AZ CPA Feb. 2013

www.ascpa.com

AZ JANUARY 2013

CPAThe Arizona Society ofCertified Public Accountants

Forensic LitigationFinancial Forensics

Family Law Accounting

Human Capital Growth

Risk Management

2 AZ CPA y JANUARY 2013

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JANUARY 2013 y AZ CPA 3

connectCommunicate • Collaborate • Contribute

The new, interactive online community only for ASCPA members

Your checklist to get connected

3import Your Linkedin profile with a click of a button.

3add a picture to your profile – if you imported your Linkedin profile, this is already done.

3set your privacy settings so members can easily find and connect with you through the member directory.

3Find and connect with members – Did you meet someone interesting at a cPe course? add them to your contacts on connect. You can use the member directory to find them.

3Join a community that fits your interests – whether it is tax, financial planning, emerging leaders or more.

3ask or answer a question – there is a main discussion forum and discussions in each of the communities – it is a great place to find new ideas and share experiences with other members.

3access the Library – each community has a library of documents and articles related to the community’s field of interest. You can also add your own documents to the library.

3read or write a blog – Members can write their own blogs on the site and have it available for members only or open for the public to read.

Want to network with your peers?

Need to find out the answer to that

tricky tax question? Do you have

expertise and information to share?

Want to learn more about what YOU

are interested in? Then Connect is

the right place for you. The Arizona

Society of CPAs recently developed

an online network for members only

that will allow you to interact and

communicate with your peers. This

tool puts the most relevant informa-

tion at your fingertips.

Join the discussion at: http://connect.ascpa.com

Congratulations to Liz Mason

— the winner of an iPad in our

update your profile contest.


JANUARY 2013

Features

The Forensic & Litigation Services Steering Committee 10 Lanyon shares his new experiences on the FLS Steering Committee.

by Geoff Lanyon, CPA

Family Law Accounting 11Forensics experts must be aware of certain issues in the family law area.

by David Cantor, CPA

AZVolume 29 Number 1

CPA

Columns & Departments 6 Chair’s Message by Armando Roman, CPA

7 Focus on Members

9 In the Black ... Adventures in Accounting

22 ClassifiedsArizona Society of Certified Public Accountants4801 E. Washington St., Suite 225-BPhoenix, Arizona 85034-2021www.ascpa.com

www.ascpa.com

Cornerstones of Financial Forensics 13Three areas where every forensic accountant must be proficient.

by Joe Epps, CPA

Risk Management for Accountants—Avoiding Professional Liability Actions 17Accountants continue to be seen as deep pockets whenever financial tranactions go sour. Learn how you can avoid trouble.

by George J. “Jay” Coleman

Human Capital Management —A Key Driver for Growth 20Employee skills and experience can mean the difference between success or failure for businesses.


The Arizona Society ofCertified Public Accountants

President & CEO Cindie Hubiak

Editor Patricia Gannon

Copy & Advertising DeadlineThe first of the month one month prior to publication date.

Board of DirectorsChair Armando Roman Chair-Elect Karen AbrahamSecretary/Treasurer Anita BakerDirectors Rob Dubberly Debra Johnson Jimmy Lovelace CW Payne George Raysik Phil Reckers Craig Robb Andy Spillum Leslie Stackpole Elva Vivas Corrine Wilson Kevin Yeanoplos

Immediate Past Chair Mark AndersonAICPA Council Members Jim Buhr Rick Goldenson

Chapter PresidentsSouthern Chapter Flo ZenbluNorthern Chapter Jennifer NordstromSouthwest Chapter Jayne WrightNorth-Central Chapter Richard Joliet

AZ CPA is published by the Arizona Society of Certified Public Accountants (ASCPA) to provide information, news and trends in the profession of accounting. It is distributed 10 times a year as a regular service to members of the Society. The ASCPA, its members, board of directors and administrative staff assume no responsibility for advertisements herein. The ASCPA and the above people also assume no liability for business decisions made by readers in reference to statements and/or claims in advertisements within this publication. Opinions expressed by correspondents and contributors are not necessarily those of the ASCPA.

Arizona Society of CPAs4801 E. Washington St., Suite 225-BPhoenix, AZ 85034-2021

Telephone (602) 252-4144 AZ Toll-Free (888) 237-0700Fax (602) 252-1511

www.ascpa.com

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Chair’s Message by Armando G. Roman, CPA

AZ CPA

Looking Forward to the New YearHappy New Year fellow CPAs! Well wishes to all as we enter a new year

of life, a new tax year and gain another year of maturity and wisdom. A

new year is a good time to recap and plan for the year ahead. In that re-

gard, 2012 seemed pretty darned iffy; agree? Was the economy going into

a double dip, was the European Union breaking apart and taking us with it,

was the infamous fiscal cliff inevitable? Alas, does 2013 look more stable

to you? Are you feeling positive about your company’s outlook over the

next 12 months? My business feels fine although I operate in a microcosm.

Better to attend the ASCPA’s Economic Outlook luncheon scheduled for Jan.

24 in Phoenix and Jan. 29 in Tucson to have reknowned economists give us

their perspective.

The Phoenix speaker is Dr. Lee McPh-eters, Director of Arizona State Uni-versity’s J.P. Morgan Chase Economic Outlook Center which specializes in economic forecasts for Arizona and the Western States.

