The CAS platf orm for accountants who won’t sett le for less.

Adverti sement accounti ngtoday.com | Vol. 35 | No. 11 | November 2021

Power CASSM

The CAS platf orm for accountantswho won’t sett le for less.

AT_Nov21_Power_CAS_ad_FC1.indd 1 10/20/2021 5:28:26 PM0C1_ACT1121 1 10/26/2021 11:11:27 AM

https://www.accountantsworld.com/

Visit AccountantsWorld.com/CAS to learn more.

Power CAS delivers virtually all the capabilities you need to create a thriving CAS practice in one fully-integrated platform. And we’ll provide free training so you can build a successful CAS practice. Moreover, we never compete with you or sell our products or services directly to your clients. Our only focus is to help you strengthen your client relationships and achieve greater success.

If you’re genuinely passionate about offering CAS, it’s time to upgrade to Power CAS.

Power CASSM

Accoun�ng Power Professional(write-up, trial balance, repor�ng, financial statements)

OutsourcedAccoun�ng

Bill Payment Advisory /Virtual CFO

Live Payroll

A�er-The-FactPayroll

Prac�ceManagement

DocumentManagement

SM

Power CAS is a modular system. Start with our professional accounting software to perform trial balance and write-up engagements and create customized financials. Then add outsourced accounting, bill payment, live payroll, payroll compliance, and virtual CFO services in any order that works for you.

Get what you deserve with Power CAS.

Many accountants are still trying to run their Client Accounting Services practice on accounting software created for small businesses, not accounting professionals.

That’s not you.

You know that while Do-It-Yourself (DIY) accounting software created for small businesses may suffice for bookkeeping work, it doesn’t have the capabilities you need to offer full-blown client accounting and advisory services. You demand a genuine professional CAS system, and that’s precisely what Power CAS delivers.

AT_Nov21_Power_CAS_ad_FC2.indd 1 10/20/2021 5:29:26 PM0C2_ACT1121 2 10/26/2021 11:11:27 AM

https://www.accountantsworld.com/client-accounting-services/?utm_content=FP10

DECODING BLOCKCHAIN P. 23 | PAYROLL & YOUR PRACTICE P.17

accountingtoday.com | Vol. 35 I No. 11 I November 2021

THE 2021 BEST FIRMSFOR YOUNG ACCOUNTANTS

The 10 top places to start an accounting career

AT1121_Cover_FINAL.indd 1AT1121_Cover_FINAL.indd 1 10/21/21 12:54 PM10/21/21 12:54 PM

002_ACT1121 2 10/26/2021 11:11:39 AM

https://www.botkeeper.com/

accountingtoday.com November 2021 accounting today 3

Beyond brown M&Ms

Daniel HoodEditor-in-Chief

There’s a great story about rock band Van Halen demanding that all the brown M&Ms be removed from the bowls of candy in their dressing rooms. As a story of rock-n-roll excess, it’s pretty good; as a story of a clever compliance check, it’s even better. The band’s venue contract included a host of complex technical and electrical requirements, and it was difficult to be sure that a concert hall or stadium had complied with all of them — but if they saw that all the brown M&Ms were gone, they knew that the venue staff had paid at least some attention to the contract, as the requirement was buried deep in the middle of it.

Trust was hard enough to come by in the days when Van Halen was in its prime; it’s even harder now, decades on, and M&Ms have only limited application as an early warning system in an economy that is rapidly dematerializing, digitizing, globalizing and just generally getting more complex every minute.

I bring this up to highlight an opportunity of almost unlimited dimensions that speaks to one of the accounting profession’s two main strengths. It’s not in advisory services, though those have great potential to capitalize on the profession’s business expertise. Instead, this opportunity relies on accountants’ other great attribute: trust.

Being the most trusted advisor is only part of it; more important is CPAs’ almost century-long role in creating trust in the capital markets by offering assurance on the financials of public companies. That core competency of attesting to accuracy and reliability (and, conversely, of discovering inaccuracy and unreliability) has a million applications beyond financial information. Technology companies will need proof that they’re securing users’ information, and that they’re using it only in the ways they promise to. Consumer brands with long supply chains will need assurance that their suppliers are adhering to their sourcing and labor rules. Large employers will want to demonstrate the reality and effectiveness of their diversity initiatives. Collectors and sellers of art will want certainty on issues of provenance. Nursing homes and hospitals will want to demonstrate compliance with applicable health and safety rules. Insurers will want customers to prove that they’re implementing the required preventive and protective measures.

Essentially, each of these situations calls for a kind of audit, as do the thousands of similar scenarios that you can imagine once you stop thinking of audits as strictly related to financial information, and start looking for areas where the profession’s unique skill set — including its strengths in risk analysis, procedure and test development, and professional skepticism — can apply.

None of this to suggest that these services will be easy to supply; if they were, they wouldn’t offer the promise of serious profit. Nor is this a new idea: Firms are already developing assurance services around sustainability and ESG issues, and have been offering agreed-upon procedures for years, while Pricewater-houseCoopers — which recently reorganized itself into two groups, with one focused specifically on trust (see page 14) — has been counting the Oscar ballots for as long as I can remember.

But new or not, there’s a vast range of opportunities for accountants to be the arbiters of trust across the economy and around the world. And while Van Halen may no longer be touring, we’re sure there are plenty of bands who would be happy to swap their brown M&Ms for the services of a reliable CPA.

All manuscripts, materials and other submissions to Accounting Today become the property of Arizent, the publisher. In making submissions, contributors agree to grant and assign to Arizent. all of the contributor’s rights, title and interest in and to the work, including, without limitation, its title and all right to copyright the work in the publisher’s name or otherwise for the publisher’s benefit. Arizent reserves the right to utilize the work or portions thereof in connection with the magazine and/or in any other manner it deems appropriate. All materials herein are for informational purposes only, and do not constitute professional advice of any kind.

Accounting Today (ISSN 1044-5714) is published monthly by Arizent. To subscribe: $149 per year. $229 for all other countries Group discounts are available. Periodicals postage paid at New York, NY, and additional offices. POSTMASTER: Send address changes to Accounting Today/ Arizent, One State Street Plaza, New York, NY 10004. For subscriptions, renewals, address changes and delivery service issues contact our Customer Service department at (212) 803-8500 or email: [email protected]. Publishers Copy Protection Clause: Advertisers and advertising agencies assume liability for all content (including text, representation and illustrations) of advertisments and responsibility for claims arising therefrom made against the publisher. ©2021 Arizent and Accounting Today. All rights reserved.

Editor’s desk

EDITOR-IN-CHIEF Daniel Hood([email protected])

Managing Editor Danielle LeeSenior Editors Roger Russell Sean McCabe Technology Editor Ranica Arrowsmith

Contributing Editors Ted Needleman Antoinette AlexanderOnline Editor-in-Chief Michael Cohn Designer Neesha Haughton Executive Director, Brand Studio Michael Chu

ADVERTISING AND BUSINESS SERVICES

Advertising Sales Managers Alexandria Alati (212) 803-8804

Kelly Griebe

(212) 803-8826

Senior Marketing Manager Jamie Billington (212) 803-6099

Marketing Coordinator Aaron Boscanin

Classified Sales (212) 803-8803

SUBSCRIPTION SERVICES

To subscribe: $149 per year. $229 for all other countries Group discounts are available.

Customer service: Call (212) 803-8500or e-mail [email protected]

Free conference copies: To arrange for shipment four weeks prior to meeting date,

call (212) 803-8810.

LICENSING AND REUSE OF CONTENT

Contact our official partner, Wright’s Media, about available usages,

license and reprint fees, and award seal artwork at [email protected] or (877) 652-5295 for more

information. Please note that Wright’s Media is the only authorized company that we’ve partnered with for

Arizent materials.

Published by Arizent, One State St. Plaza, 27th Fl.,

New York, N.Y. 10004Phone: (212) 803-8200/Fax: (646) 264-6828

www.accountingtoday.comE-mail: [email protected]

Chief Executive Officer Gemma Postlethwaite

Chief Financial Officer Debra Mason

Chief Strategy Officer Jeff Mancini

Chief Commercial Officer Josh Rucci

Chief People Officer Lee Gavin

003_ACT1121 3 10/22/2021 1:25:43 PM

4 accounting today November 2021 accountingtoday.com

Contents

Editor’s desk03 Brown M&Ms and the power of trustBY DANIEL HOOD

Profession watch05 A roundup of the previous month’s news

Practice profile06 Eide Bailly is providing new platforms to promote women BY DANIELLE LEE

Best Firms for Young Accountants 07 The 10 top places to start an accounting careerBY SEAN MCCABE

Opinion11 The profession is repackaging the old as newBY ED MENDLOWITZ

Tax practice12 Provisions under consideration would create a seismic shift in tax BY ROGER RUSSELL

13 Tax Strategy: Year-end planning amid tax uncertainty BY MARK A. LUSCOMBE

07A seat at the tableReynolds, Bone & Griesbeck is one of 10 firms that offer so much to younger staff that they were named a Best Firm for Young Accountants

Assurance14 PricewaterhouseCoopers is stressing the concept of trust in its recently restructured firm BY MICHAEL COHN

Financial planning15 It’s important to regularly revisit a financial plan with a fresh set of eyes

BY JOHN P. NAPOLITANO

Special report: Payroll and your practice 17 The COVID-19 pandemic has greatly magnified clients’ needs for these servicesBY ANTOINETTE ALEXANDER

Technology23 Accountants will play a pivotal role in widespread blockchain and cryptocurrency adoption BY RANICA ARROWSMITH

24 Boomer’s Blueprint: The vision of success BY L. GARY BOOMER

Practice resources26 Pathways to Growth: Pink hair, Pitbull and staying relevant BY GALE CROSLEY

27 The private equity opportunityBY DOM ESPOSITO AND TONY ZECCA

31 The pandemic hurt diversity efforts in accountingBY MICHAEL COHN

Accounting Tomorrow32 Pitfalls on the path to partnerBY BOB LEWIS

Other resources29 M&A Watch

004_ACT1121 4 10/22/2021 1:26:58 PM


Profession watch

Waiting for the endgameCongress and the Biden administration were wrangling over the fate of two mammoth pieces of legislation as the deadline for action moved closer. The packages include a wide range of infrastructure spending, social benefits, and new taxes and tax enforcement measures (see page 12 and 13). Among the many provisions in the proposed legisla-tion, a particularly controversial one would require banks and financial institutions to share information with the Internal Revenue Service about accounts that have annual inflows or withdrawals over a certain threshold. Originally proposed as $600, vocal opposition from the banking industry and Republicans in Congress led Democrats to raise the threshold to $10,000 as Accounting Today went to press.

Finance ministers from the world’s biggest economies agreed to a global accord overhauling how countries tax big businesses, setting it for approval by heads of state at a summit later in October. The Group of 20 ministers’ and central bank governors’ statement of support came five days after 136 govern-ments reached a deal over the level of a global minimum rate and an end to new digital taxes that the U.S. has said unfairly single out its businesses, particularly its technology giants.

The Public Company Accounting Over-sight Board posted a preview in mid- October of its inspection observations for 2020, based on inspections of 153 audit firms and 617 audits for fiscal years ending in 2019 and the first half of 2020. While the inspectors didn’t uncover as many problems last year as in previous years, the number of deficiencies was still too high. “We continue to identify a number of deficiencies that recur from year to year,” said the report. “For the majority of the annually inspected audit firms, we identified fewer findings in 2020 com-pared to our 2019 inspections. In our triennially inspected audit firms, some improvements were noted, although deficiencies continue to remain high.”

Separately, board staff issued guidance

on some of the considerations that auditors should have about the relevance and reliability of information they get from external sources and plan to use as audit evidence.

The IRS said that it would update the process for the frequently asked questions pages it posts on its website about new tax legislation, to address concerns about transparency and the potential impact on taxpayers when the FAQs on its website are updated or revised. In addition, the service is answering concerns about potential penalties for taxpayers who rely on the FAQs by offering more clarity

about taxpayers’ ability to rely on the information they glean from the FAQs in order to avoid tax penalties. It also plans to keep old copies of the FAQs on its website in case taxpayers or their tax preparers need to consult them later to support a position they have taken. The announcement comes after taxpayers and tax professionals expressed confusion over the ever-changing FAQ pages that the IRS posted in response to COVID-19 related tax legislation.

Grant Thornton reported that its U.S. member firm reached record revenues of $1.97 billion for the fiscal year ended July 31, 2021. Revenue from advisory services made up 39% of fees, accounting and auditing fees comprised 35%, and tax services accounted for 26% of revenue. The firm saw its revenue increase despite the COVID-19 pandemic, which caused GT to make rapid adjustments to help its workforce. The firm offered employee benefits such as psychological wellness, childcare, home meal preparation and tutoring, while introducing a “return-to-

work” hybrid workplace model that gives the firm’s professionals more autonomy and flexibility during the pandemic.

Big Four firm PwC announced that it will allow approximately 40,000 U.S. employ-ees the ability to work remotely from anywhere in the continental U.S. moving forward. With 55,000 U.S. employees, the move would allow most to work virtually. The new policy will impact professionals across client services, including consul-tants, auditors and tax professionals. According to the firm, professionals will have two weeks to alert their managers if they intend to subscribe to the work-from-anywhere model, and will be able to modify their remote work situations to meet different needs as time goes on. Pay will also be determined by geographic location. Partners whose team members will be in the office regularly will also not be allowed to totally work remotely.

The Committee of Sponsoring Organiza-tions of the Treadway Commission teamed up with Deloitte on a new guide to help organizations combine their risk management efforts with their artificial intelligence initiatives. COSO and the Big Four firm released “Realize the Full Potential of Artificial Intelligence” with advice on ways to combine the COSO Enterprise Risk Management framework with Deloitte’s “Trustworthy AI” framework to provide governance, risk management and oversight strategies and structures to help realize the potential of human beings working with AI technology.

KPMG announced it is committing $1.5 billion over the next three years to focus on environmental, social and governance issues, training and solutions. The Big Four firm says the move will work to support the firm’s clients “in making a positive difference,” as well as the firm’s “responsi-bility to improve its impact on the world and the ESG commitments.” The firm said the investment will primarily focus on training, expansion of its global workforce, development of new technologies, and driving action through partnerships, alliances and advocacy. The new ESG strategy will focus on five main areas: solutions, talent, supporting developing

nations, collaborations and alliances, and listening and taking action.

