Fall, 2009 1st draft Professional Issues Update for CPAs - focusing on Top 5 Trends: Economy, Regulations/Standards, Globalization, Workforce, Technology

1. Keeping Up With AccountingProfessional Issues Update2009 Fall Edition Tom Hood, CPA.CITP CEO & Executive Director Business Learning Institute Maryland Association of CPAs

2. What is the One Thing for CPAs?

3. What is the One Thing for CPAs? CPAs… Making sense of a changing and complex world.

4. “But a time of turbulence is also one of great opportunity for those who can understand, accept and exploit the new realities. It is above all a time of opportunity for leadership.” - Peter Drucker, Managing in Turbulent Times

6. Strategic planning isn’t enough, extraordinary leaders must be strategically thinking, all of the time.

7. Charisma and creativity aren’t enough; extraordinary leaders need to be ambidextrous thinkers – able to think conceptually and sequentially, in the abstract and in the concrete, and able to move quickly between the two.

9. What is your line of sight? How far can you see? Look beyond the edges? What patterns are emerging? What insights can be gained? Position Markets Timeframe Company

10. What do you see?

12. What’s your vision?

14. Outcomes for today Understand the trends and issues facing your Profession and your firm Learn about the structure of the CPA profession and how you can influence major trends and issues Gain insights that can help you jump the experience curve as a future leader Learn about a strategic thinking system to deal with rapid & constant change

15. Our agenda Act 1 The one thing all CPAs need to know Economy Regulations & Standards Act 2 Workforce Technology Issues facing CPA firms Issues facing Business Industry Government Act 3 Image Dealing with Change What’s your one thing & Top five

16. What will the new normal look like? “It is increasingly clear that the current downturn is fundamentally different from recessions of recent decades. We are experiencing not merely another turn of the business cycle, but a restructuring of the economic order.” – Ian Davis, McKinsey Quarterly March, 2009

18. The Formula that blew up our 401(k)s Source: Wired magazine 17.03 March, 2009

19. Guardians cannot keep up with Commerce “Even the regulators can't keep up. A Senate study in 2002 found that the SEC had managed to fully review just 16 percent of the nearly 15,000 annual reports that companies submitted in the previous fiscal year; the recently disgraced Enron hadn't been reviewed in a decade." Source: Wired magazine 17.03 March, 2009

20. A Month to Remember Rescue package fails; Dow takes record plunge U.S. Bails Out Fannie Mae & Freddie Mac Dow Jones plunges 504 pts Dow plunges again; gold sees biggest one-day gain in 10 years Fed proposes bailout package Washington Mutual seized Goldman and Morgan Stanley become bank holding companies Rescue package goes to Congress; Wachovia for sale Lehman bankrupt; Merrill Lynch sold Fed rescues AIG Common Fund Fails 9/14 9/15 9/18 9/21 9/25 9/29 9/30 10/1 9/7 9/16 9/17 Source: New York Times 18

21. Emergency Economic Stabilization Act of 2008 Signed into law on October 3, 2008 $700 Billion TARP (Troubled Assets Relief Program

22. ARRA – American Recovery & Reinvestment Act of 2009

23. We need We got Source: Dr. Anirhban Basu

24. The new normal – Wall Street? 1920 - 2008 2008 - ????

25. How we got here

26. Now what? I like this approach! Time to get tough. Time to get smart. Time to get going. Who’s with us?

27. Regulations & Standards

29. Accused of issuing audits of Madoff Securities

30. Lied on AICPA membership renewal about peer reviewDavid Friehling, CPA faces 105 years in prison For issuing false audit reports

31. Satyam + PWC Ramalinga Raju – CEO created $40 billion in fake billing and cash PWC auditors missed cash accounts?

32. Infrastructure the basic physical and organizational structures needed for the operation of a society or enterprise The infrastructure for the free market was found to be in disrepair in this latest market crisis and the CPA profession is a critical component

33. Three Drivers Fair Market Value (Acctg Standards) Futures & Derivatives Investment Advisors & Broker-Dealers

35. Fair Market Value – FAS 159

36. What will a modernized financial services regulatory scheme include?

37. What is under the CPA Profession?

38. police power of the states to protect their citizens vs commerce clause

39. Another View Public Company Private Company Int’l Company Financial Reporting Attest Performance Standards Code of Conduct State Oversight & Enforcement of CPA License CPA Licensure