The Tucson speaker, Dr. Gerald Swanson, is Chair in Economics at the University of Arizona (my alma ma-ter) and author of America The Broke: How the Reckless Spending in the White House and Congress are Bankrupting our Country and Destroying our Children’s Future. Dr. Swanson wrote his book in 2004, nine years ago. In 1993 he wrote another telling book Bankruptcy 1995: The Coming Collapse of America and How To Stop It. The book spent 39 weeks on the New York Times Best Seller List.

Unfortunately, I will miss seeing Dr. McPheters as I will be participating as a new member in the National CPA Fi-nancial Literacy Commission meetings of the AICPA during his presentation. Dr. Swanson looks to be worth the trek from Phoenix to Tucson on the 29th.

I would love to hear Dr. Swanson’s thoughts on present-day fiscal policy and his version of the state of our economy. Given the popularity of his

books, he appears to be an oracle. Not having met Dr. Swanson, I hope he gives us both barrels, holding back nothing, waiting to see the whites in their eyes before he stops pounding clenched fists on the podium, wear-ing tweed of course. An emotionally charged economist? I’ll keep my fin-gers crossed.

Speaking of emotions, I came across a study recently that speaks to emotion-ally-based investment decision making. It was very, very interesting. The study was critical of investment advisors for allowing the public to make emotional decisions, stating that if advisors would “advise” and tell clients what to do, force their hand if you will, investors would revel in better portfolio returns. The study conducted by Dalbar, Inc., Research and Communications Division, April 2012, concluded that investors’ emotions, fear of the unknown, fear of uncertainty, emo-tions hard wired in our brains, drives investors to flee. The survival instinct deeply ingrained in us overrides the rational logical self. Forget empirical evidence, forget historical anything, to flee is to survive. As a CPA, this seems

completely illogical. Can you imagine in a tax return or an audit, allowing the client to tell you how to handle a certain item, despite clear evidence to the contrary? That may seem equivalent to taking tax or financial advice from your barber. I can attest to emotionally driven behavior, as I think of a par-ticular client who must be glued to the television set and radio. If something is going on in the world that might impact the financial markets, he knows about it. When we meet, it takes 30 minutes to lower his blood pressure before we can get anything done.

This new year, I look forward to my oldest son becoming a senior in high school and having another successful season on the wrestling mat. I look forward to my other son becoming a high school sophomore and having success in his first wrestling season and lacrosse. And I look forward to having my daughter enter 5th grade. She continues to amaze me with her eagerness to learn and live and outdo her older brothers in everything she does. Enjoy the new year!


Focus on Members

ASCPA Society leaders attend the 2012 AICPA/CPA-SEA Leadership Conference: (L to R) Barry Melancon, AICPA President, Karen Abraham, ASCPA Chair Elect, Cindie Hubiak, ASCPA President and CEO, and Bill Balhoff, AICPA Vice Chair.

Kent O. Utter CPA, MBA, EA, helped write the CPA exam questions for the AICPA in November. This was the 4th time he participated, and the AICPA flew him out to Washington, D.C. for a 19-hour workshop.

David Richardson, CPA, has been promoted from CFO to CEO of Take Charge America.

Charvoz and Fortino, PLLC Certified Public Ac-countants in Tucson has merged its operations with R&A CPAs.

Leslie Stackpole, CPA, was promoted to tax partner at McGladrey, Phoenix.

Patricia von Kolen, CPA, was hired as a senior tax ac-countant at REDW LLC.

Linnette Klinedinst, CPA, was promoted to manager in the audit practice at Grant Thornton.

Ed Dupke is the AICPA’s representative to the G-400 firms. He and Cindie Hubiak met with a few Heinfeld, Meech & Co. partners in Tucson. CPAs from left, Cherie Wright, Jennifer Shields, Ed Dupke, Gary Heinfeld, Cindie Hubiak and Corey Arvizu.

Congratulations to Vesna!The ASCPA’s newest staff member has also become one of our newest citizens. Vesna Stimac recently took the oath to become a U.S. citizen. She has lived in Arizona for 12 years and was originally from former Yugoslavia.


Our Members Are Winners!Being an active member of the ASCPA definitely has its

rewards. Just ask Liz Mason, CPA, who won the drawing

for an iPad when she updated her profile on the new

Connect site. Or ask the lucky members who recently

attended the Technology Conference and were seleted to

win some great prizes, including an iPad, a scanner and

a CPE course.

Focus on Members

Liz Mason won the iPad from the Connect contest and Homer Quist won the iPad from K2 at the Technology Conference.

Legends and LeadersThe Legends and Leaders program got off to a great start

with Denny Mitchem, CPA, and Kate Forbes, CPA, being

the first two people featured in the series. Watch for more

opportunities to hear from the CPAs who helped form the

profession in Arizona.

Kate Forbes (center) and participants after her presentation.

Cindie Hubiak, CPA, CGMA, introduces Denny Mitchem, CPA, to the group.