Ernst & Young announced a collaboration with Hult International Business School to launch a master’s in business analytics designation, available free to all of the Big Four firm’s staff members. The online program builds on the firm’s digital credentials program, EY Badges. To earn the master’s designation, staff will need to complete 12 badges covering topics spanning data and artificial intelligence, innovation, leadership and technology. Candidates will also need to complete two additional hands-on projects: one focused on big-data AI and the other focused on creating new data-enabled business products or services.

Aprio announced that it will take over the Firm Foundation program from Top 8 Firm RSM US, effective Dec. 1, 2021. The Atlanta-based Top 50 Firm plans to use Firm Foundation, which shares resources, coaching and networking opportunities with small and midsized CPA firms, to expand its own partnership program into a nationwide alliance. The alliance will be aimed at firms with from $1 million to $20 million in revenue, and Aprio expects it to triple over the next few years. The firm launched its original partner program in 2017; it has 65 members, who will all be able to join the new alliance; Firm Foundation has over 30 members.

The New York State Society of CPAs announced that CEO and executive director Joanne Barry (pictured) will retire in May 2022. She has served as CEO and executive director since January 2010 and has been with the society for 40 years. The NYSSCPA board of directors said it will begin its search for a new executive director soon.

005_ACT1121 5 10/22/2021 1:27:56 PM


Fargo, North Dakota-based Eide Bailly approaches the profession’s chronic gender imbalance in the leadership ranks with the same analytical skill and strategic planning that has made it a Top 25 Firm. In its years of work to boost the firm’s number of women leaders, Eide Bailly began with some simple calcula-tions. “We need to level the playing field,” explained chief human resources officer Lisa Fitzgerald. “We looked at numbers — accountants like numbers — and they were really telling us the story that we needed to do work in this space.”

When Eide Bailly crunched those numbers over a decade ago, they revealed 17% of the partnership was female, prompting the firm to launch its women initiative, First Focus, in 2007. “Our first conversation stemmed from concerns with female senior associate retention, the number of female partners,” Fitzgerald shared. She, along with then-COO, now managing partner and CEO Dave Stende, attended an American Institute of CPAs workshop about starting a women’s initiative, which was “really, really eye-opening for both of us, especially him,” she recounted.

Fitzgerald and Stende got to work convincing the rest of the firm leadership. “It took a year, a year and a half of laying the groundwork with partners and creating the business case for why the initiative was important,” Fitzgerald said.

“To get everyone to understand why it was important to support and implement it, a task force committee was created made up of partners, an HR representative [and more]. That group came up with the mission and vision of what the initiative was going to be. We essentially created what we called Focus Forums.”

A central First Focus program, Focus Forums are a series of videoconferencing sessions facilitated by the firm’s female senior managers and designed for female senior associates and first-year managers who are specially invited to participate. In that first year, 120 participants met six times over Skype to discuss a variety of female-focused topics.

And while the forums were created to enhance the leadership skills and provide essential networking for the firm’s rising female professionals, they also greatly benefitted the facilitators, Fitzgerald shared. “One of the things that happened along the way, unexpectedly, is that those women who we trained and were leaned on as facilitators had phenomenal success throughout our organization,” she explained. “Every year, our partner list, promotion list [includes] facilitators. That has been an unintended success. We knew these women were high performers, but we could point to their time as facilitators, in training, that made them successful through their whole career.”

About half of these facilitators over the

Practice profile

Cracking the glass ceiling

By Danielle Lee

For Eide Bailly, gender diversity in leadership started with crunching the numbers

forums’ 14 years have stayed with the firm and been promoted. And that 17% figure that helped kickstart the Focus Forums has risen to women comprising 31.5% of Eide Bailly’s partnership, well above the profession’s average of 23%.

The firm identifies new facilitators by seeking recommendations from the current class and fielding referrals from partners. Facilitating is a two-year commitment of eight to 12 sessions (four to six per year), with a few days of training, and new facilitators partner with second-year facilitators who mentor them as they co-facilitate.

Facilitators “delve into the content more fully than as participants,” Fitzgerald explained. “They point often to things they learned from this initiative, the content, and learning to facilitate as well. It’s one of the key reasons they continue to move through their careers the way they have. It’s fun to watch those women succeed, and be one of the reasons they are able to make partner.”

Making the caseThe Focus Forums are an integral part of the firm’s wider women’s initiative, which has further expanded in recent years with the launch of an inclusion and diversity initiative in 2018. The forums are open to all genders, though women still make up 90% of participants and all the facilita-tors. While First Focus continues to evolve, the business case has only gotten stronger since Fitzgerald and Stende first pitched it to firm management.

“There were a couple of things,” Fitzger-ald recalled about the bullet points of those early meetings. “Clients were more and more owned by or had people in leadership positions that were female … There were a lot of [studies] pointing to businesses that had women on boards as being more successful. So it was really about, we had to retain women at the senior associate and manager level to funnel into the partnership, and we needed those women to get the work done — we couldn’t have turnover at that level, so we needed to make sure we were giving the tools and having the right conversations so women weren’t self- selecting out at that point.”

Fitzgerald credits the peer networking aspect of the forums as critical to retain-ing women, with participants sharing best practices and books that have inspired and guided them on their career paths.

For firms looking to start or improve their own female-focused programs, Fitzgerald said swapping book titles is an example of the many small ways to begin initiating deeper conversations.

“Take some action; it doesn’t have to be grandiose,” she advised. “Start somewhere: a lunch and learn to get together and talk, with a loose agenda. Saying ‘I read this great book,’ and reading it with the other females in your office. Or encouraging women to run for your board, or seek leadership opportunities, mentoring.”

Fitzgerald stressed that firms shouldn’t be afraid of starting small, though it’s critical to solicit support from the top in those early stages. “We’ve done a lot of great things, but it can be overwhelming — you need commitment, resources and leadership buy-in,” she said. “Someone who is passionate about the topic, who can spearhead and coordinate.”

Fitzgerald expressed gratitude for having that person in Stende, who remained committed even as he transi-tioned from COO to CEO in 2013 (and is now preparing to pass the baton to his successor, Jeremy Hauk, who will assume the role in May 2022).

“[Stende] and I got this going,” Fitzger-ald shared. “He was very visibly supportive of this initiative from the very beginning. He and I appointed the organizational committee... to tell the story about Eide Bailly and our culture — specifically when we are recruiting and with retention, the investment we’re willing to make.”

That investment continues, with a greater focus on inclusion and diversity efforts, Fitzgerald reports, which also began with scrutinizing the numbers: “We look at the metrics and the statistics to determine what story this is telling us. Where are the gaps, and what are things we need to put into play to help with those gaps, and why is it important?”

“There is plenty more work to do,” she added. “We’re off to a great start, and have had great success, but it’s not like it’s over. We have work to do.” AT

006_ACT1121 6 10/22/2021 1:28:26 PM


THE 2021 BEST FIRMSFOR YOUNG ACCOUNTANTS

The 10 top places to start an accounting career

ACT1121_BestFirm.indd 7ACT1121_BestFirm.indd 7 10/21/21 1:06 PM10/21/21 1:06 PM

https://www.accountingtoday.com/the-best-firms-for-young-accountants


I have a special occasion coming up and want to buy a new suit to wear. The truth of the matter is that I do not need a new suit. I bought two new suits three years ago and probably wore each of them two or three times. Also, during the past 16 months I haven’t even worn a sports jacket or ties at all, yet I want to get a new suit to mark my special occasion.

Sometimes things need to be freshened up, renamed, or dressed a little differently. That is what is happening somewhat in accounting. I see a lot of the “old” things being revived in different suits. Here are some examples.

Client accounting services (CAS): This is the performance of outsourced ac-counting and bookkeeping services for

clients. We’ve always done this. For many clients it makes no sense to have these functions in house, as it pulls energy away from their core mission. This is not a new concept, but larger accounting firms have awakened to this, and some smart digital and robotic providers of support are promoting it intelligently. My father did this when he started 91 years ago. He called it “trying to make a living.”

Bundling services: This is a new term for what almost every small accounting firm has been offering forever. Bundling services is where everything a client needs is packaged together and there is a single agreed-upon price for the year. Bundling also includes unlimited phone calls and the typical consulting or advisory services such clients need. By the way, out of the 46,000 U.S. accounting firms, 45,000 could easily be classified as small, with 20 or fewer people in the practice.

Subscription model: A fancy name for

getting paid a monthly fee automatically. Been there, done that, and still doing it. It just never had a name.

Choice pricing models: This is where a prospective client is offered a choice of three or more levels of service. Early on, maybe three levels weren’t offered, but there have always been at least two — a basic and a premium level, but they weren’t given those names. Clients were presented with a proposal to coincide with their expressed needs and then given an added choice of a stepped-up service that included everything the client really needed. Occasionally a third level was provided, which included some unlikely services with a higher price that guaran-teed the client would not be charged at the prevailing rates for such services, such as a tax audit that might occur … or might not.

Value pricing: This is a model where the client and accountant discuss the services the client needs and the value of those services to the client and a price is decided upon. This sounds like every negotiated fee for every client since time immemorial. A hindrance to this is something called competition and the fact that a half dozen other accountants within a 10-mile radius would likely offer the same services for a similar fee, without the added feature of the “value to the client.” There are some situations where one accountant might be able to provide a superior benefit and a value price should be charged, but most of the services for deliverables are pretty much standardized.

Don’t think I am suggesting that all accountants are providing the same service, because they are not. There should be a premium for experience and the ability to apply that to the client’s situation. Exposure to out-of-the-ordinary or complicated transactions should result in a “value price” that is outside the normal range of the professional relation-ship.

Advisory services: This is the new CA

RTO

ON

BY

ALA

N R

OZA

NSK

I

Opinion

word used for the hand-holding that smaller accounting firms routinely provide to their clients. There are some outside-the-box advisory services that some accounting firms perform that command premium prices and provide superior value, and these are rightfully classified as advisory services. However, from what I’ve seen, these are not offered by many firms and, except for some smaller firms that have a high concentration and expertise in an industry or niche, the true advisory services are probably limited to the top 100 or 150 firms. Further, the smaller accounting firms with boots on the ground are hands-on with their clients. They are usually the ones clients turn to when there is a problem and these likely fall under the umbrella of the bundled package.

Millennials are different: They might be, but not in the usual context. Millenni-als who want to be accountants are no different than whatever entry-level accountants were called when Luca Pacioli gave us his rules of double-entry bookkeeping. The blame placed for a lack of performance or responsiveness on new accountants is a poor excuse for inade-

“Oh, that’s Harvey Willis ... he’s been here forever.”

The public forum of public accountingAccounting Today welcomes opinion articles and letters to the editor from our readers. Send yours to [email protected].

Edward Mendlowitz, CPA, is a partner at Top 100 Firm WithumSmith+Brown and the author of 24 books and a twice-a-week blog. Reach him at [email protected].

Buying a new suitBy Ed Mendlowitz

quate, improper, careless and thoughtless staff management and training. Get over it and make the necessary investment that your staff needs to get revved up.

Tax season workload compression: This is a real issue, but it is continually mismanaged by firms. I’ve seen this mismanagement accelerate ever since I started. I’ve posted some remedies that could relieve some of the stress and pressure, but the feedback I get is that firms are “too busy” to make any changes. Duh?

There are more, and it is likely some readers will disagree with some of what I just wrote. Good! Get mad at me and tell me I do not know what I am talking about. Getting mad shows you have some passion, which I think is sorely lacking in many firms that keep repeating what doesn’t work and that look for excuses, fancy names, and sometimes buy a new suit to make themselves think that represents a change forward. AT

Sometimes things need to be freshened up, renamed, or dressed a little differently.

011_ACT1121 11 10/22/2021 1:34:17 PM

accountingtoday.com November 2021 accounting today 13 12 accounting today November 2021 accountingtoday.com

Tax practice

Months of campaigning, proposals, hearings and negotiations have produced an infrastructure bill that needs to be paid for, and a reconciliation bill that is meant to pay for it. As we went to press, the final measures were becoming clearer, while the actual numbers were still subject to change. Depending on the details of the pay-fors in the reconciliation bill, the result could be a tax overhaul that dwarfs the Tax Reform Act of 1986.

“Whatever they settle for in the infrastructure bill will drive the tax provisions in the reconciliation bill,” said Ryan Losi, executive vice president at Glen Allen, Virginia-based accounting firm Piascik, in mid-October. “Until they settle that, we won’t have a bill that addresses tax.”

“In terms of headlines, it’s an increase in the marginal rates, both individual and corporate, and an increase in the capital gains rates. And the capital gains rate increase is proposed to be retroactive to Sept. 13, 2021 — for those wanting to sell in advance of the proposal, it might be too late,” said Tim Steffen, director of tax planning at Milwaukee-based financial planning firm Baird.

“Those are the big ones,” he continued. “The other areas to focus on are limita-tions on Roth conversions, which basically end the whole backdoor Roth conversion

strategy. You would no longer be able to convert dollars that would not otherwise have been taxable, so if you have after- tax money in an IRA, when it comes out of the IRA and you don’t pay tax on it, you can’t convert those dollars to a Roth IRA anymore. And you would not be able to make after-tax contributions to an employer plan, so you could no longer create a megabackdoor Roth by loading up after-tax 401(k) dollars and then converting them to a Roth, which is how people have been getting very large balances in their Roths.”

The other broad category of change is in estate planning, Steffen indicated: “The current estate tax exemption is scheduled to be cut in half in 2026. The proposal would accelerate this to 2022. So it would fall from roughly $12 million to roughly $6 million, beginning next year. This means people who would have estate tax liability probably will want to take advantage of the high exemption this year in the form of gifts and other transfers. For a taxpayer who is married with, say, about $15 million, it’s tougher. Younger taxpayers want to be careful with moving too much out of their name — who knows how much they might need for the rest of their life?”

