Unfortunately, seemingly benign actions do not always turn out to be so. Even small decisions or quick conversations may have significant — and expensive — consequences. Consider these real-life claims asserted against CPAs in the AICPA Professional Liability Insurance Program, and take note of lessons that were learned the hard way regarding a lack of engagement letters.

Failure to Search

• The case: A CPA prepared tax returns and provided bill-paying services for a client. When the client inherited a substantial amount of money, it asked the CPA to assist in managing this newfound wealth. The CPA agreed and invested approximately $2.5 million with an investment adviser who was recommended by another client of the CPA. Eventually, the invested funds were lost due to the adviser's alleged fraudulent activity. The client filed suit against the CPA for failure to exercise due diligence in selecting the adviser. While the CPA's actions were taken in good faith and in the belief that they were in the client's best interests, the CPA did not perform any due diligence procedures related to the adviser, relying solely on the recommendation of the other client. A simple internet search, however, would have revealed that the investor was previously convicted of financial crimes.
• The outcome: The case settled with defense costs and an indemnity payment of more than $500,000.
• The lesson: While the depth and type of due diligence procedures vary based upon the situation and service to be provided, performing a basic internet search before accepting a new client, or making a recommendation to an existing one, is a quick and easy — but crucial — step for a CPA to take, even if the referral source is a trusted one.
• The other lesson: Clients often seek a CPA's advice related to investments. However, providing incidental advice is fraught with risk, and the CPA may be blamed for poor investment performance. Avoid providing investment advice unless you have the requisite experience in the area or have been engaged via a separate engagement letter for the service. 

Off-the-Cuff Advice

• The case: A CPA prepared tax returns for a married couple for a number of years until the couple informed the CPA of their impending divorce. During the couple's divorce proceedings, the CPA provided advice to the husband for a short time without first obtaining a waiver from or officially terminating the relationship with the wife. The wife claimed that, within that period, the CPA wrongfully advised the husband that he could withdraw money held in joint bank accounts even though such withdrawals violated the couple's prenuptial agreement. The CPA recalled telling the husband that he believed he would be entitled to half of the joint account but did not have the prenuptial agreement in hand. As such, he verbally advised the husband to consult with his divorce attorney on the issue. There was no documentation related to this discussion with the husband.
  
• The outcome: The case settled with defense costs and an indemnity payment of approximately $1.5 million.
• The lesson: Answering seemingly benign questions based on incomplete or partial information can have significant consequences. Avoiding answering these questions, while preferable, is not always possible or practical. Whenever advice is provided, follow up the discussion with a written communication, such as an email.
• The other lesson: A conflict of interest, or even the appearance of an ethical violation, can greatly complicate the defense of a claim. Here, the defense expert opined that, despite the short period during which the conflict existed, the case would be very difficult to defend, and the CPA should not have discussed the issues with the husband.

In both of these cases, the engagement letter was nonexistent. Had engagement letters been in place, the outcomes may have been different.

With a rapidly changing tax landscape, an area of focus for internal tax departments, preparers and auditors continues to be financial reporting of income taxes under Accounting Standards Codification Topic 740, Income Taxes (ASC 740). Here are the crucial trends impacting income tax reporting in today’s dynamic environment.

Changing Tax Legislation

Tax legislation that will affect companies’ income tax disclosures in the near future, adding additional complexities to the financial reporting process, include the following:

• OECD Pillar II: The Organization for Economic Cooperation and Development (OECD) has developed a framework to address tax challenges arising from the digitalization of the economy. The European Union Member States formally adopted Pillar II of this framework in late 2022, which enacts a global minimum tax (GMT) of 15% on large multinational enterprises, setting the stage for expansive changes in the global tax landscape. While the United States has not adopted Pillar II, this development still impacts financial statement disclosures for companies that operate in the jurisdictions that adopt it. With Pillar II expected to be effective in 2024, companies will need to begin setting up processes to calculate the GMT and prepare for financials statement audits and potential governmental review.
• Corporate minimum tax (CMT): Beginning in 2023, large U.S. multinationals will also be subject to a minimum tax of 15% of adjusted financial statement income. While this seemingly aligns U.S. tax policy with the Pillar II, upon closer examination the new CMT contains more differences than similarities. The broad applicability of tax credits, along with accelerated depreciation and other carve-outs, causes the CMT to diverge from the Pillar II provisions, which significantly limits these benefits. Large multinationals may nonetheless ultimately find themselves subject to both Pillar II and CMT provisions.
• TCJA provisions: The implementation of the Tax Cuts and Jobs Act (TJCA) of 2017 substantially altered the U.S tax system, and its provisions continue to impact companies years later. For example, the TCJA allowed companies to fully deduct the cost of certain capital expenditures through bonus depreciation. However, starting in 2023, the 100% allowance generally decreases by 20% per year before fully sunsetting in 2027. Outside of financial reporting implications, this presents planning opportunities to accelerate capital purchases. Congress is currently considering legislation that would modify certain unfavorable TCJA provisions. Potential changes include extending bonus depreciation, repealing rules requiring capitalization and amortization of R&D costs rather than immediate deduction, and restoring more favorable provisions, such as interest expense limitations. Additionally, state and local jurisdictions are continuously enacting and effecting legislation related to conformity of these TCJA conformity provisions and others such as inclusion of foreign subsidiary earnings into U.S. taxable income under Global Intangible Low-Taxed Income (GILTI) rules.

FASB Finalizes Income Tax Disclosure Update

The Financial Accounting Standards Board (FASB) has finalized an update that expands tax disclosure requirements for both public and non-public business entities. These changes include broadening of the effective tax rate disclosure and requiring specific categories of line items, with disaggregation based on the taxing jurisdiction being mandated. In addition, the income taxes paid disclosure in the statement of cash flows will now need to be disaggregated between federal, state and foreign taxes on an annual basis. The update is effective for annual reporting periods after Dec. 15, 2024, and interim periods within fiscal years beginning after Dec. 15, 2025, for public companies. The updates will take effect for all other entities after Dec. 15, 2025, with interim periods after Dec. 15, 2026.