40. Should Congress Set Accounting Standards?

41. The Real Costs of Changing FMV? “Confidence, trust, and numbers that investors can believe in are the stuff that make or break the capital markets. When investors question the validity of numbers, they sell and wait, rather than buy and invest. Yet those charged with building confidence and trust and presenting numbers that can be believed are under sustained attack -- and they are losing.” - Arthur Levitt, Weakening a Market Watchdog in Washington Post – March 26, 20009

42. First PCAOB now FAOB? New 5 member oversight board proposed by Congress – March 6th, 2009

43. Changes in our Infrastructure The Infrastructure for the CPA Profession is maintained by your Professional Associations AICPA & State CPA societies (MACPA)

44. US Treasury MD Comptroller MD Comptroller MD Comptroller CAQ Courtesy of the Maryland Association of CPAs – 2008 edition Drawing by Carol Kirwan, CPA

45. Standards Changes AS 5 - PCAOB IFRS – SEC International gets legs Fair Value Accounting XBRL – SEC mandatory Codification Project – FASB Clarity Project – ASB Convergence with international Reliability Project (comps & reviews) DOL 403 (b) Plans Internal Control – COSO Fin 48 effective 2009 Form 990 Changes Fraud & Forensic SAS 99

46. Fraud Madoff scandal has created a major focus on fraud Extra attention to identifying fraud opportunities during the planning phase of an engagement Robust SAS 99 work is required Professional skepticism Meaningful brainstorming sessions No “checklist” mentality

47. “No man’s life, liberty, or happiness are safe when the legislature is in session” – Mark Twain Section 7216 Circular 230/Section 6694 Proposed regulation/registration of tax return preparers SSTS exposure draft Tax strategy patents legislation Latest developments on e- filing Extended due dates for returns Proposed Consumer Financial Protection Agency legislation Cell phone developments Trust fee deductibility Estate tax developments FTC red flags

48. Maryland Tax Preparer LawThreats to your CPA License Well intentioned consumer group Solving a problem – low income tax frauds But…creating problems for CPAS Licensed / Certified Tax Preparers would be confusing to the public Tax Preparer Exam using ACAT designation (ATA, ATP) opens door for second tier license Misinformation / confusion

49. Licensed / Certified Tax Preparer?

50. Maryland Individual Tax Preparers Act Requires registration and examination of all tax preparers Registered Tax Preparers (cannot use terms licensed or certified) CPAs and staff are exempt (along with other Circ 230 Practitioners) Out-of-state CPAs exempt Independent Regulatory Exam required Safe Harbor disclosure required “I am not a CPA” MACPA seat on State Board

51. CPA Mobility Legislative Activity 2009 45 States in 2 years! WA VT ME MT ND MN OR NH ID WI SD MA NY WY MI RI CT IA PA NE NV NJ UT OH DE IN IL WV CO CA VA MD KS MO KY DC NC AZ TN OK AR SC NM MS AL GA AK TX LA PR HI FL GU V 2009 -2010 Anticipated Legislative Activity Mobility Enacted - 45 Legislation Introduced - 1 No Formal Activity Mobility Enacted Only for Other Mobility States -2 (GA PA) AICPA March 2009

53. Maryland Individual Tax Preparer Act

54. New Corporate Reporting Requirements

55. Peer Review Requirement – October 1st

56. New CPA Exam Requirements

57. New CPE regulations

58. Mandatory e-file

59. New Non-Profit Audit Requirements > $500,000CPA Day in Annapolis January 20, 2010

60. Mandated Electronic Filing of Personal Income Tax Returns (SB 96 / HB 810) 2009 Returns – if the preparer files more than 300 returns 2010 Returns – if the preparer files more than 200 returns 2011 Returns – if the preparer files more than 100 returns Comptroller may grant hardship exemption Penalties for noncompliance - $50 each return, $500 max Taxpayer may opt out

