Professional Issues UpdateSpring 2009 Edition
Tom Hood, CPA.CITPCEO & Executive Director
Maryland Association of CPAs
The Formula that blew up our 401(k)s
Source: Wired magazine 17.03 March, 2009
Bernard MadoffLaw of Intractable Systemic Corruption
Any significant breach of a syndrome’s integrity (Government & Commerce) – usually by adopting an
inappropriate function – causes some normal virtues to convert automatically to vices, and still others to bend
and break for necessary expedience.
Over the course of time, corrupted organizations accumulate in society. Without correction, the
accompanying rancid cooperation blurs more than the afflicted organizations.
-Jane Jacobs – Systems of Survival
Ponzi scheme of $ 50 billionFacing 150 years in prison
This is the key question – What will the new normal look like?
You are not alone
“It is increasingly clear that the current downturn is fundamentally different from recessions of recent decades. We are experiencing not merely another turn of the business cycle, but a restructuring of the economic order.”
– Ian Davis, McKinsey Quarterly March, 2009
Emergency Economic Stabilization Act of 2008
• Signed into law on October 3, 2008• $700 Billion• TARP (Troubled Assets Relief Program
ARRA – American Recovery & Reinvestment Act of 2009
The new normal – Wall Street?
1920 - 2008 2008 - ????
We need We got
Source: Dr. Anirhban Basu
Economic Meltdown– More Government– Less Leverage
/Credit Crunch
Mega-trends1. Regulations &
Standards
2. Globalization
3. Workforce
4. Technology
MACPA is here for you
Our goal is for us to survive this recession together and position you, our members for the recovery.
The power of your Profession is ready to work for you!
But a time of turbulence is also one of great opportunity for those who can understand, accept and exploit the new realities. It is above all a time of opportunity for leadership.
- Peter Drucker, Managing in Turbulent Times
Our Agenda - The New Normal?
• The Mega-trends– Regulations &
Standards– Globalization– Workforce– Technology
• Opportunities• So what we are
doing for you• Tools for surviving
& thriving
Regulations & Standards
The infrastructure for the free market was found to be in disrepair in this latest market crisis and the CPA profession is a critical
component
Infrastructurethe basic physical and organizational
structures needed for the operation of a society or enterprise
CPA Profession in the Spotlight
Fair Value Accounting under fire?
What is under the CPA Profession?
Federal Laws & Regulations – SEC, DOL, Treasury, GAO, PCAOB
CPA Profession Standards – AICPA & FASB, GASB, FASAB, IASB, IFAC
State CPA Statutes
police power of the states to protect their citizens vs commerce clause
SECFASB FASB IASB
IFRS
PCAOB AICPAASB IAASB
AICPAPEEC
AICPAPEEC IFAC
Public Company Private Company Int’l Company
FinancialReporting
Attest PerformanceStandards
Code of Conduct
Another View
State Oversight & Enforcement of CPA LicenseCPALicensure
MD ComptrollerMD Comptroller
CAQ
US Treasury
MD Comptroller
Courtesy of the Maryland Association of CPAs – 2008 edition Drawing by Carol Kirwan, CPA
Then : December, 2001 Now : December, 2008
A Tale of Two Frauds
Madoff’s auditor
David Friehling, CPA faces 105 years in prisonFor issuing false audit reports
• Sole Practitioner• Accused of issuing audits of Madoff Securities• Lied on AICPA membership renewal about peer
review
Satyam + PWC
Ramalinga Raju – CEO created $40 billion in fake billing and cash PWC auditors missed cash accounts?
Changes in our Infrastructure
The Infrastructure for the CPA Profession is maintained by your Professional Associations
AICPA & State CPA societies (MACPA)
Timothy Geithner,Secretary of the
Treasury
Mary Schapiro,SEC Chief
Paul Volcker,Chair, Economic Recovery
Advisory Board
Gary Gensler,Chair, Commodity Futures
Trading Commission
Ben Bernanke,Chair, Federal Reserve Board
Sheila Bair,Chair, FDIC
The Obama CabinetThe year of the REGULATOR
Massive Changes in our Regulatory Structure
First PCAOB now FAOB?
