New Jersey Senate Resolution No. 183, which proposes the constitutional amendment to legalize cannabis for personal, non-medical use by adults, has ambiguous language relating specifically to cannabis only being subject to the Sales and Use Tax Act or any other subsequent law of similar effect. This speculation was validated upon the passage of S21 on Dec. 17 which, as of the date of this writing, was passed in the Senate and Assembly and is sitting on Governor Murphy’s desk pending additional changes that he has requested of lawmakers. Regarding the taxation of cannabis purchases, S21 provides the imposition of several consumption-based taxes, such as the following:

• Sales Tax — The standard New Jersey sales tax rate will apply to the sale of cannabis but will not apply to the points in the supply chain that are subject to the local cannabis transfer and user tax, discussed below. The bill provides that at least 70 percent of tax revenues from retail sales shall be appropriated to investments in impact zones, or municipalities that have been most adversely affected by criminal cannabis enterprises (e.g., law enforcement activity, unemployment, poverty or any combination thereof).
• Local cannabis transfer tax and user tax — This optional tax will be imposed on a municipality-by-municipality basis and can take place at various points in the supply chain including cultivator to cultivator, establishment to establishment, retailer to consumer, or any combination thereof. The municipality has the discretion to set the rate, but it may not exceed 2 percent at the cultivation, manufacturer and retailer levels, and 1 percent at the wholesaler level. If enacted at each point in the supply chain, it can be discerned that this may amount to an additional 7-percent tax.
• Social justice excise tax — The Cannabis Regulatory Commission has the authority to exercise a social justice excise tax, which will apply to sales at the cultivation level to adult-use sales only. While this tax will take the place of the sales tax at the cultivation level, the amount of excise fee to be charged is determined based on an inverse relationship to the price of the product; meaning as the cost of cannabis goes down, the tax goes up. Unlike the sales, transfer and user taxes, these funds are to be exclusively earmarked for investing in social equity programs.
• Stamp fee — As part of the Cannabis Regulatory Commission’s responsibility to develop and maintain a system for tracking the product from seed to sale, the Legislature has called for the use of stamps to affix to the product. The stamps will be available for purchase to those at the various points in the supply chain — cultivators, manufacturers, wholesalers, distributors, retailers and delivery services — and could, in effect, be viewed as a tax. While the bill does not provide the price of the stamps, it states that the price “shall be reasonable and commensurate with the cost of producing the stamp.”

The language in S21 provides that New Jersey cannabis sales are not only subject to the standard sales and use tax, and that it is the intention to enact “other subsequent law of similar effect.” It is also clear that the goal of the Legislature is to ensure revenues generated from these sales will primarily be invested into communities that have been adversely affected by the historic prohibition on cannabis. 

There's No Going Back to Normal

"Five years' change in six months" is a common slogan for the pandemic. The disruption has upended the world in countless lives and jobs lost, so it’s only natural that we would want “normal” to return.

When will we get “back to normal?” It has become a well-worn phrase that lawmakers, the media, experts, even family, like to lean on — an ultimate, elusive prize.

Now, as we’re almost a year into the pandemic, we need to stop talking about getting back to normal and start imagining the “next normal.” An obsession with what the world looked like before and getting back to that will keep us from seeing what lies ahead. Change itself has always been normal, and going backward has never been a good business strategy.

So, what’s the best way to move forward? Some of you have already started — you’ve become nimbler and more adaptive during this crisis and continue to look ahead as you develop new ways to serve clients and customers, work with potential business partners and retain staff. Others may need more assistance.

At the NJCPA,we’re excited about helping you do better right now. We’re starting every conversation from a place that encourages creativity and problem solving.

Over the past few months, we didn’t lose sight of our mission to bring members together. That was definitely easier a year ago, but we have and will continue to figure it out. Going forward, look for more online opportunities through our new digital platform that makes it easier to host a variety of webinars. Also look out for more thought-provoking Open Forum conversations as ways to stay connected, a new TechTalk Podcast and informative news, articles and blogs.

So, give up on the “return to normal” and be what you can be today and be incredibly proud of that. Understand and create what a good normal is for you and your company right now.

As 2021 begins, we thank you for making the NJCPA your professional home, and we wish you and your loved ones a year filled with professional and personal growth, opportunities and promise.

On Dec. 21, 2020, Congress passed the latest COVID-19 relief bill which was subsequently signed into law by President Trump on Dec. 27, 2020. There are several components of the bill including economic impact payments of $600 for eligible individuals (barring an increase to $2,000 per individual as requested by President Trump) and an extension of the Pandemic Unemployment Assistance (PUA) supplement in the amount of $300 per week. However, many business leaders have been eagerly awaiting the clarification surrounding PPP loan forgiveness and news of an additional round of PPP funding available to some businesses.

First, for existing PPP borrowers, the new bill creates a simplified loan forgiveness application process for loans of $150,000 or less. The application will be one page in length and will request:

• The number of employees the borrower was able to retain as a result of the loan
• The amount of the loan spent on payroll costs
• The total amount of the loan

No additional schedules will be required to be submitted (although borrowers must retain records for four years in the event of a Small Business Administration (SBA) audit).

Another big gift that the new bill bears is the tax deductibility of business expenses paid with forgiven PPP loans. This reverses the IRS’ position (Rev. Rul 2020-27, November 2020) that a taxpayer could not deduct eligible expenses in its 2020 tax year if, at the end of the tax year, the taxpayer had reasonable expectations of loan forgiveness.