61. Improving Your Infrastructure The CPA License The AICPA & your State CPA Society

62. CPE New approved fields of study CPE = CPE Changes in rules for accounting educators Effective May 18, 2009

64. Right to Sole Control over an Area of PracticeMax Teichman, Frank Blacklock & William Rogers GOALS/ RESULTS AG opinion of 1981 Grants rights to non-CPAs for Reviews & Comps. SB 560 Defeated Maryland Corporate Accountability Act MACPA requests reversal of AG Opinion – “This is not an audit” language added HB 1296 Mobility Passes • CPA Bill signed April 10, 1900 • MD is 3rd state (NY & PA) MACPA wins use of “consultants” in firm letterhead at State Board PROJECTS/ STRATEGIES Maryland Special Session Oct – Nov 07 State Board of Accountancy formed Accounting Reform task Force addresses SOX Maryland becomes the 1st state to restrict practice for CPAs MACPA defeats Sales Tax on Services KEY EVENTS HB 1261 re-writes CPA Law - 1986 State Board Hearing May 1, 2003 Amends Corporate Tax Reporting Bill from special session UAA MACPA passes non-CPA Ownership MACPA amendments to ed requirements fail PEOPLE MACPA Forms Task Force and surveys members 88% Sub Equivalency 76% Peer Review & Safe Harbor 68% Non-CPA Ownership New simpler CPA exam Education Rules State Board passes qualify Peer Review for CPE credit Terry Hancock chairs Legislative Committee Larry Kamanitz chairs Legislative Committee PRODUCTS/ SERVICES/ SITES Dawson Grove chairs Legislative Committee Allen Deleon chairs Legislative Committee Gov. John Smith signs CPA Bill April 10, 1900 Quality Review Legislation fails MACPA first attempt to rights to audit MACPA Passes Mandatory CPE Bill 150 Hours Ed Requirement passes Effective date is January 1, 1999 MACPA Founded 1901 LEARNING MACPA passes 1924 Law UAA MACPA passes 1 yr Experience Requirement HB 1223 Mandatory Peer Review Computerized CPA exam Separate Fund Bill passed Dateline 1900 1987 1974 1976 1901 1922 1924 1981 2005 1993 2006 2003 2007 2008 2001 1999 Maryland Association of CPAs

65. Sales Tax

67. 150 hours required for licensure

68. Five – Six years to complete

70. IFRS – International Financial Reporting Standards Not if but when… Goodbye GAAP? Think about this – If SEC timeline is 2014 – what year do you have to convert to show three years of comparable f/s?

71. SEC Roadmap released

72. Corporate Conversion Timeline

73. Convergence ≠ Sameness US GAAP Rules based Based on a GAAP hierarchy (level A – D) Primary accounting standard setting body is the FASB Accounting guidance and interpretation is provided by FASB, SEC, AICPA and EITF IFRS Principles based No hierarchy, consists of IASs, IFRSs & interpretations Standards and interpretations approved by the IASB Interpretations of IFRIC and its predecessor the SIC 25,000 pages vs 2,000 pages

74. IASB/FASB Convergence Hope to complete convergence by 2011 Outstanding Issues: Revenue recognition Financial statement presentation Leases Financial instruments Liabilities and equity distinctions Consolidations Derecognition Post-employment benefits 60

75. IFRS Readiness Survey: March 2009 Organizations have made little progress toward preparing for adoption of IFRS Currently most members do not believe the benefits of IFRS outweigh the costs Members working for foreign-owned companies are the exception Members favor a delay in the currently proposed SEC timeline Again, members working for foreign-owned companies are the exception 61

76. Internationalizing the CPA Exam Expanding locations for U.S. CPA Exam outside of U.S. Application, security & licensure emphasis will model U.S. requirements Next Steps NASBA consensus Parallel implementation planning Contract/Plan approval targeted for August Launch targeted for mid-2010 62

78. Potential Versions of Private Company IFRS

79. Workforce / Pipeline

80. Pipeline - Good News 20% avg increase in Graduates & enrollments!

81. Four Generations in the Workplace Issue: Generational Differences Matures 64 - 100 Boomers 45 - 63 Gen X 29 - 44 Millennials 10 - 28 Which one are you?