New 5 member oversight board proposed by Congress – March 6th,
2009
The Real Costs of Changing FMV?
“Confidence, trust, and numbers that investors can believe in are the stuff that make or break the capital markets. When investors question the validity of numbers, they sell and wait, rather than buy and invest.
Yet those charged with building confidence and trust and presenting numbers that can be believed are under sustained attack -- and they are losing.”
- Arthur Levitt, Weakening a Market Watchdog in Washington Post – March 26, 20009
Standards Changes• AS 5 - PCAOB• IRFS – SEC International gets legs• Fair Value Accounting• XBRL – SEC mandatory• Codification Project – FASB• Clarity Project – ASB
– Convergence with international– Risk-based standards already in int’l format
(SAS 104-111)• SAS 112 Communication• Internal Control – COSO• Fin 48 delay• Delay of SOX 404 for “small” caps
MD ComptrollerMD Comptroller
CAQ
US Treasury
MD Comptroller
Courtesy of the Maryland Association of CPAs – 2008 edition Drawing by Carol Kirwan, CPA
Improving Your Infrastructure – The CPA License• Initial Licensure
– Transfer of Grades
• Temporary Practice (mobility)• Reciprocal License – 4 in 10• Reinstatement – requires 80 hours of CPE• Built around ‘substantial equivalency’
35
KEY
GOALS/RESULTS
PROJECTS/STRATEGIES
PRODUCTS/SERVICES/
SITES
PEOPLE
KEY EVENTS
LEARNING
MACPA Founded 1901
Dateline
Gov. John Smith signs CPA Bill
April 10, 1900
MACPA first attempt
to rights to audit
MACPA passes 1924 Law
1900 19871974 1976
In the Beginning...
MACPA stops
several
attempts to
amend 1924
law
Maryland becomes the 1st state to restrict
practice for CPAs
1901
Larry Kamanitz chairs Legislative
Committee
MACPA tries
to pass CPE
Bill in 1974
& 1975
AG opinion of 1981Grants rights to non-CPAs for Reviews &
Comps.
MACPA Passes Mandatory CPE Bill
Sarbanes-Oxley
Act of 2002
Max Teichman, Frank Blacklock &
William Rogers
Interstate Practice &
Uniform Accountancy Act
Rise of special interests
& non-CPAs
HB 1296 Mobility Passes
Quality Review Legislation fails
150 Hours Ed Requirement passes
Effective date is January 1, 1999
• CPA Bill signed April 10, 1900• MD is 3rd state (NY & PA)
1922 1924 1981
Non-CPAs begin
attempts at 2nd
Tier license
2005
HB 1261 re-writesCPA Law - 1986
MACPA amendments to ed requirements fail
Dawson Grove chairs Legislative
Committee
Allen Deleon chairs Legislative
Committee
1993 MACPA passes
MD LLC & LLP Acts
Rights & Recognition• Privilege of Self-
Regulation• Right to Sole Control
over an Area of Practice
History of CPA Legislation
1993 20062003
UAA MACPA passes 1 yr
Experience Requirement
2007 200820011999
SB 560 DefeatedMaryland Corporate Accountability Act
MACPA requests reversal of AG Opinion – “This is not an audit”
language added
Terry Hancockchairs Legislative
Committee
MACPA Forms Task Force and surveys members
88% Sub Equivalency76% Peer Review & Safe Harbor
68% Non-CPA Ownership
State Board of Accountancy
formed
UAA MACPA passes
non-CPA Ownership
Computerized CPA exam
Separate Fund Bill passed
Maryland Special Session
Oct – Nov 07
MACPA defeats Sales Tax on Services
Amends Corporate Tax Reporting Bill from
special session
State Board
passes qualify
Peer Review for
CPE credit
MACPA wins use of “consultants” in firm
letterhead at State Board
Accounting Reform task
Force addresses
SOXState Board Hearing
May 1, 2003
New simpler CPA exam Education Rules
HB 1223 Mandatory Peer Review
Maryland Association of CPAs
Meet Bill…
• Bill files tax returns in 9 states + Maryland
• Last year he would have required additional state licenses in all states (except OH, VA, MO, WI)
• He would have had to register as a tax advisor (est $250)
• He would have to report to two state boards with different CPE requirements
• He would have had to charge & collect sales taxes on his accounting & tax services
What would this cost you?
