Making Sense Of…

by Richard Wortmann, CPA, DABFA

During the last year and a half, the FASB has been active in issuing new standards and revisions to existing standards that have broad impact to most industries.  All practitioners should be aware that, in 2009, the FASB codified the standards and issues revisions to the codification as Accounting Standards Updates (ASU).

In 2009, seventeen ASUs were issued.  Bear in mind that the codification became effective in July 2009.  In other words, seventeen new standards were issued within six months.  Granted, the first standard was to change the GAAP Hierarchy to recognize the Codification as “GAAP,” and the second and seventh standards contained technical corrections.  More important to most practitioners:

• two of the remaining fourteen standards were related to fair value
• two were related to revenue recognition
• one was related to variable interest entities

In 2010, the FASB kept up its momentum and, to date, has issued twenty-five additional ASUs.  These include several ASUs for technical corrections, but of particular interest are two more on revenue recognition, two on receivables, and a handful of standards specific to industries, such as defined contribution pension plans, oil and gas, entertainment and healthcare. There are also a large number of exposure drafts outstanding with unknown implementation dates, which are mostly as part of the convergence project with international standards.

Not to be left out, the AICPA has issued new standards over the past eighteen months as well.  Many of these are part of the clarification project (making the audit standards more user-friendly).  Nearly forty-five proposed auditing standards are in exposure draft as of the end of September, 2010.  More immediate are the two significant changes in the SSARS.  The first, which is already in effect, is the applicability of SSARS when performing an interim review.  The second is a complete rewrite of SSARS as it relates to compilations and reviews effective for periods ending after December 15, 2010.

CONSOLIDATIONS, INCLUDING VARIABLE INTEREST ENTITIES

Consolidations

• 100% of the balance sheet and income statement of the subsidiary is consolidated into the parent.
• Non-controlling interest (formerly, minority interest) is “backed-out” of the income statement after net income from consolidated operations.
• Non-controlling interest is included in equity.

Variable-Interest Entities

• The primary beneficiary (PB) is no longer the entity that absorbs the majority of expected losses or receives a majority of the expected residual returns.
• The PB is the entity that has the power to direct the activities of an entity that most significantly impact the entity’s economic performance.  (Note:  The “parent” still must have an obligation to absorb losses or receive returns, but it does not have to be the “majority” any more.)
• Evaluations of whether or not the entity is a VIE that must be consolidated is an on-going requirement, not just when remeasurement events occur.
• Quantitative evaluations are eliminated.
• Rules on evaluating kick-out rights are clarified. (The general rule is that kick-out rights are ignored in evaluation.)
• Single-lease arrangements between related parties (e.g., the traditional “triangle,” including the same controlling owner, operating company and leasing company) generally must consolidate (lease between related parties has variability).
• The disclosure and presentation requirement is amended.  Assets and liabilities of a VIE that consolidate and that are not available to creditors of the “parent” are separately presented on the balance sheet.

Business Combinations

• The purchase price cannot be adjusted for purchase-price contingencies longer than one year after the acquisition date.
• The assets and liabilities of the acquired entity must be measured at FV, and acquirers are no longer permitted to allocate purchase price to identifiable assets and liabilities with a plug to goodwill (e.g., notes receivable and payable may be reported on the balance sheet at other than amortized costs [face amount]).
• There are significant increases in disclosure requirements.

Receivables

• For public companies, changes go into effect as of FYE 12/31/10.  For non-public companies, they will be delayed for one year.
• Note, trade, credit sales receivables are included.
• It now states that the inability to estimate losses for uncollectible receivables preclude accrual of the receivable and can push the sale to the installment method of cost recovery.
• There are increased disclosure requirements.

Fair Value

• The table presenting “Input Levels” must break down assets and liabilities into the entity’s risk model.
• Reconciliation is required for transfers in and out of each input level.
• It should be a tabular presentation.
• The net asset value (NAV) permitted for certain investments that calculate NAV as directed by the investment company A&A guide:
  • should be level 2 if it can be settled in the near term
  • should be level 3 if settlement is restricted (time-wise)

There is no guidance, however, when something goes from near-term to not near-term.

• There are increased disclosure requirements.

SSARS

• For interim reviews, when the prior year was audited, the subsequent is expected to be audited, and they were prepared under the same financial reporting framework (basis of accounting), SSARS does NOT apply, and auditing standards must be followed.  The steps include:
  • a risk assessment
  • documentation of internal controls (including controls over interim reporting)
  • an evaluation of whether controls are in place (walk-through)
  • communication of internal control deficiencies

The results of the review can be used in relation to the year-end audit.