Looking Forward

The dynamic nature of the ever-changing tax landscape demands constant vigilance and adaptability. As ASC 740 evolves to address the latest business trends and challenges, staying informed and proactive on income tax reporting remains paramount for companies striving to effectively navigate the rapidly shifting terrain.

The importance of effective tax research cannot be understated. In today’s ever-changing regulatory environment, staying abreast of tax news and analysis is vital for making informed decisions, planning strategic solutions to tax challenges and ensuring compliance in a complex tax landscape.

Specifically, CPAs use tax research to identify the tax implications of particular positions, aid their companies and clients in making informed decisions about tax strategies, planning and compliance, and to prepare for potential IRS audits.

Research Choices

Whether one uses a variety of sources for research or relies on staff to collect their own data, busy CPAs should understand that tax research sources are categorized as primary (statutes, regulations and case laws) and secondary (law review articles and others providing additional analysis). Other considerations include the following:

• Finding relevant binding and persuasive authorities. This includes legislative, administrative and judicial sources. Binding authorities are mandatory for courts to follow, while persuasive authorities are optional.
• Relying on comprehensive resources. These platforms consolidate essential information in one place to make it easy to search for documents.
• Embracing AI-driven tax research software. This can enhance efficiency and accuracy. In a competitive environment with rising client demands, firms that do not leverage technology risk losing talent to competitors.

The Tax Research Process

An organized approach to tax research is crucial to ensure the necessary due diligence is performed in the quest for accurate tax positions. The process can be broken down into both simple and comprehensive steps:

1. Define the situation: To initiate tax research, the first step is to clearly identify and define the pertinent facts and issues relevant to the tax situation, including a thorough understanding of the client’s unique circumstances within their financial, legal and operational context.
2. Gather applicable authorities: Tax experts need to identify and collect the applicable tax laws for the client’s situation, starting with the Internal Revenue Code (IRC) as the primary statutory source. This process extends to encompass administrative regulations and rulings, as well as judicial decisions from various courts.
3. Evaluate the research: Following the collection of relevant authorities, a comprehensive analysis is essential. This entails a detailed examination of legal provisions and an understanding of their implications in the specific context of the client.
4. Formulate conclusions and recommendations: Based on the analysis, tax professionals must draw well-founded conclusions and make recommendations regarding the client’s tax position.
5. Share research findings: Effectively communicating the results of the tax research is crucial. This may involve creating detailed reports or delivering presentations to stakeholders, clients or other pertinent parties.

Effective tax research is not only advantageous but crucial in the intricate world of taxation. With the ever-expanding Internal Revenue Code and associated complexities, reliance on memorization is impractical. The primary purpose of tax research is to define the tax effect of specific tax positions, enabling informed decisions, strategic tax planning and compliance. A structured approach ensures that necessary due diligence is conducted in the research process.

Both seasoned professionals and novices benefit from expert guidance and reliable sources to bridge the knowledge gap for taxation issues. In the complex landscape of taxation, the ability to conduct effective tax research is not just advantageous; it is crucial for success.

Helping out at the NJCPA’s annual volunteer day at the Community FoodBank of New Jersey ahead of Thanksgiving was a success on many levels. The NJCPA has been associated with the FoodBank for 14 years.

At the FoodBank, we were told that we would work as a group, packing pasta. The group was led to a room in the warehouse that had many large boxes of different pastas. We put on hairnets and gloves to avoid contaminating the food. After receiving instructions, we were split into three larger groups, each group assigned to a different type of pasta and their own workstation. Those three groups were then split into smaller groups, organized by the job they performed. A group of people put labels on bags. Another group of people scooped pasta in those bags. Then one person put the bags into a box (16 bags per box) and taped it with a label, indicating that it was finished. I had the pleasure of boxing up the bags of pasta. About an hour and 45 minutes later, we cleaned the tables and swept the floor, leaving the warehouse ready for the next group of volunteers.

Packing this food before Thanksgiving was amazing. Through our combined efforts, we packed 2,304 one-pound bags of pasta, which will contribute to 1,920 meals for individuals in New Jersey.

Giving Back

As a CPA and a member of the NJCPA, it is my privilege and duty to help others. CPAs are leaders and the NJCPA strives to equip and empower New Jersey’s accounting and finance professionals to thrive in their careers. Assisting others and extending help to those who need it is a big part of thriving in one’s career, as well as one’s personal growth. As CPAs, we are always there to assist our clients during business hours. Similarly, we should assist those in need when we are not billing for our services. Opportunities like this demonstrate the NJCPA’s commitment to that mission.

The experience, my first group volunteering event with the NJCPA, was gratifying and fulfilling.  I look forward to the next opportunity and urge my fellow accountants to take part in giving back.

The period of time after busy season is a perfect time to be introspective and plan ahead for accounting firms. It’s a good time to reflect on what went well and what needs to be improved.

Education

The goal for each CPA should be around 40 hours of CPE per year. Smaller firms have the benefit of being able to arrange CPE for the entire firm where everyone can get their needed accounting, audit, tax or other CPE credits. Yearly updates should be one of the most important sessions of the year, so everyone learns the latest guidance and regulations. Without such training, technical knowledge can become outdated which can increase risks.

Marketing

Firms should evaluate what generates sales for them and concentrate on these specific marketing initiatives. Management can eliminate expensive marketing tactics that do not generate positive return on investment. Marketing budgets should be reviewed and business plans should be updated accordingly.