Meet Jane…
• She is a CFO of a mid-size company operating in 5 states with original license in Virginia
• Last year she would have faced a $1,500,000 penalty and 5 years in jail
• Had to implement Fin 48• Pay sales tax on all
accounting, tax, and computer services
• Could use CPA and not get her MD license without taking 150 hours
Meet James…
• James is a CFO of a public company
• He let his CPA license lapse
• He was told he cannot get his license reinstated
• He has to make sure his accounting team complies with SOX
• Last year he would have faced a $1,500,000 penalty and 5 years in jail
• Pay sales tax on all accounting, tax, and computer services
Mobility passes SenateApril 7th @ 10:44 pm
And HB 1296
WA
OR
CA
NV
ID
MT ND
SDWY
UT
CO
AZ
NM
AK
HI
TX
OK
KS
NE
MN
IA
MO
AR
LA
MS AL GA
FL
WI
IL
MI
IN
KY
TNSC
NC
VAWV
OHPA
NY
VTME
NH
MA
RINJ
DE
MD
CT
CPA Mobility Legislative Activity 2009
DC
Legislation Introduced 7Mobility Enacted Only
for OtherMobility States -3 GA OK PA
Awaiting Governor Signature 2AICPA March 2009
Mobility Enacted - 32
GU
PR
2009 -2010 Anticipated LegislativeActivity
VNo Formal Activity
37 STATES IN 2 YEARS
Leg / Reg Changes you need to know!
New Mobility Law Maryland Individual Tax Preparer Act New Corporate Reporting Requirements Peer Review Requirement – October 1st Prevent Sales Tax on Accounting & Tax Services Stop trial lawyers efforts at repealing contributory
fault doctrine New CPA Exam Requirements New CPE regulations 120 – 150 hours?
CPA Day in AnnapolisJanuary 28, 2009
$1,500,000 penalty
Certified Tax PreparerSales Tax on
Accounting & Tax Services
Sarbanes-Oxley ActWhat you (and the world) would miss if MACPA went away…
Globalization
IFRS – International Financial Reporting Standards
Not if but when…Goodbye GAAP?
Think about this – If SEC timeline is 2014 – what year do you have to convert to show three years of comparable f/s?
SEC Roadmap released
Early adopters can file using IFRS
2010Large Accelerated Filers
2014Small-caps
2016
Corporate Conversion Timeline
Convergence ≠ Sameness
US GAAP – Rules based– Based on a GAAP
hierarchy (level A – D)– Primary accounting
standard setting body is the FASB
– Accounting guidance and interpretation is provided by FASB, SEC, AICPA and EITF
IFRS
– Principles based– No hierarchy, consists
of IASs, IFRSs & interpretations
– Standards and interpretations approved by the IASB
– Interpretations of IFRIC and its predecessor the SIC
25,000 pages vs 2,000 pages
“Almost half of small
businesses will be involved in global trade
by 2018 “- Intuit’s Future of Small
Business Report
According to a UPS study,
“Roughly 33% of U.S.
small businesses participate in cross-border trade“
“Nearly one-third of you
(CPA firms < 10) have clients doing business on an international level”
- Greg LaFolletteCPA Technology Advisor
Are you ready for International?