82. Staff Shortage + Four Generations in workplace = Trouble! Staff Shortage

83. 'The bottom line is this: if you understand the Net Generation, you will understand the future.' And as my son often reminds me, the future is now." The New York Times, Book Review, Sunday, December 21, 2008

84. A Vision of Students Today

85. 8 Norms of the Net Gen Freedom of Choice Customization Scrutiny Integrity Collaboration Entertainment Innovation Speed

87. Deloitte’s Global Workforce Advice • Long-term career development and multiple experiences within a single organization • Sense of purpose and meaning in work • Availability and access to mentors across the company. (The focus should not only be on making senior staff mentor younger associates, but also ensuring that people connect and share experiences across all levels of the organization, and across relevant departments and areas of expertise.) • Work-life flexibility • Tech-savvy work environment (for example, access to online problem-solving and learning tools) • Open social networks that embrace open and honest communication Source Deloitte Global Manufacturing survey

88. Biggest Issue Facing NYPNs Bridging the Gap between college & real world Under-Developed Skill Sets Leadership & Communication Time Management & Organization Conflict Management Supervisory Skills Work-Life Balance Limited Networking Opportunities Intimidation CPA Exam Lack of a Voice in Profession

89. Overcoming Downturn-Related Talent Challenges Reassessing business objectives in light of changing market conditions Implementing changes to existing organization models --- and then finding people with the right knowledge & skills Recalibrating headcount while focusing on the pivotal talent needed to achieve business objectives Understanding how the external talent market has & will continue to change 75

90. Are You Asking The Right Questions About Your Talent? Have we aligned our talent priorities to our business objectives? Have we validated our talent priorities? Do we have consensus on the 5 most pivotal positions in each critical area of the business? Do we have an accurate perspective about the competence of our current workforce when measured against business objectives? 76

91. Are You Asking The Right Questions About Your Talent? How much do we really know about the fast-changing external talent marketplace? Are our talent requirements tailored to the values & expectations of our pivotal talent? Do we know what return we’re getting on our investment in talent? 77

92. Motivating Your Staff in a Recession

93. Technology

94. Information Security Management Privacy Management Secure Data File Storage, Transmission and Exchange Business Process Improvement / Work Flow Mobile & Remote Computing Training & Competency Identity & Access Management Improved Application & Integration Document, Forms, Content & Knowledge Management Electronic Data Retention Strategy

95. Transparency Now! – A Wired Manifesto www.xbrl.org Source: Wired magazine 17.03 March, 2009

97. Technology & Web 2.0 By 2010, Millenials/Gen Y-erswill outnumber Baby Boomers.

98. Social Media

99. Name three “change the world” events where social media made a difference?

100. The New Math Social Networking (Old) Social Media (New) A change in the way we build relationships + = Source: Matt Goddard, CEO R2integrated

101. Old School vs. New School Chamber of Commerce Class Reunions Friends and Family E-mail Industry Meetings Newsletters

102. This is a Social Network

104. and the Network Effect… Metcalf’s Law "states that the economic value of a network increases like the square of the number of its nodes, or the law of increasing returns. Usually, when people share a piece of equipment, the return diminishes. When more people are engaged in the network, more value is returned to the user."

105. It’s all about your Whuffie Whuffie is the culmination of your reputation, influence, bridging and bonding capital, current and potential access to ideas, talent and resources, saved-up favors, and accomplishments. - Tara Hunt “The Whuffie Factor”

106. Five Learning Trends for 2009 Mobile Learning DIY - Do-it-Yourself Learning Flexible Learning Environments Virtual Worlds Games & Simulation Chief Learning Officer Magazine – January 2009

107. FASB is there!

108. Accounting Educators in Second Life Dr. Mike Kraten Suffolk University Dr. Robert Bloomfield Cornell University Dr. Steve Hornik University of Central Florida

109. Tools Social Networking Blogs / Wikis Microblogs Video & Content Sharing Second Life

110. More ways to CONNECT with MACPA Linked-In – MACPA Group Facebook – NYPN Group MACPA on Twitter Tom on Twitter Bill on Twitter Youtube videos from MACPA Slideshare Visit us in Second Life