Secondly, a new round of PPP loans (creatively called PPP2) will be funded with the new bill. PPP2 funds are available to the following first-time qualified borrowers:

• Businesses with 500 or fewer employees
• Sole proprietors, independent contractors, self-employed and not for profits — including churches and some 501(c)(6) business leagues

PPP2 funds are also available to borrowers who have previously received PPP loans provided they:

• Have 300 or fewer employees, and
• Have already or will use the full amount of their first PPP loan, and
• Can demonstrate a 25-percent decline in gross revenue in any 2020 quarter compared with the same quarter in 2019

The PPP2 loan amounts will be 2.5 times average monthly payroll costs, to a maximum of $2 million. Certain hotels and restaurants can apply for up to 3.5 times their average monthly payroll costs. The costs eligible for loan forgiveness with the PPP2 are the same as before — payroll, rent, covered mortgage interest and utilities — but this time add:

• Personal protective equipment (PPE)
• Expenditures to suppliers that are essential to the business’ ongoing operations
• Software and cloud computing services
• Accounting services

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by the U.S. Congress with bipartisan support and signed into law on March 27, 2020. Much of the focus since its passage has been centered on the Paycheck Protection Program, but the Act contained several other provisions that savvy CPAs and their clients should not overlook.

One such provision, Section 3608, provides relief for plan sponsors by extending the due date for minimum required contributions (MRC) into their defined benefit plans, from their due dates in 2020 until Jan. 1, 2021. For most plan sponsors, this applies to the deadline for their 2019 plan contribution due 8 1/2 months after the end of the plan year, typically Sept. 15.

The economic uncertainty when the CARES Act passed was such that few, if any, businesses believed they would be profitable in 2020. Congress sought to strike a balance between gloomy economic forecasts and the need to protect workers’ retirement savings. With Section 3608, they did that by both mandating that the MRC must still be funded but also permitting cash basis taxpaying plan sponsors to defer a potentially substantial deduction in 2020 to the following year.

According to the most recent statistics from the IRS, 95 percent of all business returns are from pass-through entities such as sole proprietorships, partnerships, and S corporations, and the vast majority of these returns are filed using the cash basis of accounting. The cash basis affords a significant level of flexibility to businesses to either accelerate or delay a deduction around the Dec. 31 year-end, depending on their particular tax planning strategy.

The prospect of being able to realize this shift was initially dashed by the IRS in August 2020 when it issued Notice 2020-61. The notice stated that interest would accrue on the MRC contribution from the original due date until Jan. 1, 2021. But more importantly, it provided no administrative safe harbor to extend Jan. 1, 2021 — a legal holiday when all financial institutions are closed — to the first business day in 2021. By not curing this drafting oversight, the actual last day for the MRC would be Dec. 31, 2020, and no cash basis taxpayer would be able to shift the deduction into the next year.

Relief was finally given in IRS Notice 2020-82, issued Nov. 16. In it, the IRS stated, “to achieve this deferral of the payment obligation until calendar year 2021 for all employers impacted by Section 3608(a)(1) of the CARES Act, the IRS will treat a contribution with an extended due date of Jan. 1, 2021, pursuant to Section 3608(a)(1) of the CARES Act as timely if it is made no later than Jan. 4, 2021 (which is the first business day after Jan. 1, 2021).”

The IRS recognized that the intent of Congress in drafting Section 3608 was precisely to permit cash basis taxpayers sponsoring defined benefit plans to decided which year was optimal for them to take the MRC tax deduction.

With the election over, and the prospect that a Biden administration will increase tax rates going forward, it may be advantageous for CPAs and their cash basis tax clients to consider ways to accelerate income into 2020 and delay their deductions until 2021. Now, with the blessing of the IRS, all cash basis plan sponsors of defined benefit and/or cash balance plans have a unique opportunity to engage in tax planning using the timing of their contribution.

This blog originally appeared on the Pennsylvania Institute of Certified Public Accountants' website, PICPA.org. 

The year 2020 was like no other, and as this year comes to an end, it is important that we all take stock of where we are and try to get a better handle on where we might be going. Setting aside the health, societal and economic effects of the COVID-19 pandemic — difficult as that may be — there was quite a bit of activity and development in the blockchain and cryptoasset sectors that is worth noting.

Let’s take a look at several of the big-picture trends and directions that CPAs should be keeping an eye on as the calendar flips to 2021:

Stablecoins are the new bitcoin. Even as bitcoin fluctuates and trades above its previous all-time high set in 2017, the stablecoin sector of the cryptocurrency space continues to grow and accelerate. In addition to being worth tens of billions of dollars on its own, stablecoins are also at the center of the very same efforts that drive headlines at organizations like Visa. It could be argued that stablecoins are now the driving force behind further investment and development versus simply watching bitcoin prices.

This is not even touching on the rise of central bank digital currencies (CBDC) under development across the globe and, in some cases, already in the marketplace. Not only are cryptocurrencies evolving, but so are the players involved.

Institutions are driving the trends. Cryptocurrencies may have originated as a method by which individuals could access a financial payments infrastructure and as part of a system that was disconnected from incumbent players, but that narrative has turned around completely. At the end of 2020, the institutions that have launched blockchain and/or crypto projects include J.P. Morgan, PayPal, Visa, Mastercard, BlackRock and Fidelity. It is still too early to tell what the influence of these large incumbents will be, but it certainly has increased the attention of investors and regulators.

Although not exactly capturing the idealized vision of early bitcoin developers, large institutions — with the people and capital brought to the conversation — are going to play a critical role moving forward.

Regulation is catching up. Dozens of blockchain- and cryptoasset-related bills were put forward for debate in 2020. While none were passed, this increased focus — on top of actions by regulators such as the SEC and IRS — seems to indicate that regulations are on the way. These are not normally greeted with cheers, but to continue encouraging wider adoption and utilization it seems reasonable that more clear-cut rules will be necessary.

In December, the Stablecoin Tethering and Bank Licensing Enforcement (STABLE) Act was introduced for debate in Congress, which, according to some market participants, could lead to unnecessary costs, complexity and obstacles to further development. Regardless of the specific legislation or individuals involved, regulation and compliance are playing an increasingly larger role in these sectors.