Private Company Reporting
1. IFRS with Private Entities Option
2. U.S. Adapted version of Private Entities
3. IFRS with differential reporting
4. Separate U.S. Private Co. GAAP - Revised
5. Separate U.S. GAAP- Maintained and Updated for Private Companies
Questions?
• What happens when FASB moves to IASB?
• FAF Funding goes to IASB• Who funds GASB?• Who funds US private company
standards (GAAP)?
Pipeline / Workforce
Pipeline - Good News20% avg increase in
Graduates & enrollments!
Promoting the CPA Career
Tomorrows CPA.org
New/Young Professionals
NetworkMACPA
Four Generations in the Workplace
• Matures – 1909-45• Boomers – 1946-64• Gen X – 1965-80• Millennials - 1981 +
up (Y2K, Netgen, Echo-boom, Gen Y)
Which one are you?
Issue: Generational Differences
The Benjamin Buttons Paradox
Staff Shortage + Four Generations in workplace = Trouble!
0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
70,000,000
80,000,000
90,000,000
Matures Boomers X'ers Millenials
StaffShortage
Biggest Issue Facing NYPNs• Bridging the Gap between college & real world• Under-Developed Skill Sets
– Leadership & Communication– Time Management & Organization– Analytical Skills– Technical Skills
• Work-Life Balance• Limited Networking Opportunities• Intimidation• CPA Exam• Lack of a Voice in Profession
Meet the NYPNs… Remember when you were ‘made’ to be a member of MACPA & AICPA?
According to the William E. Smith study of Association value: Benefits to the professionals and their employers include higher morale, increased employer loyalty, networking, professional development, leadership experience, professional community and big-picture thinking.
Deloitte’s Global Workforce Advice• Long-term career development and multiple
experiences within a single organization• Sense of purpose and meaning in work• Availability and access to mentors across the
company. (The focus should not only be on making senior staff mentor younger associates, but also ensuring that people connect and share experiences across all levels of the organization, and across relevant departments and areas of expertise.)
• Work-life flexibility• Tech-savvy work environment (for example,
access to online problem-solving and learning tools)
• Open social networks that embrace open and honest communication
Source Deloitte Global Manufacturing survey
CPA Exam changes
• Paper-based• 2 x year May &
November• 5 sections
• Computerized• Anytime• 2 months per quarter• Pass all sections in 18
months (to keep passed sections)
• 4 sections• 70% new content!
Then: Now:
update
Steps to become a CPA1. Get Accounting Education – 150 hours
2. Sit for & Complete CPA Exam
3. Take AICPA Ethics self-study & report grades to State Board
4. Complete 2,000 hour experience requirement (interning counts) RPE form
5. Take the official oath at the Swearing-in Ceremony
Promote the CPA license
Next ceremony - June 16, 2009At the Maryland Business & Accounting Expo
Maryland DLLR Swearing-in of new CPAs
Meet Karen…• Recent graduate from U
of MD• She has 150 hours but
missed a oral communication course and has wrong ethics course
• She does not know what the rules are or when to sit
• She is thinking about sitting in Delaware or Virginia to get around rules
2004 2005 2006 2007 20080
50
100
150
200
250
300
350New CPAs in Maryland – Filling the Pipeline
293% Increase in 5 years
23%291
74
236
194166
Technology
“As it relates to science and technology, the rate of change in the next decade, is likely
to be 4 to7 times faster than in the last decade. If it is 4x faster it would be like
planning for 2006 in 1890, if it is 7x faster it would be like planning for 2006 in 1670.”
-Expert on Education Panel, The Aspen Institute, 2007
Guardians cannot keep up with Commerce
“Even the regulators can't keep up. A Senate study in 2002 found that the SEC
had managed to fully review just 16 percent of the nearly 15,000 annual reports that companies
submitted in the previous fiscal year; the recently disgraced Enron hadn't
been reviewed in a decade."