Human Resources

Companies might face turnover, especially at year end. Searches for qualified individuals should be initiated at this time as well as for interns who can help with busy season. Sign-on bonuses should also be considered in some cases. Adopting new office policies around work-from-home arrangements are also popular and should be implemented to attract new skillsets.

Technology

Accountants must stay informed about new technologies like artificial intelligence, cryptocurrency and various software used in accounting, tax, marketing and other needs. Every office will need at least a couple of technology consultants, who will help with various problems the office is facing. Once the organization grows, a ticketing system can be implemented for IT personnel to fix specific problems. Cybersecurity specialists can also be hired internally. Various software can be compared at year end to be implemented with training related to this, so staff is ready by the beginning of the following year, but it’s best not to overburden staff with numerous changes every year. Data analytics tools can be used to analyze financial data and identify anomalies. Cloud computing and blockchain technology can reduce costs and provide security. Technological tools can create client efficiencies and will help staff to concentrate on actual accounting, auditing or tax issues instead of key punching or other repetitive tasks.

The management of the firm should update strategic plans in relation to market expansions, mergers and acquisitions, and medical, retirement and other benefits. Also, this is a good chance to recognize people who contributed to the success of the firm.

By starting early on year-end plans, firms will have more-efficient busy seasons and will increase chances of hitting their goals.

As taxpayers and their families approach the end of 2023, many may be asking, “What should I be doing?” or “What can I do?” Year-end planning, specifically as it relates to charitable giving, estate planning and financial planning, are tremendous areas to take advantage of planning opportunities.

1. Charitable Giving

There is a reason why seasonality impacts not just the financial markets, but also the charitable markets as well. Spending time with family and friends allows people to talk about everything from where they will be spending their holiday season to which charities they may be donating to by the end of the calendar year.

The IRS requires charitable organizations to send out disclosure statements/charitable donation letters when contributions exceed $75. If donations are below $75, taxpayers may not receive a copy of a letter from the organization, so it’s important for accountants to inform their clients to keep copies of their bank statements or receipts to substantiate the donations made.

Additionally, donating clothes, books, household items and even your personal time means the world to those in need, but also provides clients a way to benefit personally.   

2. Estate Planning

As time passes, we continue to realize the importance of family and spending as much time with them as possible. Conversations pertaining to wills and inheritances may be uncomfortable, but they are important. It may or may not be surprising that 67-70% of individuals in this country do not have a will. This is a staggering number. Setting up a will to make sure one’s assets, possessions and children are cared for in the way they desire is pivotal. Signed, handwritten wills may work, but there is always the possibility that legitimacy may come into question, so it is best that an attorney be used.  

Married couples who have tied the knot recently may be surprised to know that preparing joint wills after marriage may be best as avoiding ambiguity and confusion help couples steer clear of tension or friction amongst themselves.

In addition to wills, making gifts to individuals is a great planning tool to preserve wealth in a family. The various ways families can distribute assets (transferring cash, equities and an ownership percentage in a business) to younger generations should be considered during estate planning meetings with clients. 

3. Financial Planning

As clients discuss financial planning and wealth preservation with friends and family, everything from U.S. Treasuries, stock market equities and muni-bonds may be recommended. Over 40 years, we have seen interest rates trend to zero, but now the Federal Reserve has increased interest rates to 5.5% to stem inflation.

As a result, for the first time in a very long time, individuals and businesses have an alternative. Equities have been sold and money is now earning at least 5% in U.S. Treasuries, CDs and money market accounts. There is a big concern regarding inflation having an impact on a portfolio’s annual return for the next 10 to 15 years as the U.S. continues to transition manufacturing out of China and back to the U.S. (onshoring). As history has shown us, during inflationary periods, there is margin compression in stock market equities. Individual Retirement Accounts (IRAs), 401(k)s and 529 plans may not perform as well, as passive investing historically struggles during inflationary periods. CPAs should speak to their clients about being more active regarding their portfolio, and recommend the use of a wealth management expert, if applicable. 

Bankruptcy represents one of the most daunting financial challenges an individual or business can confront. Characterized by significant debt burdens that become impossible to manage, the process of filing for bankruptcy is both complex and emotionally draining. At this critical juncture, the guidance of a CPA can be invaluable, from offering expertise in dissecting financial situations and ensuring adherence to bankruptcy codes to developing forward-looking strategies. 

Here are the multifaceted ways in which CPAs provide essential support to clients during bankruptcy:

Strategic Bankruptcy Planning

In the realm of strategic bankruptcy planning, CPAs must exercise a holistic approach. It’s critical for CPAs to recognize that clients often come with preconceived notions or misinformation about bankruptcy, which can result in unrealistic expectations or risky strategies. 

CPAs should actively dispel myths and set clear, achievable goals when collaborating on a bankruptcy plan. They should explore and critique various debt management and relief options, highlighting both the merits and limitations of each. 

In protecting assets, it’s the CPA’s duty to pinpoint potential legal challenges clients might overlook and to navigate the complexities of bankruptcy laws with a dual focus on compliance and client advantage. This strategic foresight is pivotal in crafting a bankruptcy approach that is both robust and flexible.

Budgeting and Financial Management Post-Filing

Post-filing budgeting and financial management are critical junctures where CPAs must combine empathy with fiscal discipline. A common pitfall for clients is to either overcommit to aggressive repayment plans or to fail to adjust to a more restrained lifestyle. 

CPAs should intervene with a balanced perspective, advising on realistic yet forward-thinking budgets. The goal is not merely to survive the bankruptcy period but to emerge from it with a sustainable financial plan. For Chapter 13 filings, CPAs must ensure that repayment plans align with the client’s current income and are flexible enough to accommodate potential future financial shifts. The advice should empower clients to make informed decisions supporting long-term financial health rather than temporary solvency.