As the calendar flips to 2021, be sure to join and remain engaged with the NJCPA Emerging Technologies Interest Group and subscribe to the NJCPA Tech Talk Podcast  to keep up to date on everything technology related.

Cloud computing is disrupting CPA firms, their clients and the traditional norms of the external audit and quality control. Therefore, CPAs need to be on their guard.  

By definition, cloud computing is defined as a means for enabling on-demand access to shared pools of configurable computing resources (e.g., networks, servers, storage applications, services) that can be rapidly provisioned and released. Popular cloud deployment models include private clouds, public clouds, hybrid clouds and community clouds, while cloud service provider (CSP) services include Infrastructure as a Service (IaaS), Software as a Service (SaaS) and Platform as a Service (PaaS).

Challenges Exist

By going to the cloud, essentially you are extending beyond the company's hosting of the software on premise (four walls) and controlling access to the company's network and data the old fashioned way. However, current security models are not designed to accommodate the growing virtual nature of the extended enterprise, which creates a conflict either by limiting a company’s ability to conduct business or by putting the business at risk.

Continued investment in traditional approaches to security will be prohibitively ineffective and costly. New approaches to securing the enterprise that are aligned with today’s corporate environment are critical to maintain both an acceptable level of risk and a manageable cost.

CPAs will need to make selective changes to accept cloud-computing-related engagements, such as training staff, securing subject experts, and protecting the privacy of client data accessed through clients and their CSP clouds and stored on the CPA firm’s clouds.

Audit clients who move some or all of their accounting systems to public clouds introduce complexity, disruption and risk. For example, a cloud computing environment often integrates third-party CSPs, and potentially fourth-party sub-contracted CSPs, into the client’s accounting system and control environment. This creates a complex web of CSPs that results in shared responsibilities between the client and CSPs for financial accounting data, cybersecurity and internal control over financial reporting (ICFR), service organizations control (SOC) reporting and assurance services. 

Such material changes to the control environment and accounting system require auditors to obtain an understanding of the company’s environment and risks as a basis for assessing the risk of material misstatement (RMM) of the financial statements. CSPs provide SOC internal control reports (SOC 1, SOC 2, SOC 3 and SOC for Cybersecurity) on the third-party services provided by them.

Cloud computing also impacts CPA assurance providers in several ways, such as obtaining an understanding of the audit client’s cloud environment; identifying and assessing the RMM; defining the role to be served by SOC reports; and assessing the impact of the client’s and the firm’s cloud computing activities on the firm’s compliance with generally accepted auditing standards (GAAS) Quality Control Standards.

In its 2020/21 request for comment, the AICPA Auditing Standards Board (ASB) recognized that “Rapid developments in technologies are having a profound effect on audit and assurance engagements, including the use of automated tools and techniques and changes in how engagement teams are structured and interact.” They also noted that to “keep our standards relevant in a changing environment,” the ASB commits to monitoring the use of innovative technologies and determining whether the standards in place for the acceptance of clients and service performance are appropriate.

On Nov. 5, 2020, the NJCPA released a statement proposing the State of New Jersey decouple from Internal Revenue Code Section 280E for certain small businesses. Section 280E disallows legal cannabis businesses from taking ordinary and necessary business deductions as an offset to taxable income and is a costly compliance burden for regulated cannabis companies. The National Cannabis Industry Association estimates that cannabis businesses are typically subject to effective tax rates of 70 percent or higher after considering 280E disallowed deductions.

The NJCPA’s original proposal, which was issued in 2019, called for complete decoupling from 280E. This was a non-starter for legislators due to the state’s budgetary concerns. The current proposal calls for the enactment of a revenue threshold to determine eligibility for decoupling on a business-by-business basis. The suggested revenue threshold is $25 million. This stems from IRC §448, which was thrust into relevance upon ratification of the Tax Cuts and Jobs Act (TCJA) in 2017. The lower threshold also gives a leg up to small businesses looking to enter New Jersey’s cannabis marketplace which could otherwise become dominated by large, already-established companies.

Further, the Society has recommended that the state rely on the complete provisions of §448 for the purpose of making the “small business” determination. Of most notable value, §448 calls for related entities to aggregate their gross receipts for the purpose of the revenue threshold and precludes businesses that meet the definition of a tax shelter from obtaining the relevant tax benefit.

Keep up to date on the progress of the Society’s proposal and other cannabis-related news at njcpa.org/cannabis. And NJCPA members are invited to join the Cannabis Interest Group at njcpa.org/groups.

CPAs advising small business clients have a lot to discuss in light of COVID-19. Businesses that have reduced headcount, cut costs and implemented other strategic changes will want to evaluate their business model ahead of full business reopenings.

To help small business owners assess their options moving forward, here is a checklist that CPAs can use to discuss with them:

• Prepare a revised budget.
• Form an idea of when they can bring back their employees and service offerings and when additional investments in the business are warranted.
• Reach out to customers and vendors to assess any issues that may have cropped up over the last two months.
• Make sure you have a cash cushion or access to liquidity over the next few months. We are operating in a changed business landscape, and we should be cautious in how we deploy capital and resources moving forward.

Challenges Abound

Few small businesses in the U.S. have been unscathed by the pandemic. In our inaugural survey of 250 small businesses in the U.S. conducted in September in conjunction with Sapio Research, more than 80 percent lost revenue because of the pandemic at about 30 percent on average. To make up for this loss, they cut spending: 37 percent either furloughed or laid off staff. Sadly, 9 percent closed up shop for good and 5 percent plan to do so in the coming months.