Tiffany Padilla won the scanner from K2

Mary Smalle won the 8-hour CPE seminar from the ASCPA


In the Black ... Adventures in Accounting Concept: Heidi Frei Illust.: Jack Gannon

Seminars, conferences, webcasts and self-study can be taken all year long through the ASCPA.

www.ascpa.com

ASCPA member Thala Rolnick, CPA, was given a rare tour of

the West Wing and other parts of the White House on a recent

visit to DC. She is pictured (top) in the press room and in front

of the east wing door with her friend Barbara Aldridge whose

son is the Navy Liaison to the National Security Council.


The Forensic & Litigation Service Steering Committee

by Geoff Lanyon, CPA

I first heard about forensic and litigation support work after a

number of years in the work force. From time to time, the

term “forensic and litigation support” (or some varia-

tion thereof) surfaced at my place of employment but

rarely in a way that was related to what I did. Even-

tually, the information I did hear about this field

convinced me to really explore it; I thought that

the work might be a good match for my skills.

Armed with only snippets of info; however, I re-

ally knew very little, at least at this stage.

Further, I was unsure where to start looking for

all the information I hoped to obtain. I began

tapping into a variety of resources at my disposal.

Being an ASCPA member, I naturally looked into the

Forensic & Litigation Services Committee. As it has

turned out, joining this Committee has been especially

helpful in gaining exposure to the forensics and litigation

support field in Arizona. The Committee offers seminars and

other educational events that give newcomers a real flavor of topics and

issues that arise in practice. Further, newcomers are encouraged to participate

in preparing the seminars, an experience that has certainly helped me to understand the topics

more thoroughly.

Also, the Committee provides the valuable opportunity of meeting local professionals who do fo-

rensic and litigation support work. I have been able to chat with some of these professionals about

their careers and also to get their thoughts about forensic and litigation support work in general.

I have learned a considerable amount from them.

The Forensic & Litigation Services Committee has, among other things, helped me determine

where this field fits into my career. I would encourage any newcomer curious about forensic and

litigation support work to consider joining the Committee.

Geoff Lanyon, CPA, is a recent addition to the FLS Steering Committee. He can be reached at

[email protected].

AZ CPA


Family Law Accounting(When “Death Do Us Part” Is Just Too Far Away)

by David Cantor, CPA

When a couple gets divorced, the biggest issue to resolve usually involves money. Unfortunately,

financial issues in a divorce are like an onion. Besides making both parties want to cry, there are

often times hidden layers of financial implications that are not obvious at first. This article will

touch upon a few of those issues and hopefully make you, as a Forensic Expert, aware of what may

lie beneath the surface.

The first step to approaching your assignment is to meet or talk with your client’s attorney. This

is a crucial step in that it will lay out the known issues in the case as well as providing you with a

timeline of future Court dates or other relevant dates. Realistically, you need to work closely with the

attorney to ensure that you both are on the same page. Lack of communication or miscommunication

can potentially lead to catastrophic errors for your client and very possibly your ability to collect

your fees. Communication is the key ...


AZ CPA

Identifying the issues is only the beginning of the accounting process. Besides being expected to adequately prepare schedules, exhibits and reports, you also need to be able to identify other more subtle issues that may exist, but nobody brought to your attention or even knew about. This is where you must have the experience and knowl-edge in this field before accepting a Family Law engagement.

There are very few hard and fast rules on accounting in Family Law matters. With that said, there is case law, both Arizona and other states, as well as Arizona Statutes (specifically Title 25) that will offer guidance in your work. But it will still be incumbent upon you to apply these resources to your case in the fairest way to present the court with an accurate picture of the financial issues. Remember, you are an advocate for the court, not your client. That is the attorney’s job.

Let’s look at some common issues, with hidden implications:

Support/Maintenance – This is prob-ably one of the most common issues that you will see. Usually it is driven by the income of the parties. But when there is a disparity between income and lifestyle, a Marital Standard of Living may need to be prepared. Additionally, income may be impacted by perquisites paid by a spouse’s business.

Employee Stock Options – While it may be easy to identify all stock options, grant dates, vesting dates and strike prices, what about allocation between community property and separate property? Just because an option was granted during marriage doesn’t neces-sarily mean that it is community. What if it was compensation for past services provided prior to marriage, or for future services to be provided after separation? Then an allocation will be necessary.

Personal Residence – While it is not our job to appraise the value of a resi-dence, we may be asked to incorporate an appraisal into a community balance sheet that we are preparing. But what

if the residence was purchased prior to marriage by one party, but community funds were used to pay down the mort-gage? Or, flip it around ... the house was bought during marriage, is titled in both names, but separate funds were used to pay down the mortgage. In both cases, some type of allocation may be neces-sary to accurately determine the com-munity interest vs. separate property interest in the residence.

Business Valuation(s) – This can be one of the most complex, as well as dis-puted, issues in a case. Preparing a busi-ness valuation requires experience and education. However, besides the basic valuation issues you may be confronted with, you may also be asked to deal with Family Law business valuations issues. What if the business was started prior to marriage? What about personal loans to/from the business? Were any perqui-sites paid by the business (this not only impacts your value but can also be an important factor in determining support and maintenance)? Is the business more a service business or a capital intensive business? These are just a few factors that can turn a business valuation into a major Family Law issue.