Navigating Tax Implications in Bankruptcy

Tax implications in bankruptcy are a labyrinthine aspect where clients often feel lost. CPAs should navigate these complexities and proactively illuminate the tax ramifications of each financial move within the bankruptcy process. 

Clients may not grasp how discharged debts or the treatment of bankruptcy estate assets affect their tax responsibilities, which is why CPAs must dissect these elements, advising clients on the subtleties of tax laws and the strategic use of tax benefits. Vigilance here can prevent further financial distress due to tax liabilities, offering clarity and a sense of control to clients already facing fiscal adversity.

Strategic Debt Management

Strategic debt management is a domain where CPAs can significantly alter a client’s financial trajectory. Clients often struggle to prioritize debts or identify which assets could be liquidated for maximum benefit. 

CPAs should be prepared to craft tailored strategies that address high-interest debts first and foremost, potentially saving clients from exacerbating their financial strain. Moreover, they should guide clients through the complex decisions regarding asset liquidation, offering nuanced advice on which assets to sell and which to retain to maintain a semblance of financial stability. 

This strategic guidance is crucial in navigating the precarious balance between debt repayment and asset preservation.

Ensuring Financial Integrity During Bankruptcy

Maintaining financial integrity during bankruptcy proceedings is a fundamental yet challenging aspect of a CPA’s guidance. Clients may inadvertently engage in transactions that could jeopardize their bankruptcy plan due to a lack of understanding. 

CPAs must be the guardians of financial conduct, meticulously reviewing each transaction for adherence to the structured terms. This oversight is not merely about compliance; it’s about fostering a financial environment where integrity is upheld and the path to recovery is clear.

Strategies for Post-Bankruptcy Recovery

The post-bankruptcy landscape is fraught with challenges and opportunities for clients to either rebuild or falter. CPAs should be the architects of recovery, providing strategies to restore financial standing, rebuild credit and foster financial literacy. Educating clients on the intricacies of credit, debt and personal finance management is critical to avoiding repeat scenarios. 

The CPA’s role is transformative, instilling practices and principles that ensure clients’ long-term financial resilience. The journey through bankruptcy, while tortuous, can lead to a renewed financial foundation, with CPAs serving as the pivotal navigators. Their role transcends mere number crunching; it embodies the role of a strategic partner, a fiscal educator and a steadfast advocate. 

Top Ten, a fictional IT hardware maintenance company headquartered in Germany, needed an accounting firm that could keep pace with its growing U.S. business. Their former accounting firm no longer had the depth of expertise or level of responsiveness they required. Top Ten’s Germany-based CFO handled finances for Top Ten’s U.S. and European subsidiaries so, with an eye toward growing the U.S. business, he decided to visit the New Jersey office to consult with management and identify an accounting partner that could meet all its needs. After researching a number of firms, he narrowed the field to three and eventually selected one. Being the chosen CPA advisory comes with a lot of responsibility. How can the firm satisfy the immediate needs of the client but also build a long-term relationship?

The Challenge

• Provide a more robust foundation of expertise that Top Ten can depend on as the business grows and diversifies.
• Ensure that cash flow, U.S. tax returns and foreign tax filings are 100% accurate.
• Help evaluate business opportunities and offer a sounding board for management to reach out to on financial issues.  

The Solution

While CPAs can often be only numbers-oriented, clients like Top Ten focus on sales and operations as well as the bigger picture. Early in the relationship, the CPA should meet regularly with Top Ten’s offices and commit to gaining a solid understanding of the company’s business model, operations and financials so they could offer business perspective and helpful financial advice.

Initially, the CPA should provide typical accounting services such as monthly compilations, business tax returns and foreign tax filings. As Top Ten goes through growing pains, the CPA should be right there to work through everything with them. As time goes on, the CPA will likely be sought out more often and in different ways. In fact, if Top Ten, for example, decides that it needs to find a new enterprise resource planning (ERP) system, the CPA should work with management and staff to evaluate and implement the new system.

Top Ten may also want to diversify into other business segments, and they are likely to look to their CPA for advice in those areas as well. Over time, for example, they could buy commercial buildings and would need the CPA to help identify opportunities and evaluate each property for profitability and investment value.

The Result

Like all companies, Top Ten has faced challenges during its two-plus decades in business.  With the right CPA relationship, Top Ten can overcome its obstacles and continue to grow.  Often times CPAs can end up handling the personal taxes and finances of the company’s leaders and even end up at family parties.

What often starts as a cold call can evolve into a strong professional partnership as well as a friendship.

Tips for Helping Them See, Know and Understand Their Numbers 

CPAs, it’s that time again … when your business clients bring you their manila envelopes stuffed with statements and shoe boxes crammed with wrinkled receipts so you can piece together their financial statements. You sigh and accept the task of taking their messy data (or mess of data), at your busiest and most stressful time of year, and start making sense of the paperwork to prepare to file their tax returns.

Obviously, getting business owners to provide accurate, up-to-date information is key to efficient tax planning and a streamlined tax return process. However, many small businesses don’t have a bookkeeper on staff who can input numbers into accounting software, pull relevant reports or analyze the data in front of them. Nor do busy business owners have time to clean up their general ledger, reconcile bank and credit card statements, keep track of all accounts receivable or payable, or compare budget versus actual figures periodically throughout the year. (Don’t we all wish they did?)

If you’ve been working with these clients for a few years, you already have a good sense of their business operations — the income streams, typical controllable expenses and perhaps capital improvements they’ve budgeted for. But this doesn’t really help when you are forced to recreate an entire year’s worth of income and expenses in order to do their tax returns — and help them plan not only for the tax season but for ongoing profitability.

Swap the Shoe Box for a Fractional Bookkeeping Service

For clients that are not ready to take on a staff accountant or full-time controller, partnering with a fractional financial services professional can be a good solution — for both business owners and their CPAs. For many small-business owners, contracting with a bookkeeper for a certain number of hours a week will help empty out that shoe box and clean up the books for you, the CPA, to use for tax planning and profitability consulting.