In addition, more than 60 percent of those surveyed applied for a Paycheck Protection Program (PPP) loan of which 26 percent received one (including 41 percent of those in companies with 100 to 499 employees and just 17 percent of companies with less than 25 employees). These numbers imply that the Federal government could have done a much better job at communicating the rules, which changed and relaxed over time. Some small businesses didn’t apply because they weren’t sure if they’d even be allowed to reopen or whether they could meet the Federal government’s criteria. Others didn’t get funding because of capacity issues on the side of the lender. Some lenders were so overwhelmed they couldn't even answer small business questions related to lending and the application, while others felt that they were not being compensated appropriately and that they spent more on administering the loans than they made.

More than 60 percent of survey respondents recently attempted to renew a line of credit, of which half said they received stricter application criteria and/or an increase in interest rates or fees. In some cases, banks are denying them credit because they took out a PPP loan. In one anecdote, a bank told a client that if they were so concerned about the future of their business that they applied for a PPP loan, how could the bank feel confident to lend to them further?

While not advisable, more than 20 percent of those surveyed tapped into their personal savings; 8 percent borrowed from their retirement accounts; and 7 percent took out a personal loan. This is startling for a number of reasons. Tapping one’s retirement account is likely a measure of last resort for small business owners and demonstrates just how dire the situation is for many that they’d risk their own retirement for a business that could potentially fail. 

As the coronavirus pandemic rages on, many people are not able or open to connecting to do business in person. Take it from someone who thrives on planning live events, that’s okay. See it as an opportunity to master your virtual game.

CPAs need to continue finding innovative ways to virtually connect with colleagues, targets and clients. Consider some new-age virtual connection approaches to keep your contacts interested. Would a cooking demo, bingo, grilling 101, digital fortune telling or photography be of interest for your audience? While some of these may require calling in an outside expert or moderator, the end result of producing a memorable event and continuing to build upon meaningful relationships will be worth the investment. 

If your specific meeting purpose is more about delivering content or training, you’ll want to ensure your audience is provided with a valuable experience and walks away ready to sign up for your next session.

Focus on these key areas to boost your virtual presentation or training:

• Platform. As selecting the best venue is an important part of live event planning, make this an equal priority when deciding which virtual platform is most suitable to accommodating an impactful delivery. Will you need to share slides? Have two-way video functionality? Have attendees speak? Consider all of these factors before going too deep into agenda planning.
• Communication. Communicating before and after your event are equally important. Send a “save the date” early on. Create an informative invitation that covers meeting objectives, speakers/presenters, a high-level attendee summary and program length. A day-of confirmation reiterating how to log in is recommended since your attendees are likely participating in multiple virtual engagements daily. At the end of the event, send attendees a thank you message including a summary of any event polls or Q&A and offer a chance for them to submit feedback through an event survey. And keep the line of communication flowing with those who couldn’t attend by sharing presentation slides, thought leadership or Q&A if appropriate. 
• Audience engagement. You’ve decided on a platform and sent out the invitation, now what? How are you going to keep them attentive through a two-hour CPE session or overview of your tax report? Integrate simple, yet powerful, elements such as music upon log on, opening videos, ice breakers, polling questions or whiteboarding exercises. When planning your content sequence, make it a priority to gain your audience’s attention early on and keep their engagement level up.
• Visual. Keep your slides simple, and be mindful of font size and color. Attendees may differ in their sight, hearing or cognitive abilities. Make sure your speaker lifts their computer camera to eye level. When possible, position the speaker in front of natural light for a clear picture, and ensure backgrounds are minimal to reduce distractions.
• Audio. Using a headset or ear bud connection can ensure clear audio and that nearby noise is not heard by attendees. Mute all attendees except the speaker. Remember, leading a virtual meeting can bring unforeseen technological challenges or hiccups. That’s why having a rehearsal with speakers on your event platform a few days prior is so important.

It’s best to continue to build upon virtual event best practices and refine ways to hit the virtual bullseye. Why? Because mastering virtual events can have a significant impact on long-term growth, facilitating important connections and bringing prospects back for more.

Would you notice it if a donut shop client of yours had tax returns showing excessively large “cost of goods sold?” If you also provided attestation or bookkeeping services, would you recognize the inventory “shrinkage” or be able to connect the dots and understand where the profits were being eaten up (pun intended…) if the owner’s employees were taking one too many liberties with the donuts while working? If not, do not expect him or her to remain a client for long.

Do not let these opportunities to help your client and stand apart from your competition pass by. And do not only know the numbers. That’s the ante to join the game, but knowing the business is having aces in the hole.

The DuPont Model

A powerful framework for helping Main Street CPA firms understand the business is the DuPont Model. CPAs would do well to adopt the DuPont Model as a standard practice in applying it to their clients and elevating their own business acumen.

The model decomposes the different drivers of financial and operational performance and enables management (and their advisors) to identify, target and act upon those drivers in efforts to improve the overall performance of the business. One of the best parts of the DuPont Model is that the inputs are basic financial reports and metrics — items that you and your client are already looking at.

Here’s how it works:



Source: MyAccountingCourse.com

Main Street CPA firms are in a privileged position to deliver impactful advice to help their clients do more than survive – to help them thrive. Within the present turmoil and uncertainty lies the seeds of opportunity and latent growth. It may seem counterintuitive to be preaching the opportunity of growth in a rapid economic contraction. However, with the right tools, frameworks and perspectives, new businesses will be established, and the engine of innovation will continue creating forward momentum amid the present destruction.

Now is not the time for Main Street CPA firms to blend in; now is the time for them to stand out. 

Almost every day, a member will ask me, “When are we going to meet in person again?” It’s a question I ask myself every day and, unfortunately, there are no easy answers.

While we all must adhere to the state-mandated limits on indoor gatherings, we know that room capacity is just one factor in running a face-to-face event or meeting. Will members feel comfortable returning to large indoor gatherings? Do we need temperature checks and hand sanitizer at the doors, and will attendees wear facemasks and stay six feet apart? How much can we reasonably ask of our members, volunteers, speakers and staff? All these questions have social, legal and even political answers.