Waiting on the detailsThere have been so many proposals going

Waiting on reconciliation

By Roger Russell

Potential new provisions could create a seismic shift in tax

in and coming out of the Ways and Means bill that it’s difficult to predict how it will end, according to Mike Tucker and Nick Spoltore of Surgent CPE. “Yes, there will be an increase in individual and corporate rates, but we don’t yet know the exact details,” said Tucker, a CPA and tax attorney. “There will be many other changes. The estate and gift tax changes will impact many in the upper middle class. If the proposed changes get enacted they will need estate planning advice. Altogether, the changes could be as revolutionary as the Tax Reform Act of 1986, which produced seismic changes.”

The proposal to max out the qualified business income deduction at $500,000 for married filing jointly, $400,000 for singles, and $10,000 for estates and trusts would be effective in 2022. The cap has a built-in marriage penalty tax, observed Spoltore, a tax attorney.

A 3% surtax applies to adjusted gross income above the $5 million threshold for individuals. The corporate rate is complex, with a three-tiered structure (18%, 21% and 26.5%) and an additional 3% on income exceeding $10 million until the lower brackets’ advantages are eliminated.

One of the biggest questions for advisors is choice of entity, according to Tucker. “If you’re doing business as an S corporation, should you continue as an S corporation? Every tax practitioner should have this in the back of their minds and raise it with their clients. That’s an incredibly important issue, and it’s vital that we get out in front of our clients and address that, once we know what all the changes are.”

Modifications were made to the Employee Retention Credit in March 2021, noted Jim Brandenburg, tax partner at Top 100 Firm Sikich. “These extended the credit through the end of the year, and made it easier to qualify for those who received Paycheck Protection Program loans, so long as they’re not based on the same wages. The benefit of this will disappear as one of the pay-fors in reconciliation.”

“Interest expense calculations would be pushed from an entity level to the individual shareholders in an S corpora-tion and partners in a partnership,” he noted. ”And Section 1202 stock, for those

with adjusted gross income over $400,000, would no longer qualify for the 100% exclusion of gain after five years.”

“An elimination or easing of the SALT cap was not included in the Ways and Means bill, but Chairman Neal has said that does not mean it won’t be addressed on the House floor,” Brandenburg added.

Looking further aheadThere are a variety of changes in the House bill that will have significant impact on estate and gift planning, according to Keith Grissom, co-practice group leader with the trust and estates department at law firm Greensfelder. The reduction of the lifetime exemption, which is currently scheduled to be reduced on Jan. 1, 2026, will be accelerated to Jan. 1, 2022, for instance. “And grantor trusts created on or after enactment will now be includable in the estate of the grantor,” he said. “So basically the use of grantor trusts as an estate planning tool will vanish.”

“Existing grantor trusts will be grandfa-thered; however, if contributions are made to the existing trust after enactment, a portion of the trust will be included in the grantor’s estate,” he explained. “In addition, it will be a taxable event if the grantor sells assets to a grantor post-en-actment if it includes unrealized gain. Under current law it would not be a taxable event because the grantor is deemed to be the owner.”

As this issue went to press, there was still speculation as to whether the bill would pass both chambers of Congress.

“It’s so tight in the Senate,” said Losi. “I think the Senate will instruct the House committee on what they want, so by the time it comes out of Ways and Means it won’t materially change in the Senate.”

The goal is to have the legislative process complete before the Thanksgiving break, but things could move quickly once agreement is reached on the infrastruc-ture bill, according to Losi. “It might be similar to 2017, where it was early Novem-ber that they had a bill, and a little over a month later it was law. It probably won’t be signed until after Thanksgiving — it might come down to the wire and be late in the year before there’s a bill on the president’s desk.” AT

Tax practice: Tax Strategy

Year-end planning amid tax uncertaintyBy Mark A. Luscombe

It seems like most years we say that year-end planning is especially important. Part of the reason for that is that Congress tends to enact tax law changes every

year. However, making planning difficult, Congress also tends to put off passing tax legislation until the end of the year. At the end of 2017 it was the Tax Cuts and Jobs Act. At the end of 2020 it was the Consolidated Appropriations Act. And now, at the end of 2021, it might be the Build Back Better Act — and then again, it might not.

The Build Back Better Act has the potential to impact broad areas of tax planning: individual income tax planning, corporate income tax planning, pass-through income tax planning, internation-al tax planning, retirement planning and estate planning. As this is being written, Congress is working on paring back the act from a $3.5 trillion bill to something that might be as low as $1.5 trillion to come up with something that the Demo-crats can pass without Republican support under the budget reconciliation process in the Senate.

A lot of those cutbacks could be in the non-tax provisions. Those tax provisions that cost revenue, such as the expanded tax breaks for low- and middle-income taxpayers, could also face cutbacks. The tax provisions that raise revenue are less likely to face cutbacks, since they help pay for everything else. However, with an estimated $2 trillion raised from revenue provisions, if the total package is reduced to $1.5 trillion, even some of the less

Mark A. Luscombe, JD, LL.M, CPA, is principal analyst for Wolters Kluwer Tax & Accounting.

012_ACT1121 12 10/22/2021 1:35:17 PM


Tax practice

with adjusted gross income over $400,000, would no longer qualify for the 100% exclusion of gain after five years.”

“An elimination or easing of the SALT cap was not included in the Ways and Means bill, but Chairman Neal has said that does not mean it won’t be addressed on the House floor,” Brandenburg added.

Looking further aheadThere are a variety of changes in the House bill that will have significant impact on estate and gift planning, according to Keith Grissom, co-practice group leader with the trust and estates department at law firm Greensfelder. The reduction of the lifetime exemption, which is currently scheduled to be reduced on Jan. 1, 2026, will be accelerated to Jan. 1, 2022, for instance. “And grantor trusts created on or after enactment will now be includable in the estate of the grantor,” he said. “So basically the use of grantor trusts as an estate planning tool will vanish.”

“Existing grantor trusts will be grandfa-thered; however, if contributions are made to the existing trust after enactment, a portion of the trust will be included in the grantor’s estate,” he explained. “In addition, it will be a taxable event if the grantor sells assets to a grantor post-en-actment if it includes unrealized gain. Under current law it would not be a taxable event because the grantor is deemed to be the owner.”

As this issue went to press, there was still speculation as to whether the bill would pass both chambers of Congress.

“It’s so tight in the Senate,” said Losi. “I think the Senate will instruct the House committee on what they want, so by the time it comes out of Ways and Means it won’t materially change in the Senate.”

The goal is to have the legislative process complete before the Thanksgiving break, but things could move quickly once agreement is reached on the infrastruc-ture bill, according to Losi. “It might be similar to 2017, where it was early Novem-ber that they had a bill, and a little over a month later it was law. It probably won’t be signed until after Thanksgiving — it might come down to the wire and be late in the year before there’s a bill on the president’s desk.” AT

Tax practice: Tax Strategy

Year-end planning amid tax uncertaintyBy Mark A. Luscombe

It seems like most years we say that year-end planning is especially important. Part of the reason for that is that Congress tends to enact tax law changes every

year. However, making planning difficult, Congress also tends to put off passing tax legislation until the end of the year. At the end of 2017 it was the Tax Cuts and Jobs Act. At the end of 2020 it was the Consolidated Appropriations Act. And now, at the end of 2021, it might be the Build Back Better Act — and then again, it might not.

The Build Back Better Act has the potential to impact broad areas of tax planning: individual income tax planning, corporate income tax planning, pass-through income tax planning, internation-al tax planning, retirement planning and estate planning. As this is being written, Congress is working on paring back the act from a $3.5 trillion bill to something that might be as low as $1.5 trillion to come up with something that the Demo-crats can pass without Republican support under the budget reconciliation process in the Senate.

A lot of those cutbacks could be in the non-tax provisions. Those tax provisions that cost revenue, such as the expanded tax breaks for low- and middle-income taxpayers, could also face cutbacks. The tax provisions that raise revenue are less likely to face cutbacks, since they help pay for everything else. However, with an estimated $2 trillion raised from revenue provisions, if the total package is reduced to $1.5 trillion, even some of the less

controversial revenue-raisers could be reduced or eliminated if they are no longer required for funding.

There are a few specific objections to some of the revenue-raisers. Some Democrats object to the extent to which corporate tax rates are proposed to be raised. Some Democrats object to the elimination of all tax breaks for fossil fuels.

It is very difficult at this point to know what is likely to emerge as the final product, assuming they can get to a final product. However, once we know what a final product looks like, it may be too late to do significant year-end tax planning in response. Most of the provisions in the legislation have effective dates tied to the enactment date, Jan. 1, 2022, or even later. A few proposals, such as the capital gains rate increases, have retroactive effective dates for which it may already be too late to do year-end planning in response.

At this point it seems that the Demo-crats will somehow work out a way to compromise on their differences. The failure to enact anything would seem to be much worse for both the moderate and the progressive Democrats than coming away with at least part of what they want, but they may try to hold out as long as possible to try to get as much as they can.

Individual tax ratesIn general, tax increases on individuals only affect those with more than $400,000 in income. A proposed increase in the top individual tax rate to 39.6% may survive, proposed to be effective beginning in 2022. There is also a pro-posed 3% surcharge on incomes in excess of $5 million. The surcharge may be more at risk. Taxpayers potentially impacted by the rate increases may want to reverse the usual year-end strategy by accelerating income and postponing deductions. Increases are also proposed in capital

gain tax rates; however, with a proposed effective date of Sept. 13, 2021, it may already be too late to realize capital gains at lower rates in 2021.

Owners of pass-through businesses may be impacted by an expanded application of the 3.8% net investment income tax, a new cap on the 20% deduction for qualified business income, and a permanent disallowance of excess business losses in excess of certain caps. Further changes in the taxation of carried interests are also proposed, including extending the required holding period from three to five years and changing when the five-year period would com-mence.

Owners of pass-through businesses will want to discuss with their tax advisors year-end options in response to these possible changes. The Senate Finance Committee also has an additional set of proposals affecting many aspects of partnership taxation. It is still unclear at this point how many of these partnership proposals might be included in the final legislation.

Estate planningAlthough some of the new proposals made by President Biden to tax estates, including the income taxation of the fair market value of assets at death, have not survived in the Build Back Better bill, the bill does include a rollback of the estate and gift tax exemption amount and significant curtailment of the benefits of grantor trusts and valuation discounts.

Some of these changes are proposed to be effective as of the date of enact-ment, whenever that might be. It is difficult to control the date of death, but it is probably a good idea to review the assumptions upon which an estate plan was based and perhaps consider lifetime gifts this year.

Retirement planningAmong the proposals included in the Build Back Better plan are provisions that would limit contributions to Roth and traditional IRAs exceeding $10 million, put greater restrictions on the assets that can be held in an IRA, increase required minimum distributions for large IRA accounts, and

place restrictions on Roth conversions. Taxpayers may want to look into a possible last opportunity to do a Roth conversion before the proposed changes come into effect.

Corporation tax planningAlthough the House Ways and Means Committee has proposed raising the top capital gains rate from 21% to 26.5%, it appears likely that this top rate might have to be lowered to 25% to achieve passage. A proposed 3% surcharge on income in excess of $10 million up to a maximum of $287,000 might also fall by the wayside. There are also proposed increases in the domestic dividends-re-ceived deduction. Changes in the taxation of corporations and pass-through entities always make it a good idea to review choice-of-entity decisions to make sure the current entity structure makes the most sense.

International tax changesThe Tax Cuts and Jobs Act made signifi-cant changes in the taxation of foreign activities of U.S. taxpayers. The Build Back Better Act proposes to rework almost everything included in the TCJA, including GILTI, FDII, BEAT and the foreign tax credits. Some of the provisions are designed to correct problems with the language of the TCJA. Some of the provisions also appear to try to begin to accommodate international tax proposals being worked on by the OECD, although a corporate minimum tax has not been included at this point. Some of the changes are actually taxpayer-friendly, but the vast majority are scored to raise revenue. The proposed changes will likely bring into question the value of interna-tional corporate structures put in place in response to the Tax Cuts and Jobs Act.

IRS fundingAlthough dropped out of the bipartisan infrastructure bill, IRS funding has reemerged in the Build Back Better Act and is likely to survive if anything is enacted. Democrats are relying on increased IRS funding to provide addition-al enforcement revenue to help pay for Mark A. Luscombe, JD, LL.M, CPA, is principal

analyst for Wolters Kluwer Tax & Accounting. See STRATEGY on 16

013_ACT1121 13 10/22/2021 1:35:18 PM


PricewaterhouseCoopers is stressing the concept of trust in its recently restructured firm and in a new survey that examines where business leaders, customers and employees differ on trust. In June, the Big Four firm began reorganizing itself into two broad business segments: trust solutions and consulting solutions. Trust solutions includes the firm’s assurance and tax-reporting practices, while consulting solutions encompasses everything from digital transformation to cybersecurity and tax consulting.

“Our purpose is building trust in society and solving important problems,” said Wes Bricker, vice chair and U.S. trust solutions co-leader at PwC. “That really frames our emphasis in building out the trust solutions segment together with our consulting solutions segment. Those are the two pieces of our business, and our trust solutions segment is the world’s largest trust platform. We’re really excited about where we’re going in building trust in society and helping our clients under-stand the importance of trust.”

Trust at homeConcern has grown in recent years over whether accounting firms can be trusted,

with major firms running afoul of regula-tors in Europe, the United Kingdom, Asia, and to some extent the U.S. over audit missteps involving companies like Wirecard and Carillion, similar to the wave of accounting scandals in the early 2000s at companies like Enron and WorldCom. Regulators in the European Union and the U.K. have proposed that firms separate their audit and non-audit practices. PricewaterhouseCoopers’ move to divide the trust solutions and consulting solutions segments could be a way to anticipate such demands.

“The audit profession plays an outsized role in helping to build trust and confi-dence in the system of reporting, whether it’s financial reporting or nonfinancial reporting,” said Bricker. “And that’s important to businesses as they communi-cate with their employees, consumers and investors. They need trust. They can’t do it on their own.”

PwC’s first-ever “Trust in U.S. Business Survey,” which polled over 500 business executives and more than 1,000 consum-ers in the U.S. in August, found that 73% of the respondents cited the CEO as either responsible or accountable for trust, and 65% said the same for the CFO.