For example, with a team of bookkeepers available to work on a variety of clients from different industries, fractional practices can embellish your accounting practice (without adding staff), make your life easier during tax season and help with year-end tax planning or figurative belt-tightening while there’s still time during the fourth quarter.

There’s no question that you need visibility into the business’s numbers and financial status throughout the year. Once a bookkeeper or controller digs into the books, updates the general ledger and squares away all the numbers, the benefits are invaluable for business owners and you bring greater value to your client/CPA relationship with:

• Accurate, up-to-date financial information that is always on hand for tax planning purposes.
• Monthly and quarterly financial statements that enable you to immediately identify changes — both positive and negative — in your client’s business. This, in turn, enables you to advise the business owner, who can make timely decisions about where and how to trim or expand operations.
• More efficient tax return preparation (for both parties) with no nasty surprises on tax day.

Build a Stronger Value-Add Client Relationship

Your clients rely on you for sound financial guidance, tax planning and tax filing. Bringing in a fractional controller or bookkeeper will help you show them their accurate numbers on a regular basis — and help them understand the story those numbers are telling about the company’s financial health. Having that support provides tremendous value to business owners and to you as the CPA providing expert tax and business advice. Your client will quickly see the benefits of timely advice based on actual, up-to-date data, enabling them to develop a tighter operation with knowledge — not guesswork — about their areas of profitability and opportunity.

By putting these protocols in place before the end of the year, you’ll be able to guide them with real data in the coming year and beyond.

One of the most rewarding things about being a certified public accountant (CPA) is the ability to give back. One of the many ways to do so is by getting involved in your local community.

CPAs can play a vital role in empowering their local communities to better understand their budgets. Every CPA possesses a valuable skill set — often hiding in plain sight — that can lend insight into a local budget; this often includes an interest in, and proficiency for, working with numbers and an expertise in helping communicate the story behind those numbers.

The New Jersey Office of the Comptroller notes on its website that “If you want to understand and shape how your tax dollars are being spent, reading your local government’s budget is essential.”  But digging into a local budget is no small task when familiarity and proficiency varies in the community. Consider that in recent years, New Jersey has made efforts to increase fiscal literacy around issues of personal finance, including the launching of a new financial wellness platform. CPAs can step into this gap, to help simplify basic financial concepts around local budgets.

The International Federation of Accountants notes that professional accounting organizations (PAOs) can also help by “supporting financial inclusion.” There is a good example of this from 2016 when the New Jersey Society of CPAs partnered with the NJ Realtors and the Association of Municipal Assessors of New Jersey to create the New Jersey Homeowner’s Guide to Property Taxes. This guide, rich with detail and summarized with an emphasis on accessibility and readability, is an excellent example of how CPAs can contribute to civics and raise the profession’s profile in our communities.

A CPA volunteering in the community can also help break the details down. My own story serves as an example. For the past 10 years, I have written a local blog called “Civic Parent” that is focused on property taxes and school funding in Jersey City — where I live and where my children have attended the public schools. My interest in writing Civic Parent started with a desire to better understand local finance in Jersey City. I have found that public budgets can often be a hard nut to crack for the average taxpayer and resident, especially if the information is shared with the public in Excel or PDF. Two good examples are New Jersey's “Property Tax Tables” and its “Municipal User Friendly Budget,” each of which provides a wealth of data about the state and local financial landscape but may be hard to access for users who are not proficient with spreadsheets. However, a CPA can use their skillset to aggregate the data, group and filter, and also visualize in software like Tableau (which is the data visualization tool that I use).

The profession stands to gain if CPAs volunteer their skill sets in the community. In its 2023 Pipeline Acceleration Plan, the AICPA noted that “improving perceptions” of accounting is needed to attract new talent into the industry. By getting more involved in civic life, we can actively work to help show what CPAs do and how we can be positive contributors to the community. 

While there are many great majors and career paths to choose from, most anyone in our profession will tell you that accounting is one solid choice. What makes it so?

1. Endless career options. Public accounting, private or corporate accounting, internal audit, governmental accounting, forensic accounting and more are all fields that are open to you! There is no shortage of work, and if you find yourself headed down one career path and then decide you want to change things up, it’s relatively easy to do so.  Even within each area of accounting, there are many options. For example, public accounting offers audit, tax, advisory and consulting, among other options, at both larger and midsize firms.
2. Endless industry options. What do a restaurant, a bank, a pharmaceutical company and a software company all have in common? The need for accountants and accounting services! Your accounting training allows you to work in an endless number of industries. Companies need services such as audit, tax and financial planning and they all also need their own books and records kept.
3. The opportunity to help people. Accounting is an area where many people need help.  Finances and taxes can be intimidating and confusing for many clients. You can do this work for someone and relieve the stress over it, all while providing a better understanding. But accounting is more than just the opportunity to help someone with work that must be done. Accountants help to improve the lives of individuals and businesses alike. Accountants help their clients better manage their businesses and become more profitable, and they help them to save money and make better decisions. Within accounting, there are many opportunities to truly help people and make a positive impact on their lives, which is extremely rewarding.
4. Work-life balance. While public accounting has a reputation for long hours, this is true of any profession; almost any field will involve overtime at some point. However, most firms and companies these days recognize the importance of work-life balance. Employers acknowledge that well-rested employees who are satisfied with their personal time will contribute more to the business. In addition, many accounting jobs offer the flexibility to work from home and create your own schedule at times. Specifically, public accounting lends itself quite well to remote work and a flexible schedule. Some firms may even offer part-time options.
5. Good pay and benefits. Accounting jobs tend to come with better salaries and benefits than what is offered in many other professions (knowledgeable accountants would accept no less, after all), with the potential for upward movement and salary increases.
6. Skills that transfer to your personal life. Accounting is very useful in business and as a career field, but these skills are valuable and conveniently transferrable to your own personal life and finances. Basic financial literacy and money management skills aid in your own personal financial planning and success, as well.
7. Learning an actual job skill in the classroom. As accounting students in college, the topics you learn in the classroom are immediately transferrable to the workplace. You are learning real job skills, not merely concepts and theories. Accounting classes are basically job training.
8. The CPA license itself. The CPA designation is a well-respected credential that is widely recognized. The CPA is one of the most well-recognized designations there is!