There are also business considerations. In a recent survey of New Jersey C-suite executives, more than three-quarters of respondents said that business changes made in response to COVID-19 will become permanent. Eighty percent of respondents said that they believe more than a quarter of their employees would continue to work remotely in the future.

At the NJCPA, we’ve reinvented our meetings to accommodate members’ needs by turning face-to-face events virtual.

We hope you find them valuable and engaging. Here are a few highlights of upcoming events:

• A new, half-day Emerging Technologies Conference on Oct. 27 will explore accounting transformations, processes, software and trends.
• Our popular fall conferences will be held virtually: Accounting and Auditing Conference on Nov. 10, Multistate Tax Conference on Nov. 17 and Nonprofit Conference on Dec. 3.
• Our 11 chapters are working on new virtual programs for members in public and industry modeled on the Bergen Chapter’s highly interactive Practitioners Forum, which hasn’t skipped a beat during the crisis.

And we’ve partnered with state societies across the country to bring new programs:

• The Crossing Bridges Series helps move the needle forward on diversity and inclusion initiatives.
• The Women's Leadership Conference on Oct. 27 provides a forum for female CPAs.
• The 2020 National Cannabis Business Symposium on Oct. 26 and 27 will cover tax, legal and accounting updates impacting the cannabis industry.

While I’m proud that our members, staff and organization have risen to the challenge of providing virtual programs with new technology, the undeniable truth is that associations such as the NJCPA are based on connections. It’s why people join: to find their people and their place, and to benefit from being with like-minded individuals who share a common purpose and interests. COVID-19 threw a major wrench into togetherness, as we all know. It also magnified how important community — every aspect of it — really is.

Until we do meet in person, stay connected and reach out to us. We value your input at feedback@njcpa.org.

The American Institute of CPAs’ (AICPA) 2019 Trends report shows important insight: When students first start down the path of becoming an accounting professional, there’s pretty strong representation from people across many races. In fact, 44 percent of students enrolled in bachelor’s degree programs and 42 percent enrolled in master’s degrees programs are non-white. Yet, as we examine the different professional milestones in the accounting industry, a gap appears — and widens quickly. Only 30 percent of new graduate hires at CPA firms, 16 percent of all CPAs and nine percent of partners are non-white.

What Can Help

Increasing the number of diverse accounting professionals with Ph.D.s — individuals committed to teaching at colleges and universities — is one strategy that can have a major impact on what the profession looks like in the future. It gives minority students access to someone who has practiced in the field and understands the business community, who can help them make business world connections essential to landing the right job, and who can instill the importance of pursuing a CPA before they even enter the business world. These practical insights and experiences — beyond the lessons learned in the classroom — are invaluable to students just starting on their career path.

Dr. Helen Brown-Liburd, an auditing and accounting information systems professor at Rutgers University, has seen this first-hand. Since earning her Ph.D. in accounting from the University of Wisconsin-Madison, she has counseled and advised students of all races and backgrounds on career decisions and plans. According to Dr. Brown-Liburd, it’s not unusual for students who take her freshman-level course to reconnect two or three years later, preparing to enter the job market. These young professionals are desperately seeking guidance and insights about job opportunities and employers from people who look like them. And there just aren’t enough diverse professors in academia today to properly guide them.

In the last 15 years, the accounting field has made strides to increase diversity among faculty in colleges and universities across the country. In 1994, there were about 100 minority accounting professors with Ph.D.s. Today, there are about 388 professors with Ph.D.s representing African Americans, Latinx and Native Americans.

Getting a Ph.D.

While the prospects of getting a Ph.D. may seem daunting, many candidates are surprised by the requirements, support and benefits that go along with a Ph.D. program. These include the following:

• Most universities do not charge tuition and do provide stipends to business doctoral students. The level of stipends can vary between $15,000 and $40,000 per year.
• A master’s degree is not required to enter a business doctoral program.
• Accounting professionals have access to several organizations, including The PhD Project, that provide support during each phase of advanced degree pursuit.
• Academic salaries can be very attractive. View the latest AACSB salary data here.
• Experience and maturity gained in the corporate world is highly valued.

Minority accounting professionals can help continue this momentum by committing to return to the classroom to pursue a Ph.D., and, subsequently, support the next generation’s educational and professional pursuits. Of course, this is a big life decision and it needs to be taken seriously.

Just when you thought it was safe to proceed with applying for Paycheck Protection Program (PPP) loan forgiveness, the Small Business Administration (SBA) — which had been quiet since early August — changed the rules again. Specifically, the SBA issued another Interim Final Rule (IFR), effective as of Aug. 25, defining who is an owner-employee of a C corporation or S corporation, and whether certain non-payroll costs involving transactions with related parties are eligible for forgiveness.

These two areas have been of great concern to borrowers and their advisors, and we had hoped that guidance would be forthcoming sooner — especially since some borrowers may have already applied for forgiveness. Moreover, the new guidance may place some borrowers in jeopardy of not realizing full forgiveness of the loan since funds may have been used to pay for expenses now deemed to be ineligible for forgiveness. Finally, the new IFR has some internal inconsistency (discussed below).

Owner-Employee Determination

Previous guidance limited the amount of owner-employee compensation that can be included in payroll costs for determining the amount of PPP loan forgiveness. Unfortunately, that guidance never defined who is an owner-employee. The loan application defined owner to mean:

• a general partner;
• any limited partner owning 20 percent or more of the equity of a partnership; or
• any owner of 20 percent or more of a corporation or LLC. 

However, it was never clear if those definitions were applicable in the loan forgiveness computation.

The new guidance specifies that owner-employees with less than a 5-percent ownership stake in a C corporation or S corporation are exempt from the owner-employee compensation rules. The guidance says that such owner-employees have “no meaningful ability to influence decisions over how loan proceeds are allocated.”