Commingled Funds – If there is sepa-rate property monies mixed with com-munity funds, all may not be lost for the separatizer. Assuming all bank records are available, there is the distinct possi-bility of carving out a separate property interest in a community account by pre-paring a Tracing. Believe it or not, the accounting part is the easy step (again,

assuming all records are available). Then what? Every transaction needs to be reviewed and allocated between separate and community. Now this is where it gets complicated; transfers between accounts must maintain their character; or if there were both com-munity and separate funds available, who had the right to buy that stock that went up 10 fold in three days. Oh, and my favorite, after spending weeks pre-paring a 10-year tracing that included seven bank and brokerage accounts, my client shows up with a document that changes the character of a deposit made in the first year. That one deposit can change every aspect of the tracing from that date forward (make sure when they give you that document they also hand you a check for your fees to adjust the tracing).

The bottom line is that each case has its own unique facts and circumstances and this is what will ultimately dictate how you approach your case. Knowing these facts and circumstances, working closely with your attorney and having experience in Family Law accounting will enable you to provide the best service possible to your client, but also maintain your professional integrity and respect of your peers.

David Cantor is the founder of Forensic Accounting Consulting, LLC and has more than 15 years of Family Law accounting experience in both Arizona and California. Cantor can be reached at [email protected] or (480) 620-8486. You can also visit his website at www.forensi-cacctconsult.com.

Besides being expected to

adequately prepare sched-

ules, exhibits and reports,

you also need to be able to

identify other more subtle

issues that may exist, but

nobody brought to your

attention or even knew

about.


Cornerstones of Financial Forensicsby Joe Epps, CPA

This fall, the ASCPA sponsored a series of three courses which covered the

cornerstones of financial forensics. The three cornerstones were: Preparing

the Expert Report, Developing and Supporting Your Expert Opinions, and

Preparing You and the Attorney for Trial. These topics were selected by

the FLS committee because every forensic accountant must be proficient

in these three areas. There are many other areas of knowledge which must

also be mastered. Of course the ultimate skill is testifying; however, without

a properly prepared report, a solid foundation for expert opinions, and

preparation of the expert and the attorney for trial, the expert testimony

may be excluded or ineffective.


The expert report is the first occasion where the expert presents their opinions and thus becomes the foundation for all subsequent testimony. The report must meet the legal requirements to be accepted by the court. If the report is significantly deficient, the Judge may exclude the expert from testifying at trial. If this should happen due to a deficient report, it would be a disaster for the expert.

The requirements for an expert report may vary from jurisdiction to jurisdic-tion. At the beginning of the engage-ment, the expert should ask the attorney about specific requirements. When in doubt, the best strategy is to follow the Federal Rules of Evidence. The Federal Rules are the most stringent and there-fore, any report that meets those require-ments will likely meet any other court requirements. The Federal Rules for an expert report are set forth in Rule 26 (a)(2)(B). Those requirements include:

(i) a complete statement of all opinions the witness will express and the basis and reasons for them;

(ii) the facts or data considered by the witness in forming them;

(iii) any exhibits that will be used to summarize or support them;

(iv) the witness’s qualifications, includ-ing a list of all publications authored in the previous 10 years;

(v) a list of all other cases in which, during the previous four years, the wit-ness testified as an expert at trial or by deposition; and

(vi) a statement of the compensation to be paid for the study and testimony in the case.

While all requirements are important, stating all opinions and the basis and reasons for those opinions is perhaps the most critical. This is because if an opinion is not stated in the report along with the basis for that opinion, the expert will likely be prohibited from presenting that opinion at trial. Exclu-sion of a key opinion can be devastating to the impact of the expert opinions on the case. The second section of the se-ries was a discussion of how the expert might develop and support his or her opinions. The specific issues and avail-able evidence of each case determines the areas in which opinion testimony might be developed. It is necessary, therefore, to look first at the development of expert opinions from a process standpoint. That process looks like this (see above).

The diagram above identifies the process of financial forensics from case intake to wrap-up after the case has been resolved through trial or otherwise. The financial forensics expert should be able to describe the process they have followed. Financial forensics is not a haphazard activity; it is a well thought out process. While an expert may use different terminology or steps for their process, they should be able to clearly explain the process they followed.

The expert may have many different sources of data available to them. The goal of the expert is to obtain sufficient relevant data to support his or her opinions. Therefore, they evaluate the various types of documentation and information available and focus on objective reliable data in forming their opinions.

The third section of the series focused on preparation for presentation of the expert’s opinions at trial. Success at trial involves close interaction between the world of the accountant expert and the world of the trial lawyer. Through preparation, the expert and the lawyer should share a mutual understanding of the expert’s opinion and agreement as to how it fits into the overall trial presentation.

This requires time and hard work. The expert must start with a very thor-ough review of their report and depo-sition testimony. They must know the report and their deposition testimony almost to the point of memorization. They must review and grasp the argu-ments and opinions held by the oppos-ing expert witness and party. This will allow the expert to plan for their direct trial testimony and minimize potential surprises on cross examination.

Proper preparation also requires comprehension of the basic rules and realities of the trial process. An expert should discuss the expected trial testi-mony with the trial lawyer so that both share a common understanding of how the expert’s testimony meshes with the arguments and other evidence expected in the case. The lawyer should assist the expert in anticipating cross examina-tion. The expert must understand and adapt to trial practicalities, such as available time, number of exhibits and preferred style of the Judge and the at-torneys. Each trial testimony is unique and built around these concepts.

