CPA Trendlines

AICPA Leaders Prepare for Massive Regulatory Reform

Financial system rules and regs take the spotlight at AICPA 2009 Spring Meeting of Council.

“I firmly believe that any sound solution to the severe economic challenges facing our country will require the insights and contributions of the CPAs in this room… and in every corner of our great nation,” AICPA Chairman Ernie Almonte said at the opening of the meeting.

The Journal of Accountancy reports today:

Mark Peterson, AICPA vice president, governmental and public affairs, said he expects Congress to begin to work through numerous proposals aimed at closing gaps in financial regulation. The various proposals may be pulled together into a larger reform bill, Peterson said. He predicted Congress would then address the idea of a systemic regulator-an entity that could oversee the financial market as a whole.

Regulatory areas the AICPA is focusing on include broker-dealers, hedge funds and investment and hedge fund advisers. For broker-dealers, the AICPA supports continued registration and regulation by the SEC and Self-Regulatory Organizations (SROs). The Institute also believes that auditors of public broker-dealers and non-public broker-dealers that perform either clearing or custodial functions should be subject to registration, inspection and enforcement by the PCAOB.

The AICPA also supports enhanced regulation and registration of hedge funds by the SEC, with the establishment of a “de minimus” threshold that exempts smaller investment vehicles such as investment clubs. Regulation, the Institute is recommending, should be carefully crafted not to impede beneficial, private capital-raising activities. The Institute also supports a requirement that registered hedge funds obtain annual audits by independent public accountants.

For investment advisers/hedge fund advisers, the AICPA believes all investment advisers currently subjected to registration with the SEC should continue to be regulated under the Investment Advisers Act of 1940. The Institute supports the repeal of the current “private adviser exemption,” which would subject hedge fund advisers to SEC regulation. The Institute supports a proposal by SEC Chairman Mary Schapiro to require all investment advisers with custody of client assets to undergo an annual “surprise” third-party examination to confirm the safekeeping of those assets. And the AICPA also favors the performance of procedures to evaluate the effectiveness of the controls the adviser has in place over its custodial functions.

In addition, the AICPA is recommending that in order to provide evidence that a custodian has controls in place to identify each client’s assets, every custodian should be required to retain an independent public accountant to review and report on the effectiveness of the custodian’s internal controls related to its custodial functions, which would be made available to the custodian’s clients.

What CPAs Learned From Tax Season

Now CPAs are carefully recalibrating plans for the next several months.

by Rick Telberg

It’s clear that a sense of unease pervades the profession. People are worried about the economy, about their clients and their own jobs and practices. Indeed, the AICPA has issued a memo laying out steps to take in considering cutbacks and providing valuable cost-saving advice to firms to make sure layoffs are used only as a last resort.

John J. Hack, owner of a small practice in Wausau, Wisc., says he had about as good a year as last year, and counts himself lucky. He expects the economy to remain stubbornly “stagnant” for the foreseeable future. But he was able to upgrade his client base this year and hopes to make similar gains next year. For next year, he plans to push himself to “work harder” on finishing tax returns faster and earlier.

Sole practitioner Mark J. Knighton in Glen Burnie, Md., is coming off a better year than last year and expects to stay busy in the coming weeks working with financially strapped clients on their IRS problems. His big lesson from Tax Season ’09: “Encourage clients to come in earlier.”

Michael S. Warner at Warner & Co. in Woodstown, N.J., is “staying the course” at his local CPA firm, but “with a watchful eye on clients and cash-flow.” His lesson: “Don’t accept new clients who immediately begin asking for discounts.”

A mid-level staffer in Bangor, Maine – call him Jim – expects “the economy will continue to slide downward until about year-end, and then we should start to see it turn around.” As a result, his firm “will probably pick up several more part-time staff for tax season and per-diem work” and not hire full-time staff until the economy improves. “Our clients are feeling the pinch,” he says. “But we expect very little in the way of bankruptcies or businesses closing.”

For next year, Jim W. says, “We need to do a better job training staff on proper IRS form prep. Some items were not consistently treated and it made checking more time-intensive than it needed to be.”

John T. Drawdy Jr in Woodstsock, Ga., sees problems with the economy; but they’re manageable. “I expect super inflation,” he says. Still, the firm will be hiring again next tax season.” And, as for clients? “They get better because I fire the bad ones.” His No. 1 Lesson from Tax Season 2009: “Start extensions earlier.”

Paul Hense, at Hense & Associates in Grand Rapids, Mich., is swimming against the tide of a contracting economy. But he’s learned to “work and not worry.” Hence has had a long, 40-year career and has seen a lot of ups and downs. Nevertheless, he finds he needs to hone a “habit of not letting stress affect productivity.”