Observation: The IFR is silent as to partners and members of LLCs. It would be inappropriate, given the guidance issued for corporations, to assume that the higher limits in the loan application should be used here. Until additional guidance is issued, ANY partner or member who is actively involved in the business of the partnership or LLC should be considered an owner-employee for purposes of the loan forgiveness calculation.

Nonpayroll Costs of Tenants, Subtenants or Home-Based Businesses

Certain costs incurred or paid during the covered period — rent, mortgage interest, utilities — are eligible for inclusion as forgivable expenses. The new guidance clarifies that, to the extent such costs are attributable to the occupancy of space by tenants or subtenants, a PPP borrower may not include them in its forgiveness application.

Even more limiting, a borrower who works out of his or her home may include only the share of covered expenses that were deductible on their 2019 tax return. A new business may use the amount expected to be deducted on their 2020 return.

Rent or Mortgage Payments to a Related Party

This has been a question of great concern to borrowers since the program was enacted over five months ago. Until now, the SBA and Treasury have been remarkably silent on the subject. 

Under the IFR, rent payments to a related party are eligible for loan forgiveness only if the lease and mortgage were entered into prior to Feb. 15, 2020, and only to the extent that the payment doesn’t exceed the amount of mortgage interest owed on the space being rented during the covered period. Furthermore, borrowers must provide lenders with mortgage interest documentation along with the loan forgiveness application.

Even more draconian, the IFR says that mortgage interest owed to a related party is not eligible for forgiveness on the theory that “PPP loans are intended to help businesses cover certain non-payroll obligations that are owed to third parties, not payments to a business’s owner that occur because of how the business is structured.”

The term “related party” is not defined in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) or any previous SBA guidance. The IFR defines related party for this purpose as “[a]ny ownership in common between the business and the property owner…” This is clearly a much stricter standard than the ownership relationship for owner-employees of C and S corporations in the same IFR.

And, while the IFR mentions only real property, since PPP allows forgiveness for both rent and mortgage interest for real and personal property, it is reasonable to assume that these new limitations apply to both.

Observation: While commentators have been quick to criticize the related-party guidance, it is not clear that it will be reversed. Therefore, borrowers who have already submitted loan forgiveness applications should review them to see if they should be revised. Other affected borrowers may wish to use the 24-week covered period to ensure that they have sufficient payroll costs to offset a shortfall in nonpayroll costs in achieving 100-percent forgiveness.

Comment: The SBA and Treasury have been issuing guidance or making public pronouncements throughout the PPP program, often changing previously issued guidance to the detriment of PPP borrowers. This IFR goes beyond changing the rules in midstream as it is likely too late for many borrowers to change the way they use loan funds.

This article was reprinted with permission of Friedman LLP and originally published on Friedmanllp.com.

As business becomes more global and regulated, the amount and complexity of knowledge required of accountants continues to increase. A growing emphasis is being placed on advisory and assurance services, which represents yet another level of complexity involving critical thinking, analytics and problem solving. It’s helpful for accounting students to become aware of the essentials in our profession so they can see that there is a method to this madness of detail. In academia, the notion of “threshold concepts” has gained popularity. These are the key ideas central to mastery of any subject, the understanding essential to all further growth.

Here are the threshold concepts for accounting:

1. Balance Sheet. Liabilities + equity = assets. The balance sheet must always be “in balance” — if assets increase, then either liabilities or equity must also increase. This is an amazingly simple idea. Yet, insight into any business often starts here.
2. We Are a Rules-Driven Profession. Accountants are governed by laws, rules, policies and procedures established by both government and industry organizations. There are three main organizations in the U.S. that establish and coordinate these rules and standards: the Financial Accounting Standards Board (FASB), the Internal Revenue Service (IRS) and the Securities and Exchange Commission (SEC).
3. Financial Statements. A complete set of financial statements includes an income statement, a statement of changes in equity, a balance sheet, a statement of cash flows and the notes to financial statements. The graduate accountant need not be an expert but should be conversant with each of these.
4. The Accounting Cycle. Financial information is prepared in a process called the accounting cycle. Various best practices, information systems and rules are employed in managing this process to identify key data, report and analyze documents, record accounting transactions and prepare financial statements.
5. Proper Measurement of Assets and Liabilities. Accounting for the true value of assets and liabilities involves judgment. Assets and liabilities are originally listed at the price paid (i.e., historical cost) and this value is often adjusted over time. These modifications are especially important for intangible assets like goodwill, exchange rate fluctuations if priced in foreign currency, or depreciation, the periodic write-off of fixed assets.
6. Other Essential Financial and Non-Financial Information. A sustainable business creates stakeholder value through the prudent management of interrelated forms of capital (financial, manufacturing, intellectual, human, social and natural). Some of this value is quantifiable, while for others it is intangible.
7. Legal Entities. Businesses must choose a legal structure to define the rights and responsibilities of business ownership, degree of control, legal liability and tax treatment. The four basic organizational legal structures are sole proprietorship, partnership, corporation and limited liability company. 
8. Governance, Risk and Compliance (GRC). Accounting graduates need at least basic knowledge of governance, risk management, compliance and internal controls. These interrelated areas of focus involve conformance to ethical and other established standards with a special focus on effective management of risks. The Committee of Sponsoring Organizations (COSO) developed a framework for risk management that is widely used in business.
9. Raising Money. Growing a business requires investment. There are three ways to finance a business (debt, equity and retained earnings) and each have pros and cons.
10. Information Systems. For accounting graduates, there is a need for a digital and data-driven mindset along with the use of analytics and data visualization to effectively convey information. This requires a solid knowledge of technology, data analytics and automation.
11. Setting Strategy. The purpose of a strategy is to help organizations set goals and plan for contingencies that could affect goal achievement. A sound strategy should be a living document that accounts for current market conditions, competitive environment, regulatory environment, and financial constraints and resources.
12. Ethics, Integrity and Professionalism. We cannot legislate ethics. In a healthy accounting culture, accounting professionals foster trust. In business, trust is the cornerstone of all relationships with customers, suppliers, employees, shareholders and the community.