These topics were covered in three presentations. The input from partici-


AZ CPA

pants brought as much to the learning opportunity as the planned presentation by the speakers. This article only sum-marizes a small portion of the content since the depth of information provided cannot be presented here. Therefore, those with an interest in Forensic Accounting and Financial Forensics should take part in future courses and become involved in the ASCPA Forensic and Litigation Services( FLS) Steering-Committee. Regardless of the level of your experience in this area, your input is valuable.

Joe Epps, CPA, is managing partner at EPPS Forensic Consulting PLLC. He can be reached at [email protected].

Economic Outlook 2013Phoenix — Jan 24 Tucson — Jan. 29

11:30 a.m. – 1:30 p.m.

Start 2013 ahead of the curve as you gain insight into today’s economy at the ASCPA’s Economic Outlook luncheon in

Phoenix or Tucson. Both events will give an overview of the local, state and national economy, including how the election

results will make an impact on 2013 and beyond. Dr. Lee McPheters, Research Professor of Economics in the W. P. Carey

School of Business at Arizona State University and Director of the school’s JPMorgan Chase Economic Outlook Center,

will return for the Phoenix update and Dr. Gerald Swanson, Professor Emeritus of Economics, Thomas R. Brown Chair in

Economics Education at the University of Arizona will speak in Tucson.

Register at www.ascpa.com

Expanding the Role and Influence of CPAs in Organizations

Feb. 26 ASCPA Learning Center


602.264.5844 | www.eidebai l ly.com

the difference isDelivering SolutionsIntroducing Eide Bailly’s Newest Phoenix Partners:

Norman Mendoza, Gary Smith, Brenda Blunt and Sean HalesAt Eide Bailly, growth is intentional. We take pride in growing our Firm by

embracing the ideals of our culture and welcoming people who believe that

making a difference is what matters. Every day. We bring not only accounting

expertise, but in-depth industry knowledge and specialized services to the

organizations who trust us as advisors. As members of our local communities,

we’re here to serve and deliver solutions that drive success.Experience the Eide Bailly Difference Call today to learn more!

Left to right seated: Andy Spillum, LeAnn Rudolph, Sean Hales, Brenda BluntLeft to right standing: Joshua Hayes, Rob Leslie,

Victor Puchi, Norman Mendoza, Gary Smith

For Members Only — Reach Out to Your Fellow Members

As an ASCPA member, you will receive 15% off advertising or have your ad designed at no charge.

Get noticed by announcing your promotion, a new hire, your company’s new location or maybe even an award you or your firm received in AZ CPA. (See the sample below of an actual announcement placed in AZ CPA.)

Take advantage of the following ways to increase your business: advertising in AZ CPA magazine and the CPE Resource Catalog; event and conference sponsorships; website banner advertising; and electronic communications—such as eNews and CPE eNews.

Arizona Society of CPAs

2013 Media Kit

For more information contact:José M. Herrera

(602)324-4741 • [email protected]

The CPE Resource Catalog

SponsorshipsAZ CPA

Magazine

Website/Online Advertising

ElectronicCommunications

Our Members and Their Clients Make Great Customers!

ASCPA members include top financial decision-makers who are

advisers to both large and small businesses. A vast majority

of our members recommend products and services to their

clients. Reaching out to our members is an investment in your

company. There are numerous ways to reach our members.

For more information, call

José Herrera at

(602) 324-4741

or [email protected]


Avoiding Professional Liability Actionsby George J. “Jay” Coleman

The accounting profession first became a lucrative target for plaintiffs’

lawyers after the savings and loan industry collapsed in the mid-1980s,

and little has changed since then. Accountants continue to be seen as deep

pockets whenever financial transactions go sour, and regulatory scrutiny

of the profession has increased.

It is no fun to be sued for malpractice. Even a defensible lawsuit in which you

ultimately prevail will cost attorneys’ fees below your insurance deductible

and will intrude upon you and your colleagues’ time, attention and emotions.

Management for accountants


problem, don’t ignore it. Ask questions until you are satisfied. If the client is honest he or she will work with you. If the client is dishonest then he or she should find another accountant.

Tax WorkTax advice and return preparation

result in the greatest number of claims against accountants, though their mon-etary value is not as significant as audit claims. This isn’t surprising. Not only is tax work a mainstay of most accoun-tant’s practices, but your work product in that area — the tax return — is subject to a hindsight examination by the government.

Tax malpractice results most fre-quently from simple lapses. Tax claims range from missed deadlines and elec-tions to poor advice to, most of the time, return errors. Malpractice occurs more from simple inattentiveness and poor client communications than from errors due to the complexities of the tax code. Many problems can be prevented by simple quality control procedures, such as an adequate tickler system.

Be careful when giving spur of the moment tax advice. If your client calls during the rush of tax season with a “quick question,” take a moment to evaluate if the question is easy enough, and the client sophisticated enough that you will be able to answer the question competently without taking the time to research the issue. If you do proceed with giving “quick advice,” dictate a file memo summarizing the advice. If your client is unsophisti-

Moreover, what about the damage to you and your firm’s hard-earned reputation? The buzz around town will be that you got sued. The favorable resolution three years later will be yes-terday’s news and may be confidential in any event.

