puts Ohio businesses and CPAs in a vulnerable position by not giving clients the same testimonial privilege with CPAs — their most trusted financial advisors — as they enjoy with their attorneys, physicians, members of the clergy, and counselors.

The result is that critical conversations are not happening as often as they should, meaning a CPA’s advice is not as accurate as it could be and audit results — which shareholders rely on for investment purposes — are not as comprehensive as they should be.

Further, a business owner can’t have both its attorney and CPA present when trying to get advice on sensitive matters without waiving the attorney/client privilege, and attorneys can’t be as forthcoming as they want to be in the “legal letter” they give to auditors of a business they represent.

The bill cleared the Senate Judiciary-Civil Justice Committee on May 6 with strong support (8-1 vote) and will be put to a full Senate vote in the near future.

Sounds like a no brainer, right? Amazingly, it’s not. OSCPA is facing stiff opposition primarily from prosecuting and trial attorneys who argue its passage would hinder investigators from obtaining necessary evidence to prosecute white collar crime cases.

Nothing is further from the truth. This bill was intentionally written with a very narrow scope — not to protect those who commit crimes but to encourage greater disclosure among clients and CPAs so they can seek qualified financial advice to avoid potential problems or fix past problems.

In fact, investigators would still have access to 98% of the information they now can examine. Literally the only information that would be privileged would be the confidential, deliberative discussions between client and CPA, whether verbally or in writing. All other discussions and documents would be subject to discovery. And even that last bit of protected information could be subject to discovery should the plaintiff’s attorney show the judge (with the 98% of evidence still available) that fraud or crime was involved.

Could it be much ado about nothing on the part of law enforcement interests? While CPAs can be subpoenaed to reveal deliberative conversations right now, this step is very rarely taken. In addition, 17 other states have had a similar or broader statute in place for decades, and white collar crime isn’t running rampant in those locations.

A CPA and former detective/supervisor with the Columbus Division of Police’ Economic Crime unit recently told the Ohio Senate committee that in 15 years of investigating financial crimes, there was not a single case in which investigators in his office questioned an accountant or forced one to testify, and only one such occurrence on the part of the prosecutor. They relied on the financial documents to tell the story for them…documents which remain accessible under S.B. 80.

S.B. 80 is a critical piece of legislation that would encourage clients to more fully disclose strategic plans and discuss problems so they can seek solutions that would keep them in compliance with the law. In today’s troubling economy, Ohioans need all the help they can get.

The bill is supported by The Ohio Society of CPAs (OSCPA), the National Federation of Independent Business (NFIB), the Ohio Chamber of Commerce and the Ohio Manufacturers Association.

Lend your support to this important initiative. Ask your Ohio Senator to vote in support of S.B. 80 this month. For talking points on the issue, contact Barb Benton, OSCPA Vice President, Governmental Affairs at bbenton@ohio-cpa.com.


BWC Rating – an Ohio Economic Development Issue

March 30, 2009

As I tweeted updates from an Ohio Workers’ Compensation briefing earlier this month, I could almost hear the collective yawns from those reading. Yes, the latest controversies of the Ohio Bureau of Workers’ Compensation (BWC) are best debated by actuaries, but the consequences of recent Bureau action will be far-reaching for Ohio business.

In response to the San Allen case in Cuyahoga County alleging inequities in the Ohio BWC group rating program, the Ohio General Assembly passed HB 79 allowing Ohio’s group rating program to continue, but with modifications. Group rating allows businesses with records of workplace safety to form groups that qualify for premium discounts. Group participants have an incentive to keep claims lower to stay in the group, and the BWC’s own data demonstrates that groups have resulted in reduced claims. To illustrate, participants in OSCPA’s group rating pool have received an annual premium discount of $542,000.

Responding to the case, the Ohio BWC was more than eager to be reactionary, approving sweeping changes introduced in the name of “rate reform” at its March meeting. The most significant changes include:

  • Overall base rate reductions for non-group employers, resulting in 25% overall savings.
  • A “penalty” for group employers of 31%, accompanied with a previously approved reduction in the maximum group rating discount from 85% to 77%. (A subsequent move to 65% has been proposed.)
  • Elimination of the “stacking” of discounts such as the Drug-Free Workplace discount on top of a group rating discount.

These rates were established to correct a $295 million “off-balance” calculation of the Bureau between current group and non-group employers.