111. Issues Facing CPA firms

112. Say what? “An increase of larger firms will result from an increase in mergers. Accounting firms will look more like law firms in terms of size.” -Marc Rosenberg “There will be more large firms.” – Marc Rosenberg “Mergers and acquisitions will increase.” – Jeff Pawlow, The Growth Partnership IPA Consultant Predictions – Jan, 2006 47,000 to 40,000

113. PCPS/TSCPA MAP Survey 2009Top Five Issues Facing Firms 21+ Client Retention Partner Accountability Succession Planning Marketing / Practice Growth Retaining Qualified Staff

114. Provided by the Business Learning Institute © PCPS/TSCPA MAP Survey 2008Top Five Issues Facing Firms

115. 2009 Top Issues – 21+ Professionals

116. Top 20 Reasons to Stay with a Firm 4 out of top 5 13 out of 20 Have nothing to do with $$$ and everything to do with culture!

117. Provided by the Business Learning Institute © To put it another way – firms are under investing significantly in the things that really make a difference.

118. Characteristics of Over-Achieving Firms Provided by the Business Learning Institute © Outstanding Vision, Leadership / Management Common Focus / Culture Specialized Sustainable Performance Discipline High Leverage of Highly trained staff

119. 7 Keys to Success in CPA Firm Management Leadership Technology Learning Organization Marketing & Business Development A great Place to Work Client Service & Satisfaction Strategy Execution 105 Source: Rick Telberg – Bay Street Group

120. CPAs in Business, Industry, Government & NFP

121. The Year of the CFO As financial skills are valued more highly, CFOs will make it to the corner office in greater numbers than before. Recession, credit crunch and the increasingly complex nature of global companies will all play directly into the bean counter’s hands. Source: The Economist Magazine The World in 2009 Nov, 2008

122. CFO WorriesCFO Magazine/Duke Global Business Outlook Survey – December 2008 Consumer demand Credit markets & interest rates Housing market fallout New administration & Congress Financial regulation Volatility of the dollar Cost of nonfuel commodities Cost of fuel Foreign competition Environmental regulation Top Concerns About the Macro Economy

123. CFO WorriesCFO Magazine/Duke Global Business Outlook Survey – December 2008 Ability to forecast results Maintaining morale/productivity during the downturn Balance sheet weakness Cost of health care Attracting & retaining qualified employees Supply-chain risk Managing IT systems Pension obligations Protection of intellectual property Data security Top Concerns About Their Own Companies

124. A Hard Job in Hard Times “Doing more with less has been the mantra of the last half-dozen years.” VP of Finance “Quite simply, we are being required to do more with less resources.” Director of Tax

125. Getting the Most from Finance Talent 84% say keeping their staff engaged & motivated will be important 80% say managing staff workload & managing their own workload will be important 31% expect to spend less time on finance & staffing development – an activity critical for building a strong & value-added finance function Influenced by those expecting to move within 2 years 75% or respondents said the financial crisis & economic turmoil have changed their on-the-job responsibilities 111

126. Which of the following external factors have had the greatest impact on your company’s function within the past year? Percentage of respondents Note: Percentages may not total 100%, due to rounding. Note: Respondents were asked to select their top three choices.

127. Compared with the previous year, which activities do you expect your finance staff to devote more time to over the next 12 months? Which activities will your staff spend less time on?

128. What do you expect you will have to do within the next 5 years to pursue your career goals?

129. What challenges do you expect will impact your career the most over the next 12 months?

130. IFRS Opportunity? – Meet Joe Box, CPA - CFO of Joe Money Machinery “Well, the IASB is coming out with a simplified version for private companies. With IFRS, you mark-to-market more assets. We're a 72-year-old company that has real estate on our books at historical cost, so there could be a big benefit in IFRS based on the substantially higher fair market value for that property. Any private-company CFO should be knowledgeable about it, to determine whether to consider adoption.” “But even more importantly, it has been my objective that our key bankers consider me knowledgeable in the issues important to their commercial portfolio. XBRL is another one.”