A new focus on trust

By Michael Cohn

PricewaterhouseCoopers is doubling down on the concept in its recent restructuring of the firm

Assurance

“What’s interesting about that for the audit profession is that the CEO and the CFO are top of the list for owning trust and accountability within the organiza-tion,” said Bricker. “The lessons we’ve learned over time about the inputs to high-quality, trusted financial reporting — we can use those lessons elsewhere. It’s lessons like having accountability, having separate oversight, for example, from an audit committee that’s led by experts and then an outside independent expert assurance provider. Those lessons are lessons that help us expand the tools for business leaders in building trust, because we know trust is multidimensional. It’s not linear. It doesn’t just simply grow over time. It evolves through many facets and as priorities change, beyond the financial statements into business conduct.”

The accounting profession may be able to find ways to help build more trust in business and society despite the distrust that seems to be so pervasive now.

“One of the top drivers of trust for consumers is accountability,” said Bricker. “Accounting helps foster accountability. ...

For business leaders, 56% saw account-ability as extremely important, but only 46% of their companies would say they fully implement it. So, it’s a top concern for consumers. Just better than a majority of business leaders see that, and less than a majority of those companies have actually implemented it. So there’s work to do here.”

An era of mistrust?PwC’s focus on trust comes at a time when trust has eroded in institutions in the U.S. and around the world amid the strains of the continuing COVID-19 pandemic and the accelerating pace of climate change. The divides have led to distrust in the media, politicians, the medical profession and other parts of the establishment.

The companies that were the most

successful in building trust were those that seemed to back their words with actions during the pandemic, according to the “Trust in U.S. Business Survey.” Consumer markets companies (retail, consumer packaged goods and logistics) led the way on trust, with 66% of consumers saying their trust grew or remained the same. Similarly, trust in health care companies grew (65%) as those businesses worked to combat the pandemic.

Business leaders need to start by understanding where trust is and how to build it. “There was consensus in the survey results in the foundational elements of trust,” said Bricker. “It was data protec-tion and cybersecurity. It was treating employees well. It was ethical business practices and admitting mistakes. Those four foundational items were consistent across business executives, consumers and employees.”

The survey found some differences as well. “Business leaders often would take a broader view of trust, and they would include other additional areas,” said Bricker. “And that’s a good thing. It is areas like sustainable value, value chain management, responsible artificial intelligence, transparency and ESG reporting. Those tended to be corporate topics. Clearly, there are benefits to consumers and employees, but business leaders tended to also include emphasis on those items. Employees as a point of differentiation were more likely to emphasize holding the leadership accountable. That really runs to the importance of business leaders communi-cating with employees about what’s going well and what’s not and what they’re learning from it.”

Bricker hopes the PwC survey results will help inform the discussion among business leaders, accountants, employees and consumers about where trust is among critical groups. “Understand that trust is multidimensional,” he said. “It’s not linear, which means it requires action, and those actions are critical around account-ability, around culture and around clear communications. We’re going to continue to move forward on the trust agenda. Business has a stake in that, as does the accounting profession.” AT

‘The ... profession plays an outsized role in helping to build trust.’

014_ACT1121 14 10/22/2021 1:36:03 PM


Financial planning is a well-defined process that takes time and attention to detail to do correctly. Most CPA and accounting firms still don’t take this responsibility

seriously and look to put in as little time as possible to maximize their realization rate. This is unfortunate for the profession as a whole, and even more so for the clients who feel that you’ve got their back on all issues.

The comprehensive nature of planning is even more important as your clients age and face a whole new range of issues that they weren’t concerned with during their working and accumulation years. Many of these issues are important to all of us. They are exacerbated by age for a number of reasons, not limited to the fact that time is not on their side anymore.

Cash flow is the lifeblood of any

Blow the dust off

By John P. Napolitano

It’s important to regularly revisit a financial plan with a fresh set of eyes

financial plan and life. As the planner, you should have a clear picture of what your client’s cost of living and wish list looks like. At the onset of a planning engage-ment, even the sloppiest planner typically prepares a cash flow forecast to assess the longevity of the client’s financial resources.

As we all know, some of the largest firms in the world think that this is financial planning — making sure that your green line leads you to the finish line with money to spare. We also know that stuff happens, and situations can change in an instant that make yesterday’s cash flow forecast irrelevant.

An annual check on cash flow should be an ordinary part of your services. Start by looking at total spending as shown in their bank statements. Reconcile this with their actual income for the year and the taxes they’ve paid and you can spot if something is materially deviating from the forecast.

It’s common for clients to overspend in the first few years of retirement. This isn’t typically a deal killer as long as it is recognized, with a plan for when the additional spending may end. If they can’t stop spending, it’s your responsibility to let

them know that they are on an unsustain-able path that will not end well.

Prepare a cash flow stress test. In order to stress test cash flow, revisit all of the assumptions to see how any major changes may impact the long-term viability of your client’s income and expenses. The stress test would recast the forecast under a varying range of changing circumstances such as earnings on investments and savings, inflation on cost of living, large one-time expenses, family issues, or home improvements and the possibilities of a large medical or dental expense or a long-term illness.

This stress test is also important for your wealthy clients. The extent to which your client may be willing to utilize their unified credits by making material gifts during their lifetime is made more comfortable by understanding that there are plenty of other resources to maintain their cash flow desires.

Review all of your clients’ insurances. Life, health and long-term-care policies should be scrutinized. You want to know what they have, and whether it’s ade-quate, not needed or deficient. The same with their property and casualty coverage. This isn’t the ideal time for your clients to

John P. Napolitano, CFP, CPA, PFS, MST, is CEO of U.S. Wealth Management (www.uswealthnapolitano.com) in Braintree, Mass. Reach him at JohnPNapolitano on LinkedIn or (781) 849-9200.

Financial planning

be underinsured. Make sure everything is current and adequate.

Staying up to dateKeeping the estate plan current has profound implications. While your clients nod their heads and sign where they are told to by the attorneys drafting their estate planning documents, that doesn’t mean that they truly grasp all of the implications. Prepare a memo in plain English to summarize the power of the documents, all the moving parts, and the frequency with which you will review these with the client.

This is one of the most important services that you can deliver for your clients. Don’t shortcut this process, as it may cause issues later that may not reflect well on the planning you’ve done (or not done).

Start the estate review with the presumption of a catastrophe hitting your client today, such as an accident, sudden death or a diagnosis that will impact their ability to live independently. Most clients should have the following core estate planning documents: a will, trust(s), a durable power of attorney, a health care power of attorney, and directives. If your client tells you that they have a will, then it’s time to start digging.

The will may be important, but it shouldn’t really be that important. A well-drafted estate plan will simply use the will of an elderly person to direct all assets that are not in trust to the trust. This is known as a pour-over will. Sadly, many attorneys do a half-attempt job, and let the pour-over will be the driving document. At times, the professional skeptic comes out in me as I ponder whether the attorney did this on purpose to drag the estate through the probate process for more billable hours. An elongated probate or — even worse — a family or beneficiary challenge would really make all involved in the planning process look as if they didn’t care.

Check the appointed persons to see if they still make sense. If your client has their 85-year-old sister as their alternate trustee, it may be wise to change. Naming a trustee who’s younger, or perhaps an

See DUST on 16

015_ACT1121 15 10/22/2021 1:35:23 PM


institution, may be appropriate for trusts with legacy language limiting withdraw-als. In this world of mergers and acquisi-tions of institutions, I prefer individuals to institutions. Institutions will be bought and sold, and you never know who is going to be the fiduciary for your beneficiaries. If you must elect an institution, make provisions for a potential trustee change down the road in case the institution doesn’t fit the bill at any point in time.

Does the trust have a trust protector? A trust protector is someone who is appoint-ed to watch over a trust that will be in effect for a long time and ensure that it is not adversely affected by any changes in the law or circumstances.

According to the Boston law firm Margolis and Bloom, “There are a number of reasons for appointing a trust protector. Having a protector allows a long-term trust to be more flexible and adapt to factual and legal changes. For example, beneficiaries may get divorced or die prematurely or the law may change. A protector can also be helpful if you believe there may be conflict among the benefi-ciaries and the trustee or if you don’t fully trust the trustee to fulfill your wishes.”

Trust protectors are common in sophisticated offshore types of trusts but are more commonplace in any trusts that are intended to last a long time.

Review beneficiary elections for the trust and any qualified assets. Ask questions to determine if the beneficiary elections are still appropriate. An example may be a beneficiary who has prede-ceased the grantor of the trust or a

situation where the beneficiary is already wealthy and adding assets to their estate would only cause additional taxation. In the case of a predeceasing, do the heirs of the deceased beneficiary get the assets or will the assets be redistributed among the other living beneficiaries? Ideally, any

redirected assets to the children of a deceased beneficiary, for example, may be better delivered with spendthrift protection.

As we know by now, the SECURE act has altered the rules for inherited IRAs. Ensure that the beneficiary elections still make sense and if directed to a trust, that the trust specifically be amended to provide protection for the qualified distributions that now must be made by the end of the 10th year.

Who to trust?For many clients, they are the trustees of their own trusts until they pass or cannot serve. But what does the language inside the trust say with respect to replacing a trustee during a period of temporary or permanent incapacity? In my opinion, the worst language in the world is the most common language that I see.

I frequently see language requiring two board-certified doctors willing to say that the client is incapacitated and is unfit to act as trustee. This takes time, and competing forces can insist on a medical

professional who will side with them. I believe a better way may be to

appoint people in the trust, sometimes referred to as a disability board, who can decide if the trustee should be replaced. You can name people that know the parties well and can decide among themselves if the new successor trustee should take control. This may sound trivial to some, but several times in past years I’ve seen this language being utilized for the benefit of the grantor and the beneficiaries. It becomes really significant in the case of dementia or other memory- related issues where the client fails to see there is a problem.

If you’ve had experience in this area, you know that the financial institutions themselves may be the biggest issue. They may or may not honor the language that you have in your trust. Find out now, before there’s an issue, whether your language works for them and obtain their answer in writing. If they claim that your trust language will not work, change institutions.

It would also be wise to have current durable powers of attorney for all clients, but particularly for elder clients. These documents are hardly the favorites of financial institutions, so be sure to keep them current. I’d suggest they be re-freshed at least every three years. But here again, check with your financial institution now before any issues arise. You may also consider having the alternate trustee and the durable power of attorney holder be the same person.

Health care directives are important for everyone. These, like the durable power of attorney, should be kept updated. In addition to making sure that the directives are current, make sure that your client

sends an executed copy to their primary care physician, and see to it that your doctor has that recorded and noted in your files. Furthermore, your clients should never sign a “canned” hospital or clinic health care directive. Clients should provide the ones you’ve properly executed with your planning team.

As clients age, it’s more important to review these documents annually or more frequently as circumstances change. The changing situations conversation should expand beyond the day-to-day affairs of your clients, but also get into the shifting lives of any appointed persons or benefi-ciaries named in the documents.

A thorough review of your clients’ estate plans will almost always reveal deficiencies. At this point, your obligation should be to see that a qualified estate planning attorney gets involved to edit or draft what is needed. Do not let your client use their generalist attorney for this specialized work. Then, after everything is signed and executed, be sure that the titles to assets are changed to either be owned by the trusts or whatever other directives have been given by the planning team.

Once the plan is executed and funded, it’s a great time for a family meeting. You don’t need to get into specifics of the balance sheet unless your clients want it. But at a minimum, it’s a good idea to bring in the beneficiaries and other named parties to talk about what was done. Just like the client, they’ll probably forget by the one-year anniversary what you showed them, but at least you have set the stage for being in the center of this arrangement and a friendly face for them to call when the documents get called into action. AT

From page 15

Dust

A thorough review of your clients’ estate plans will almost always reveal deficiencies.

Financial planning

some of the human infrastructure proposals in the legislation. All taxpayers should anticipate a significant reversal of a long-term decline in audit rates.

Tax breaksThe tax provisions are not all reve-

nue-raisers affecting high-income individuals and businesses. There are also many provisions focused on new and expanded tax breaks for green energy. The Biden proposal to eliminate tax breaks for fossil fuels does not appear likely to happen.

Individuals with incomes under $400,000 should generally be safe from most of the proposed tax increases and are likely to benefit from extensions of

increases in the Child Tax Credit, the Child and Dependent Care Credit, and the Earned Income Tax Credit, and support for caregivers, job training, and expanded health coverage and tax benefits.

As has been seen with the advance Child Tax Credits that began in 2021, many tax breaks for lower and middle- income taxpayers may also require some assistance from tax advisors to take

maximum advantage of them.

SummaryIt is difficult to do tax planning in anticipa-tion of what might happen in Washington, but it may well be too late for tax planning after the fact. Tax advisors will want to at least make sure that their clients are aware of the potential issues and possible actions that could be taken, whether or not those clients decide to take action. AT

StrategyFrom page 13

016_ACT1121 16 10/22/2021 1:35:24 PM

A turning point for payrollThe COVID-19 pandemic has greatly magnified clients’ needs for these services

A supplement to accountingtoday

017_ACT1121_001 17 10/22/2021 1:44:50 PM

https://www.accountingtoday.com/payroll-and-your-practice


Technology

The COVID-19 pandemic drove an intense acceleration of cloud, artificial intelli-gence and data analytics adoption. Blockchain did not enjoy quite the same boost, but that doesn’t mean regulators aren’t paying attention to the space. In fact, Congress is putting forth block-chain-related legislation at a fast pace, and accountants who lean into adoption only stand to gain.

One of the key factors that will continue to legitimize blockchain technol-ogy and cryptocurrencies is regulation and legislation. Just this year, Congress has introduced 19 bills (so far) that impact blockchain or crypto, ranging from legislation seeking to define and promote blockchain (the Blockchain Promotion Act of 2021) to proposals to make the U.S. competitive in cryptocurrencies on the global market (the U.S. Virtual Currency Market and Regulatory Competitiveness Act of 2021).

The ramping up of regulatory interest

and activity makes it all the more clear that in the near future, cryptocurrency won’t be the uncertain, volatile investment that it can be today, and blockchain technology will touch almost every industry.