Your goal, then, is not to get sued in the first place. This series of articles first discusses common ways accoun-tants can get into trouble and what to do if you are sued, and the second and third installments offer tips that you can incorporate into your practice today that will help you avoid malprac-tice claims and, in the unfortunate event that you are sued, increase your chances of a successful defense.

Common Sources of Liability

Attest WorkWhile reviews and compilations

have generated litigation, the most significant claims in terms of dollar value arise from audit work. Like it or not, auditors are viewed by the public at least as “watchdogs,” and perhaps as “bloodhounds.” Regardless of what the auditor’s opinion letter says on its face, the public views it as a guarantee con-cerning management’s integrity and, for better or worse, juries often do so too. The “expectations gap” is alive and well.

Maintain your independence from your client, and avoid actions that might suggest you are anything but in-dependent. An auditor’s presumed lack of independence is a plaintiff’s favorite button simply because it is something a jury can appreciate and will react to. While a jury may fall asleep listening to experts talk about GAAS and GAAP, it may become incensed if the “indepen-dent” auditor vacationed in Hawaii as his client’s guest.

So don’t let your friendship or long-standing relationship with your client cloud your judgment. Problems start to occur precisely when you start to relax — which is why regulators are again pushing for auditor term limits and rotation of engagement partners. Have a healthy skepticism; if you see a

cated and/or the question is complex — or if large dollars are involved — confirm the advice with a short letter summarizing the information you were given, the advice you gave, remind-ing that it was a general discussion, and inviting the client to discuss the matter in more detail with you when time permits.

Also be careful when preparing last-minute extensions based upon what a client has told you but not confirmed in writing. It’s easy during tax season to forget unusual items that should be included when calculating the exten-sion payment. Document your discus-sions with your client and confirm in writing that the extension is based upon and only as good as the informa-tion provided by the client.

The best practice is to make sure you have all the facts before you give sensi-tive tax advice. Tell the client you need more time and/or more facts before you can be in a position to give advice. Do not let the client rush you.

Think twice about keeping your cli-ents’ books, lest they say it’s your own fault you didn’t have the information needed to prepare the now-tardy tax return. Make sure your engagement letter states that it is the client’s respon-sibility to timely provide you with the information necessary to prepare the return. Without such documentation, a jury may have to decide whose job that was based upon your word against your client’s.

Finally, be careful representing your clients before the IRS or other tax-

Tax advice and return preparation

result in the greatest number of claims

against accountants, though their

monetary value is not as significant as

audit claims.


ing authorities. Not only is there no attorney-client privilege but your “mea culpa” attempts to exonerate your cli-ent may come back to haunt you when the client sues you. You will also be extending the time your client has to decide whether or not to sue. While the statute of limitations for tax malpractice in Arizona begins to run when a notice of deficiency is issued, the statute can be tolled if you continue to represent the client in dealing with the IRS. If you have some exposure, it’s probably best that you cease representing the client.

Consulting And Other WorkOffering consulting or Management

Advisory Services, such as litigation support and trustee services, can cre-ate exposure. If the consultant (or even your tax preparer) is not a CPA, tell your client that a non-CPA is doing their work. Otherwise the client may think your staffperson is a CPA, which can form the basis for a “bait and switch” fraud claim.

Remember that information learned in a consulting engagement (e.g., that the client is losing a large account) may be relevant to your firm’s audit or tax engagement and vice versa, and the knowledge of the consultant can be imputed to the auditor — so com-municate with each other. And beware of conflicts of interest: consulting can compromise auditor independence.

While beyond the scope of this ar-ticle, other traditional accounting work like business valuation and preparing projections can lead to exposure. Use appropriate disclaimers when submit-ting your work to the client. Doing work for employee benefit plans and implementing a computer system for your client can also spawn litigation.

Exposure To Third PartiesIn Arizona, accountants can be liable

not just to their clients, but also to those to whom the accountant intends to sup-ply information or those to whom the accountant knows the client intends to supply information. Non-client lenders, investors, acquirers, Insurance Com-missioners, bankruptcy trustees and

receivers have all sued accountants. Don’t make it easier for these potential plaintiffs. Disclaim responsibility to non-clients in your engagement letter. If a bank calls to say it’s going to lend based on your work, don’t say that’s fine. Investors finance a company for any number of reasons; it is only in hindsight, after the deal goes sour, that they say all they relied on was your audit opinion. Don’t let them escape the responsibility of doing their own due diligence.

What to Do if You Are Sued

Being served with a lawsuit or getting a letter from the State Board or AICPA can ruin your day. But you can’t ignore the situation. What you do next could make matters worse and affect your ability to mount a strong defense.

First, don’t try to “fix” the problem yourself. Don’t try to talk your unhappy client out of suing you. He may have already gone to a lawyer. You won’t change his mind and anything you say to him can and will be used against you in litigation. Don’t prepare a mea culpa memo to your partner justifying your work, and think twice even about getting a second opinion from your colleague. That memo and conversation will be discoverable by the opposition in litigation.

Do not destroy any documents. The last thing you need is to defend a spoliation case on top of a malpractice case. Document destruction ranks with

auditor independence problems as a plaintiff’s preferred “spice” to inflame a jury.