With so many things to love about the profession, who wouldn’t want to become an accountant?

To learn more about the requirements to become a CPA and the rewards of a CPA career, visit njcpa.org/becomeacpa.

Making Our Voices Heard

Compliance with New Jersey’s wage and hour and pay equity laws can be challenging. Over the last few years, the laws have become more robust and noncompliance more costly. Given that employers often rely upon their CPAs for guidance on compensation issues, it’s important to stay up to date on the key areas where employers often experience compliance challenges.

1. Minimum Wage Continues to Rise

For the last several years, New Jersey’s minimum wage has increased annually on Jan. 1 to reach a minimum wage of $15 per hour for most non-exempt employees. Looking ahead to 2024, minimum wage for most employees will increase to $15.13 (or higher).

2. Ensure Exempt Employees Are Properly Classified

There is a common misconception that so long as an employee is paid on a salary basis, they are exempt from overtime. For an individual to be properly classified as exempt, they must: (1) earn a salary of at least $684 per week; and (2) perform certain job duties and responsibilities that fall within one of the recognized exemption tests (e.g., administrative, executive, professional). The U.S. Department of Labor (DOL) has proposed a rule that would increase the salary threshold to $1,059 per week, among other changes. Unless the employer can prove the exemption criteria are satisfied, the employee should be classified as non-exempt and paid overtime for all hours worked in excess of 40 hours in a workweek.

3. Proper Calculation of Overtime

Overtime is calculated as one and a half times the “regular rate” of pay. But calculating the regular rate can be complicated because additional remuneration that an employee receives, such as commissions, shift differentials and non-discretionary bonuses, need to be included in the calculation. These issues are complex and must be examined closely.

4. Consider Whether Contractors Are Actually Employees

Many companies routinely engage independent contractors to perform various services. However, these 1099 workers may be misclassified. Typically, misclassification issues arise when an independent contractor files for unemployment. New Jersey follows the ABC test, under which there is a presumption of employee status unless all of the following factors are established:

1. The worker has been and will continue to be free from control or direction over the performance of the service;
2. The work is either outside the usual course of business for the company requesting the work, or the work is performed outside of the company’s place of business; and
3. The worker is customarily engaged in an independently established trade, occupation, profession or business.

If this test can’t be satisfied, the individual should be classified as an employee and subject to typical withholding taxes, benefits, etc.

5. Stay Up to Date on Equal Pay Disclosure Laws

New Jersey requires equal pay for equal work, and pay disparities are fodder for high-stakes, expensive litigation. Many states and municipalities have recently enacted laws requiring that employers include information regarding the salary range for a position on a job posting. New Jersey does not currently have a state-wide salary range disclosure requirement, but it is likely that legislation will be enacted. Already, Jersey City has an ordinance requiring employers to post a minimum and maximum salary or hourly wages on any job postings. There are also certain reporting requirements for public contractors.

Failure to properly pay wages may result in significant exposure to damages, penalties and fines. A successful plaintiff can recover triple the amount of unpaid wages owed, plus attorney’s fees and costs. The best way to avoid exposure for wage and hour and equal pay claims is to conduct periodic audits of pay practices to determine whether there are any issues that need to be rectified. Employment policies and practices should be reviewed and updated regularly, especially given the frequent updates to these significant laws.

With the professional world changing drastically over the last three years due to the pandemic, it is important for companies to prioritize the professional development of their employees more than ever. Many employees, especially incoming staff that are just starting their careers, may not know what the professional world was like prior to the pandemic. And these employees could find it hard to jump start or continue their professional development.

How can this be done in the 2023 post pandemic era? Here are three ways:

1. Promote continuous learning to make learning a habit.

By not only promoting but helping to fund continuing professional education (CPE) for both non-CPA and CPA employees, learning will be encouraged. In the remote/virtual world, this can easily be done via Zoom, webinars, self-study, etc. Offering compensation or partial payment for advanced certifications such as the CPA, CFE and Masters programs is an extra incentive for employees to make these a priority in their professional development plans. For in-office employees, companies can offer study hours after normal work hours to encourage employees to take time to study for their certifications/programs and work with their fellow colleagues. My firm promotes this and even offers dinner for anyone participating in study hours.

2. Host events to meet and share expertise/experience.

Hosting events in-person or virtually for internal and external individuals to attend goes a long way. For example, “Lunch and Learns” are useful. My office does a “Pizza with the Partners” every month where a partner shares their own professional development and journey of how they became a partner. The office offers pizza lunch, which is an extra incentive for staff to join. This can also be done virtually via Zoom or Microsoft Teams.  

3. Offer mentor or career counselor programs.

Having formal programs where mentors/career counselors are assigned to employees based on their current needs or growth plan is popular. It’s best to require frequent check-ins (both formal and informal) with these programs. Firms can also include a monthly or quarterly stipend to be used for lunch or coffee, which motivates the mentors and mentees to meet and discuss various goals and growth progress.

These are just a few tips that can help companies promote the professional development of in-office, hybrid or remote employees. More-experienced employees should also help the newer employees with their professional development to ensure continuous growth.