In some ways, the emergence of blockchain technology will contribute greatly to the accounting profession. Not only will it enable new technological capabilities in audit, assurance and attestation; it will also be a vast source of revenue for firms that offer services around it, especially cryptocurrency. But before the benefits are reaped, the learning curves and growing pains will match those of the cloud adoption period, which the profession is mostly past.

Decrypting crypto“President Biden’s infrastructure bill says the expected tax revenue from cryptocur-rency investments could be up to $28 billion,” said Kell Canty, CEO of Verady,

which makes Ledgible, a crypto tax and accounting platform. “That tells me that, one, crypto is not going away, even though some practitioners have said that it’s too complex; and two, the taxation and accounting of it is of the utmost priority. Tax is a huge priority for govern-ment and for the profession. This is building a new asset class that the Fed is saying is not going away. The profession-als that recognize that and dig in will be rewarded.”

Still, Canty said, some of those in the accounting profession he has spoken to see crypto as a problem and not an opportunity. Those accountants are happy to be retiring before they have to make crypto their problem, but crypto remains as an inevitably emerging revenue source for firms, should they embrace it.

While the U.S. government is taking taxation of cryptocurrencies seriously, Canty pointed out a potential concern — namely, excessive regulation driving

Ask not what blockchain can do for you

By Ranica Arrowsmith

Accountants will play a pivotal role in widespread blockchain and cryptocurrency adoption — if they lean in

crypto companies out of the U.S. Another Senate bill proposed rules for crypto trading firms and brokers (as well as banks and other financial institutions) having to report additional information about some transactions, including any over $10,000.

“Yes, increased taxation and regulation may mean an increased use of our software, which can help companies generate tax info like 1099s,” Canty said. “But if you do thoughtful analysis, what if the bill takes those companies outside the U.S.? It could reduce the ecosystem we’re part of by having unrealistic demands on industry that impedes growth or makes some of these companies consider leaving. We’ve seen a little of that from crypto companies. If people are going to invest in and grow a company, they’d like to know the rules of the road with some certainty — that they are stable and that they can grow around them.”

Trust in blockchainIn its recent “Enterprise Reboot” report, Big Four firm KPMG found that business investment is up for blockchain, though the pandemic did affect its rate of growth. The top objectives for investments in early 2020, during the first two months of the pandemic (which drove investment in technology across the board), were blockchain as a foundation for infrastruc-ture, modernization to improve deci-sion-making, and cost reduction.

As the pandemic wore on, the invest-ment objective shifted to simply improving competitive positioning. It’s worth noting that the objective for investing in technol-ogies rated automation, artificial intelli-gence and analytics — but not blockchain — as “essential for future survival.”

“We’re seeing blockchain as an enabling technology that businesses are contemplating using,” said Heather Paquette, national technology assurance leader for audit at Big Four firm KPMG. “In our Enterprise Reboot survey, we found that more than half of executives are investing in blockchain. They are revisiting business practices to see if they can use blockchain as a means of transacting business with others.”

See BLOCKCHAIN on 25

023_ACT1121 23 10/22/2021 1:38:23 PM


Technology: Boomer’s Blueprint

The vision of successBy L. Gary Boomer

Each individual’s definition of success is personal, yet individuals and firms have advan-tages and scalabili-ty in today’s market. Before I get into the details, let

me explain how confusing the accounting profession has become to our clients and the market.

Businesses and organizations of all sizes are going through a transformation, and accounting and advisory firms are not exempt. Business transformation is the term for making fundamental changes in how the organization runs. This includes people, processes and technology. Shifts in operations and mindsets are crucial to a successful transformation.

Firm leaders have referred to client accounting and advisory services as a key component of firm growth and transfor-mation, yet it is impossible to get a consistent definition of CAAS among accounting professionals — even within the same firm. Marketing professionals, please provide a better name!

Service opportunities have continued to grow along with specialization. This is demonstrated by the business capability model that focuses on:

The vision and game plan of the business;

The interests of owners and stake-holders;

The technology platform or ecosys-tem;

The customer and employee experi-ence;

Marketing; Sales; Services and products; Financial; Talent development;

Operations; and, Compliance and legal.

Historically, the accounting profession primarily focused on financial, compliance and operations. Today, the profession has expanded to include opportunities across the entire business capability model. Advi-sory and consulting services are limited by capability, while compliance and transac-tional services are limited by capacity.

We all know that firms face capacity issues due to the lack of talent, and should explore increased automation and outsourcing. Transformation will not be possible without an increase in capabili-ties. Firms should look for talent with different skills to provide the advisory and consulting services that clients seek.

The opportunities are apparent, yet most firms struggle to find the time (capacity) and talent (capabilities) to take advantage of them. They need different mindsets, skill sets and toolsets, and mindsets appear to be the most difficult. From our consulting experience, the four primary challenges are:

1. Change management. Firms and professionals want to be shown why they should change and the value it brings.

2. Focus on exceptions. The human tendency is to always think of the outliers, rather than the majority. Those who focus on making it work do, while those who focus on why it won’t work continue doing what they have always done. Billing by the hour and focusing on compliance versus predictive and prescriptive services are two good examples.

3. Motivation. Income can be a motivator, but most firms are having record years. The motivation must come from the ability to sustain success and be future-ready. Think about how you can add exponential value to the client.

4. New business model. Hourly billing does not work in organizations that focus on value through automation and upskilling of talent. Move toward a subscription model where clients choose

from a menu of services, including transactional, compliance, advisory and consulting. Defining your target clients can help you filter out clients who are no longer a good fit for the firm.

Back to the increased opportunities of transformation. It sounds easy, but it is difficult to execute without a game plan and coaching. To further simplify, we came up with an acronym that focuses on the mindsets, skill sets and toolsets required to transform your firm and clients. The acronym is: “THE VISION OF SUCCESS.”

Technology. No surprises here. Your challenge is to learn how to tell time — not how to build the watch. You must be in the cloud to meet your requirements as well as your clients’ needs. Think about

how your applications integrate: data and workflow. Your technology stack will probably differ from your client services technology stack due to outdated core applications.

Human resources/talent develop-ment. Many of the skills you have today are either outdated or soon will be through automation and outsourcing. Do a skills gap analysis for the future and hire based on skills and unique abilities, rather than degrees.

Effective processes. Continuous process improvement and the conver-gence of process improvement and technology are key to sustainable success. This is where you create the rocket fuel. Transformational change often requires an outside review.

Vision and plan. You need a current vision (personal and as a firm) that’s been

updated within the past two years. The strengths and weaknesses of the virtual world have been fully exposed. Zoom is now a transportation system. What do you want to be, do, have, experience and create in the next three years?

Innovation. Innovation is messy because it disrupts incumbents and forces change. You must develop an innovation process in your firm to manage, expedite, fund and implement innovation. The innovation mindset comes from the top, while innovative ideas often come from those closest to the client.

Sustainable. It’s a great time to be a CPA if you are willing to change and learn. Your current success and your firm’s success may be the biggest restraints on a transformational mindset. Ask yourself, “What happens if we don’t change?”

Integrated workflow. The pandemic has exposed the need for digital versus paper-based workflow. If you aren’t digital, it is going to be hard to survive in the future. Many workflow applications need to be updated to better manage projects, scheduling and communications among team members and clients. Data and work flow better and more securely in the cloud than in hybrid applications.

Outsourcing. Sourcing, outsourcing, onshoring and offshoring are all import-ant and will become even more important in the future. Many tasks can be sourced, while jobs will require upskilling. Focus on your unique abilities, leverage technology, and source tasks to increase client value.

New business model. With business transformation comes the need to transform the business model. Historically, accountants have used the cost-plus model: Karl Marx’s theory of labor. This model will not work for organizations focused on creating exponential value. You must package and price services based upon a subscription model, including transactional, compliance, advisory and consulting services. Ron Baker has been evangelizing for years!

Operations. Operations is different from finance, but both are needed in exponential organizations. Operations is about execution and management of resources. They often need different L. Gary Boomer, CPA, CITP, CGMA, is the

visionary and strategist at Boomer Consulting Inc.

resources than finance. Check out the Boomer Operation’s Circle to access a peer community, expertise and guidance.

Financial. Automation and real-time information are extremely important, as is managerial accounting. Too often, firms focus on financial reporting when clients value real-time decision-making data. The technology platform and continuous process improvement are extremely important.

Sales & marketing. Firms must increase their marketing and sales budget to compete for profitable advisory and consulting services. Currently, leading firms are spending approximately 3% on marketing and sales. With increased automation and competition from

Technology

See VISION on 25

VisionFrom page 24

Experts, including those at KPMG, believe that especially because of its ability to underpin digital trust, blockchain will be key to how Web 3.0 will develop. Web 2.0 is our current iteration of the web, a system of interconnectedness that goes beyond static, noninteractive, information web pages. Web 2.0 was enabled by the interaction of cloud, mobile and social media technology; Web 3.0 will be enabled by edge computing, decentral-ized data networks (basically, safe, interconnected networks — like block-chain) and artificial intelligence. The new web will be open and “trustless,” which means that the network itself has trust built in inherently. This is made possible by blockchain.

Blockchain’s three most important features are its ability to address prob-lems in auditability, security and trust. KPMG’s U.S. blockchain leader Arun Ghosh noted in the report that, “Many initial blockchain pilots failed because the business was focused on what the technology can do. Blockchain invest-ments weren’t approached strategically.

BlockchainFrom page 23

Your current success and your firm’s success may be the biggest restraints on a transformational mindset. Ask yourself, ‘What happens if we don’t change?’

024_ACT1121 24 10/22/2021 1:38:24 PM


Technology: Boomer’s Blueprint

updated within the past two years. The strengths and weaknesses of the virtual world have been fully exposed. Zoom is now a transportation system. What do you want to be, do, have, experience and create in the next three years?

Innovation. Innovation is messy because it disrupts incumbents and forces change. You must develop an innovation process in your firm to manage, expedite, fund and implement innovation. The innovation mindset comes from the top, while innovative ideas often come from those closest to the client.

Sustainable. It’s a great time to be a CPA if you are willing to change and learn. Your current success and your firm’s success may be the biggest restraints on a transformational mindset. Ask yourself, “What happens if we don’t change?”

Integrated workflow. The pandemic has exposed the need for digital versus paper-based workflow. If you aren’t digital, it is going to be hard to survive in the future. Many workflow applications need to be updated to better manage projects, scheduling and communications among team members and clients. Data and work flow better and more securely in the cloud than in hybrid applications.

Outsourcing. Sourcing, outsourcing, onshoring and offshoring are all import-ant and will become even more important in the future. Many tasks can be sourced, while jobs will require upskilling. Focus on your unique abilities, leverage technology, and source tasks to increase client value.

New business model. With business transformation comes the need to transform the business model. Historically, accountants have used the cost-plus model: Karl Marx’s theory of labor. This model will not work for organizations focused on creating exponential value. You must package and price services based upon a subscription model, including transactional, compliance, advisory and consulting services. Ron Baker has been evangelizing for years!

Operations. Operations is different from finance, but both are needed in exponential organizations. Operations is about execution and management of resources. They often need different

resources than finance. Check out the Boomer Operation’s Circle to access a peer community, expertise and guidance.

Financial. Automation and real-time information are extremely important, as is managerial accounting. Too often, firms focus on financial reporting when clients value real-time decision-making data. The technology platform and continuous process improvement are extremely important.

Sales & marketing. Firms must increase their marketing and sales budget to compete for profitable advisory and consulting services. Currently, leading firms are spending approximately 3% on marketing and sales. With increased automation and competition from

Technology

See VISION on 25

non-CPA providers, firms must adopt a standard sales process and think globally rather than locally in their sales and marketing efforts.

Upskilling of talent. I mentioned HR and talent development earlier, but some of the skills currently needed in firms are data analytics, project management, marketing, sales, and talent development. Find the right “who,” and they will know how or figure it out. These positions generally do not require an accounting degree or CPA certificate.

Compliance. Compliance work has a future. We increase the value of compli-ance work with improved packaging and pricing. You can reduce costs through better workflow and automation.

Capacity. Most firms face capacity challenges today because their primary revenue streams are from transactional and compliance services. Increased

automation and outsourcing are potential solutions. Advisory and consulting services are limited by capability. Use some of your capacity to focus on higher-margin advisory and consulting services. Business transformation requires capability as well as capacity.

Experience. The pandemic has exposed the need to improve client and employee experiences and the ability to work from anywhere at any time. Im-proved client and employee experiences come from a focus on the work and home environments, rather than a focus on technical skills. Balance is necessary, and the virtual world supports that balance.

Services and products. Firms are expanding their services while focusing on target or strategic clients. The most difficult challenge for a firm is to stop providing a service, yet many services have diminished in value due to automa-

tion and outsourcing. Once firms define their strategic accounts, they can develop menus of appropriate services for each client, and package and price accordingly in a subscription model. Price by the client, not by the service line.

Stakeholders — shared vision. It’s crucial for stakeholders to be on the same page with a shared vision. You can accomplish this with a simple exercise or workshop and an outside facilitator. Once you have a shared vision, it is easier to develop a game plan and hold people accountable for their areas of responsibili-ty. Accountability is the fastest way to improve results.

Complexity and confusion exist in the market and within the accounting profession. The acronym “THE VISION OF SUCCESS” should provide you a tool to transform yourself and your organization. Think — plan — grow! AT

VisionFrom page 24

Experts, including those at KPMG, believe that especially because of its ability to underpin digital trust, blockchain will be key to how Web 3.0 will develop. Web 2.0 is our current iteration of the web, a system of interconnectedness that goes beyond static, noninteractive, information web pages. Web 2.0 was enabled by the interaction of cloud, mobile and social media technology; Web 3.0 will be enabled by edge computing, decentral-ized data networks (basically, safe, interconnected networks — like block-chain) and artificial intelligence. The new web will be open and “trustless,” which means that the network itself has trust built in inherently. This is made possible by blockchain.

Blockchain’s three most important features are its ability to address prob-lems in auditability, security and trust. KPMG’s U.S. blockchain leader Arun Ghosh noted in the report that, “Many initial blockchain pilots failed because the business was focused on what the technology can do. Blockchain invest-ments weren’t approached strategically.