If accounting graduates develop a firm foundation in the above concepts, they have a great chance to succeed in that first job. And once that critical threshold is crossed, mastery is just a matter of time. 

The idea of a public blockchain might not sound like something terribly relevant for commercial clients or audit engagements. And would an organization ever want to be affiliated with a public blockchain where — as the name suggests — data linked to the organization is on a public ledger? Even with encryption and security at the heart of every blockchain, such a situation can give even the most prepared organization cause for pause. But though a public blockchain that is permissioned might sound like a paradox or an abstract idea, if one digs deeper, the applications for different iterations of public blockchains become clearer.

A public-permissioned blockchain might operate something like the following: Information published by the organization, which may include both financial and non-financial data, needs to be viewable and available to the wider public. That said, the organization would like to maintain control of the creation, reviewing and updating of the information that is published and subsequently widely available to the marketplace. In other words, the organization needs the data to be accessible to anyone who is interested in reviewing it, while simultaneously maintaining custody and control over that data. 

Accountants can, and should, play an important role as assurance provider by having limited or focused access to pertinent information, as well as testing the controls over how this data is managed.

Examples of organizations that might find such an arrangement useful and beneficial to the business include, but are not limited, to hospitals and other health care providers, colleges and universities, nonprofit organizations and governmental agencies. The nonprofit sector is the third-largest segment of the workforce in the United States, only behind manufacturing and retail. In addition, the charitable and nonprofit sector contributed over $1 trillion to the U.S. economy in 2019 — a tremendous potential market for blockchain implementation.    

Public blockchains, in and of themselves, might not be particularly well suited for every business, but that does not mean that public blockchains have no role to play. It might be easy to dismiss the business applications of a public blockchain simply due to its name, but there is a broad appeal for different types of public blockchains. Those practitioners and firms willing to continuously educate themselves and their clients on the possibilities of public blockchains will benefit now and going forward.

Accounting professionals looking for more information on blockchain, cryptoassets and robotic process automation should check out NJCPA's Emerging Technologies Conference webcast on Oct. 27. 

CPA firms in the United States have failed to create a diverse, equitable and inclusive environment for their employees. The AICPA’s “2019 Trends in the Supply of Accounting Graduates and the Demand for Public Accounting Recruits” report states the following statistics about the accounting/finance functions in U.S. CPA firms:

• 91 percent of partners are categorized as white
  • 89 percent of those surveyed expect the number of partners in accounting/finance functions of U.S. CPA firms to remain the same
• 84 percent of CPAs are categorized as white
• 71 percent of all professional staff are categorized as white

And, the supply side is not looking any better: 70 percent of new graduates with a bachelor’s and a Masters of Accounting degree hired into accounting/finance functions of U.S. CPA firms are white.

Why it Matters

The role of a CPA is to be a trusted business advisor to clients. Research from a 2013 Harvard Business Review article, “How Diversity Can Drive Innovation,” states that having an employee with the same ethnic background as a client can increase the possibility that the team will better understand that client’s needs by up to 152 percent. Thus, by increasing diversity, a firm is better able to serve a diverse customer base.

What Can Help

According to the AICPA Women's Initiatives Executive Committee CPA Firm Sponsorship Success Toolkit, “sponsorship is key to creating more equitable leadership in the accounting profession. All leaders have had a sponsor or advocate at some point in their careers.”

It explains that U.S. CPA firms can implement employee resource groups, or “formal sponsorship programs to ensure that all of your firm members — not only those who have made an informal connection with a key leader — have access to higher-level career opportunities and potential ownership.”

Other publications have also cited the need for diversity. A 2019 CPA Journal article, “Fostering Diversity and Inclusion in the Accounting Workplace,” explains that, “If diversity in the workplace does not increase at a similar rate as diversity in the United States, the economy will suffer. Breaking down the walls of discrimination and having an open-minded attitude will lead to more diverse and successful organizations.”

Since Bitcoin’s beginning in 2009, its value (1 BTC) relative to the U.S. dollar (USD) has fluctuated from near zero to $19,650 in December of 2017. Today, the price stands at 1 BTC to $9,237 USD, and the trading range over the last 365 days has been between $11,540 and $5,342. But though buying and selling Bitcoin is a speculative endeavor, it was the first application developed utilizing blockchain technology, which will continue to be the foundational platform for the development of digital transaction processing. Blockchain’s benefits, including security, accuracy, transparency, timeliness, cost savings and traceability, ensure a long future.

Now, enter a new category of cryptocurrency that pegs its value to a collateralized reserve asset —Stablecoin. In essence, it has all the benefits of a blockchain-based currency, but its value can be pegged to the U.S. dollar! If you conduct international financial activities, the reserve asset could be the applicable countries’ fiat currency. This effectively allows parties to hedge foreign currency risk simultaneously with the execution of each transaction. Stablecoin reserve assets could be established based on commodities with volatile prices. Gold, copper or oil Stablecoins would allow trading partners to hedge price risk as transactions are conducted.

Emerging Applications

A hypothetical development of a blockchain-based Stablecoin could involve the following: An entrepreneur creates a new company, Masvis, Inc. Their business plan is to meld the convenience of a bank’s debit card with the affinity rewards programs offered by hundreds of participating businesses that focus on small, recurring transactions. Advantages to participating businesses will be the significant reduction of paying intermediary (credit card) fees and simplifying the administration of customer loyalty programs. Consumers will no longer need to carry inconvenient loyalty cards or use individual apps for completing everyday transactions. Masvis can take a fractional percentage of transactions while attracting a large base of banking customers who seek to simplify their lives.