• The firm is required to document their understanding with the client (e.g., in an engagement letter).
• Each report must include additional language relating to management’s responsibility for internal controls.
• Expanded disclosure of cause-of-independence impairment on a compilation can be included in the accountant’s compilation report; however, the old disclaimer “We are not independent with respect to XYZ Company” can still be used.
• It introduces the concept of review evidence sufficient to support limited assurance.
• The accountant is required to gain sufficient understanding of the entity and industry in order to be able to assess where the risk of errors may be in the financial statements, and design the inquiries and analytics to address those risks.
• It suggests that “boilerplate” review procedures are not appropriate.

RICHARD WORTMANN, CPA, DABFA.  Richard is an instructor for the AuditSense team, specializing in providing our GAAP Update classes.  He is also the founding member of RW Group, LLC.  Richard has over 25 years of experience meeting the accounting and auditing needs of public companies, employee benefit plans, nonprofit organizations, government agencies, health care organizations, private foundations, retail stores, construction companies, manufacturers, and professional services firms.  His expertise includes financial and compliance audits, compilation, and reviews; consulting on internal controls and quality control; policies and procedures development; and strategic planning.  Richard is a member of the Pennsylvania Institute of CPAs as well as the American Institute of CPAs, where he has served on numerous committees.

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by Bonnie Buol Ruszczyk, President, BBR Marketing

I’ve recently had a number of conversations with professional service providers and other marketing consultants on the topic of marketing spending. Some see it as a worthwhile investment, while others see it as a necessary evil and some even see it as a complete waste of money. And depending on how it’s done, each can be correct. But the biggest –and most common – misconception is that marketing is seen as an expense rather than an investment.

I like to compare it to going to the gym. Come January 1, you are at the gym at 6am, running on the treadmill, working out with weights and may even hire a trainer. You religiously go three times a week, but the results are slow to come. You only lose one pound in the first week, and none in the second week. Your determination starts to wane. By the third week, you only get to the gym one time, and only run on the treadmill on that visit. You drop your trainer because he’s not doing any good anyway. You gain a pound in your fourth week. Your drive falls even farther, and you don’t make it at all during the 5^th week. And so on.

This is how many marketing efforts go too. You start with a plan (though many don’t even do that) and are excited to see the results. You may create a customer newsletter, hold a seminar, update your Website or even start using Twitter. Everyone is excited and ready to handle the work that is going to start rolling in. But the results aren’t what you expected. So, over time, you pull back, decrease your marketing efforts and see even fewer results. Eventually, you are firmly convinced that marketing is a complete waste of money and time because it doesn’t work.

Here’s the problem with both scenarios. You expected immediate results and didn’t get them. Here are a few ideas that may help your next marketing initiative or trip to the gym.

It pays to plan. So many marketing initiatives are done in a vacuum and not part of a strategic plan. Before starting any marketing effort, clearly define your audience, tactics and goals. And make sure they are reasonable too. If you don’t have someone on staff with these skills, it pays to have an expert come in and help you create your plan. If you don’t know where you are going, how will you know when you get there?

Not everyone can do it. It’s sad, but many people are convinced that anyone can be a marketing professional. To create an ad, find a cool photo (or better yet, clip art!), put some words under it and call the magazine, right? Um, not quite. But I do have to admit marketers have done a pretty bad job of branding our profession and practioners. True marketing professionals have the training and experience to create plans, determine the best tactics to reach the right audiences, know how to implement various initiatives, can ensure the marketing plan supports the larger business plan, and provide measurable results. It’s a lot more than playing with pretty pictures and cocktail parties, no matter what anyone says.

It takes variety. Doing the same thing repeatedly and expecting different results is the definition of insanity, but this is how a lot of firms function. Your targets are not all reading the exact same publications or attending the same events. It pays to have a marketing plan that uses many different mediums, some of which may be rather new and untested, like social media. Map your initiatives out on a grid so you see how the plan works and when each part of the plan will be completed. Remember, variety is the spice of life.

Marketing is cumulative. Marketing is not a one-shot deal. It has many facets and each initiative builds on the previous one. It is commonly stated that it takes 7-10 impressions to build awareness with an individual. Think about that. The first 6-9 times you reach out to them, they don’t know who you are and probably can’t recall your name, let alone what you do. Only once your company is cemented in their mind will they even think of calling you when they need your services.