The better approach is understanding where the business needs more trust given how it operates within its partner ecosys-tem and using blockchain to enable trust in those targeted processes”

Paquette noted, “It’s key that finance professionals know what they want to use blockchain for. Usually there is an element of trust through transparency, and trust through understanding who you’re transacting with inside the blockchain. You see companies developing consor-tiums with each other, and looking to blockchain to enhance data integrity.”

Education remains a priorityAs the blockchain and crypto space stretches its legs and encounters growing pains, a significant part of its future will be forged on the university campus. Dr. Sean Stein Smith, a CPA, is teaching CUNY Lehman College’s first cryptocur-rency class, a collaboration between the department of economics and business (under which the accounting degree falls) and the School of Continuing and Professional Studies. A grant-funded class, it covers crypto terminology, and how cryptocurrency connects to corporate accounting.

“We bring in students and alumni to get

the community more engaged and more aware of issues around crypto — what it is and how it works,” Stein Smith said of Lehman’s approach.

The college introduced its Blockchain Credential Pilot program in 2019 as a way

for graduates to manage their Lehman degree as a secure, verifiable digital credential through blockchain technology. When another institution or employer views the credential page, they will see a “verify” button to accomplish that task — a form of a smart contract, one of the most significant use cases for blockchain in business.

Other universities and colleges have similar programs, and the technology was developed at the Massachusetts Institute of Technology for academic credentials, professional certifications and other records.

Stein Smith has researched and published extensively on blockchain and cryptocurrency technology (his most recent book, “Blockchain, Artificial Intelligence (AI) and Financial Services — Implications and Applications for Financial Professionals,” was published in 2020). Based on his observations, he recommends that firms interested in breaking into the space take the following three steps:

First, ask your current clients if they are using cryptocurrency, or if they are on any blockchain system, to get a feel for how involved in the space they are.

Second, make a decision as a firm whether you will take payment in cryp-toassets, or whether you want to have that discussion with your clients to help them get their feet wet.

Third, allocate funds to train and educate staff on cryptocurrency.

“No one wants to hear that, but this is of the utmost importance and it cannot be overstated,” Stein Smith said of his last point. “We have to be actively engaged.”

He suggested the American Institute of CPAs and the Wall Street Blockchain Alliance as good places to start getting educated. And, of course, Accounting Today. AT

BlockchainFrom page 23

‘Crypto is not going away ... The professionals that recognize that and dig in will be rewarded.’

025_ACT1121 25 10/22/2021 1:38:25 PM


From time to time we hear news in the profession about private equity transac-tions occurring within the ranks of midsized to larger CPA firms. Just recently, EisnerAmper did such a transaction with TowerBrook Capital Partners.

While at first glance, a private equity infusion could appear to be an effective growth and wealth creation vehicle for CPA firms, there are elements of structure, due diligence and corporate governance to be considered.

To start, let’s offer an introduction to private equity opportunities, and discuss a background on private equity transactions, why you might consider a private equity arrangement, what the trade-offs are, case histories of private equity investments in CPA firms, and what history has shown.

Historically, private equity firms have found midsized to larger CPA firms somewhat attractive investments because they are predominantly annuity-based. CPA firms within the $30 million to $40 million revenue range seem to be the most appealing, although there have been smaller transactions as well as larger ones. Private equity firms are attracted to

The PE opportunity

By Dom Esposito and Tony Zecca

Private equity firms are looking at accounting firms. Is it worth it for you?

Practice resourcesPractice resources: Pathways to Growth

Shortly after Accounting Today named James Moore the No. 1 Best Firm for Women in 2020, and while COVID was continuing to stretch firm

members, managing partner Suzanne Forbes did the obvious: She donned a pink wig and green eyeshades while lip syncing “We Are the Champions” on a Zoom call with a couple hundred members of the firm. It was a moment of well-deserved zaniness in a challenging year. For Suzanne, who joined the Gainesville- based firm in 1987 and became managing partner in late 2019, it was also a moment of “unexpected relevance.”

Relevance matters a lot to Suzanne, as I learned when we first met several years ago while she was leading the firm’s real estate group. I was impressed by her passionate focus on growth. And now as MP, that passion is manifested in a strong

connection between driving revenue and strengthening culture — empowering employees to make a difference.

During the pandemic, Suzanne explained during a recent interview, staying relevant required meeting fast-changing regulatory needs. It also meant moving beyond compliance to provide advisory services. And finding ways to stay up close and personal with clients and employees, despite digitally imposed distance.

Happiness is good businessSuzanne makes a convincing case for the role of happy employees in sustaining relevance and growth. While traditional metrics matter a great deal at James Moore (the firm saw 10% growth, or twice the annual average of large accounting firms, in 2020!), Suzanne goes beyond growth for growth’s sake, instead empha-sizing the why.

The thinking goes something like this: When employees are satisfied, respected and empowered to do work that matters,

Pink hair, Pitbull and staying relevant

By Gale Crosley

Happiness is a metric for this managing partner

they are in the best position to make a difference. That leads to long, flexible careers, grateful clients, and long-term growth.

James Moore’s people-first approach goes even deeper. Suzanne sees self-actu-alization, the opportunity to make the most of one’s talents, as the embodiment of the firm’s ideal. Being the best possible employer means not just letting employ-ees prioritize family, but helping them do it. Though her children are now young adults, in the past Suzanne would enter their recitals, games and other events as nonnegotiables on her calendar. And she expects the same from her team.

We show up! With the pandemic receding into the background, Suzanne recognizes that some pandemic behaviors and approach-es (“COVID keepers”) were worth preserv-ing. Borrowing from a Pitbull song lyric, “When things get tough, that’s when we show up.” Firm leaders were present and highly supportive. They made a point to recognize above-and-beyond behavior, like working late on Saturday night to complete a Paycheck Protection Program loan application to give a client the best chance of getting needed funds.

A state-of-the-firm virtual event (the one with the pink wig) that focused on people and intentional culture, purposeful growth, the move to advisory, and innovation, showcased Pitbull’s “Rise” as a theme song.

Suzanne also used the opportunity to remind her team that, like Pitbull says, “It’s not how you fall, it’s how you get back up.” She encouraged them to continue to operate proactively, even without a crisis nipping at their heels.

There was plenty of fun, too, like a raucous name-that-tune competition with intense competition for gift cards. (“The chat room went wild,” Suzanne recalls). You shouldn’t need a pandemic to get a little crazy now and again.

When regular “pulse surveys” canvasing employee views of professional and personal well-being revealed high levels of anxiety, James Moore retained the services of mental health providers. The option to talk to a professional was well

Gale Crosley, CPA, is one of the leading consultants to accounting firms on revenue growth. Reach her at [email protected].

received.In terms of client interaction, Suzanne

says the pandemic pushed the firm into a higher level of proactivity, with members reaching out as never before to assess

client needs and respond in innovative ways. The result was an impressive uptick in business and frequent client comments like, “I don’t know how we could have made it through without you.”

Outlook: SunnyJames Moore’s focus on people and culture is clearly meeting its mark, and the firm has a trophy case of awards to prove it, including being one of Accounting Today’s Best Firms to Work For and a fastest-growing firm. Suzanne Forbes’ leadership seems destined to bring the firm continued recognition, appreciative clients, and employees determined to make a difference. AT

Suzanne makes a convincing case for the role of happy employees in sustaining relevance and growth.

Suzanne Forbes

026_ACT1121 26 10/22/2021 1:40:11 PM


From time to time we hear news in the profession about private equity transac-tions occurring within the ranks of midsized to larger CPA firms. Just recently, EisnerAmper did such a transaction with TowerBrook Capital Partners.

While at first glance, a private equity infusion could appear to be an effective growth and wealth creation vehicle for CPA firms, there are elements of structure, due diligence and corporate governance to be considered.

To start, let’s offer an introduction to private equity opportunities, and discuss a background on private equity transactions, why you might consider a private equity arrangement, what the trade-offs are, case histories of private equity investments in CPA firms, and what history has shown.

Historically, private equity firms have found midsized to larger CPA firms somewhat attractive investments because they are predominantly annuity-based. CPA firms within the $30 million to $40 million revenue range seem to be the most appealing, although there have been smaller transactions as well as larger ones. Private equity firms are attracted to

these CPA firms because they generally have valuations that are low, their balance sheets are void of heavy debt, and they usually have strong cash flow.

As CPA firms slowly transition from a traditional accounting firm compliance model to a higher-margin, more progres-sive professional services model with a focus on providing advisory and consult-ing services, private equity firms are eager to invest in them and are out looking for opportunities. CPA firms not offering advisory and consulting services are not likely candidates for investment. Private equity firms are looking for the combina-tion of both tax compliance and consult-ing, and see more value in the consultan-cy business. For private equity firms, the CPA firm’s client portfolio could provide them access to new clients that they may never have had entrée to previously.

Private equity might hit singles and doubles from an investment in a mid-mar-ket CPA firm, but generally not a home run, which is what private equity is attract-ed to. PE firms and lenders consider acquiring midsized to larger CPA firms the trailing edge of their investment strategy,

The PE opportunity

By Dom Esposito and Tony Zecca

Private equity firms are looking at accounting firms. Is it worth it for you?

as CPA firms are not hugely scalable and therefore not in their sweet spot.

So why would you consider a private equity infusion? Aligning with a private equity firm can certainly be attractive to many CPA firms. One of the primary reasons is that it can be a vehicle to accelerate growth and bring an infusion of cash. Such funds can then be used to invest in people and technology, further propelling growth. It could also be seen as a strategy with an end goal of taking the advisory business public. A private equity transaction can attract employees by providing enhanced compensation packages, which may include stock options. It may also be an intermediary tactic to gather wealth as part of partners’ longer-term exit strategy.

Generally, we see the valuation of these transactions as plus-or-minus three times annual partner distributions, or about one times collected revenues.

What are the trade-offs?First, keep in mind that engaging with a private equity firm may cause a major shift in the way a CPA firm is managed. There are several possible compromises and reasons why private equity firms and midsized and larger CPA firms have not traditionally mixed well. Typical of any acquisition transaction, there could initially be a tug of war over who is in charge of daily operations and overview strategies. Partners could feel a loss of independence if the private equity firm is “in charge,” as many CPA firms are tightly managed by partners.

To create immediate cash flow for the private equity firms, there could be an initial haircut in partner compensation. Earn-out periods may need to be achieved. Partner perks and discretionary expenses could be brought down to minimum amounts as well.

There may be a change in corporate culture, as private equity firms are often less collegial and have a diminished sense of partnership camaraderie, as they are focused on performance goals. There could be greater pressure and oversight of firm leadership to achieve the financial and performance goals firmwide. Inherent in the type of models each pursues, there

could be conflict between the mindsets of the CPA firm and its private equity investor, as CPA firms tend to manage and think longer term, while private equity firms focus on short-term ROI.

Personnel issues often emerge, as CPA firms tend to cultivate a caring environ-ment, and the senior partners truly see their employees as their most important assets. This conflict, and the fact that employees may be displaced in a transi-tion, is often not palatable to many firms.

Additionally, senior partners, who would be viewed as key players initially to ensure that clients are properly serviced and transitioned, may find their roles dimin-ished or receded over time. Private equity firms may load up on debt that could amount to at least three-to-four times EBITDA. Cash management of receivables and payables will be run very tightly.

Case histories, for good & badGiven the confidentiality of agreements, there is little known about the structures of the deals, goals or projections of the entities at the onset of their agreements, but CBIZ and UHY are examples of successful private equity transactions.

CBIZ is now public and doing well (NYSE: CBZ). With more than 100 offices and 4,800 associates in major metropoli-tan areas and suburban cities throughout the U.S., CBIZ delivers full-service account-ing and business consulting, financial and benefits and insurance services to organizations of all sizes and individual clients. UHY US remains private as a mid-market firm and is growing nicely. It is part of a cohesive international network of independent member firms providing audit, accounting, tax and business advisory services across the globe.

Known ‘busts’In 2007, private equity purchased about 80% of Philadelphia-based accounting firm Smart and Associates for $60 million by refinancing $60 million of debt and liabilities. Smart was combined into publicly traded consulting firm LECG and went out of business in 2011.

Goldstein, Golub & Kessler was acquired by American Express and was

Practice resourcesPractice resources: Pathways to Growth

Gale Crosley, CPA, is one of the leading consultants to accounting firms on revenue growth. Reach her at [email protected].

received.In terms of client interaction, Suzanne

says the pandemic pushed the firm into a higher level of proactivity, with members reaching out as never before to assess

client needs and respond in innovative ways. The result was an impressive uptick in business and frequent client comments like, “I don’t know how we could have made it through without you.”

Outlook: SunnyJames Moore’s focus on people and culture is clearly meeting its mark, and the firm has a trophy case of awards to prove it, including being one of Accounting Today’s Best Firms to Work For and a fastest-growing firm. Suzanne Forbes’ leadership seems destined to bring the firm continued recognition, appreciative clients, and employees determined to make a difference. AT

See OPPORTUNITY on 28

Suzanne makes a convincing case for the role of happy employees in sustaining relevance and growth.

Suzanne Forbes

027_ACT1121 27 10/22/2021 1:40:13 PM


CONNECTICUTMugford & DiBella buys Fasulo & Albini

Details: Mugford & DiBella LLC, a firm based in New Britain, Connecticut, is acquiring Fasulo & Albini CPAs, a firm in Plantsville. The two firms are collaborat-ing to provide a seamless transition of service for their clients. Mugford & DiBella earned approximately $900,000 in annual

M&A watch

Practice resources Practice resources

subsequently spun out. McGladrey was acquired by H&R Block and was subse-quently spun out.

Depending on a CPA firm’s size and mix of service offerings, it may be a prime candidate for private equity investment. The timing might be just right; PE firms are out actively pursuing midsized to large CPA firms in an effort to broaden their client portfolios. For some CPA firms, this kind of investment could be the path to growth and building wealth for partners. But such arrangements do not come without trade-offs and compromises. There could be major shifts in corporate culture, goals and structure. With few

success stories out there, we advise partners to look at such arrangements with eyes wide open.