Source: Wired magazine 17.03 March, 2009
Transparency Now! – A Wired Manifesto
Source: Wired magazine 17.03 March, 2009www.xbrl.org
Enhanced Business Reporting
www.ebr360.com
By 2010, Millenials/Gen Y-ers will outnumber Baby Boomers.
Technology & Web 2.0
“If you think about the media environment an average American
teenager lives in, to walk into a classroom (or one of our Associations)
that doesn’t have any of that media must be like walking into a desert.”
– Steve Maher, High School teacher PBS Special “Growing Up On-line”
Meet the Gaming Generation• Games make it easier to understand difficult
concepts – 51%• I would be more engaged in the subject – 50%• I would learn more about the subject – 46% (56%
of students in K-2 chose this as their #1 reason)• It would be more interesting to practice problems –
44%
Source: Project Tomorrow – Speak Up 2007 report
1.Mobile Learning
2.DIY - Do-it-Yourself Learning
3.Flexible Learning Environments
4.Virtual Worlds
5.Games & Simulation
Five Learning Trends for 2009
Chief Learning Officer Magazine – January 2009
Accounting Educators in Second Life
Dr. Mike KratenSuffolk UniversityDr. Robert BloomfieldCornell UniversityDr. Steve HornikUniversity of Central Florida
FASB is there!
Tools to keep you ahead of the game• Listservs• Podcasts• Blogs
– CPASuccess.com– NewCPAs.com– TCPAblog.com– CPALegislativeinsider.com– CPAIsland.com– SLACPA.org– CPALearning2.com
MACPA.org -> Resources - > Communications
More ways to CONNECT with MACPA
• Linked-In – MACPA Group• Facebook – NYPN Group• MACPA on Twitter• Tom on Twitter• Bill on Twitter• Youtube videos from MACPA• Slideshare• Visit us in Second Life
1. Start Gaming and take a session in Second Life
2. Do our 33 things in 15 minutes a day www.cpalearning2.com
3. Get an iPod and listen to our cool podcasts – CPA Spotlight
4. Check out our blogs and post a comment or subscribe in a blog reader (RSS)
4 tips to cross the digital divide
High Leverage Opportunities
Who will lead us to a better future?
“CPAs ARE the DISCIPLINE in business!”
Jim Collins
Perceptions of CPAs Largely Consistent Across All Audiences
BDMs Large Biz BDMs Sm-Med Biz Investors CPAs YPs
1 Has integrity Competent Competent Has integrity Competent
2 Competent Has integrity Has integrity Competent Has integrity
3Able to synthesize
information from multiple sources
Objective Objective ObjectiveAble to synthesize
information from multiple sources
4 ObjectiveAble to synthesize
information from multiple sources
Able to synthesize information from multiple
sources
Able to synthesize information from multiple
sourcesAble to see the big picture
5 Focused on client needs Focused on client needs Focused on client needs Focused on client needs Objective
6 Able to identify potential problems before they happen
Able to identify potential problems before they happen
Able to identify potential problems before they happen
Able to see the big picture Focused on client needs
7 Technologically adept Technologically adept Technologically adept Demonstrates leadershipAble to identify potential
problems before they happen
8 Communicates effectively Able to see the big picture Able to see the big pictureAble to identify potential
problems before they happenDemonstrates leadership
9 Able to see the big picture Communicates effectively Communicates effectively Technologically adept Technologically adept
10 Demonstrates leadership Demonstrates leadership Creative and innovative Communicates effectively Communicates effectively
11 Creative and innovative Creative and innovative Demonstrates leadership Creative and innovative Creative and innovative
Rank
Image is better than pre-Enron highs
The Year of the CFO
As financial skills are valued more highly, CFOs will make it to the corner office in greater numbers than before. Recession, credit crunch and the increasingly complex nature of global companies will all play directly into the bean counter’s hands.