Just like going to the gym, you need a plan to get where you want to be, measure regularly to make sure you are on the right track and have a goal in mind before you even get started. Make sure you are working out all your muscles so you get the full benefits of exercise. And be consistent with it. You can’t go to the gym for 10 hours one day a year and expect any results at all, expect maybe one seriously painful recovery period. It takes regular, consistent and well-directed exercise to reach your goal just like it takes a marketing plan, clear goals and multiple tactics to grow your firm. So what are you waiting for?

I’m off to the gym.

Bonnie Buol Ruszczyk is president of BBR Marketing, a firm that specializes in marketing strategies and implementation for professional services providers and firms. She has nearly 20 years of marketing experience working with a diverse range of industries and people, most recently as the marketing director for a mid-sized accounting firm in Atlanta. Her creative thinking and distinctive approach allows her to bring unique ideas to her clients that differentiate them from their competition and give them the tools they need to reach their audiences. You can reach her at bonnie@bbrmarketing.com.

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No matter how many years they have flown, every pilot knows that the most critical time for any flight is during takeoff and landing. Procedures must be followed and checklists fully completed, including flight plan, weather review, and weight load and fuel level checks, to name a few.   While much of the actual flight can be put on autopilot, it would be foolish and dangerous to take anything for granted at the beginning and end of a flight.

Have you ever thought how much like a pilot you are? Instead of flying a plane, you are in charge of something even more valuable than a $100 million piece of equipment -– your thoughts and actions.

What do you do before you takeoff for the day? Do you know where you are going? Do you know how you are going to get there? Do you have the tools you need to accomplish your tasks?

Here are some things to consider:

• Is your fuel level sufficient for what you need to accomplish? A good healthy breakfast will do wonders for your energy level after takeoff.
• Your fuel will not last forever, so plan to replenish with small snacks throughout the day.
• Do you know where you are going and the conditions at takeoff? What is the first action you take when you arrive at work? Is it something easy or difficult? Time management experts agree that getting a difficult item out of the way will give you a sense of accomplishment and enable you to focus on other tasks throughout the day.
• What if something unexpected comes up? Pilots are trained to deal with the unexpected. However, when the things go awry in our daily lives, we usually complain, panic or go with the flow. Consider developing a checklist to consult when things go wrong. Your co-workers might think it’s a bit strange, but I bet you’ll be a heck of a lot more productive and calm when it counts.
• Do you end your day in structured manner or do you just crash and burn when you run out of gas? Remember, landing is just as important as takeoff. Why not spend the last 30 minutes of your day in a structured manner? Review your accomplishments for the day and plan for tomorrow. This will make your takeoff the next day a lot smoother.

While we can never plan for everything, investing in a takeoff and landing plan can return excellent results for both you and your firm. I’d love to hear some of your ideas as well. What has worked for you?

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CPA firms have been looking for ways to improve their professional’s productivity since the days of the abacus. Technological advancements have certainly helped firms perform engagements in less time. However, no matter what technology is developed or professional standards are issued, the core concern in any professional services firm boils down to the fact that the client frequently throws a wrench in the best laid plans. I recently heard a CPA jokingly say, “If I did not have to deal with clients, I would have plenty of time to get my work done!”

We were all taught at the associate level to inform clients of the documents needed and the deadline for submission well in advance. But this is just the beginning of the process. The key question is what do you do when the client does not complete the items on your list as instructed. If you only had one client and did not have to worry about profitability or deadlines, the answer would be simple. Complete the work when they are ready. But since you’d go out of business with that philosophy, there has to be a better way.

Some call it client management; I like to call it client collaboration. Making your clients feel as if they are an integral part of the process is fundamental to success.

Client collaboration is a lot easier if you connect with the person you are working with at the client site.  I have news for you, if you do not enjoy working with your client, they can tell. It shows in your body language, your facial expressions, your voice and your actions.  If you appear to be bothered by them, they will respond in kind.

But all is not lost. You can do a variety of things to connect with your client and ensure a smoother process.

Client collaboration starts by building relationships. Oftentimes, clients view their auditor just like any other vendor. Your job is to change their opinion of you and your role so they recognize the value you bring to their company and see you as an important resource. Following are some simple things you can do to strengthen your client relationships.

• Look for ways to help them out – on both a professional and personal level.
• Go out of your way to help them.
• No matter how busy you are – allocate some time every week to building and improving these relationships.

In his famous book How to Win Friends and Influence People, Dale Carnegie said that you cannot make someone do anything they do not want, and everyone wants to feel a degree of self-worth in whatever profession they work in.

 Letting the client know they are important to you and your firm is critical. Here are a few simple tips.  