What it looks likeNow, let’s address what CPA partners engaging in a private equity arrangement can expect, starting with due diligence.

Going through private equity due diligence, you should be prepared for a deep dive. With some variety by size of deal, generally, the process will focus on these areas:

Information systems: Private equity firms are numbers-driven. They will mine data that will identify where cash flow is coming from and where it is going. This “professionalization” of information systems is viewed as a key tool, providing insights that will help enhance the value

of your firm when the investment is “flipped” in three to five years.

Cash flow: CPA firms are traditionally rich in cash flow, but an evaluation will be made on how good the quality of that cash flow is and what can be relied upon on an annual basis. Although net income is important, PE firms are fixated on cash flow. They value businesses on EBITDA. Increasing EBITDA is what is going to allow them to eventually cash out for more than they paid.

Expense control: Private equity firms will dig into all current partner expense accounts, asking questions about firm policies, controls, expense spikes, etc. Partner expense accounts could well be scrutinized and cut back.

Liquidity: Private equity firms use leverage to make investments. They will

require weekly, monthly and quarterly receipts tracking to make sure you are not in jeopardy of any covenants you may have, and that their portfolio stays liquid. They will take swift action if covenants are not being met.

Services and cost of delivery: With the objective of determining and improv-ing margins, private equity firms will delve into all services being provided and the cost of service delivery of each. CPA firms often lose track of where they are really making profits and gross margins, and a private equity firm will analyze contracts to ensure services are not being provided just to increase revenue while not actually increasing profitability. Also expect a focus on how new and recurring work is bid, with a particular emphasis on

OpportunityFrom page 27

avoiding contracts that increase revenue but are not all that profitable.

Your new structure “Structure” is the “plumbing” of a private equity transaction. Typically the invest-ment creates an “alternative practice structure,” resulting in two entities: an attest CPA firm that is 100% owned by the CPA firm partners and is the vehicle for the firm to be able to continue to do attest work. The second entity will become a non-attest consulting company that is jointly owned by the CPA firm partners and the private equity investor. The non-attest consulting company essentially leases employees to the accounting firm to conduct the attest work and perhaps the tax compliance work. It also would not be unusual for there to be an affiliate or subsidiaries to the non-attest consulting firm.

Since the attest CPA firm only retains the audit and tax compliance work, the retirement plan (deferred compensation) that it had in the past may well be reduced as part of the transaction since the accounting firm is not as valuable as it once was with the consulting revenues. It also would not be uncommon to see a slight reduction in draws and partner compensation. Sometimes in the initial transaction, a portion of the proceeds goes directly to the CPA partners in the form of a dividend and in firms where the partnership agreement and compensation plan require it, the retired partners may



028_ACT1121 28 10/22/2021 1:40:15 PM


Watch our video atAccountantsWorld.com/TB

Accounting Power®

Our trial balance system wasdesigned from the ground upfor professional accountants,

so you can maximize efficiencyand accuracy. You're in control

every step of the way.

The #1 cloudtrial balance system

C

M

Y

CM

MY

CY

CMY

K

AP_trial_balance_MktPlace_Nov2021.pdf 1 10/18/2021 5:09:29 PM

Attend our 30-minute webinarImproveYourPayroll.com

When you choosea committed payroll

solution partner, you also get the

best payroll system.

75% of accountants sawat least 25% improvement

in their practice after switching to Payroll Relief,

and 58% saw 50% improvement

C

M

Y

CM

MY

CY

CMY

K

Payroll_webinar3_MktPlace_Nov2021.pdf 1 10/19/2021 10:51:49 AM

CONNECTICUTMugford & DiBella buys Fasulo & Albini

Details: Mugford & DiBella LLC, a firm based in New Britain, Connecticut, is acquiring Fasulo & Albini CPAs, a firm in Plantsville. The two firms are collaborat-ing to provide a seamless transition of service for their clients. Mugford & DiBella earned approximately $900,000 in annual

revenue before the acquisition, and Fasulo & Albini is expected to add about $300,000 in revenue, for a total of $1.2 million at the combined firm.

Two partners at Fasulo & Albini, Mike Fasulo and Marlene Albini, are becoming employees of M&D, but not partners, along with administrative assistant Tracey Mindlin. M&D had five staff members prior

to the deal, and now has two partners and eight staffers.

ILLINOISBDO merges in Lowery

Details: BDO USA has added Chicago- based investment consulting firm Lowery Asset Consulting LLC, expanding its BDO

M&A watch

Practice resources Practice resources

require weekly, monthly and quarterly receipts tracking to make sure you are not in jeopardy of any covenants you may have, and that their portfolio stays liquid. They will take swift action if covenants are not being met.

Services and cost of delivery: With the objective of determining and improv-ing margins, private equity firms will delve into all services being provided and the cost of service delivery of each. CPA firms often lose track of where they are really making profits and gross margins, and a private equity firm will analyze contracts to ensure services are not being provided just to increase revenue while not actually increasing profitability. Also expect a focus on how new and recurring work is bid, with a particular emphasis on

avoiding contracts that increase revenue but are not all that profitable.

Your new structure “Structure” is the “plumbing” of a private equity transaction. Typically the invest-ment creates an “alternative practice structure,” resulting in two entities: an attest CPA firm that is 100% owned by the CPA firm partners and is the vehicle for the firm to be able to continue to do attest work. The second entity will become a non-attest consulting company that is jointly owned by the CPA firm partners and the private equity investor. The non-attest consulting company essentially leases employees to the accounting firm to conduct the attest work and perhaps the tax compliance work. It also would not be unusual for there to be an affiliate or subsidiaries to the non-attest consulting firm.

Since the attest CPA firm only retains the audit and tax compliance work, the retirement plan (deferred compensation) that it had in the past may well be reduced as part of the transaction since the accounting firm is not as valuable as it once was with the consulting revenues. It also would not be uncommon to see a slight reduction in draws and partner compensation. Sometimes in the initial transaction, a portion of the proceeds goes directly to the CPA partners in the form of a dividend and in firms where the partnership agreement and compensation plan require it, the retired partners may


also share in that dividend.The new attest firm must satisfy the

American Institute of CPAs’ 101-14 requirements and state laws: Each director must be a licensed CPA and attest CPA firm partner. All owners of the attest CPA firm will also be employees of the non-attest consulting company. The board of the attest CPA firm should include attest CPA firm employees. The attest CPA firm board is distinct from the non-attest consulting company board, so there will be two boards, and the private equity firm will have no representation on the attest CPA firm board. Non-attest consulting company employees on the attest CPA firm board are not directors, executive officers or senior management of the non-attest consulting company.

The attest CPA firm is independently managed, with some oversight by the private equity firm: The managing partner of the attest CPA firm reports to the attest CPA firm board. Promotion to or removal of an attest CPA firm partner is the decision of the attest CPA firm. There is a services agreement that provides that the non-attest consulting company does not control the governance, structure or operations of the attest CPA firm, but does provide services such as personnel (including licensed CPAs), IT and back-of-fice support. It will also include a state-ment that services rendered on behalf of the attest CPA firm by CPAs will be under the direction, control and supervision of the attest CPA firm and will be rendered in accordance with its personnel manual and other policies and procedures.

Prepare yourself when it comes to cashing out. History has shown it is not

easy to “flip” a professional services firm. When it’s done, it’s often not done successfully. But when it’s time to flip, there have been a number of public company exits, IPOs and perhaps some specia purpose acquisition companies, but there is little known about these transactions because they are private.

The final decisionSo if your partnership can accept the aspects of the structural and governance changes, is a private equity infusion an effective vehicle to create partner wealth? We believe so, but with the caveat that the CPA firm must have a strategic plan that it revises to reflect how strategies and tactics will be enhanced as a result of a private equity infusion, and that the alternative practice structure must effectively deliver on that plan.

But the question remains: Is the gain worth the pain? With bank borrowing rates being very inexpensive these days and many firms under capitalization with partner cash capital accounts, these vehicles could be considered alternative vehicles for growth as well as a private equity infusion, but without all the bells and whistles that private equity demands.

Only time will tell if these transactions gain traction and are more successful than in the past. AT

We’re saddened to report that our longtime col-umnist Dom Esposito, the former CEO of Grant Thornton, vice chair of BDO, national practice and growth director at CohnReznick, and more recently head of consulting firm Esposito CEO2CEO, died in late September. This was his final article for us, co-written with his colleague, Tony Zecca, CPA, a consultant with Esposito CEO2CEO.


See M&A WATCH on 30

029_ACT1121 29 10/22/2021 1:40:17 PM

https://pages.accountantsworld.com/matt-contardi-payroll-relief-case-study/?utm_source=EXT&utm_campaign=improveyourpayroll.com&utm_content=RC02&utm_medium=print

https://www.accountantsworld.com/accounting-power/trial-balance-financial-statements/?utm_source=EXT&utm_campaign=AWtrialbalance&utm_content=RC10&utm_medium=print


Download our ebook atAccountantsWorld.com/20Tips

20 Tips toTurbochargeYour Payroll

Practice

Many accountants are makingmore money per hour of their time with payroll services than

their peers are making fromtax, accounting, or audit.

What’s their secret?

C

M

Y

CM

MY

CY

CMY

K

20_tips_ebook_MktPlace_Nov2021.pdf 1 10/18/2021 5:06:39 PM

AccountantsWorld.com/AFPOr call 877.840.6122

Full compliance,zero headaches

SMAfter-the-Fact

Payroll

After-the-Fact Payroll is the most comprehensive cloud-based solution for payroll compliance. Your filings are always accurate and on-time.

Prepare and e-file federal and state forms including W2s, W3s, and 1099s, faster and easier than ever.

C

M

Y

CM

MY

CY

CMY

K

AFP_zero_headache_MktPlace_Nov2021.pdf 1 10/18/2021 5:08:56 PM

Wealth Advisors business. The merger will bring added expertise

to BDO’s wealth advisory practice in areas such as 401(k) plan sponsor investment advisory services, and expands the firm’s ability to advise insurance companies, private endowments and high-net-worth individuals. Lowery Asset Consulting’s employees will relocate to BDO’s down-town Chicago office.

Financial terms of the deal were not disclosed. BDO reported over $2 billion in annual revenue for the fiscal year ending April 30, 2021. Lowery had approximately $4 million in revenue and $900 million in assets under management. In fiscal year 2021, BDO combined with nine other firms. The firm has 836 partners and over 8,503 employees. The deal with Lowery adds eight more professionals to BDO.

INDIANAKSM acquires Noble Consulting Services

Details: Katz, Sapper & Miller, a Top 100 Firm based in Indianapolis, has bought Noble Consulting Services Inc., an insurance regulatory consulting firm headquartered in the same city.

Noble specializes in financial risk examinations and related services on behalf of insurance regulators. The deal will enable KSM to expand its scope of services. Financial terms of the acquisition were not disclosed. KSM currently has 391 employees, both full-time and part-time employees, including 45 partners. Noble employs 41 people, including its CEO Mike Dinius, who was sole owner of the firm prior to the acquisition.

Noble will operate as a wholly owned subsidiary of KSM, while maintaining its name and corporate office in downtown Indianapolis. Dinius will continue to be CEO of Noble.

KANSASAdams Brown to acquire Fortner & Short

Details: Adams Brown, a Regional Leader based in Wichita, Kansas, announced plans to acquire Fortner & Short LLC, also based in Wichita.

Adams Brown has 19 partners and 265 total employees and earned annual revenue of $31 million. Fortner & Short has two partners: Richard Fortner and Tim Short. Financial terms of the deal were not disclosed. The professionals at F&S are slated to join Adams Brown’s construction and small business teams. The firm serves 12 markets across Kansas and Arkansas.

NEW YORKTronconi Segarra adds FB&H

Details: Tronconi Segarra & Associates LLP, a CPA firm based in Williamsville, New York, added Feeley, Bonaventura & Hyzy CPAs PC to its CPA practice.

The deal adds three partners and six associates from Feeley, Bonaventura & Hyzy. After the merger, Tronconi Segarra will now have 20 partners and a total of nearly 130 employees. Feeley, Bonaventu-ra & Hyzy was founded in 1989. All three of the CPA partners previously worked at the Buffalo office of PricewaterhouseCoo-pers and left to open their own CPA practice in Williamsville. They are all relocating to Tronconi Segarra’s office in Williamsville. Financial terms of the deal were not disclosed.

Gettry Marcus adds Wagner & ZwermanDetails: Gettry Marcus CPA PC, a

Regional Leader based in Woodbury, New York, merged in Wagner & Zwerman LLP. Wagner & Zwerman will become a division of Gettry Marcus and will continue to be based in its Melville, Long Island, office.

Wagner & Zwerman partners Andrew Zwerman, Vincent Preto and John Antinore and their staff will continue to offer accounting, tax and consulting services to their clients. The combined firm will have more than 150 employees. Financial terms were not disclosed.

NORTH CAROLINADean Dorton adds in Penny Longobardo

Details: Dean Dorton Allen Ford PLLC expanded its footprint in Raleigh, North Carolina, by merging with Penny Longo-bardo & Co. Financial terms were not

disclosed. Dean Dorton has 281 employees in its three offices in Raleigh, and Lexing-ton and Louisville, Kentucky. PLC has two partners, three staffers and two adminis-trative team members joining the firm.

PENNSYLVANIAHerbein buys Tubiello-Harr

Details: Herbein + Co. Inc., a Regional Leader based in Reading, Pennsylvania, acquired Tubiello-Harr & Associates LLC, a CPA firm in Coopersburg. The deal is part of Herbein’s growth plan to strength-en its presence in the Lehigh Valley.

Tubiello-Harr & Associates was founded in 2011. Financial terms of the deal were not disclosed, but Herbein announced that all four team members from Tubiello-Harr’s firm will join Herbein and continue practicing from their current location. Managing partner Loretta Tubiello-Harr will become a senior consultant at Herbein, and senior manager Kim Vandergrift will join Herbein as a partner. Herbein now has 23 partners and 219 employees.

TEXASArmanino to merge in Holtzman Partners

Details: Armanino LLP, a Top 25 Firm based in San Ramon, California, said it will be adding the partners and staff of Holtzman Partners, an accounting firm in Austin, Texas, effective Jan. 1, 2022. The deal will add a second office in Austin for Armanino, which already has a location on Congress Avenue. Financial terms were not disclosed. Armanino has approxi-mately 130 partners and 1,400 employees.