JP Morgan, meanwhile, has become the first U.S. bank to launch a digital token (JPM Coin) backed by fiat currency. This closed system allows payment and receipt of digital tokens between existing institutional clients. While tokens must be collateralized with U.S. dollars held in a JP Morgan account, users of this Stablecoin currency receive many of the benefits inherent in a blockchain-based system. These include the following:

• Reduced transaction fees
• Instantaneous transaction execution
• A more secure environment for executing transactions
• Better traceability

It seems inevitable that as JPM Coin is further developed, it will become more widely used by additional customers and across additional banking activities. And as Stablecoin continues to evolve, a paraphrase from Leon Trotsky’s prediction for the Mensheviks during the Russian Revolution is applicable — one day Bitcoin may be relegated to the dustbin of antiquated technologies. But for now, it’s intriguing us.

Just six months ago, in the winter issue of CEO Compass, I extolled the importance of one-on-one meetings with members and wrote that you could expect more of those interactions in 2020. My how things have changed. 

While I’m heartened by the progress that New Jersey has made in its fight against COVID-19 and the many ways we have connected as a community, the opportunity to hit the road for a personal “conversation tour” still seems like a long way off. COVID-19 has changed almost everything about how we work and interact professionally, but the “new normal” has also proven just how resilient and responsive the NJCPA and its members can be. 

From the onset of the COVID-19 crisis and the related restrictions placed on large gatherings, we were well positioned to adapt and quickly moved spring and summer conferences and seminars to web-based learning events. Members turned out for this new online education experience in record numbers. 

To supplement the launch of Membership+, which provides members with 20 free CPE credits, and to help fill the void left by the temporary suspension of in-person chapter programming, we developed a statewide Virtual CPE Pass for 2020/21. The pass is available for purchase now with programming beginning in September. 

In the middle of this “new normal,” we also began having long-overdue discussions about racial injustice in America. As a concerned and socially conscious organization, the NJCPA vows to challenge issues of race and color and the impact they have on our community. We support an environment in which all individuals feel respected and are treated fairly. When an inclusive culture exists in an organization, true change is possible. 

We are resolved to do the work necessary to foster fundamental changes that address inequality and exclusion.   

To this end, we have formed a task force to focus on diversity and inclusion for our members and the companies and organizations where they work. Together, we must build a more just and equitable society. We welcome your thoughts on this at feedback@njcpa.org. 

Our country, our state and our members have faced a challenging few months. Sometimes it felt like the whole country was coming apart at the seams. In these trying times, I implore everyone to care for one another, treat others with the same respect and dignity that you would want, and keep lines of communications open. Talking, but more importantly, listening, is a critical step in finding a solution to any problem. 

So, stay connected and stay well.

Last month, I hosted an IssuesWatch Live webcast on the short- and long-term impact of the coronavirus pandemic on the nation’s and New Jersey’s economies. The response to this broadcast was overwhelming, with many members asking us to report more on economic news (you can watch a recording of the broadcast at here).

During the webcast, I interviewed two prominent economists: Daniel Bachman from Deloitte, who addressed national economics, and Jim Hughes from Rutgers University, who spoke on New Jersey’s economy. Jim recently passed along to me a report that he and his colleagues released, Coronavirus Economic Pivot: Precipitous Fall to Recovery Crawl?, which focuses on both New Jersey and the nation. Here are a few highlights from this insightful report:

• The “Great Coronavirus-Driven Contraction,” which began in February, was our nation’s first deliberately induced recession.
• The “Cruelest Month” — April 2020 — has little or no historic parallel and saw a loss of 20.7 million jobs. The overall job loss from February through April wiped out 97 percent of the employment gains from the preceding 10 years!
• As parts of the economy began reopening in May, slightly more than 10 percent of the lost jobs were recovered.
• If the timeframe of the full employment recovery from the Great Recession is repeated for the aftermath of the Great Contraction, New Jersey would not fully recover its job losses until January 2029. That’s sobering! However, a mid-decade recovery of all job losses is certainly a possibility.

You can read the full report here.

Later this month I’m going to be hosting another IssuesWatch broadcast that I think you’ll find insightful and useful. It’s going to cover the dire impact of the coronavirus pandemic on the New Jersey’s fiscal condition and the budget hole of up to $10 billion that it’s caused. I’ll be interviewing Senator Steve Oroho, who is one of the most knowledgeable legislators on fiscal issues, and NJ Spotlight reporter John Reitmeyer, who is one of the most knowledgeable journalists on the issue. The broadcast will air on July 8, July 13 and July 17 and is free for NJCPA members.

The leap from being a college accounting student to a productive member of the workforce is a significant one; in fact, for most of us it is the moment we have been training for our whole lives. With this jump often comes a mixture of emotions such as the fear of the unknown and excitement for a new chapter of life (and of course a bigger paycheck!). Here are some basic tips I’ve learned to help make this leap’s landing as smooth as possible:

Ask Questions

Do not be afraid to ask questions. By asking questions, you show your managers that you care about increasing your knowledge base and better developing your skillset. Questions help to create conversations and discussions, which in turn allow you to learn from those with more experience and knowledge to share. If you ask a question and still feel lost after the response you received, ask for more clarification — we have all been there!

Communicate

Communicate, communicate, communicate! There is no greater skill than that of communication — especially as someone who is new to the workforce. Although it may sometimes feel uncomfortable, you will find that the majority of challenges or dilemmas you face could most likely have been avoided if there was more communication. By creating a habit of communicating realistic timelines and project updates, you are setting you and your team up for success.

Embrace Your New Environment/Workplace

Experience and appreciate all that your new workplace has to offer! Get to know your new colleagues, eat lunch in the kitchen, and go to firm/work sponsored events. The more you enjoy the work you do and the company you work for, the more productive a team member you will become.

Enjoy this new and exciting journey you are beginning and welcome all of the lessons and growing pains it has to offer. Before you know it, you will be the person new members of your team come to for direction and guidance.