June 2011 Newsletter

President's Message

Marja Beltrami, CPA

Are you enjoying the benefits of ASCPA membership?

Take a minute and think of all the benefits that come with being a member of the Alaska Society of CPAs. What do you think are some of the main benefits? CPE? Networking? Staffing? None of the above?

If you aren’t sure of the benefits of being a member of the ASCPA, its time to get engaged. After all, it is your organization. And the organization is only as strong as its members.

Because it was said so well, I have extracted some statements from the AICPA’s Private Companies Practice Section (PCPS) home page regarding membership benefits that fit us all right here in Alaska with our own State Society. The Alaska Society  gains its strength from its members. Its members gain strength from their membership. We are intertwined! Backed by this strength, the ASCPA reaches out to ensure that its members’ interests are taken into account by the profession, its regulators and those who set its standards. In turn, members are provided with practical guidance and quick access to critical information on issues that affect their firms’ quality, professionalism and profitability.

Alaska’s CPAs need to work together to address the profession’s issues and standard-setting policies. We have a lot at stake. We enjoy the privilege of working in a self-governed profession, something we could lose if ignored. We also need to stick together and offer support in responding to each other’s needs and questions.

Mentoring and support are two of the major resources you will find when you become active in the society. From tax support, to audit support, to management support, whether you practice accounting in Industry or in Public Accounting, the society exists to support you! Even if you are still in school, we’re here for you. Among our members is a veritable wealth of knowledge, courage, and support!

The ASCPA keeps practitioners in the loop regarding technical issues that affect the profession. The ASCPA can act as the voice of Alaska’s firms & CPAs by representing our interests with groups such as the State Board of Accountancy, Technical Issues Committee, FASB and GASB, AICPA and various other committees. We can assist in connecting members with products and sources that can answer their questions and needs. We can provide a strong voice to be heard in an industry that constantly needs to adapt to changes; and as a profession, monumental changes are imminent and will affect us all.

We are all at various places in our lives and in our careers. Some of us have time to contribute now, and those who can’t contribute today will have time to dedicate tomorrow. Where ever you are today, we encourage you to participate with your society and take advantage of your membership benefits. As with any organization, participation is the key.

We are part of an exciting and challenging industry and our skill sets can take us anywhere and everywhere! Don’t hesitate to take a part in it! Be an active member in your Society, take advantage of the tangible benefits and don’t forget the intangible benefits that benefit us all! Join a committee, or participate in various groups and CPE, or create something new. We hope you are interested in the ASCPA, because the ASCPA is interested in YOU!

AICPA Governing Council Approves New Credential for Management Accountants

Today, the AICPA governing Council overwhelmingly approved the creation of a new credential called the Chartered Global Management Accountant (CGMA) through a joint venture between the AICPA and the London-based Chartered Institute of Management Accountants (CIMA). The credential advances the science of management accounting, while supporting and growing the U.S. CPA as the worldwide standard of professional excellence in accounting. It also recognizes the unique competencies and expertise of management accountants who are leading the world’s most successful organizations and providing employers with the best professional management accounting talent to drive sustainable business outcomes.

Credential to Launch First Quarter of 2012

Beginning in the first quarter of 2012, AICPA voting members will be automatically eligible for the credential upon verifying three years of qualifying experience. CPAs who are members of both the AICPA and their state CPA society will receive a special discounted annual fee.

Resources and Professional Development to Support CGMAs

CGMAs worldwide will have access to a variety of materials and publications, a proprietary website housing resources to help them develop management accounting competencies and a global social online network and community. To guide their professional development for continuous improvement throughout their careers, CGMAs will tap into a competency self-directed assessment tool. This new tool will help them understand the skill sets they need to remain relevant and valued in the rapidly changing business world and identify courses of action to meet their objectives.

Raising the Science of Management Accounting Worldwide

Through this joint venture, the AICPA and CIMA will leverage the collective power of more than 550,000 members to advance the science of management accounting worldwide, substantially benefitting the public, members and students. The CGMA credential delivers great value to professionals in business, industry and government, as well as to those in public accounting, who perform, or are involved with, management accounting roles on behalf of client businesses.