• Tell them you really enjoy working with them.
• Send them a short handwritten thank you note after the engagement is completed.
• A box of chocolates or similar item works wonders.

Be flexible in what you ask from your clients. This does not mean that they can ignore your requests, but asking them how “we can solve the problem together” works wonders. Let them know you share in their pain and are willing and able to help them.

Resiliency is also an important part of collaboration. If you have a setback – and you most likely will – regroup and plan how to get back on track.  Don’t hesitate to approach a more experienced partner or manager to get advice on the best way to handle the situation.

When you successfully collaborate with your clients, share these successes with the other professionals in your firm. If your tact works, repeat it.  If an idea does not work, don’t necessarily quit. It may be a great idea that just needs to be tweaked a bit, or it may work beautifully with another client.

Negotiate with the client by working through the situation step by step:

• Ask a lot of open-ended questions. Find out why the information they promised has not yet been provided. Listen, listen and listen some more. Is there a hidden message in what they are sharing with you?
• Show empathy towards their situation.  
• Tactfully share your knowledge with them. Perhaps you experienced a similar situation with another client. How was the obstacle overcome?  Is there a technological solution that can help them prepare the information easier?
• Be patient and show your concern for their situation, and collectively create an action plan that will work for both of you. Perhaps, they promised to prepare X.  You then offer to do Y.

I recently read a great article entitled “Changing your Tune.”  It was about a person who served on a company’s board of directors that simply didn’t get along with anyone. As the author said, “The only redemptive trait was how lovingly he spoke to, and about, his grandchildren. To hear him tell it, they actually loved him.”

See, everyone has a redeeming value – your challenge is to find it.

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I have many vivid memories of when I began my professional life, but one event in particular stands out in my mind. One of the speakers at a training session I attended talked about the concept of networking with others and why it is so important. He spoke about the many benefits of networking and a concept that he shared with us was that you should carefully choose who you network with.

The speaker went on to say that you should only network with people who could refer business back to you. He stated it was a good idea to keep track of how much business someone refers to you and how much you refer to them. As a young professional, not really having many contacts, I found myself somewhat intimidated by his advice.

The big question many business owners and professionals have today is “What does it take to be successful in business?” With that question in mind, I would like to share what I think is one of the most important, if not the most important aspect to succeeding in business – networking. However, I promise you will not have to develop a complicated tracking system.

To this day, I have remembered his comments about networking, but I never could adapt to the mindset he shared. Essentially his concept was to only assist others if they were able to help you in return.

Instead, I use a much more simpler approach that you may want to try out. This approach has nothing to do with trying to determine if the other person can help you nor does it have anything to do with keeping score, but rather it is simply identifying what can you do to help others, while expecting nothing in return.

This approach, which I am absolutely convinced has tremendously increased not only my bottom line, but has also greatly influenced those individuals with whom I have come in contact. Everyone in business knows the concept of cash capital, the amount of cash you have in the bank. However, there is another type of capital that is even more important than the amount of money you have in the bank; it is social capital. Social capital is the value of various relationships that you establish during the lifetime of your career.
The quantity of your social capital is not nearly as important as the quality of the individual relationships you develop. Basically, what we are talking about is how deep are your relationships are with the people you interact with.

A quick question is to ask yourself, “In the past month, how many people have proactively helped out without expecting anything in return? For example, if you are talking with someone and in the course of the conversation you discover they have a problem that needs to be solved – you view it as an opportunity to help them and spring into action and offer your assistance.. A very important point is that you should not have the expectation that you will be receiving anything in return.

A very interesting thing happens when you adopt this mindset – you become a better listener because you are always on the lookout to help others.

Too many times people will only help others if they believe their assistance will provide them a direct benefit. I do not agree with this way of thinking as it will damage the quality of your social capital. In other words, do you want to be labeled professionally or personally, as someone who will only help if they get something in return or would you rather to be viewed as someone who will just help?

Most people are impatient and as a result, they can only visualize being ‘paid back’ in the short-term. These individuals lose sight of the bigger picture and will be less inclined to put any effort in providing assistance or they will provide quick responses without any real substance or helpful information. Get rid of the mindset of “What’s in it for Me” and adopt the mindset “What’s in it for Them”.

I firmly believe in some cases when you help others it does come back full circle. The one thing you should keep in perspective is that you do not know when or if it will benefit you. One of the critical concepts is that when you help someone you have to do it in a sincere manner and without the expectation that they will return the favor.

If you are uncomfortable or unfamiliar with traditional networking, then you should give this approach a try. Make it a point of helping someone once a week without looking for anything in return. You will be amazed at the results.

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