Don’t “supplement” or “update” your workpapers with what you now remember was done. Workpapers are supposed to be contemporaneous doc-uments; that’s why they’re a powerful defense tool. If you kept them properly, they will refresh your memory and help convince the jury that you did solid work. Otherwise you’ll have to convince them with only your own hindsight testimony.

Notify your insurance carrier as soon as you think there may be a claim and do it in the precise manner stated in the policy. If you wait too long cover-age might be denied. If you simply call your local agent, and don’t follow the formal notification procedures, coverage might be denied. Will your premiums go up? Maybe, but you’ll likely have to disclose the claim when you apply for next year’s insurance.

The sooner you get a lawyer, the sooner the attorney-client privilege will attach to protect your communications and your work-product. Otherwise, what you say and do will be discov-erable. Your attorney can help you prepare a proper disengagement letter if you haven’t already disengaged and then guide you through the litigation or regulatory process.

George J. “Jay” Coleman, is a part-ner at Snell & Wilmer L.L.P. He can be reached at [email protected].

Arizona’s best resource since 2000 for Cost Segregation Studies

[email protected] (480) 963-2872 www.costsegstudy.com

AZ CPA


Human Capital Management: A Key Driver for GrowthIntensifying competition, continuing marketplace volatility and widespread

globalization have done more than redefine the strategies, rules and mea-

sures of sustainable success for organizations today. They have also fueled

the emergence of a critical driver of growth that until now has been too often

overlooked—human capital management. Employee skills, experience, develop-

ment and job satisfaction can mean the difference between success and failure.

Acknowledging this, the American Institute of Certified Public Accountants

and the Chartered Institute of Management Accountants commissioned the

Economist Intelligence Unit to perform a global survey titled “Talent Pipeline

Draining Growth: Connecting Human Capital to the Growth Agenda.”

The survey of more than 300 CEOs, CFOs and human resource directors from a wide range of organization sizes and industry sectors was performed in July 2012. Its purpose is to understand talent management’s importance in business strategy and determine whether organizations have the resources in place to manage talent effectively.


AZ CPA

Senior Executives Focus on Performance Targets and Strategy Leadership

Among the survey’s eye-opening find-ings is the damage inadequate human capital management is having on the bottom line. Forty-three percent of se-nior executives surveyed attribute their organization’s failure to hit key finan-cial targets to ineffectively harnessing and managing their employees’ skills and experience. In addition, 40 per-cent believe that mismanaging talent has reduced their ability to innovate and 39 percent believe it is a barrier to achieving forecasted growth. Such measurable shortfalls take a tremen-dous toll on organizations, especially at a time when optimum performance, progress and competitive standing are needed most.

“Ideas are the currency of the knowl-edge economy, so human capital must be managed as rigorously as financial capital,” said Arleen Thomas CPA, CGMA, Senior Vice President for Man-agement Accounting at the AICPA. “It is clear from our research that many companies are falling short of their potential because they lack thorough, relevant information about their people to support effective strategy, hiring and training decisions. Chartered Global Management Accountants can bridge this gap, combining broad perspective and analytical rigor to ensure the right focus and metrics that align talent man-agement with business strategy.”

As the value of a successful talent management strategy begins to take greater hold among business lead-ers, there is less clarity on who holds responsibility for measuring the ef-fectiveness of a firm’s talent manage-ment strategy. Eighty-three percent of human resource directors believe it is their responsibility; however, CEOs and CFOs disagree. Instead, 65 percent of CEOs responded that the CFO and finance team should be responsible for measuring the overall cost and value of recruiting, retaining and developing talent in their organizations.

“There is a worrying boardroom divide that threatens to destabilize

sustainable growth by allowing the best talent to slip away,” said Charles Tilley, FCMA, CGMA and CEO of CIMA. “It is vital that organizations embed a robust human capital strategy within the wider business plan and develop appropriate metrics and KPIs that are subject to the same level of scrutiny as financial data.”

Four Steps Lead the Way to Successful Talent Management To help senior executives reap the full benefits of an effective human capital management strategy, and overcome any roadblocks that may arise, the AICPA and CIMA identified in their survey report the following four steps business leaders can take, which can be supported with guidance from CGMAs, to reconnect talent management with growth and progress:

Step 1: Create human capital metrics and KPIs that are core features of the organization’s overall business strategy, and ensure that they also help imple-ment the business strategy.

Step 2: Make certain that human capital information is credible and ac-curate, and made relevant and action-able so that it can support business decisions.

Step 3: Establish clear guidelines that not only explain responsibility, account-ability and ownership of human capital management but also bring heightened visibility and credibility to the function.

Step 4: Ensure that your organiza-tional structure fosters close partner-ships between executive and operational levels, especially collaboration between finance and human resources.

Please visit http://www.cgma.org/Re-sources/Reports/Pages/talent-pipeline-draining-growth.aspx to learn more about the “Talent Pipeline Draining Growth: Connecting Human Capital to the Growth Agenda” survey.