Source: The Economist Magazine The World in 2009 Nov, 2008
IFRS Opportunity? – Meet Joe Box, CPA - CFO of Joe Money Machinery
“Well, the IASB is coming out with a simplified version for private companies. With IFRS, you mark-to-market more assets. We're a 72-year-old company that has real estate on our books at historical cost, so there could be a big benefit in IFRS based on the substantially higher fair market value for that property. Any private-company CFO should be knowledgeable about it, to determine whether to consider adoption.”
“But even more importantly, it has been my objective that our key bankers consider me knowledgeable in the issues important to their commercial portfolio. XBRL is another one.”
Recession Playbook
Two priorities:
1) manage your short-term credit, cash and performance needs
2) effectively position and utilize assets with an eye toward post-recession growth.
“High performers seize the opportunity of a recession
to outdistance their competitors and position
for future growth.”
CFO Competencies Needed
• Change Management (C)
• Strategic Ability (S)• Critical Thinking (S)• Business
Perspective (C)• Organizational
Agility (C)• Dealing with
Ambiguity (S)
• Communication & Leadership
• Strategic & Critical Thinking
• Focus on the Customer, Client, and Market
• Interpretation of Converging Information
• Technologically adept
C – CatalystS - Strategist
CFO Opportunities
• Business process efficiency – LEAN• Cash flow & Financing• Risk Management• Budget Scenarios• Young Professionals – reverse mentoring
Firm Opportunities
• Talent acquisition• Succession planning• Strengthen value-added relationship with
clients (cash flow, financing & cost control)
• International• Governance• Young Professionals – reverse mentoring
Transparency & Accountability“Publicity is justly
commended as a remedy for social and industrial diseases. Sunlight is said
to be the best of disinfectants; electric light
the most efficient policeman.”
- Supreme Court Justice Louis Brandeis
Source: Wired magazine 17.03 March, 2009
Sustainability – green & lean
Financial Literacy
www.feedthepig.orgwww.360financialliteracy.org
So what are we doing for you?
Six ways to help you weather the storm
1. 24 Hours of Free CPE
2. New Career Center
3. Economic Resource Center
4. Shared Services Purchasing Programs
5. Maryland Business & Accounting EXPO
6. Promoting & protecting your CPA license
MDBIZEXPO June 16th & 17th, 2009
www.mdbizexpo.com
Managing in Turbulent Times
1. Context - Understand the “brutal facts of your reality”
2. Strengths Challenges Opportunities & Threats – Differentiate yourself for high leverage opportunities
3. Envision your future
4. Manage for today & tomorrow– Liquidity (balance sheet– Productivities – 3 types of IC (human,
structural & social)– Costs of the future
“You must never confuse faith that you will prevail in the end – which you can never afford to lose – with the discipline to confront the most brutal facts of your current reality, whatever they might be.”
Holding those two seemingly contradictory notions in his head simultaneously was the key to Stockdale surviving, even thriving, in his experience.
Admiral James Stockdale 1923- 2005
The Stockdale Paradox
He returned home after eight years of imprisonment in the “Hanoi Hilton” during the Vietnam War
Connect – Protect - Achieve!“Association members
earn, on average, $10,000 more per year than non-
members”And
“are 19% more likely to say they are “very-
satisfied” with their jobs than non-members”
Where the Winners Meet Study by the William E. Smith Institute for
Association Research
Tom Hood, CPA.CITPCEO
Maryland Association of CPAsBusiness Learning Institute
(443) 632-2301E-mail [email protected]
Maryland Association of CPAs – founded 1901 to promote and protect CPAs and help them thrive in the rapidly changing environment – 10,000 members
Business Learning Institute – founded in 2000 with a mission to help organizations deliver competency-based curriculum, courses, content and community to enhance learning and grow intellectual capital for organizational and executive leadership
Second Life Association of CPAs – founded in 2006 With 459 members and two islands (CPA Island & CPA Island 2) with a mission of building a community of people interested in exploring the possibilities of CPAs in Second Life