Some firms have already started shedding staff. One senior staffer at a large firm reports, “We let go almost 20 people yesterday, probably more
to come.”

But one sole proprietor is toughing it out. She said her “one assistant quit in the middle of tax season.” She “survived with the help of my sisters.” One is willing to help with data-entry whenever needed.

And another CPA sees “shrinkage everywhere.” But keep asking around and you might just as readily find a CPA who reports they “might be adding one more person in a supervisory position.” So the job outlook for CPA firms remains murky, at best.

Hire a Veteran and Win Tax Breaks

Christian

… As if you needed the tax breaks for a reason.

Swensen

“Regardless of your political leanings, or optimal timetable for the troops to return, we can all agree that once these brave men and women return home, we need to assist them in finding good jobs and help them in starting or resuming their careers,” Blake Christian, CPA/MBT and Chuck Swenson, CPA/PhD write in this week’s AICPA Corporate Tax Insider. “Unfortunately they are returning in the midst of a very challenging economic environment.”

They report:

Federal tax benefits for hiring veterans are available to business owners in any state. These benefits were expanded as part of the 2009 Recovery Act. The federal benefits are primarily available under the Work Opportunity Tax Credit (WOTC) Program. Employers can secure a federal credit of up to $4,800 for hiring:

– A veteran who is a member of a family that has received Food Stamps for at least three consecutive months in the 12 months prior to the date of hire; OR

– A veteran with a service-connected disability hired within one year of having been discharged, or released from active duty and who has been unemployed for any six of the last 12 months; OR

– A veteran hired in 2009 or 2010 hired within five years of having been discharged, or released from active duty who received unemployment compensation for at least four weeks within a year of being hired.

Resources

Additional information on these programs can be found at www.usvetsinc.org, www.hud.gov, or by checking with your state, county or city-level tax authority’s web site. For example, information on the California EZ program can be found at www.hcd.ca.gov. Commerce Clearing House (CCH) has also developed a comprehensive web-based tool that consolidates and identifies all federal and state tax credits and provides all cross-referenced forms and instructions. The CPA or taxpayer needs only to type in the client’s address to determine eligibility and filing requirements. You can visit their site at: http://tax.cchgroup.com/taxzonelocator/default.htm

Read the full story here.

Obama Targets Foreign Tax Havens

Should we take it seriously this time?

Nellen

Annette Nellen, CPA/Esq., in this week’s AICPA Corporate Tax Insider, reports President Obama’s budget proposal has many wondering what a “robust portfolio of IRS international tax compliance initiatives” means for international tax reform.

She says:

Tax haven concerns date back over 50 years and discussions of modernizing US international tax rules date back to the 1990s.

The tax committees and Treasury should hold an international tax reform summit, appoint a task force of experts to derive a comprehensive business/international tax reform package of changes and then move to implement it during the 111th Congress. The federal budget, the economy and US business interests will suffer from continued delays in not moving all of the background information collected in the past many years to action.

Full story here. Will it really happen? Tell me in Comments…

Anger at U.S. Banking System High, Credit Expected to Remain Tight: AICPA Poll

Sign of Increasing Optimism Brightens Gloom as Americans Gauge Outlook for U.S. Recovery

via AICPA

Even as many Americans hold a pessimistic view of the U.S. economy, there is a sign of rising optimism suggesting some may be seeing prospects for an end to the recession, according to a recent survey commissioned by the American Institute of Certified Public Accountants and conducted by Harris Interactive.

Nearly half of Americans, 49 percent, say they are “pessimistic” about the U.S. economic outlook over the next 12 months, a slight decline from 54 percent who were pessimistic in the same survey this time last year. At the same time, the proportion of survey respondents who said they were “optimistic” or “very optimistic” about the economy’s future rose to 44 percent in the latest survey, up from 41 percent a year ago.

“After months of bad news and declining economic indicators, we see some evidence that Americans are starting to look for reasons to be optimistic even if they expect the recession to continue,” said Carl George, chair of the AICPA’s National CPA Financial Literacy Commission. “That is a good sign. We hope to see continued improvement in optimism as the substantial federal policies put in place begin to lift the economy and confidence is restored.”

The annual survey by the AICPA is being released today. It was designed to gauge how the economy is affecting individuals’ personal financial well-being.

The survey found a 79 percent majority hold negative views of the U.S. banking system. Twenty-eight percent expect the $700 billion in bailout funds in the Troubled Asset Relief Program to cover losses rather than feed new credit. Twenty-five percent believed the funds would be used to pay bonuses, and 22 percent said banks were simply holding the funds as capital. Only 7 percent anticipate the TARP funds will be used to begin lending again. Still, 50 percent think the $737 billion stimulus package passed by Congress and signed by President Barack Obama will begin to boost the economy over the next six months to two years. Sixteen percent feel it will take more than two years for the stimulus package to boost the economy. Three-in-ten, 30 percent, said the stimulus would not help the economy.