Today, more and more accounting firms are offering or are considering offering advisory services to meet client needs and expectations. In fact, a recent Thomson Reuters report found that 95% of tax professionals believe their clients want more advisory services.

Here are five steps to master the art of advisory services:

1. Establish the “Why”

Before choosing the services to offer and planning how to implement them, think about why you want to offer them in the first place. Is it to do the following:

• Achieve higher revenue?
• Meet client needs?
• Enjoy more fulfilling work?
• Obtain a combination of all three?

2. Define Your “Dream” Services

Accounting firms can offer a wide range of advisory services, but you don’t have to offer all of them. In fact, you should focus on offering only the services that:

• Interest you and your team
• Benefit your clients

Remember, you can offer profitable services, but they won't be fulfilling if they’re not interesting to you and your team. Without fulfillment, you risk burnout.

Common advisory services include the following:

• Financial planning
• Cash flow management
• Financial strategy
• Exit planning
• Wealth management
• Strategic management
• Tax planning

Carefully consider each type of service, what it entails and whether the work will be fulfilling for your team and needed by clients. Once you have a list of advisory services that you want to offer, you can start taking steps to include them in your offerings.

3. Take Incremental Steps to Offer Advisory Services

Smaller firms need more resources to expand into a half-dozen new services. Even if you do, you risk not being able to accommodate your clients in the way that they deserve. Often, it’s best to take incremental steps to begin offering these services.

You can judge demand by:

• Reviewing past conversations with clients. See if they’re asking for services that you can start offering and what services they are interested in.
• Asking clients about their five-year goals. When asking clients about their goals, you’ll gain insight into what they desire and what it will take to get there. Perhaps a client wants to be able to buy a second home and take one nice vacation per year. You can offer financial planning as an advisory service to help them inch closer to this goal.

The last thing that you want to do is underperform for your current client base when you begin offering advisory services. Start with the steps above and then:

• Offer one or two in-house advisory services.
• Learn how the new services impact operations.
• Revisit adding more services in the future.
• Consider partnering with other firms (more below).

4. Test Cloud-based Tools

Advisory services can add a new layer of complexity to your firm. For example, let’s assume that you have the expertise to handle budgeting and forecasting in-house. You can use this specialization to your advantage by offering it to your clients. However, there are cloud-based solutions that will help crunch the numbers for you and allow for faster implementation.

You should test out cloud-based tools that can help you begin offering these services with as little friction as possible.

5. Partner with Other Firms

What if you want to begin offering other advisory services, such as financial planning, but it’s not something you prefer to provide in-house or have immense experience in? In these cases, you can partner with another firm. Partnering allows you to keep the services you love and offload the work you would rather have someone else do.

Investment Advisory Services Offered through:TFS Advisory Services, a service of TFS Securities, Inc.

Continuing the Conversations

Since the peak of cryptocurrencies’ value at the end of 2021, cryptocurrency investors have sustained an estimated $2 trillion in losses. While some of the losses can be attributed to macroeconomic factors that have also impacted traditional finance (e.g., inflation, interest rates), the industry has also been rocked by a series of high-profile cybercrimes and cryptocurrency collapses that have erased the value of millions of customers’ investments. The recent insolvency of FTX, the fourth largest cryptocurrency exchange by volume, amid multiple counts of fraud against former CEO Sam Bankman-Fried, has raised questions about cryptocurrency’s future. Given the challenges of increased regulation, cybercrime, and other liability, the question arises as to what insurance, if any, will be available to participants in the market.

Although the available coverage will depend greatly on a company’s exposure to cryptocurrency, there are a number of products which are being offered that can address these liabilities. Note that, as there is no standard-form crypto insurance policy, the coverages, definitions, and conditions will vary from policy to policy. And what is important to one company may not be important to another. As such, it is important for companies to work with their CPAs, brokers and insurers to ensure that the policy offered is fit for the intended purpose.

Types of Coverage

Here is what is commonly available:

• Where the risk is protection of digital assets, insurers are offering products more akin to traditional crime insurance policies. These policies can afford coverage for losses caused by criminal or fraudulent activities, including computer fraud as well as employee theft and dishonesty.
• Cyber insurance can also provide coverage in connection with a cyberattack related to cryptocurrency, including: investigating, responding to or terminating a security breach; notification of the breach; recovery of lost or compromised data; network interruption; responding to cyber-extortion; repair of computer systems; crisis management firms to help contain the fallout from public disclosures of the attack; and/or liability arising from alleged failure to prevent a breach, including the costs of defending against claims by affected parties. The terms of a given policy will determine whether a cryptocurrency loss, itself, is covered.
• Directors and officers (D&O) coverage could provide coverage in connection with crypto-related claims, such as civil lawsuits, criminal proceedings, administrative proceedings and investigative demands. The terms of a given policy, however, will determine the scope of coverage and the applicability of any exclusions.

In addition to these coverages, other potentially applicable coverages (again subject to their terms) include professional liability insurance and property insurance.

This is an emerging space and one in which risk management and insurance will play a critical role in protecting the bottom lines of those exposed to the volatility of cryptocurrencies.

The use of artificial intelligence (AI) in your firm’s account-based marketing (ABM) efforts can transform opportunities and lead to significant process improvements.

AI technology can help your team gain deep insights into customer behavior and preferences, identify opportunities for personalized engagement and streamline marketing operations. This game-changing approach to ABM can also lead to more efficient and effective marketing campaigns, increased customer engagement and higher revenue.

What is ABM?

ABM is a strategic marketing approach where firms focus on targeting and engaging with specific, high-value prospects rather than casting a wide net and targeting a broader audience.

ABM is particularly effective in B2B (business-to-business) contexts where the customer base consists of fewer high-value accounts. It helps firms maximize their marketing efforts by focusing on accounts more likely to generate significant revenue. However, implementing a successful ABM strategy requires careful planning and collaboration and a deep understanding of the target accounts' needs and challenges.