Opponents of the rapid action by BWC claim that little transparency was provided in the calculations to allow Ohio employers and their representatives to question the calculation assumptions. Concerns have also been expressed that unintended consequences are not accurately modeled, including:

  • Are the discontinuation of groups with lower discounts, and employers leaving groups due to the impact of the penalty, adequately anticipated in projected revenue?
  • Does the introduction of regulatory complication and uncertainty further decrease the attractiveness of Ohio as a destination for employers?
  • What will be the Ohio business consequences of introducing increased costs of doing business during current economic challenges?

If projected revenue targets are not met due to unintended consequences, does this force increases in the group penalty in future years to correct the new “off-balance,” resulting in a downward spiral of additional unintended consequences that ultimately end the group rating program?

The cumulative result of the Ohio BWC changes is that the selection of the best approach for an employer will be a very individual determination. The best success strategy we can recommend is to stay in close touch with your group sponsor as we progress through current and forthcoming changes. OSCPA will keep the 450 CPA firms in its group rating program informed as this continues to unfold.

Changes approved for 2009 will not likely be noticed by many employers until checks are written in January of 2010. It has been difficult to get the Governor or legislators excited until employers begin realizing the effects. BWC continues to study additional changes for the July 1, 2010 premium year. Legislators and the Strickland administration need to hear from constituents about the true financial impact these changes make for businesses struggling to thrive and grow in these tough economic times.

The Ohio Society of CPAs has been actively involved in working toward minimizing unintended consequences and enacting rate changes over an appropriate timeframe to allow for public transparency and feedback. If you have a relationship with an Ohio legislator or someone on the Ohio BWC Board, now is the time to have an impact. Contact Amy Mignogna, OSCPA Senior Manager of Governmental Affairs, to learn how you can get involved.


What does the future hold for IFRS?

March 3, 2009

Reading the subtle – and not so subtle – communications from the SEC make it nearly impossible to anticipate the direction the “new” SEC is going to travel with IFRS.

Under former SEC Chair Christopher Cox, the SEC moved toward a new frontier. The commission implemented IDEA – the replacement to the EDGAR database, passed XBRL for financial statements and mutual funds and proposed a landmark roadmap to transition the U.S. to the International Financial Reporting Standards (more commonly referred to as IFRS).

While most decision-makers believed the move to IFRS was inevitable, a loud majority still voiced their opposition saying the roadmap timeline was too aggressive. As Cox finished his term as SEC chairman, the SEC rushed to get the roadmap out for comment.

Then the recession took center stage. The Stimulus Act was passed in October 2008 to help the unstable economy. Job losses were mounting. Fingers began pointing to fair value and financial institutions were demanding the SEC suspend fair value. Congress mandated that the SEC undertake a study of fair value accounting. Understandably, the roadmap was delayed.

Things then went from bad to worse. The alleged Bernie Madoff $50 billion Ponzi scheme broke. And fingers again pointed to the SEC. Investigators failed to investigate many repeated allegations against Madoff over 15+ years. 

Nonetheless, even though mired in the recession and the Madoff scandal, the SEC released its proposed roadmap for IFRS. While the roadmap was significantly delayed, there was only one major change made in the timeline.

Then newly elected President Barack Obama nominated Mary Schapiro as the new chair of the SEC. A former SEC commissioner, Schapiro said from the very beginning, “I will not be bound by the existing roadmap that’s out for public comment.” And she has not. Schapiro has come in and is reinvigorating the SEC as the securities watchdog for the nation – and promises not to take it easy on corporate fraudsters.

Already Schapiro has:

Her actions and her words have made many wonder about the roadmap and the outlook for IFRS. Will the nation actually transition to IFRS or is it just being delayed? How long will the delay be? Six months? Six years? Given the current economy and the many calls from lawmakers to reform the nation’s financial regulatory system, including the SEC, this may not be the ideal time to be completing a transition such as this – one that will dramatically change financial reporting, the accounting profession and possibly litigation.

Right when many were ready to put on the brakes completely, Schapiro met with Sir David Tweedie, chair of the International Accounting Standards Board, in mid-February. Tweedie made his case for keeping the transition on its current – or close to – the current timeline. It’s also been reported that Schapiro has advised staff to review the current proposal to identify elements that can be used.