Resources for Your Use

The AICPA understands that your members will want to know more about this exciting development and what it means for them and for the profession and has prepared the following attachments for you to share with them:

• An article for your use in publications and/or on your website with details about the credential and AICPA/CIMA joint venture
• A backgrounder: “Advancing the Science of Management Accounting: A Joint Venture between AICPA and the Chartered Institute of Management Accountants”

You will receive a PowerPoint presentation for your use at member events and committee meetings through CTNU in the coming week.

In addition, you may want to invite your members to learn more about the credential, when it is scheduled to be available and what it means for the profession, by linking your communications to the credential press release and through this video from AICPA President and CEO, Barry C. Melancon, CPA.

AICPA Chairman: Get Informed, Get Ready to Provide Comments on Changing Private Company Reporting

Have We Forgotten Fixed Asset Accounting 101?

By:  John L. Daly, MBA, CPA, CMA, CPIM  Executive Education, Inc.

If the final exam of your very first accounting class asked the following question, I suspect few of us would have gotten it wrong.

Your company purchases a machine for $140,000.  Your operations manager estimates the company will use the machine for 15 years.  He estimates a similar 15 year-old machine today would sell for $20,000.  What would be the machines 1^st year depreciation?

Answer:  ($140,000-$20,000)/15 = $8,000

The math is simple.  In a final exam, almost no one would get this question wrong.  However, I know almost no U.S. accountant would do this calculation in the real world.

In the last two years I have asked hundreds of accountants how many routinely recognize residual value in their depreciation calculations.  In a room full of veteran financial managers, rarely will a hand go up.  When I ask how many people have EVER seen residual value used, one out of 30 might say they saw it done, ONCE, early in their careers.

When I ask, how many people would use 15-year depreciation for a fifteen-year asset, rarely will ANY hands go up.  When they do, the company is often large and public.  Most accountants respond they would use seven-year tax life for a fifteen-year asset.  Thus, the calculation real world accountants do is:

Real World Practice:  $140,000/7 years is $20,000/year.

This is not an extreme example.  In my first Controller job, my company use metal stamping presses having a 40-50 year useful life.  My predecessor depreciated this equipment over 5 years with no residual value.  As a result, we had huge book to fair value differences on our balance sheet.  I thought I was being much more realistic by increasing the depreciable lives of our assets, first to seven years and then to 10.  Being “conservative”, I never seriously considered recognizing a residual value or depreciating the equipment over 40 years.

In many small companies, the situation is even worse.  When a company uses tax depreciation for book, all of the Section 179 assets the company expenses for tax purposes have no value.

Our ultra conservative accounting obscures the true economics of the company’s business.  How many times have small companies had to hire appraisers to verify the value of their assets because the bank could not rely on the company’s financial statements for a fair representation of the company’s assets?  How often has our CEO come in to our office looking for ideas to improve the bottom line or the company’s balance sheet?  Most companies could improve their bottom line by using realistic instead of ultra-conservative fixed asset accounting.

Perhaps it is time we went back to the basics and calculated depreciation the way our accounting standards read.

John L. Daly, MBA, CPA, CMA, CPIM, is a Chelsea, Michigan based management consultant specializing in pricing, costing and business turnarounds.  Earlier in his career, John was Chief Financial Officer for a medium-sized Tier 1 automotive parts supplier.  He has also been CFO for a large restaurant chain and COO for a manufacturer of window treatments.  He began his career with five years working for the management consulting divisions of two large public accounting firms.  John is a frequent speaker at accounting events.  You may reach him at Daly@ExecutiveEducationInc.com.

Internal and External Exposure Drafts

Other (AICPA)

Issue date -- 4/4/11 Omnibus Proposal AICPA Professional Ethics Division Interpretations and Definition

Comment deadline 6/5/11

  IFAC

Issue date -- 4/15/11 Proposed Redrafted International Education Standard, IES 4, Professional Values, Ethics, and Attitudes

Comment deadline -- 7/15/11

Issue date -- 3/29/11 Exposure Draft 45, Improvements to IPSASs 2011

Comment deadline -- 6/30/11

 FinREC (AICPA)

Issue date -- 4/12/11 Audit and Accounting Guide, Employee Benefit Plans

Comment deadline -- 6/10/11

Issue date -- 4/6/11 Audit and Accounting Guide, Health Care Entities

Comment deadline -- 6/6/11