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ClassifiedsBusiness Opportunities/

Practices for Sale

WE BUY CLIENTS— Our CPA firm would like to offer a smooth transi-tion in the purchase of your clients. We will purchase anywhere from one client, up to an entire practice in the Phoenix/Scottsdale metro area. If you are thinking of retiring or downsizing your practice and need to transition your clients to a professional CPA firm, please give us a call. Our staff has been practicing in the valley for over 30 years with an emphasis in business taxes and accounting. Our office is located near Thunderbird and Scottsdale Rd. Please contact us today for more information and ask for Craig (480)990-2727 [email protected].

TUCSON CPA FIRM LOOKING TO ACqUIRE SOUThERN ARIzONA CPA FIRMS—Tucson CPA Firm look-ing to acquire Southern Arizona CPA Firms. Contact: Jeff Quick at [email protected] or (520) 751-2729.

Employment Opportunities

AUDIT POSITIONS—Keegan, Lin-scott & Kenon, P. C. We are currently seeking Audit Managers and Seniors in the Phoenix and Tucson areas. Our pro-fessionals work in a very autonomous manner on challenging projects with staff and clients.Enjoy a flexible work schedule, business development bo-nuses, paid CPE, competitive compen-sation and a generous benefits package. KLK is a full service, nationally affiliated public accounting firm located in sunny Tucson, Arizona. We are part of the McGladrey Alliance which represents the fifth largest public accounting firm in the U.S. Make a move and achieve your dreams, visit www.klkcpa.com to apply in strict confidence today!

TAX ACCOUNTANT —Epstein & Reynolds, PLC—Growing CPA firm in Scottsdale seeks a Tax Accountant with 2-5+ years of recent CPA firm experi-ence to join our team for preparation of business and individual income tax

returns. We offer a paperless work en-vironment, opportunity for growth and advancement, and competitive salary and benefits. Experience with ProSys-tems fx and Quickbooks a plus. Inter-ested candidates may submit a resume to [email protected].

ACCOUNTANT II—Freeport-McMo-Ran Copper & Gold Inc. - Freeport-McMoRan Copper & Gold Inc., a leading international mining company with headquarters in Phoenix, Arizona, is seeking a professional qualified to perform accounting and reporting duties involved in the accounting close process. Responsibilities include recording journal entries, perform-ing financial analysis and account reconciliations. Requires 3 years ac-counting experience and a related BA degree; CPA preferred. Experience with SAP and/or Hyperion financial systems would be a plus.Please apply at: https://fmi.taleo.net/careersection/jobdetail.ftl?job=294401&lang=en&sns_id=mailto#.UKF_PmedD6s.mailto Free-port-McMoRan Copper & Gold is an equal opportunity, affirmative action employer

SENIOR ACCOUNTING ANA-LYST—Freeport-McMoRan Copper & Gold Inc., a leading international mining company with headquarters in Phoenix, Arizona, is seeking a profes-sional qualified to manage monthly GL closings, including preparation of journal entries, account analysis and reconciliation. Requires 3-5 years of experience in Accounting or Financial Analysis, plus a related BA degree; Master’s degree and CPA or CMA preferred. Experience as an Accountant for a public accounting firm would be ideal, as well as work-ing knowledge of SAP and Hyperion financial systems. Fluency in French or Spanish desired. Please apply at: https://fmi.taleo.net/careersection/job-detail.ftl?job=289781&lang=en&sns_id=mailto#.UKF_Pqx8UCc.mailto


CONTROLLER—West Yavapai Guid-ance Clinic—A large Behavioral Health Clinic in Prescott, AZ has an opening for a Controller. CPA Certification and a minimum of 4 years experience in Public and/or Not For Profit Auditing or Accounting is required. E-mail Resume to [email protected].

SENIOR TAX ACCOUNTANT - PART-TIME FOR TAX SEASON —CRAIG SATZ, CPA, P.C. - CPA with minimum experience of five years in a CPA firm preparing taxes. Work two to three days per week from February 1st - April 15th. Need to know Lacerte and Quickbooks. Located in Mesa. Hours are flexible. Days are flexible. Please send resume to [email protected].

PART-TIME TAX PREPARER / AD-MIN ASSISTANT—Established Tempe CPA Tax Practice hiring for year round part-time Tax Preparer (Lacerte experi-ence preferred) with other front office and back office responsibilities. Salary is competitive and depends on experi-ence and performance. Email resume to: [email protected].

TAX PREPARER— Scottsdale Airpark CPA Firm—N. Scottsdale CPA firm seeking PT experienced seasonal tax preparer. CPA or EA with experience with Lacerte preferred. Will prepare 1040, 1120s, & 1065 tax returns and some minor bookkeeping. Email resume and wage request to [email protected].

To place a classified ad, go to

www.ascpa.com

and go to marketplace; for

employment opportunities go

to the

Career Center.

Upcoming ASCPA Conferences

Accounting & Reporting Standards ConferenceJan. 18

Black Canyon Conference Center

Governmental Accounting ConferenceFeb. 1

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For more information or to register, go online to www. ascpa.com.

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PRSRT STDU.S. Postage

PAIDPhoenix, ArizonaPermit No. 952

Arizona Society of Certified Public Accountants4801 E. Washington St., Suite 225-BPhoenix, AZ 85034

ADDRESS SERVICE REQUESTED

Health Care Reform—You have questions, we have answers!

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AZ CPA Feb. 2013

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