Actions do speak louder than words and the only real action to date is extending the deadline to comment on the proposed roadmap to April 20.

Next steps from the SEC . . . your guess is as good as mine. What are your expectations? Do you think the U.S. will transition to IFRS in the near future or has been this delayed extensively?

Take a look at some of these IFRS resources and recent news stories:

OSCPA IFRS Issue Monitoring home page

  • Investment executives favor IFRS
  • Big four firms push IFRS education efforts PwC unveils $700K grant, Deloitte readies materials

In May, The Ohio Society is also starting an International Special Interest Section. Watch for more details to come soon.


CPA value at home and abroad

October 30, 2008

In his presentation to Council October 20, Barry Melancon, CPA, AICPA President and CEO, stressed that the AICPA had received “pretty good indicators” that the SEC would not be rolling back fair values. In fact, Melancon reported, debates over “mark-to-market” would cease if a buyout goes through, as the market would then know real economic values.

Fundamentally, Melancon stated that accounting rules should be about true economic conditions, and that the independence of the standard-setting process should not be affected by political pressures.

As buyers attempt to sort out the true economic value of mortgage-backed securities, XBRL  can bring strong value in tracking data sets of underlying assets for the future, said Melancon. 

Timing of the proposed SEC roadmap for adoption of IFRS could be deferred by uncertainty in global capital markets or by a new political administration, according to Melancon.

As current events highlight the connectedness of international markets, what is the future value of the CPA in a global economy?

Facing increased international demand for the CPA designation, NASBA and the AICPA have been investigating the potential for international administration of the CPA exam. Reviewing this proposal, Leslie Murphy, CPA, and Arleen Thomas, AICPA Senior Vice President, outlined criteria important to this consideration, including:

·         Assessing the security of the exam and the testing ethics of the local culture

·         Requiring the same rigorous process as is required in U.S. administration of the exam

·         Not authorizing CPA designation holders to provide attestation services, which continue to be subject to local licensure.

At the heart of the issue is how will the CPA credential be positioned in a global marketplace.  Today “CPA” only applies inside the U.S.  In a global environment, what steps should be taken to ensure that the CPA credential means more than just competence in the U.S.?  How can we ensure that other global credentials don’t make CPA a second tier credential?

Concerns raised by Council members included putting the CPA “brand” in the hands of candidates who may not have the same level of buy-in to the profession’s core values, and how the disciplinary process would work for those holding the CPA designation outside of the U.S.

Results of a new U.S. survey indicate that CPA brand is stronger than ever. Presenting recent survey results, Melancon reported that the CPA has been resilient in the face of crisis and resistant to reinvention. Investors and business decision-makers are more confident in work done by a CPA than a non-licensed accountant, and nearly two-thirds responded that CPAs are subject to more rigorous training and testing than other financial credentials.

The prominence of fraud as a top concern of investors and business decision-makers has declined, being replaced by global competitiveness, health care, and economic growth as the dominant concerns. CPAs ranked second only to physicians in market perception, with a notable decline of mortgage brokers and hedge fund managers to the bottom of the survey results.

The research was conducted post-sub-prime mortgage crisis, but pre-stock market decline.


Exercising Leadership

October 29, 2008

In evaluating the highest attributes of the CPA profession, the market continues to value CPAs for integrity, professional competence and objectivity, according to the AICPA research.

Integrity, reliability and accountability are among the core values on the reverse side of Ernie Almonte’s business card. Almonte took office as the new Chair of the AICPA Board of Directors during this meeting of Council. When introducing himself, Almonte said he always presents the card values-side up, and asks the person to call the number on the back of the card if he ever fails to live up to those values.

In an impassioned speech accepting his Chairmanship of the AICPA, Ernest Almonte, the Auditor General of the State of Rhode Island, urged CPAs to learn to listen to many perspectives. Using a ballroom analogy, Almonte encouraged CPAs to continually shift from the balcony to the dance floor: gaining perspective of a rapidly changing, increasingly borderless world, but then reinserting oneself as a leader and determining how you should be part of the action.

Our job as a profession, per Almonte, is to:

· Adhere to a solid set of unwavering core values

· Become well-rounded on the trends and forces within and outside of the profession

· Communicate great things about our profession to others

· Help others see opportunities available to them, whether they are in international business, or on the path toward becoming a CPA.

Increasing diversity in the profession is a priority for Almonte as Chair.


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