WASHINGTON Bellingham firms combine

Details: Bellingham, Washington-based VSH CPAs announced the merging in of fellow Bellingham firm Ahn Tax & Business Advisors, including its founder and previous VSH partner Lydia Ahn, who will be rejoining the firm as a partner.

VSH was founded in 1997 and with the combination will have approximately 50 staff members.

M&A watch

Practice resourcesPractice resources

From page 29

Accountants of color and women took on increased workloads at firms during the COVID-19 pandemic, but didn’t necessarily see their careers advance, according to a new study. For the study, Thomson Reuters Tax & Accounting and accounting firm association PrimeGlobal polled more than 300 tax and accounting professionals from various countries and backgrounds in June and found that a 54% majority of accountants of color reported increased work hours, compared to 46% of their white peers. Meanwhile, 41% of accoun-tants of color took on more responsibility without additional pay, compared to 30% of mostly white accountants.

The pandemic had a disparate impact on people of color, leading to higher mortality rates in many communities. The Black Lives Matter protests sparked by the killings last year of George Floyd, Breonna Taylor and others also prompted many companies and accounting firms to reexamine their hiring and promotion practices and promise to increase their efforts in diversity, equality and inclusion, but with limited success.

“Recognition of merit and excellent work are the key reasons for bonuses, promotions and new job opportunities for Black and Latinx accountants,” said Elizabeth Beastrom, president of Tax & Accounting Professionals at Thomson Reuters, and Michelle Arnold, CEO of PrimeGlobal, in an email. “Many firms have been investing in unconscious bias training over the last few years and under-taking efforts to increase their representa-tion of accountants of color — such as identifying and removing bias in their promotion and advancement systems.”

There were some positive signs in the study. A higher percentage of Black and Latinx tax and accounting professionals indicated that they received a pandemic bonus, were promoted to a senior role, or started a role in a new organization, as compared to their white peers, at 37%,

Steps backward

By Michael Cohn

COVID-19 has hurt diversity efforts in tax and accounting

030_ACT1121 30 10/22/2021 1:40:20 PM

https://www.accountantsworld.com/after-the-fact-payroll/?utm_source=EXT&utm_campaign=afp&utm_content=RC10&utm_medium=print

https://pages.accountantsworld.com/20-tips-for-your-payroll-practice/?utm_source=EXT&utm_campaign=AW20tips&utm_content=RC10&utm_medium=print

accountingtoday.com November 2021 accounting today 3130 accounting today November 2021 accountingtoday.com

Delivering Results - One Practice At a time

877-632-1040

www.APS.net Scan This QRC To Learn More

$1 Billion+ in Practice Sales

Most Recognized Brand

Greatest Number

of Buyers

Most Successful

Brokers

$1 Billion+

When YOU are surrounded by results…

Success FOLLOWS!

We’ll sell YOUR practice for the highest price and best terms.

For information about advertising in this space contact:

(212) [email protected]

ACT_podcast ad.2.31X5.5&7.9.indd 2 2/18/21 2:46 PM

disclosed. Dean Dorton has 281 employees in its three offices in Raleigh, and Lexing-ton and Louisville, Kentucky. PLC has two partners, three staffers and two adminis-trative team members joining the firm.

PENNSYLVANIAHerbein buys Tubiello-Harr

Details: Herbein + Co. Inc., a Regional Leader based in Reading, Pennsylvania, acquired Tubiello-Harr & Associates LLC, a CPA firm in Coopersburg. The deal is part of Herbein’s growth plan to strength-en its presence in the Lehigh Valley.

Tubiello-Harr & Associates was founded in 2011. Financial terms of the deal were not disclosed, but Herbein announced that all four team members from Tubiello-Harr’s firm will join Herbein and continue practicing from their current location. Managing partner Loretta Tubiello-Harr will become a senior consultant at Herbein, and senior manager Kim Vandergrift will join Herbein as a partner. Herbein now has 23 partners and 219 employees.

TEXASArmanino to merge in Holtzman Partners

Details: Armanino LLP, a Top 25 Firm based in San Ramon, California, said it will be adding the partners and staff of Holtzman Partners, an accounting firm in Austin, Texas, effective Jan. 1, 2022. The deal will add a second office in Austin for Armanino, which already has a location on Congress Avenue. Financial terms were not disclosed. Armanino has approxi-mately 130 partners and 1,400 employees.

WASHINGTON Bellingham firms combine

Details: Bellingham, Washington-based VSH CPAs announced the merging in of fellow Bellingham firm Ahn Tax & Business Advisors, including its founder and previous VSH partner Lydia Ahn, who will be rejoining the firm as a partner.

VSH was founded in 1997 and with the combination will have approximately 50 staff members.

Practice resourcesPractice resources

Accountants of color and women took on increased workloads at firms during the COVID-19 pandemic, but didn’t necessarily see their careers advance, according to a new study. For the study, Thomson Reuters Tax & Accounting and accounting firm association PrimeGlobal polled more than 300 tax and accounting professionals from various countries and backgrounds in June and found that a 54% majority of accountants of color reported increased work hours, compared to 46% of their white peers. Meanwhile, 41% of accoun-tants of color took on more responsibility without additional pay, compared to 30% of mostly white accountants.

The pandemic had a disparate impact on people of color, leading to higher mortality rates in many communities. The Black Lives Matter protests sparked by the killings last year of George Floyd, Breonna Taylor and others also prompted many companies and accounting firms to reexamine their hiring and promotion practices and promise to increase their efforts in diversity, equality and inclusion, but with limited success.

“Recognition of merit and excellent work are the key reasons for bonuses, promotions and new job opportunities for Black and Latinx accountants,” said Elizabeth Beastrom, president of Tax & Accounting Professionals at Thomson Reuters, and Michelle Arnold, CEO of PrimeGlobal, in an email. “Many firms have been investing in unconscious bias training over the last few years and under-taking efforts to increase their representa-tion of accountants of color — such as identifying and removing bias in their promotion and advancement systems.”

There were some positive signs in the study. A higher percentage of Black and Latinx tax and accounting professionals indicated that they received a pandemic bonus, were promoted to a senior role, or started a role in a new organization, as compared to their white peers, at 37%,

24% and 19% respectively.However, a significant percentage of

accountants who identify as being from an ethnic minority said that issues around Black Lives Matter (47%) and racial injustice (28%) adversely impacted their career development and progression, against less than 10% of mostly white accountants. In addition, 40% of accoun-tants who identify as being from a minority race or ethnic background reported that career development and progression were challenging both before the pandemic and after it started.

Gender differencesIn terms of gender, 54% of the women surveyed reported increased work hours compared to 43% of men, and 35% of women compared to 29% of men had increased work responsibilities without additional compensation. However, a higher percentage of female accountants reported receiving a pandemic bonus and promotion to a senior role, 36% and 12%, respectively. The impact on women’s well-being was worse, with 56% of women compared to 45% of men reporting that the pandemic had at least a slightly negative impact on their health and well-being. In addition, 72% of women (compared to 54% of men) reported this was mostly due to increased stress levels inside and outside of the workplace.

“On the well-being feedback, women with demanding jobs are often also carrying the burden of caregiving and household responsibilities, leading to increased negative impacts on health and well-being,” Beastrom and Arnold wrote.

They recommend that organizations take a “surgical” approach to DEI invest-ments. “To produce better outcomes from DEI initiatives, employers should diagnose one or two areas upon which to improve and then target and customize the solution,” Beastrom and Arnold suggested. “For example, increasing representation in

Steps backward

By Michael Cohn

COVID-19 has hurt diversity efforts in tax and accounting

the partnership will likely require a solution to help underrepresented accountants build strong connections with senior internal influencers, such as a formal sponsorship initiative.”

Real-life examplesThey cited some examples from account-ing firms that responded to the survey. Tricia Duncan, director of operations at Jones & Roth in Eugene, Oregon, has seen the firm’s diversity and inclusion initiatives grow to include diverse recruitment training, employee resource groups, D&I goals, and updates to existing processes and procedures to implement D&I efforts.

Top 100 Firm Carr, Riggs & Ingram in Charlotte, North Carolina, has also been expanding its diversity efforts. “To do this effectively, our firm assigns a career advisor to every employee,” said Sandi Guy, partner of human capital at CRI.

Another Top 100 Firm, Katz Sapper & Miller in Indianapolis, established an employee resource group for remote workers, with a special view toward diversity, equity and inclusion, “to make sure that the programming and education that we hold around DEI applies to our significant remote workforce,” according to director Katherine Malarsky.

Nevertheless, relatively few tax and accounting firms are investing in the items that specifically target improving repre-sentation in senior roles. The diversity leaders surveyed in Thomson Reuters’ and PrimeGlobal’s “Pandemic Nation” research reported that only a small percentage of their employers were investing in formal sponsorship (23%) and work assignment monitoring (18%). CRI, for example, uses a sponsorship program for one-on-one coaching. “Ultimately, sponsorship is having the greatest impact in producing the best results for increasing representa-tion of underrepresented accountants because that mentor or sponsor has reached out to say, ‘OK, let’s talk about your specific situation,’” said Guy.

At firms that don’t make more of an effort to promote diversity and inclusion, employees notice. One of the top two con-cerns among all accountants in the survey was the “inconsistency between what the organization says and what it does.” AT

031_ACT1121_001 31 10/25/2021 2:33:12 PM

https://accountingpracticesales.com/

mailto:[email protected]


For a large number of firms, the path to partner is an uncomfortable conversation and an unclear situation. If a firm wants to establish a $2 million book level for an equity partner, what does that mean?

What we have learned from dealing with CPAs nationally for over two decades is there is no standard-ized answer to the equity formula process. The one core fundamental, though, is that not all revenue is equal. This is a key element to keep in mind for this conversa-tion. To clarify, two $10 million firms are likely to not have the same value. That means the equity buy-in process for two similar firms may not be equal either.

Here’s what we have heard from partners and profes-sionals trying to create or understand the path to partnership: Some firms have well-defined systems, but many are struggling to identify and/or communicate their plans to potential succession partners. As an example, what book size is needed? Is that a book the professional needs to create, bring into the firm, manage, or buy into? If a retiring partner has a $1 million book, can they transfer that to the incoming

partner to manage? If so, does that fulfill the new partner’s obligation or do they also need to develop new business? How much new work is also required on an ongoing basis?

Let’s examine the math by starting simple. A $10 million firm sells for $10 million. We know all revenue is not equal, but for this example let’s assume a 1x value. Firm A acquires Firm B’s $10 million practice and, to make this really simple, they buy it for $10 million in cash up front. (As a side note, if you are willing to buy firms for 1x with cash all up front, please call us because we will find many firms willing to sell under that scenario.) For ease of calculation, there are five equal partners, so each would get $2 million. The reality is that the payment would be spread out, etc., but it is still a $2 million value transfer.

Let’s talk buy-in funding: Does the candidate need to secure outside financing to deposit funds into the capital account? How much is required to buy 10% in equity? That 10% is worth $1 million in value in the scenario above. If the current partner book is $2 million

each, will a 10% buy-in at $1 million qualify as an acceptable equity partner?

If the candidate does not want to borrow or is not qualified to secure a loan from an outside source, this may force the firm to finance the buy-in, which happens in one of two ways. The firm can issue the candidate 10% in equity today and allow them to pay the loan back over time. In this case, the firm is really gifting equity because the payback will be from equity distributions made. The candidate will also be benefit-ing from firm growth. If the firm goes from $10 million to $11 million, they now own $1.1 million but may have not paid much to get these benefits. The other option is to slowly release equity in 1% increments once the candidate has paid, say, $100,000 in bonus money. That can take 10 years to get their 10%.

The buy-in process is like the acquisition or merger of a firm. There are many variables, such as firm profitabil-ity, growth potential and bench strength, but the key is understanding the firm’s true value to establish the right buy-in process. Yes, there is a little art and science combined to get to this value, but it’s comparable to buying a house. What is the right price for any house? It is what the buyer is willing to pay, and the seller is willing to accept. The price can vary based on demand, location, condition, etc.

The key questionIs it worth owning an accounting firm? If you are in a firm contemplating going into the private sector, think hard before leaving public accounting. We see the financial performance of accounting firms daily. Partners in subperforming firms might put in a lot of billable time, but they still make a good living. Partners in average and high-performing firms make substantial to exceptionally high incomes.

The CFO or controller role inside the private sector can pay well, but there is a cap on what any business will pay for financial leadership and there is often no ownership. The real money in any profession comes in when the financial benefits of ownership are also involved. Ownership with uncapped income potential is hard to find as an executive in most companies. There may be bonus structures involved, but in the end if the company sells, you do not receive a piece of that sale. If your compensation gets too high, you will likely be replaced.

If you want to lead, there is a clear path available for you to do so in the accounting profession. You can lead as a partner in a firm and receive the benefits of your efforts. In the private sector, you may have a leadership title, but without ownership, you are a follower. AT

Pitfalls on the path to partner

By Bob Lewis

Firm ownership has many rewards, but it requires some serious number-crunching

Bob Lewis is president of The Visionary Group. and Enteprise Assessment. Reach him at (800) 995-9186.

032_ACT1121 32 10/22/2021 1:38:50 PM

square.com/go/professionals

Dear Accountants,

We’re here to give you time back.Custom estimates and invoices, payments, client management, and real-time reporting — all in one place.

Square takes care of business so you can take care of clients.

0C3_ACT1121 3 10/27/2021 9:05:02 AM

https://squareup.com/us/en/solutions/professional-services

Inc. 5000 is a registered trademark of Mansueto Ventures LLC

Tax PreparationTax Planning

Save your clients money in taxes with Corvee Tax Planning software.

0C4_ACT1121 4 10/26/2021 11:11:33 AM

https://corvee.com/?utm_source=print&utm_medium=atoday&utm_campaign=taxplanningwillneverbethesame

The CAS platf orm for accountants who won’t sett le for less.

Documents

Transcript of The CAS platf orm for accountants who won’t sett le for less.