Asked to select one of three potential economic scenarios they believe is most likely to happen, 45 percent supported a projection that credit would continue to tighten despite federal efforts and the economy will remain sluggish as unemployment worsens and deflation takes hold. Twenty-two percent predicted credit availability would recover and inflation would remain under control as moderate, sustained growth returns. Twenty percent said U.S. policies would successfully reignite the economy but inflation would become a new problem.

Tax Season ’09: CPAs Dodge a Bullet

Economy impacts end-of-season parties.

Are job cuts next? Join the survey; get the answers.

By Rick Telberg

CPAs closed out Tax Season 2009 last week feeling dazed, confused, weary and maybe even a little bit lucky.

Despite a dismal and dismaying economy, most tax practices were apparently bucking the recessionary downdrafts and mostly holding their own or even gaining ground.

So if you’re superstitious, kiss your lucky charm, knock on wood and throw some salt over your shoulder. Most CPAs seem to have dodged the economic bullet – at least for now.

In the last days of Busy Season 2009, 34% of 1,451 accountants surveyed were reporting better business than the year before, with 42% holding steady, and only 23% posting declines, according to the CPA Trendlines straw poll for the AICPA.

The 76% of CPAs reporting business as steady or better represents markedly stronger performance than 2008′s 66% or 2007′s 60% — making 2009 the best year for CPAs since 2006′s 81% net positive rating.

To be sure, many accountants are worried about their clients and about getting paid. And their busy season is getting longer with an ever-increasing number of extensions.

Furthermore, many firms will be scrambling in the coming days to re-fill a depleted business pipeline for the traditionally slow summer months. But in these recessionary times, CPA firms are generally among the survivors.

Still, CPAs are concerned. And you may be hearing about some significant reductions in force at a few firms whose fortunes are disproportionately tied to especially volatile segments of the economy, such as banking, housing or construction.

“The firm is firing or has fired 15 percent of its professional staff,” according to a senior partner at a major firm, which is forecasting no improvement in the economy until the second quarter of 2010.  “First our customers,” he says, “then our firm, will bounce back.”

At another firm — a mid-sized one — they hired additional staff going into busy season, according to a high-level partner, “which reduced workload and stress.”

“Now,” he adds, “we have to figure out what to do with everyone during the summer months.” He’s expecting some “slight” staff reductions and an intense drive “to replace lost revenue due to the economy.”

At a smaller mid-sized firm, they’re feeling the repercussions of their clients’ problems. “Clients were much more apprehensive about the economy” this year, according to one partner. And it’s easy to understand why when he adds, “We are seeing a 7 to 8 percent drop in revenue for our clients.”

Nevertheless, CPA firms are coming out of busy season relatively strong. The recession may have hit hardest during the accounting busy season, softening the blow. The vast majority of CPA firms are expecting to weather the recession intact and unmarred.

“The economic climate is rough and people are not happy,” says a senior staffer at a regional firm. But the “forecast is for slight improvement” with “no additional hiring.”

At Dauby O’Connor & Zaleski CPAs in Indianapolis, partner Ted Zaleski reports, “We expect to expand and add staff.”

Staying productive and positive may have been one of the biggest personal challenges through a tumultuous tax season.

But for Rich Levy at Levy & Associates in Fairfax, Va., his feelings of grace and gratitude come daily. “My office is upstairs from a kidney dialysis franchise,” he says. “It’s easy to stay positive when you see real adversity on a daily basis.”

NEXT QUESTION: Now that tax season is over, what’s next for accountants in this economy? Join the poll; get the answers.

Comments: Questions, ideas, rants or raves? Send email to Rick Telberg here.

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Survey Results: Mobile Phones – Perk or Power Tool?

Among accountants with advanced smartphones, the vast majority of CPA firms are supporting their use.

Here’s your sneak peek of some of the latest results of a survey now in the field. About 9 in 10 accountants who carry a smartphone say their firm backs them up with support. How does your firm rate?

They tend to be among the most successful firms, large or small. Smartphones — like Blackerrys, iPhones, Palm Treo’s and Windows devices — are emerging as a fairly good indicator of whether your CPA firm is a competitive leader or a laggard.

What’s that in your pocket? Join the survey; get the results.

Related:

• HOW ARE SMARTPHONES USED in your firm today?
• “What’s the single most important thing that a smartphone helps accomplish for your firm?”
• Can you afford outdated technology in today’s economy?