131. CFO Opportunities Business process efficiency – LEAN Cash flow & Financing Risk Management Budget Scenarios Young Professionals – reverse mentoring IFRS & XBRL Sustainability Reporting

132. Image of the CPA

133. The future success of the CPA profession relies a great deal upon public perception of CPAs' abilities & roles - CPA Vision Project

134. Image is better than pre-Enron highs

135. Attitudes toward CPA Credential More confident in a job done by a CPA than if it were done by an accountant not a CPA. Accountants certified by non-U.S. organizations, such as the Association of Chartered Certified Accountants (ACCA), are just as qualified as CPAs. CPA requires more rigorous training and testing than any other financial credential. 121

137. Physicians Certified Public Accountants (CPAs) Financialplanners Taxadvisors Attorneys Chief Executive Officers (CEOs) Chief Financial Officers (CFOs) Commercial bankers Accountants who are not CPAs Insurance agents Investment bankers Auditors Management consultants Stock brokers Mortgage brokers Hedge fund managers Overall Evaluation of Professionals Among Investors 123

138. ...And Business Decision Makers physicians Certified Public Accountants (CPAs) Chief Executive Officers (CEOs) Chief Financial Officers (CFOs) Tax advisors Financial planners Attorneys Accountants who are not CPAs Auditors Commercial bankers Investment bankers Management consultants Insurance agents Stock brokers Mortgage brokers Hedge fund managers 124

139. BDM & Investor Data ConfirmQualitative Findings CPA Attribute Ratings 125

140. ...As Do CPA & Young Professional Data CPA Attribute Ratings 126

141. + Importance of attribute when evaluating business professional - How well attribute describes CPAs + − CPAs Strongest on The Two Most Important Attributes High Importance/ Low Descriptiveness High Importance/ High Descriptiveness Low Importance/ Low Descriptiveness Low Importance/ High Descriptiveness 127

142. Investor Satisfaction with CPAs Is High Satisfaction with CPA(s) 94% 128

144. “CPAs are not trying to finesse the numbers, they are interested in painting the most accurate picture they can with the information they have.” – Institutional Investor

145. “I associate CPAs with a high standard of ethics. There’s a certain love of a kind of order.” – Senior SEC Official

146. “CPAs are the financial experts needed to put their stamp on the financial statements that allow the capital markets to work.” – Senior IRS Official129

147. Perceptions of CPAs Largely Consistent Across All Audiences Rank

148. “CPAs ARE the DISCIPLINE in business!”Jim Collins

149. Dealing with Change Change is the law of life. Those who look only to the past or present are certain to miss the future." - John F. Kennedy

150. Q: What is the # 1 Issue facing all CPAs: A: Keeping up with changing standards & regulations “As it relates to science and technology, the rate of change in the next decade, is likely to be 4 to7 times faster than in the last decade. If it is 4x faster it would be like planning for 2006 in 1890, if it is 7x faster it would be like planning for 2006 in 1670.” -Expert on Education Panel, The Aspen Institute, 2007

151. Dealing with Change

154. CPA Competencies Needed 2008 – Deloitte Research 1998 – CPA Vision Project Change Management (C) Strategic Ability (S) Critical Thinking (S) Business Perspective (C) Organizational Agility (C) Dealing with Ambiguity (S) Communication & Leadership Strategic & Critical Thinking Focus on the Customer, Client, and Market Interpretation of Converging Information Technologically adept C – Catalyst S - Strategist

155. What do CPA Leaders look like?

156. CPA Professional 2.0 Learning & staying on the cutting edge Managing my career Doing my work Interacting with peers Becoming a leader in my field

157. MAP it! think, plan, act, learn…

158. CPA templates to help you with... 24

159. synthesize information

160. manage processes

161. communicate effectively

162. You cannot stay on the summit forever; you have to come down again. So why bother in the first place? Just this: What is above knows what is below, but what is below does not know what is above. One climbs, one sees. One descends, one sees no longer, but one has seen. There is an art of conducting oneself in the lower regions by the memory of what one saw higher up. When one can no longer see, one can at least still know. -Rene' Daumal

164. Create your future!

165. Connect – Protect - Achieve “Association members earn, on average, $10,000 more per year than non-members” And “are 19% more likely to say they are “very-satisfied” with their jobs than non-members” Where the Winners Meet Study by the William E. Smith Institute for Association Research

166. Tom Hood, CPA.CITP CEO Maryland Association of CPAs Business Learning Institute (443) 632-2301 E-mail tom@macpa.org