Key Features of ABM

In ABM, the focus shifts to tailoring marketing efforts to individual accounts, treating each account as its unique market. It takes into account the following key features of high-profile accounts:

• Identifying target accounts
• Personalization
• Multi-channel engagement
• Collaboration between sales and marketing
• Metrics and measurement
• Longer sales cycle
• ROI focus
• Technology enablement

Game-Changing AI Assistance

Overall, AI can empower marketers and sales teams to deliver highly personalized and relevant experiences to target accounts, ultimately increasing the effectiveness of ABM strategies and improving the chances of converting high-value accounts into loyal customers.

AI can play a significant role in enhancing and optimizing ABM efforts, including:

• Data analysis and segmentation
• Predictive analytics
• Content personalization
• Chatbots and conversational AI
• Lead scoring and prioritization
• Automated outreach
• Account insights
• Data enrichment
• Campaign optimization
• Dynamic content generation
• A/B testing and optimization
• Sales enablement

Using ChatGPT

I asked ChatGPT to “write an ABM email example for an accounting firm speaking with construction company leads.” Here’s what it came up with:

Subject: Enhancing Financial Excellence for [Construction Company Name]

Dear [Lead's Name],

I trust this email finds you well. I've been impressed by the strides [Construction Company Name] has been making in the industry, and I wanted to reach out to explore how [Your Accounting Firm Name] can contribute to your financial success.

In the dynamic landscape of the construction industry, staying ahead financially is crucial. We understand the unique challenges and opportunities that construction companies face, and we have a proven track record of delivering tailored financial solutions.

Here's how we can partner to enhance your financial excellence:

• Cost Optimization
• Cash Flow Management
• Tax Strategies
• Project Financial Analysis
• Risk Mitigation

I'd love to have the opportunity to discuss how [Your Accounting Firm Name] can tailor these solutions to align with [Construction Company Name]'s unique needs. If this sounds promising, let's set up a conversation at your convenience. Feel free to reply to this email or use the link below to choose a time that suits you.

[Meeting Scheduler Link]

Thank you for considering us as a potential partner in your financial journey. I look forward to the possibility of contributing to the continued success of [Construction Company Name].

Best regards,

By harnessing AI's capabilities, firms can decipher customer behaviors, create personalized engagement and optimize marketing operations. This paradigm shift in ABM methodology facilitates more efficient campaigns, heightened customer involvement and, ultimately, elevated revenue generation.

The rapid growth and popularity of cryptocurrencies have revolutionized the financial landscape, offering numerous benefits. However, this digital revolution has also brought forth a plethora of cybersecurity challenges that demand rigorous examination from a digital forensic standpoint. As the use of cryptocurrencies gains widespread adoption, accountants must take the following five cybersecurity steps:

1. Understand the risks. To advise clients adequately, accountants must have a clear understanding of the cybersecurity risks associated with cryptocurrencies. These risks include cyberattacks on exchanges and wallets, social engineering, email compromises, phishing and fraudulent transfer schemes, to name a few. By understanding the various threats, accountants can help their clients recognize potential risks and implement effective security measures.
   
2. Encourage best practices. Accountants can play an active role in promoting best practices for safe cryptocurrency usage. This includes implementing multifactor authentication, securing wallet management and using strong passphrases. Encouraging clients to keep their software up to date and regularly back up their wallets is also crucial. By recommending these practices, accountants can help clients protect their digital assets from potential attacks and minimize their exposure to cybersecurity risks.
3. Be wary of insider threats and social engineering. The human element remains a significant cybersecurity challenge. Insider threats, where employees or trusted individuals misuse their access privileges, can result in data breaches or unauthorized transactions. Social engineering techniques, such as phishing and impersonation, target unsuspecting users and trick them into revealing sensitive information or transferring funds to malicious actors.
   
4. Promote regulatory compliance. Cryptocurrencies operate in a largely unregulated environment, creating challenges for regulatory compliance. As such, it is essential for accountants to ensure their clients comply with relevant laws and regulations, including anti-money laundering (AML) and know your customer (KYC) requirements. By promoting compliance, accountants can help prevent their clients from engaging in illegal activities while safeguarding their reputation and financial assets.
5. Stay Informed. The cybersecurity landscape is constantly evolving, with new threats and vulnerabilities emerging regularly. Accountants must stay informed about the latest cybersecurity trends to provide up-to-date guidance to their clients. This can be achieved by partnering with subject matter experts and organizations that offer proactive cybersecurity services and by attending relevant training events to stay informed about industry developments.

More IRS Crackdown

Beyond addressing risk factors and evaluating investment opportunities, accountants, business owners and individuals should be aware that the IRS is actively pursuing compliance from an income tax reporting standpoint and initiating criminal investigations when badges of fraud are present. “The IRS issued Notice 2014-21 defining virtual currency as ‘property’ for federal tax purposes. Depending on how virtual currency is exchanged or sold, there may be capital gains tax due on the disposition or ordinary income to the receiver of virtual currency in a business transaction,” said David Gannaway, principal at Bederson, LLP, and a 20-year veteran of the IRS who currently represents clients in IRS tax controversy matters. “If a business pays their employees with virtual currency, employment taxes should be withheld/paid and Forms W-2s issued. Also, Forms 1099 should be issued to independent contractors if paid with virtual currencies.”

In March 2021, IRS Criminal Investigation (CI) launched Operation Hidden Treasure, an enforcement initiative for criminal tax violations related to cryptocurrency. There have been several prosecutions across the country involving digital assets with more to come as proclaimed by CI Chief James (Jim) Lee recently.

By understanding the risks, promoting best practices, encouraging regulatory compliance, remaining diligent and staying informed, accountants can help their clients navigate the complex world of cryptocurrency safely.